EXHIBIT 4.1
PROMISSORY NOTE
$12,500,000.00 January 3, 2006
FOR VALUE RECEIVED, Hallmark Financial Services, Inc., a Nevada
corporation ("Maker"), promises to pay to the order of Newcastle Partners,
L.P., a Texas limited partnership ("Payee"), the sum of TWELVE MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($12,500,000.00), together with per
annum interest on the unpaid balance hereof from time to time remaining
unpaid, at a rate equal to the lesser of (i) ten percent (10%) per annum,
compounded monthly, and (ii) the maximum rate allowed under applicable law
(the "Maximum Rate"), both principal and interest being payable at 300
Crescent Court, Suite 1110, Dallas, Texas 75201, or at such other place as
Payee may, from time to time, designate in writing.
Accrued and unpaid interest under this Promissory Note (this "Note")
shall be due and payable on the first business day of each month. The
unpaid principal balance on this Note together with all accrued and unpaid
interest is due and payable on demand at any time after June 30, 2006. All
past due principal and accrued interest on this Note shall bear interest
from the date such amount is due until paid at the Maximum Rate.
Maker agrees to use the proceeds of this Note to fund the acquisition
of Aerospace Holdings, LLL pursuant to that certain Purchase Agreement dated
December 12, 2005, by and among Hallmark Financial Services, Inc. and
Donnell Children Revocable Trust and Curtis R. Donnell.
1. Prepayments. Maker shall have the right to prepay the unpaid
principal balance hereof in part or in its entirety. In the event of a
prepayment, there shall be no penalty or premium due. Any prepayment,
whether in whole or in part, shall be applied first to accrued and unpaid
interest and then to principal, and interest shall immediately cease to run
on any amount of the principal so prepaid.
2. Default; Acceleration. At Payee's sole option, the entire unpaid
principal balance of, and all accrued and unpaid interest on, this Note
shall immediately be due and payable upon the occurrence of any of the
following: (a) failure by Maker to pay any principal amount when due; (b)
the occurrence of a default under any of Maker's other material loan
obligations, (c) commencement of a voluntary case against Maker under Title
11 of the United States Code; or (d) the filing of an answer or other
pleading admitting or failing to deny the material allegations of a petition
filed against Maker commencing an involuntary case under said Title 11 or
failure to timely controvert the material allegations of such petition;
provided that, the failure by Maker to make an interest payment (other than
an interest payment due to acceleration of amounts due under this Note)
shall not constitute a default under this Note.
3. Cumulative Rights. No delay on the part of Payee or any other
holder of this Note in the exercise of any power or right under this Note or
under any other instrument executed pursuant hereto shall operate as a
waiver thereof, nor shall a single or partial exercise of any power or right
preclude other or further exercise thereof or the exercise of any other
power or right.
4. Waiver. Except as expressly otherwise provided for herein, Maker
and all endorsers of this Note waive demand, presentment, protest, notice of
dishonor, notice of nonpayment, notice of intention to accelerate, notice of
acceleration, notice of protest and any and all lack of diligence or delay
in collection or the filing of suit hereon which may occur, and agree to all
extensions and partial payments, before or after maturity, without prejudice
to the holder hereof.
5. Attorneys' Fees and Costs. In the event that hereafter this Note
is placed in the hands of an attorney for collection, or in the event that
this Note is collected in whole or in part through legal proceedings of any
nature, then and in any such case, there shall be added to the unpaid
principal balance hereof all reasonable costs of collection, including but
not limited to reasonable attorneys' fees, on account of such collection,
whether or not suit is filed.
6. Governing Law. This Note shall be construed in accordance with
the laws of the State of Texas.
7. Headings. The headings of the sections of this Note are inserted
for convenience only and shall not be deemed to constitute a part hereof.
8. Usury. All agreements between Maker and Payee or any other holder
of this Note, whether now existing or hereafter arising and whether written
or oral, are expressly limited so that in no contingency or event
whatsoever, whether by acceleration of this Note or otherwise, shall the
amount paid, or agreed to be paid, to Payee or any other holder hereof, for
the use, forbearance or detention of the money to be loaned hereunder or
otherwise, exceed the Maximum Rate. If from any circumstances whatsoever
fulfillment of any provision of this Note or of any other document
evidencing, securing or pertaining to the indebtedness evidenced hereby, at
the time performance of such provision shall be due, shall involve
transcending the Maximum Rate, then, ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity, and if from any
such circumstances Payee or any other holder of this Note shall ever receive
as interest under this Note or any other document evidencing, securing or
pertaining to the indebtedness evidenced hereby or otherwise an amount that
would exceed the Maximum Rate, such amount that would be excessive interest
shall be applied to the reduction of the principal amount owing under this
Note or on account of any other indebtedness of Maker to Payee or such
holder hereof relating to this Note, and not to the payment of interest, or
if such excessive interest exceeds the unpaid balance of principal of this
Note and such other indebtedness, such excess shall be refunded to Maker.
In determining whether or not the interest paid or payable with respect to
any indebtedness of Maker to Payee or any other holder hereof, under any
specific contingency, exceeds the Maximum Rate, Maker and Payee or any other
holder hereof shall, to the maximum extent permitted by applicable law:
(a) characterize any nonprincipal payment as an expense, fee or premium
rather than as interest; (b) exclude voluntary prepayments and the effects
thereof; (c) amortize, prorate, allocate and spread the total amount of
interest throughout the full term of such indebtedness so that the actual
rate of interest on account of such indebtedness is uniform throughout the
term thereof; and/or (d) allocate interest between portions of such
indebtedness, to the end that no such portion shall bear interest at a rate
greater than that the Maximum Rate. The terms and provisions of this
paragraph shall control and supersede every other conflicting provision of
all agreements between Maker and Payee or any other holder hereof.
9. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
when personally delivered, transferred via facsimile or mailed, via
certified or registered mail, as follows:
if to Maker: Hallmark Financial Services, Inc.
777 Main Street
Suite 1000
Fort Worth, Texas 76102
Fax No.: (817) 348-1815
Attention: Mark J. Morrison
if to Payee: Newcastle Partners, L.P.
300 Crescent Court
Suite 1110
Dallas, Texas 75201
Fax No.: (214) 661-7475
Attention: Mark E. Schwarz
10. Successors and Assigns. All of the stipulations, promises and
agreements in this Note contained by or on behalf of Maker and Payee shall
bind the successors and assigns of Maker and Payee, whether so expressed or
not, and inure to the benefit of the successors and assigns of Maker and
Payee.
11. Severability. In the event any one or more of the provisions
contained in this Note shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and this Note
shall be construed as if such invalid, illegal or unenforceable provision
had never been contained herein.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
day and year first above written.
HALLMARK FINANCIAL SERVICES, INC.
By:
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Name:
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Title:
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