As filed with the Securities and
Exchange Commission on January 13, 2011
Registration
No. 333-[________]
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HALLMARK
FINANCIAL SERVICES, INC.
(Exact
name of registrant as specified in its charter)
|
Nevada
(State
or other jurisdiction of
incorporation
or organization)
|
|
87-0447375
(I.R.S.
Employer
Identification
Number)
|
777
Main Street
Suite
1000
Fort
Worth, Texas 76102
(817)
348-1600
(Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
Mark
J. Morrison
President
and Chief Executive Officer
Hallmark
Financial Services, Inc.
777
Main Street
Suite
1000
Fort
Worth, Texas 76102
(817)
348-1600
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies
to:
Steven
D. Davidson
McGuire,
Craddock & Strother, P.C.
2501
N. Harwood
Suite
1800
Dallas,
Texas 75201
(214)
954-6800
Approximate
date of commencement of proposed sale to the public:
From time
to time after the effective date of this registration statement.
If the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box. ¨
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. ¨
If this Form is a post-effective
amendment to a registration statement pursuant to General Instruction I.D. filed
to register additional securities or additional classes of securities pursuant
to Rule 413(b) under the Securities Act, check the following
box. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “larger accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨ (Do
not check if a smaller reporting company)
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Smaller
reporting company x
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CALCULATION
OF REGISTRATION FEE
|
Title of Each Class of
Securities to be Registered
|
|
Amount to be
Registered
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|
|
Proposed
Maximum
Offering
Price Per Unit
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|
|
Proposed
Maximum
Aggregate
Offering
Price
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|
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Amount of
Registration
Fee
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|
|
Common
Stock, $0.18 par value per share
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|
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3,274,830 |
(1)
|
|
$ |
9.05 |
(2)
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|
$ |
29,637,212 |
(2)
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$ |
3,441 |
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(1)
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Pursuant
to Rule 416 under the Securities Act of 1933, as amended, the shares of
common stock registered for resale by the selling stockholders also
include such indeterminate number of shares of common stock as may be
issued from time to time with respect to shares being registered hereunder
as a result of stock splits, stock dividends or similar
transactions.
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|
(2)
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Estimated
solely for the purpose of calculating the registration fee in accordance
with Rule 457 under the Securities Act of 1933, as amended, based on the
per share average of the high and low reported prices for the common stock
on the Nasdaq Global Market as of January 10,
2011.
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The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be
changed. The securities described herein may not be sold until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED JANUARY 13, 2011
PROSPECTUS
Hallmark
Financial Services, Inc.
3,274,830
Shares of Common Stock
Offered
by Selling Stockholders
The
selling stockholders identified in this prospectus may offer and sell up to
3,274,830 shares of our common stock from time to time under this prospectus and
any prospectus supplement. The selling stockholders may offer and
sell such shares to or through one or more underwriters, dealers and agents, or
directly to purchasers, on a continuous or delayed basis. We will not
receive any of the proceeds from the sale of our common stock by the selling
stockholders. See “Selling Stockholders” and “Plan of
Distribution.”
Shares of
our common stock are traded on the Nasdaq Global Market under the symbol
“HALL.”
Our
principal executive offices are located at 777 Main Street, Suite 1000, Fort
Worth, Texas 76102, and our telephone number is (817) 348-1600.
AN
INVESTMENT IN OUR COMMON STOCK INVOLVES RISK. YOU SHOULD CAREFULLY CONSIDER THE
INFORMATION UNDER THE HEADING “RISK FACTORS” COMMENCING ON PAGE 3 OF THIS
PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date
of this prospectus is [_______________], 2011.
ABOUT
THIS PROSPECTUS
This prospectus is part of a
registration statement that we filed with the Securities and Exchange Commission
(“SEC”) pursuant to which the selling stockholders may, from time to time, sell
up to 3,274,830 shares of our common stock. This prospectus provides a general
description of our common stock. We may provide a prospectus supplement that
adds to, updates or changes the information contained in this prospectus. You
should carefully read this prospectus and any prospectus supplement, as well as
the information incorporated in this prospectus by reference. See,
“Information Incorporated by Reference.” Any information in any
prospectus supplement or any subsequent material incorporated herein by
reference will supersede the information in this prospectus or any earlier
prospectus supplement.
Unless the context requires otherwise,
in this prospectus the term “Hallmark” refers solely to Hallmark Financial
Services, Inc. and the terms “we,” “our,” “our company” and “us” refer to
Hallmark and its subsidiaries.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus summary
and the materials incorporated herein by reference contain certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, which are intended to be covered by the safe
harbors created thereby. Forward-looking statements include
statements which are predictive in nature, which depend upon or refer to future
events or conditions, or which include words such as “expect,” “anticipate,”
“intend,” “plan,” “believe,” “estimate” or similar expressions. These
statements include the plans and objectives of management for future operations,
including plans and objectives relating to future growth of our business
activities and availability of funds. Statements regarding the
following subjects are forward-looking by their nature:
· our
business and growth strategies;
· our
performance goals;
· our
projected financial condition and operating results;
· our
understanding of our competition;
· industry
and market trends;
· the
impact of technology on our products, operations and business; and
· any
other statements or assumptions that are not historical facts.
The forward-looking statements included
in this prospectus, any prospectus summary and the materials incorporated herein
by reference are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to these forward-looking
statements involve judgments with respect to, among other things, future
economic, competitive and market conditions, regulatory framework,
weather-related events and future business decisions, all of which are difficult
or impossible to predict accurately and many of which are beyond our
control. Although we believe that the assumptions underlying these
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this prospectus will prove to be accurate. In
light of the significant uncertainties inherent in these forward-looking
statements, the inclusion of such information should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved.
COMPANY
OVERVIEW
We are a
diversified property/casualty insurance group that serves businesses and
individuals in specialty and niche markets. We offer standard
commercial insurance, specialty commercial insurance and personal insurance in
selected market subcategories that are characteristically low-severity and
short-tailed risks. We focus on marketing, distributing, underwriting
and servicing property/casualty insurance products that require specialized
underwriting expertise or market knowledge. We believe this approach
provides us the best opportunity to achieve favorable policy terms and
pricing. The insurance policies we produce are written by our five
insurance company subsidiaries as well as unaffiliated insurers.
We
market, distribute, underwrite and service our property/casualty insurance
products through five business units, each of which has a specific focus. Our
Standard Commercial business unit primarily handles standard commercial
insurance, our E&S Commercial business unit concentrates on excess and
surplus lines commercial insurance, our General Aviation business unit
specializes in general aviation insurance, our Excess & Umbrella business
unit handles excess commercial automobile and commercial umbrella risks on both
an admitted and non-admitted basis, and our Personal Lines business unit focuses
on non-standard personal automobile insurance and complementary personal
insurance products and services. Our business is geographically
concentrated in the southcentral and northwest regions of the United States,
except for our General Aviation and Excess & Umbrella business, which is
written on a national basis.
Each
business unit has its own management team with significant experience in
distributing products to its target markets and proven success in achieving
underwriting profitability and providing efficient claims
management. Each business unit is responsible for marketing,
distribution, underwriting and claims management while we provide capital
management, reinsurance, actuarial, investment, financial reporting, technology
and legal services and back office support at the corporate
level. We believe this approach optimizes our operating results
by allowing us to effectively penetrate our selected specialty and niche markets
while maintaining operational controls, managing risks, controlling overhead and
efficiently allocating our capital across operating units.
The
retained premium produced by our operating units is supported by our insurance
company subsidiaries, which are American Hallmark Insurance Company of Texas
(“AHIC”), Hallmark Insurance Company (“HIC”), Hallmark Specialty Insurance
Company (“HSIC”), Hallmark County Mutual Insurance Company “HCM”) and State Auto
National Insurance Company (for which regulatory approval is pending to be
renamed Hallmark National Insurance Company) (“HNIC”). AHIC, HIC, and HSIC have
entered into a pooling arrangement, pursuant to which AHIC retains 46.0% of the
net premiums written, HIC retains 34.1% of the net premiums written and HSIC
retains 19.9% of the net premiums written. A.M. Best Company (“A.M.
Best”), a nationally recognized insurance industry rating service and publisher,
has pooled its ratings of these three insurance company subsidiaries and
assigned a financial strength rating of “A–” (Excellent) and an issuer credit
rating of “a-” to each of these individual insurance company subsidiaries and to
the pool formed by these three insurance company subsidiaries. Also,
A.M. Best has assigned a financial strength rating of “A–” (Excellent) and an
issuer credit rating of “a-” to each of HCM and HNIC.
RISK
FACTORS
Investing in our common stock involves
a number of risks. Before you decide to buy shares of our common stock, you
should carefully consider the risk factors set forth below, in any applicable
prospectus supplement and in the materials incorporated by reference
herein. See, “Information Incorporated by
Reference.” Risks and uncertainties not presently known to us or that
we currently deem immaterial may also affect our business
operations.
Our
success depends on our ability to price accurately the risks we
underwrite.
Our results of operations and financial
condition depend on our ability to underwrite and set premium rates accurately
for a wide variety of risks. Adequate rates are necessary to generate premiums
sufficient to pay losses, loss settlement expenses and underwriting expenses and
to earn a profit. To price our products accurately, we must collect and properly
analyze a substantial amount of data; develop, test and apply appropriate
pricing techniques; closely monitor and timely recognize changes in trends; and
project both severity and frequency of losses with reasonable accuracy. Our
ability to undertake these efforts successfully, and as a result price our
products accurately, is subject to a number of risks and uncertainties, some of
which are outside our control, including:
· the
availability of sufficient reliable data and our ability to properly analyze
available data;
· the
uncertainties that inherently characterize estimates and
assumptions;
· our
selection and application of appropriate pricing techniques; and
· changes
in applicable legal liability standards and in the civil litigation system
generally.
Consequently,
we could underprice risks, which would adversely affect our profit margins, or
we could overprice risks, which could reduce our sales volume and
competitiveness. In either case, our profitability could be materially and
adversely affected.
Our
results may fluctuate as a result of cyclical changes in the property/casualty
insurance industry.
Our revenue is primarily attributable
to property/casualty insurance, which as an industry is cyclical in nature and
has historically been characterized by soft markets followed by hard
markets. A soft market is a period of relatively high levels of price
competition, less restrictive underwriting standards and generally low premium
rates. A hard market is a period of capital shortages resulting in lack of
insurance availability, relatively low levels of competition, more selective
underwriting of risks and relatively high premium rates. If we find it necessary
to reduce premiums or limit premium increases due to competitive pressures on
pricing in a softening market, we may experience a reduction in our premiums
written and in our profit margins and revenues, which could adversely affect our
financial results.
Estimating
reserves is inherently uncertain. If our loss reserves are not
adequate, it will have an unfavorable impact on our results.
We maintain loss reserves to cover our
estimated ultimate liability for unpaid losses and loss adjustment expenses for
reported and unreported claims incurred as of the end of each accounting period.
Reserves represent management’s estimates of what the ultimate settlement and
administration of claims will cost and are not reviewed by an independent
actuary. These estimates, which generally involve actuarial projections, are
based on management’s assessment of facts and circumstances then known, as well
as estimates of future trends in claim severity and frequency, judicial theories
of liability, and other factors. These variables are affected by both internal
and external events, such as changes in claims handling procedures, inflation,
judicial trends and legislative changes. Many of these factors are not
quantifiable. Additionally, there may be a significant lag between the
occurrence of an event and the time it is reported to us. The inherent
uncertainties of estimating reserves are greater for certain types of
liabilities, particularly those in which the various considerations affecting
the type of claim are subject to change and in which long periods of time may
elapse before a definitive determination of liability is made. Reserve estimates
are continually refined in a regular and ongoing process as experience develops
and further claims are reported and settled. Adjustments to reserves are
reflected in the results of the periods in which such estimates are changed.
Because setting reserves is inherently uncertain, there can be no assurance that
the current reserves will prove adequate.
Our
failure to maintain favorable financial strength ratings could negatively impact
our ability to compete successfully.
Third-party rating agencies assess and
rate the claims-paying ability of insurers based upon criteria established by
the agencies. These financial strength ratings are used by
policyholders, insurers, reinsurers and insurance and reinsurance intermediaries
as an important means of assessing the financial strength and quality of
insurers. These ratings are not evaluations directed to potential purchasers of
our common stock and are not recommendations to buy, sell or hold our common
stock. Ratings are subject to change at any time and can be revised downward or
revoked at the sole discretion of the rating agencies.
We believe that the ratings assigned to
our insurance subsidiaries by A.M. Best are an important factor in marketing our
products. Our ability to retain our existing business and to attract new
business in our insurance operations depends largely on these ratings. Our
failure to maintain our ratings, or any other adverse development with respect
to our ratings, could cause our current and future independent agents and
insureds to choose to transact their business with more highly rated
competitors. If A.M. Best downgrades our ratings or publicly indicates that our
ratings are under review, it is likely that we would not be able to compete as
effectively with our competitors, and our ability to sell insurance policies
could decline. If that happens, our sales and earnings would
decrease. For example, many of our agencies and insureds have
guidelines that require us to have an A.M. Best financial strength rating of
“A-” (Excellent) or higher. A reduction of our A.M. Best rating below “A-” would
prevent us from issuing policies to insureds or potential insureds with such
ratings requirements. Because lenders and reinsurers will use our
A.M. Best ratings as a factor in deciding whether to transact business with us,
the failure of our insurance company subsidiaries to maintain their current
ratings could dissuade a lender or reinsurance company from conducting business
with us or might increase our interest or reinsurance costs. In addition, a ratings
downgrade by A.M. Best below “A-” would require us to post collateral in support
of our obligations under certain of our reinsurance agreements pursuant to which
we assume business.
The
loss of key executives could disrupt our business.
Our success will depend in part upon
the continued service of certain key executives. Our success will
also depend on our ability to attract and retain additional executives and
personnel. We do not have employment agreements with our Chief
Executive Officer or any of our executive officers. The loss of key personnel,
or our inability to recruit and retain additional qualified personnel, could
cause disruption in our business and could prevent us from fully implementing
our business strategies, which could materially and adversely affect our
business, growth and profitability.
Our
industry is very competitive, which may unfavorably impact our results of
operations.
The property/casualty
insurance market, our primary source of revenue, is highly competitive and,
except for regulatory considerations, has very few barriers to
entry. According to A.M. Best, there were 3,305 property/casualty
insurance companies and 2,091 property/casualty insurance groups operating in
North America as of July 16, 2010. Our Standard Commercial
business unit competes with a variety of large national standard commercial
lines carriers such as The Hartford, Travelers, Cincinnati Financial Corporation
and Liberty Mutual, as well as numerous smaller regional
companies. The primary competition for our E&S Commercial
business unit includes such carriers as Dallas National Insurance Company,
Atlantic Casualty Insurance Company, Colony Insurance Company, Burlington
Insurance Company, Markel, Travelers, The Hartford, Great West Casualty Company,
Sentry Insurance and QBE Insurance Group. Our General Aviation
business unit considers its primary competitors to be Houston Casualty Corp.,
Phoenix Aviation, W. Brown & Company, AIG, Allianz Aviation Managers and
Starr Aviation. The primary competitors of our Excess & Umbrella
business unit include Lexington Insurance Company, First Mercury Insurance
Company, Axis Insurance Company, Gemini Insurance Company and, to a lesser
extent, a number of national standard lines carriers such as Travelers and
Liberty Mutual. Although our Personal lines business unit competes
with large national insurers such as Allstate, State Farm and Progressive, as a
participant in the non-standard personal automobile marketplace its competition
is most directly associated with numerous regional companies and managing
general agencies. Our competitors include
entities which have, or are affiliated with entities which have, greater
financial and other resources than we have. In addition, competitors may attempt
to increase market share by lowering rates. In that case, we could experience
reductions in our underwriting margins, or sales of our insurance policies could
decline as customers purchase lower-priced products from our competitors. Losing
business to competitors offering similar products at lower prices, or having
other competitive advantages, could adversely affect our results of
operations.
Our
results may be unfavorably impacted if we are unable to obtain adequate
reinsurance.
As part of our overall risk and
capacity management strategy, we purchase reinsurance for significant amounts of
risk, especially catastrophe risks that we and our insurance company
subsidiaries underwrite. Our catastrophe and non-catastrophe reinsurance
facilities are generally subject to annual renewal. We may be unable to maintain
our current reinsurance facilities or to obtain other reinsurance facilities in
adequate amounts and at favorable rates. The amount, availability and cost of
reinsurance are subject to prevailing market conditions beyond our control, and
may affect our ability to write additional premiums as well as our
profitability. If we are unable to obtain adequate reinsurance protection for
the risks we have underwritten, we will either be exposed to greater losses from
these risks or we will reduce the level of business that we underwrite, which
will reduce our revenue.
If
the companies that provide our reinsurance do not pay our claims in a timely
manner, we could incur severe losses.
We purchase reinsurance by
transferring, or ceding, part of the risk we have assumed to a reinsurance
company in exchange for part of the premium we receive in connection with the
risk. Although reinsurance makes the reinsurer liable to us to the extent the
risk is transferred or ceded to the reinsurer, it does not relieve us of our
liability to our policyholders. Accordingly, we bear credit risk with respect to
our reinsurers. We cannot assure that our reinsurers will pay all of our
reinsurance claims, or that they will pay our claims on a timely basis. If any
of our reinsurers are unable or unwilling to pay amounts they owe us in a timely
fashion, we could suffer a significant loss or a shortage of liquidity, which
would have a material adverse effect on our business and results of
operations.
Catastrophic
losses are unpredictable and may adversely affect our results of operations,
liquidity and financial condition.
Property/casualty insurance companies
are subject to claims arising out of catastrophes that may have a significant
effect on their results of operations, liquidity and financial condition.
Catastrophes can be caused by various events, including hurricanes, windstorms,
earthquakes, hail storms, explosions, severe winter weather and fires, and may
include man-made events, such as terrorist attacks. The incidence, frequency,
and severity of catastrophes are inherently unpredictable. The extent of losses
from a catastrophe is a function of both the total amount of insured exposure in
the area affected by the event and the severity of the event. Claims from
catastrophic events could reduce our net income, cause substantial volatility in
our financial results for any fiscal quarter or year or otherwise adversely
affect our financial condition, liquidity or results of operations. Catastrophes
may also negatively affect our ability to write new business. Increases in the
value and geographic concentration of insured property and the effects of
inflation could increase the severity of claims from catastrophic events in the
future.
Catastrophe
models may not accurately predict future losses.
Along with other insurers in the
industry, we use models developed by third-party vendors in assessing our
exposure to catastrophe losses that assume various conditions and probability
scenarios. However, these models do not necessarily accurately
predict future losses or accurately measure losses currently incurred.
Catastrophe models, which have been evolving since the early 1990’s, use
historical information about various catastrophes and detailed information about
our in-force business. While we use this information in connection with our
pricing and risk management activities, there are limitations with respect to
their usefulness in predicting losses in any reporting period. Examples of these
limitations are significant variations in estimates between models and modelers
and material increases and decreases in model results due to changes and
refinements of the underlying data elements and assumptions. Such limitations
lead to questionable predictive capability and post-event measurements that have
not been well understood or proven to be sufficiently reliable. In addition, the
models are not necessarily reflective of company or state-specific policy
language, demand surge for labor and materials or loss settlement expenses, all
of which are subject to wide variation by catastrophe. Because the occurrence
and severity of catastrophes are inherently unpredictable and may vary
significantly from year to year, historical results of operations may not be
indicative of future results of operations.
We
are subject to comprehensive regulation, and our results may be unfavorably
impacted by these regulations.
We are subject to comprehensive
governmental regulation and supervision. Most insurance regulations are designed
to protect the interests of policyholders rather than of the stockholders and
other investors of the insurance companies. These regulations, generally
administered by the department of insurance in each state in which we do
business, relate to, among other things:
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approval
of policy forms and rates;
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standards
of solvency, including risk-based capital measurements, which are a
measure developed by the National Association of Insurance Commissioners
and used by the state insurance regulators to identify insurance companies
that potentially are inadequately
capitalized;
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licensing
of insurers and their agents;
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restrictions
on the nature, quality and concentration of
investments;
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restrictions
on the ability of insurance company subsidiaries to pay
dividends;
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restrictions
on transactions between insurance company subsidiaries and their
affiliates;
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required
methods of accounting;
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periodic
examinations of operations and
finances;
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the
use of non-public consumer information and related privacy
issues;
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the
use of credit history in underwriting and
rating;
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limitations
on the ability to charge policy
fees;
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the
acquisition or disposition of an insurance company or of any company
controlling an insurance company;
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involuntary
assignments of high-risk policies, participation in reinsurance facilities
and underwriting associations, assessments and other governmental
charges;
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restrictions
on the cancellation or non-renewal of policies and, in certain
jurisdictions, withdrawal from writing certain lines of
business;
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the
prescribed form and content of records of financial condition to be
filed;
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required
reserves for unearned premium, losses and other purposes;
and
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with
respect to premium finance business, the federal Truth-in-Lending Act and
similar state statutes. In states where specific statutes have not been
enacted, premium finance is generally subject to state usury laws that are
applicable to consumer loans.
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State insurance departments also
conduct periodic examinations of the affairs of insurance companies and require
filing of annual and other reports relating to the financial condition of
insurance companies, holding company issues and other matters. Our business
depends on compliance with applicable laws and regulations and our ability to
maintain valid licenses and approvals for our operations. Regulatory authorities
may deny or revoke licenses for various reasons, including violations of
regulations. Changes in the level of regulation of the insurance industry or
changes in laws or regulations themselves or interpretations by regulatory
authorities could have a material adverse affect on our
operations. In addition, we could face individual, group and class
action lawsuits by our policyholders and others for alleged violations of
certain state laws and regulations. Each of these regulatory risks could have an
adverse effect on our profitability.
State
statutes limit the aggregate amount of dividends that our subsidiaries may pay
Hallmark, thereby limiting its funds to pay expenses and dividends.
Hallmark is a holding company and a
legal entity separate and distinct from its subsidiaries. As a
holding company without significant operations of its own, Hallmark’s principal
sources of funds are dividends and other sources of funds from its subsidiaries.
State insurance laws limit the ability of Hallmark’s insurance company
subsidiaries to pay dividends and require our insurance company subsidiaries to
maintain specified minimum levels of statutory capital and surplus. The
aggregate maximum amount of dividends permitted by law to be paid by an
insurance company does not necessarily define an insurance company’s actual
ability to pay dividends. Our actual ability to pay dividends may be
further constrained by business and regulatory considerations, such as the
impact of dividends on surplus, by our competitive position and by the amount of
premiums that we can write. State insurance regulators have broad
discretion to limit the payment of dividends by insurance companies and
Hallmark’s right to participate in any distribution of assets of one of our
insurance company subsidiaries is subject to prior claims of policyholders and
creditors except to the extent that its rights, if any, as a creditor are
recognized. Consequently, Hallmark’s ability to pay debts, expenses and cash
dividends to our stockholders may be limited.
Our
insurance company subsidiaries are subject to minimum capital and surplus
requirements. Failure to meet these requirements could subject us to regulatory
action.
Our insurance company subsidiaries are
subject to minimum capital and surplus requirements imposed under the laws of
their respective states of domicile and each state in which they issue policies.
Any failure by one of our insurance company subsidiaries to meet minimum capital
and surplus requirements imposed by applicable state law will subject it to
corrective action, which may include requiring adoption of a comprehensive
financial plan, revocation of its license to sell insurance products or placing
the subsidiary under state regulatory control. Any new minimum capital and
surplus requirements adopted in the future may require us to increase the
capital and surplus of our insurance company subsidiaries, which we may not be
able to do.
We
are subject to assessments and other surcharges from state guaranty funds,
mandatory reinsurance arrangements and state insurance facilities, which may
reduce our profitability.
Virtually all states require insurers
licensed to do business therein to bear a portion of the unfunded obligations of
impaired or insolvent insurance companies. These obligations are funded by
assessments, which are levied by guaranty associations within the state, up to
prescribed limits, on all member insurers in the state on the basis of the
proportionate share of the premiums written by member insurers in the lines of
business in which the impaired, insolvent or failed insurer was engaged.
Accordingly, the assessments levied on us by the states in which we are licensed
to write insurance may increase as we increase our premiums written. In
addition, as a condition to the ability to conduct business in certain states,
insurance companies are required to participate in mandatory reinsurance funds.
The effect of these assessments and mandatory reinsurance arrangements, or
changes in them, could reduce our profitability in any given period or limit our
ability to grow our business.
We monitor developments with respect to
various state facilities, such as the Texas FAIR Plan and the Texas Windstorm
Insurance Association. The impact of any catastrophe experience on these
facilities could result in the facilities recognizing a financial deficit or a
financial deficit greater than the level currently estimated. They may, in turn,
have the ability to assess participating insurers when financial deficits occur,
adversely affecting our results of operations. While these facilities are
generally designed so that the ultimate cost is borne by policyholders, the
exposure to assessments and the availability of recoupments or premium rate
increases from these facilities may not offset each other in our financial
statements. Moreover, even if they do offset each other, they may not offset
each other in financial statements for the same fiscal period due to the
ultimate timing of the assessments and recoupments or premium rate increases, as
well as the possibility of policies not being renewed in subsequent
years.
Adverse
securities market conditions can have a significant and negative impact on our
investment portfolio.
Our results of operations depend in
part on the performance of our invested assets. A substantial portion
of our investment portfolio is invested in fixed-income
securities. Certain risks are inherent in connection with
fixed-income securities, including loss upon default and price volatility in
reaction to changes in interest rates and general market factors. In
general, the fair market value of a portfolio of fixed-income securities
increases or decreases inversely with changes in the market interest rates,
while net investment income realized from future investments in fixed-income
securities increases or decreases along with interest rates. In
addition, a portion of our fixed-income securities have call or prepayment
options. This subjects us to reinvestment risk should interest rates
fall and issuers call their securities. Furthermore, actual net
investment income and/or cash flows from investments that carry prepayment risk,
such as mortgage-backed and other asset-backed securities, may differ from those
anticipated at the time of investment as a result of interest rate
fluctuations. An investment has prepayment risk when there is a risk
that cash flows from the repayment of principal might occur earlier than
anticipated because of declining interest rates or later than anticipated
because of rising interest rates. Our fixed-income securities are
also subject to credit risk. If any of the issuers of our
fixed-income securities suffer financial setbacks, the ratings on the
fixed-income securities could fall (with a concurrent fall in market value) and,
in a worst case scenario, the issuer could default on its
obligations. Future changes in the fair market value of our
available-for-sale securities will be reflected in other comprehensive
income. Similar treatment is not available for
liabilities. Therefore, interest rate fluctuations could adversely
affect our stockholders’ equity, total comprehensive income and/or our cash
flows.
We
rely on independent agents and specialty brokers to market our products and
their failure to do so would have a material adverse effect on our results of
operations.
We market and distribute our insurance
programs exclusively through independent insurance agents and specialty
insurance brokers. As a result, our business depends in large part on the
marketing efforts of these agents and brokers and on our ability to offer
insurance products and services that meet the requirements of the agents, the
brokers and their customers. However, these agents and brokers are
not obligated to sell or promote our products and many sell or promote
competitors’ insurance products in addition to our products. Some of
our competitors have higher financial strength ratings, offer a larger variety
of products, set lower prices for insurance coverage and/or offer higher
commissions than we do. Therefore, we may not be able to continue to
attract and retain independent agents and brokers to sell our insurance
products. The failure or inability of independent agents and brokers
to market our insurance products successfully could have a material adverse
impact on our business, financial condition and results of
operations.
We
may experience difficulty in integrating future acquisitions into our
operations.
The successful integration of any newly
acquired businesses into our operations will require, among other things, the
retention and assimilation of their key management, sales and other personnel;
the coordination of their lines of insurance products and services; the
adaptation of their technology, information systems and other processes; and the
retention and transition of their customers. Unexpected difficulties
in integrating any acquisition could result in increased expenses and the
diversion of management time and resources. If we do not successfully
integrate any acquired business into our operations, we may not realize the
anticipated benefits of the acquisition, which could have a material adverse
impact on our financial condition and results of operations. Further, any
potential acquisitions may require significant capital outlays and, if we issue
equity or convertible debt securities to pay for an acquisition, the issuance
may be dilutive to our existing stockholders.
Our
geographic concentration ties our performance to the business, economic and
regulatory conditions of certain states.
Except for our General Aviation and
Excess & Umbrella business units, our property/casualty insurance business
is geographically concentrated in the southcentral and northwest regions of the
United States. Our revenues and profitability are subject to the prevailing
regulatory, legal, economic, political, demographic, competitive, weather and
other conditions in the principal states in which we do business. Changes in any
of these conditions could make it less attractive for us to do business in such
states and would have a more pronounced effect on us compared to companies that
are more geographically diversified. In addition, our exposure to severe losses
from localized natural perils, such as windstorms or hailstorms, is increased in
those areas where we have written significant numbers of property/casualty
insurance policies.
The
exclusions and limitations in our policies may not be enforceable.
Many of the policies we issue include
exclusions or other conditions that define and limit coverage, which exclusions
and conditions are designed to manage our exposure to certain types of risks and
expanding theories of legal liability. In addition, many of our policies limit
the period during which a policyholder may bring a claim under the policy, which
period in many cases is shorter than the statutory period under which these
claims can be brought by our policyholders. While these exclusions and
limitations help us assess and control our loss exposure, it is possible that a
court or regulatory authority could nullify or void an exclusion or limitation,
or legislation could be enacted modifying or barring the use of these exclusions
and limitations. This could result in higher than anticipated losses and loss
adjustment expenses by extending coverage beyond our underwriting intent or
increasing the number or size of claims, which could have a material adverse
effect on our operating results. In some instances, these changes may not become
apparent until some time after we have issued the insurance policies that are
affected by the changes. As a result, the full extent of liability under our
insurance contracts may not be known for many years after a policy is
issued.
We
rely on our information technology and telecommunications systems and the
failure or disruption of these systems could disrupt our operations and
adversely affect our results of operations.
Our business is highly dependent upon
the successful and uninterrupted functioning of our information technology and
telecommunications systems. We rely on these systems to process new and renewal
business, provide customer service, make claims payments and facilitate
collections and cancellations, as well as to perform actuarial and other
analytical functions necessary for pricing and product development. Our systems
could fail of their own accord or might be disrupted by factors such as natural
disasters, power disruptions or surges, computer hackers or terrorist attacks.
Failure or disruption of these systems for any reason could interrupt our
business and adversely affect our results of operations.
USE
OF PROCEEDS
All net proceeds from the sale of
shares of our common stock by the selling stockholders under this prospectus
will go to the selling stockholders. We will not receive any proceeds
from the sale of shares of our common stock by the selling
stockholders.
SELLING
STOCKHOLDERS
Newcastle Special Opportunity Fund I,
L.P., Newcastle Special Opportunity Fund II, L.P., or their respective pledgees,
donees, transferees or other successors in interest, may from time to time offer
and sell any or all of the shares of our common stock offered by them under this
prospectus. These selling stockholders may also sell, transfer or
otherwise dispose of some or all of their shares of our common stock in
transactions exempt from the registration requirements of the Securities Act of
1933, as amended. We do not know when or in what amounts the selling
stockholders may offer shares of our common stock for sale under this
prospectus. We will pay all expenses incurred with respect to the registration
and sale of the shares of our common stock offered by the selling stockholders
under this prospectus, other than underwriting fees, discounts and commissions,
which will be borne by the selling stockholders.
The table below sets forth information
as of January 13, 2011, regarding beneficial ownership of shares of our common
stock by Newcastle Special Opportunity Fund I, L.P. and Newcastle Special
Opportunity Fund II, L.P.
|
|
|
Shares Beneficially
Owned
Prior to This Offering
|
|
|
Shares
Offered
|
|
|
Shares Beneficially
Owned
After This Offering
|
|
|
Name of Beneficial Owner
|
|
Number
|
|
|
Percent(1)
|
|
|
|
|
|
Number(2)
|
|
|
Percent(2)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newcastle
Special Opportunity Fund I, L.P.
|
|
|
1,643,965 |
|
|
|
8.2 |
|
|
|
1,643,965 |
|
|
|
-0- |
|
|
|
-0- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newcastle
Special Opportunity Fund II, L.P.
|
|
|
1,630,865 |
|
|
|
8.1 |
|
|
|
1,630,865 |
|
|
|
-0- |
|
|
|
-0- |
|
|
(1)
|
Based
on 20,124,169 shares of our common stock outstanding as of January 13,
2011.
|
|
(2)
|
Assumes
that the selling stockholder sells all of the shares of our common stock
offered under this prospectus and neither acquires nor disposes of any
other shares of our common stock. The selling stockholders are not
obligated to sell any of their shares of our common
stock.
|
We are
registering these shares pursuant to a Registration Rights Agreement entered
into with each of Newcastle Special Opportunity Fund I, L.P. and Newcastle
Special Opportunity Fund II, L.P. on January 27, 2006, in connection with a
private placement of our securities. Each of Newcastle Special
Opportunity Fund I, L.P. and Newcastle Special Opportunity Fund II, L.P. is an
affiliate of our Executive Chairman, Mark E. Schwarz. Mr. Schwarz is
the managing member of Newcastle Capital Group LLC, which is the general partner
of Newcastle Capital Management, L.P., which is the general partner of Newcastle
Special Opportunity Fund I, L.P. and Newcastle Special Opportunity Fund II,
L.P., the address for all of which is 200 Crescent Court, Suite 1400, Dallas,
Texas 75201. As a result of these relationships, Mr. Schwarz may be
deemed to beneficially own all shares of our common stock which are offered for
sale by Newcastle Special Opportunity Fund I, L.P. and Newcastle Special
Opportunity Fund II, L.P. under this prospectus.
Newcastle Capital Management, L.P. is
also the general partner of Newcastle Partners, L.P. and Newcastle Focus Fund
II, L.P. Mr. Schwarz and Newcastle Capital Group, LLC are also the sole
shareholders of DSC Services, Inc., which in turn is the sole owner of Detroit
Stoker Company, LLC. As a result of these relationships, as of
January 13, 2011, Mr. Schwarz may be deemed to beneficially own 7,744,339
shares, or 38.4%, of our common stock, consisting of 51,526 shares directly
owned by Mr. Schwarz, 47,738 shares which may be acquired by Mr.
Schwarz pursuant to stock options exercisable within 60 days, 3,539,075 shares
owned by Newcastle Partners, L.P., the 1,643,965 shares owned by Newcastle
Special Opportunity Fund I, L.P., the 1,630,865 shares owned by Newcastle
Special Opportunity Fund II, L.P., 37,280 shares owned by Newcastle Focus Fund
II, L.P. and 793,890 shares owned by Detroit Stoker Company, LLC. If
Newcastle Special Opportunity Fund I, L.P. and Newcastle Special Opportunity
Fund II, L.P. sell all of their shares of our common stock offered under this
prospectus, none of Mr. Schwarz or his affiliates acquires or disposes of any
other shares of our common stock and there is no increase or decrease in the
number of outstanding
shares of our common stock subsequent to January 13, 2011, the beneficial ownership of Mr.
Schwarz will be reduced to 4,469,509 shares, or 22.2%, of our common
stock.
PLAN
OF DISTRIBUTION
We are
registering the shares offered by this prospectus on behalf of the selling
stockholders. The selling stockholders, which as used herein include donees,
pledgees, transferees or other successors-in-interest selling shares of common
stock or interests in shares of common stock received after the date of this
prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or interests in
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These
dispositions may be at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market price or at varying prices
determined at the time of sale or at negotiated prices.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
|
|
•
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
•
|
block
trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
|
•
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
|
•
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
•
|
privately
negotiated transactions;
|
|
|
•
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
|
•
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
|
•
|
a
combination of any such methods of sale;
and
|
|
|
•
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling
stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this
prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The
selling stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common stock
offered by them will be the purchase price of the common stock less discounts or
commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this
offering.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any broker-dealers that act in connection with the sale
of securities might be deemed to be “underwriters” within the meaning of Section
2(11) of the Securities Act, and any commissions received by such broker-dealers
and any profit on the resale of the securities sold by them while acting as
principals might be deemed to be underwriting discounts or commissions under the
Securities Act.
To the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agent, dealer or underwriter, and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in those jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.
We have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Securities Exchange Act of 1934, as amended, may apply to sales of
shares in the market and to the activities of the selling stockholders and their
affiliates. In addition, we will make copies of this prospectus (as
it may be supplemented or amended from time to time) available to the selling
stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act.
LEGAL
MATTERS
The
validity of the shares of our common stock offered hereby will be passed upon
for us by McGuire, Craddock & Strother, P.C., Dallas, Texas.
EXPERTS
The
consolidated financial statements and schedules of Hallmark Financial Services,
Inc. and subsidiaries as of December 31, 2009 and 2008, and for each of the
years in the three-year period ended December 31, 2009, have been incorporated
by reference herein in reliance upon the report of KPMG LLP, independent
registered public accounting firm, incorporated by reference herein, and upon
the authority of said firm as experts in accounting and auditing. The
audit report dated March 25, 2010 refers to a change in our method of evaluating
other-than-temporary impairment of debt securities due to the adoption of new
accounting requirements issued by the Financial Accounting Standards Board, as
of April 1, 2009.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus is part of a registration statement on Form S-3 filed by us with the
SEC relating to the shares of our common stock offered under this prospectus. As
permitted by SEC rules, this prospectus does not contain all of the information
contained in the registration statement and accompanying exhibits and schedules
filed by us with the SEC. The registration statement, exhibits and schedules
provide additional information about us and our common stock. The registration
statement, exhibits and schedules are available at the SEC’s public reference
rooms or the SEC website at www.sec.gov.
We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. These documents are available for inspection and copying by the
public at the Public Reference Room at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are also
available to the public on the internet through the SEC website at www.sec.gov. You
may also find our SEC filings and other relevant information about us on our
website at www.hallmarkgrp.com. However,
the information on our website is not a part of this
prospectus.
INFORMATION
INCORPORATED BY REFERENCE
The SEC
allows us to “incorporate by reference” into this prospectus the information we
file with the SEC. This permits us to disclose important information
to you by referencing these filed documents. Any information
referenced in this way is considered part of this prospectus and any prospectus
supplement. Any information filed with the SEC after the date on the cover of
this prospectus or any prospectus supplement will automatically be deemed to
update and supersede this prospectus and such prospectus
supplement. We incorporate by reference the documents listed below
and any future filings made by us with the SEC with file number 001-11252 under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, until all of the securities described in this prospectus are
sold:
|
|
·
|
our
Annual Report on Form 10-K for the year ended December 31,
2009;
|
|
|
·
|
our
definitive proxy statement filed on May 4,
2010;
|
|
|
·
|
our
Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30
and September 30, 2010;
|
|
|
·
|
our
Current Reports on Form 8-K filed on January 14, January 25, February 2,
February 26, March 25, April 8, May 14, May 24, June 1, June 17, August
10, August 17, August 18, September 3, October 19 and November 12, 2010,
and January 4, 2011; and
|
|
|
·
|
the
description of our common stock contained in our registration statement on
Form 8-A filed with the SEC on August 9, 2005, including all amendments
and reports filed for purposes of updating such
description.
|
You can
request a copy of any document incorporated by reference in this prospectus, at
no cost, by writing or telephoning us at the following:
Hallmark
Financial Services, Inc.
777 Main
Street, Suite 1000
Fort
Worth, Texas 76102
Attention: Mark
J. Morrison, President
Telephone:
(817) 348-1600
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and
Distribution.
The
following table sets forth the expenses expected to be incurred in connection
with this registration statement. All such expenses will be payable
by Hallmark Financial Services, Inc. All items below are estimates,
other than the SEC registration fee.
|
SEC
registration fee
|
|
$ |
3,441 |
|
|
Printing
expenses
|
|
$ |
1,000 |
|
|
Accounting
fees and expenses
|
|
$ |
12,000 |
|
|
Legal
fees and expenses
|
|
$ |
15,000 |
|
|
Miscellaneous
|
|
$ |
3,559 |
|
|
Total
|
|
$ |
35,000 |
|
Item
15. Indemnification of Directors and
Officers.
The Nevada General Corporation Law
(“NGCL”) provides that a director or officer is not individually liable to the
corporation or its stockholders or creditors for any damages as a result of any
act or failure to act in his capacity as a director or officer unless (i) such
act or omission constituted a breach of his/her fiduciary duties as a director
or officer, and (ii) his/her breach of those duties involved intentional
misconduct, fraud or a knowing violation of law. Under the NGCL, a
corporation may indemnify directors and officers, as well as other employees and
individuals, against any threatened, pending or completed action, suit or
proceeding, except an action by or in the right of the corporation, by reason of
the fact that he/she is or was a director, officer, employee or agent of the
corporation so long as such person acted in good faith and in a manner which
he/she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his/her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he/she reasonably believed to be in or not opposed to the best
interests of the corporation, or that, with respect to any criminal action or
proceeding, he/she had reasonable cause to believe that his/her conduct was
unlawful.
The NGCL
further provides that indemnification may not be made for any claim as to which
such a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper. To the extent
that a director, officer, employee or agent of a corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding or in
defense of any claim, issue or matter therein, the corporation must indemnify
him/her against expenses, including attorneys’ fees, actually and reasonably
incurred in connection with the defense. The NGCL provides that this
is not exclusive of other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
The
registrant's articles of incorporation provide that the directors and officers
will not be personally liable to the registrant or its stockholders for monetary
damages for breach of their fiduciary duty as a director or officer, except for
liability of a director or officer for acts or omissions involving intentional
misconduct, fraud or a knowing violation of law, or the payment of dividends in
violation of the NGCL. The registrant's bylaws and contractual
arrangements with certain of its directors and officers provide that the
registrant is required to indemnify its directors and officers to the fullest
extent permitted by law. The registrant's bylaws and these
contractual arrangements also require the registrant to advance expenses
incurred by a director or officer in connection with the defense of any
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he/she is not entitled to be indemnified by the
registrant. The registrant's bylaws also permit the registrant to
purchase and maintain errors and omissions insurance on behalf of any director
or officer for any liability arising out of his/her actions in a representative
capacity. The registrant does not presently maintain any such errors
and omissions insurance for the benefit of its directors and
officers.
Item
16. Exhibits.
|
Exhibit #
|
|
Description
|
| |
|
|
|
1(a)+
|
|
Form
of Underwriting Agreement
|
| |
|
|
|
4(a)
|
|
Specimen
certificate for Common Stock, $0.18 par value per share, of the registrant
(incorporated by reference to Exhibit 4.1 to the registrant’s
Post-Effective Amendment No. 1 to Registration Statement on Form S-1 filed
October 3, 2006).
|
| |
|
|
|
4(b)
|
|
Indenture
dated as of June 21, 2005, between Hallmark Financial Services, Inc. and
JPMorgan Chase Bank, National Association (incorporated by reference to
Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed June 27,
2005).
|
| |
|
|
|
4(c)
|
|
Amended
and Restated Declaration of Trust of Hallmark Statutory Trust I dated as
of June 21, 2005, among Hallmark Financial Services, Inc., as sponsor,
Chase Bank USA, National Association, as Delaware trustee, and JPMorgan
Chase Bank, National Association, as institutional trustee, and Mark
Schwarz and Mark Morrison, as administrators (incorporated by reference to
Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed June 27,
2005).
|
| |
|
|
|
4(d)
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Form
of Junior Subordinated Debt Security Due 2035 (incorporated by reference
to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed June
27, 2005).
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4(e)
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Form
of Capital Security Certificate (incorporated by reference to Exhibit 4.2
to the registrant’s Current Report on Form 8-K filed June 27,
2005).
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4(f)
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Form
of Registration Rights Agreement dated January 27, 2006, between Hallmark
Financial Services, Inc. and Newcastle Special Opportunity Fund I, L.P.
and Newcastle Special Opportunity Fund II, L.P. (incorporated by reference
to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed
February 2, 2006).
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4(g)
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Indenture
dated as of August 23, 2007, between Hallmark Financial Services, Inc. and
The Bank of New York Trust Company, National Association (incorporated by
reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
filed August 24, 2007).
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4(h)
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Amended
and Restated Declaration of Trust of Hallmark Statutory Trust II dated as
of August 23, 2007, among Hallmark Financial Services, Inc., as sponsor,
The Bank of New York (Delaware), as Delaware trustee, and The Bank of New
York Trust Company, National Association, as institutional trustee, and
Mark Schwarz and Mark Morrison, as administrators (incorporated by
reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K
filed August 24, 2007).
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4(i)
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Form
of Junior Subordinated Debt Security Due 2037 (incorporated by reference
to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed August
24, 2007).
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4(j)
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Form
of Capital Security Certificate (incorporated by reference to Exhibit 4.2
to the registrant’s Current Report on Form 8-K filed August 24,
2007).
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4(k)
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First
Restated Credit Agreement dated January 27, 2006, between Hallmark
Financial Services, Inc. and The Frost National Bank (incorporated by
reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
filed February 2, 2006).
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4(l)
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Seventh
Amendment to First Restated Credit Agreement dated May 27, 2010, between
Hallmark Financial Services, Inc. and The Frost National Bank
(incorporated by reference to Exhibit 10.1 to the registrant’s Current
Report on Form 8-K filed June 17, 2010).
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5*
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Opinion
of McGuire, Craddock & Strother, P.C.
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23(a)*
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Consent
of Independent Registered Public Accounting Firm.
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23(b)*
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Consent
of McGuire, Craddock & Strother, P.C. (included in opinion filed as
Exhibit 5).
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24*
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Power
of Attorney (included on signature page
hereto).
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________________________
+ To
be filed as an exhibit to a Current Report on Form 8-K in connection with a
specific offering, if applicable.
* Filed
herewith.
Item 17. Undertakings.
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
(iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
Provided,
however, that paragraphs 1(i), 1(ii) and 1(iii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement, or is
contained in a form of prospectus filed pursuant to Rule 424(b) that is part of
the registration statement.
(2)
That, for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4)
That, for the purpose of determining liability under the Securities Act of 1933
to any purchaser:
(i) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement;
and
(ii) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the registration statement as
of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof. Provided, however, that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such effective date, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective
date.
(5) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities, the
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
(6) That,
for purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan’s annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(7)
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(8)
That, for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(9)
That, for purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-3 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Fort
Worth, State of Texas, on the 13th day of
January, 2011.
| |
HALLMARK
FINANCIAL SERVICES, INC.
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By:
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/s/ MARK J.
MORRISON
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Mark
J. Morrison, President and Chief Executive
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Officer
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POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints Mark E. Schwarz, Executive Chairman, and Mark J.
Morrison, President and Chief Executive Officer, and each of them individually,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him in his name, place and stead, in any and all capacities,
in connection with this registration statement, including to sign and file in
the name and on behalf of the undersigned as director or officer of the
registrant (i) any and all amendments or supplements (including any and all
stickers and post-effective amendments) to this registration statement, with all
exhibits thereto, and other documents in connection therewith, and (ii) any and
all additional registration statements, and any and all amendments thereto,
relating to the same offering of securities as those that are covered by this
registration statement that are filed pursuant to Rule 462(b) promulgated under
the Securities Act of 1933 with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute, may lawfully do or cause to
be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated:
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Signature
|
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Title
|
|
Date
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/s/ MARK E.
SCHWARZ
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Executive
Chairman and Director
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January
13, 2011
|
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Mark
E. Schwarz
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/s/ MARK J.
MORRISON
|
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President
and Chief Executive Officer
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January
13, 2011
|
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Mark
J. Morrison
|
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(principal
executive officer)
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/s/ JEFFREY R.
PASSMORE
|
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Senior
Vice President and Chief
|
|
January
13, 2011
|
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Jeffrey
R. Passmore
|
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Accounting
Officer (principal financial
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and
accounting officer)
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/s/ SCOTT T.
BERLIN
|
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Director
|
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January
13, 2011
|
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Scott
T. Berlin
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/s/ JAMES H.
GRAVES
|
|
Director
|
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January
13, 2011
|
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James
H. Graves
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/s/ JIM W.
HENDERSON
|
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Director
|
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January
13, 2011
|
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Jim
W. Henderson
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/s/ GEORGE R.
MANSER
|
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Director
|
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January
13, 2011
|
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George
R. Manser
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