EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of January 27, 2006, by and between Hallmark Financial Services, Inc., a
Nevada corporation (the "Company"), and Newcastle Special Opportunity Fund
[I] [II], L.P. a Delaware limited partnership (the "Investor").
R E C I T A L S :
WHEREAS, the Company has entered into that certain Purchase Agreement,
dated as of the date hereof (the "Purchase Agreement"), with the Investor
pursuant to which the Company has agreed to issue and sell to the Investor a
convertible promissory note (the "Note");
WHEREAS, the Company has agreed to grant certain registration rights
with respect to the shares of the Company's Common Stock issuable upon
conversion of the Note;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used but not defined herein shall have the respective
meanings given to them in the Purchase Agreement.
As used herein, the following terms shall have the following respective
meanings:
1.1 "Commission" shall mean the U.S. Securities and Exchange Commission
or any other successor federal agency at the time administering the
Securities Act.
1.2 "Common Stock" shall mean the Company's common stock, $0.03 par
value per share.
1.3 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.4 "Holders" shall mean and include the Investor and any transferee
thereof who holds Registrable Securities of record.
1.5 "Register," "registered" and "registration" refer to a registration
effected by preparing and filing with the Commission a registration
statement in compliance with the Securities Act, and the declaration or
ordering by the Commission of the effectiveness of such registration
statement.
1.6 "Registrable Securities" means any and all shares of Common Stock
(i) issued or issuable upon conversion of the Note and (ii) issued or
issuable with respect to the Common Stock referred to in clause (i) above
upon any stock split, stock dividend, recapitalization, reclassification,
exchange or other similar event. The term "Registrable Securities" shall
exclude in all cases, however, such shares of Common Stock (i) following
their sale by a Holder to the public pursuant to a registered offering or
pursuant to Rule 144 or (ii) sold in a private transaction in which the
Holder's registration rights under this Agreement are not assigned.
1.7 "Registration Expenses" shall mean all reasonable and customary
expenses incurred by the Company in complying with Articles 2, 3 and 5
hereof, including, without limitation, all registration, qualification and
Commission, National Association of Securities Dealers, Inc., stock exchange
and other filing fees, printing expenses, duplication expenses relating to
copies of any registration statement or prospectus delivered to any Holders,
escrow fees, fees and disbursements of legal counsel for the Company, fees
and disbursements of the Company's accountants and blue sky fees and
expenses.
1.8 "Rule 144" shall mean Rule 144 under the Securities Act or any other
similar rule or regulation then in effect.
1.9 "Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.10 "Selling Expenses" shall mean all underwriting fees, discounts and
selling commissions applicable to the Registrable Securities registered on
behalf of the Holders and the fees and expenses of any special counsel
engaged by the Holders.
ARTICLE 2
REQUIRED REGISTRATION
2.1 Request for Registration.
(a) At any time from and after the date hereof, the Investor may make
a written request to the Company to file a registration statement under the
Securities Act covering all or part of the Registrable Securities then held
by the Investor. No later than 30 days following its receipt of such
written request (the "Demand Registration Filing Date"), the Company will
prepare and file with the Commission a registration statement under the
Securities Act covering all of the Registrable Securities requested to be
included therein, and the Company will use its reasonable best efforts to
obtain the effectiveness of such registration as soon as practicable as
would permit or facilitate the original issuance or subsequent resale and
distribution of all of such Registrable Securities. If, however, the
Company shall furnish to the Investor a certificate signed by the Chief
Operating Officer of the Company prior to the Demand Registration Filing
Date stating that, in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be filed by reason of a
material pending transaction, then the Company shall have the right to defer
such filing for a period of not more than 60 days after the Demand
Registration Filing Date. Such registration statement shall contain (unless
the Investor otherwise directs) substantially the "Plan of Distribution"
attached hereto as Annex A.
(b) The Company shall be obligated to effect only one registration
pursuant to this Section 2.1. If any registration is commenced pursuant to
this Section 2.1 and is not consummated for any reason whatsoever (a "Failed
Registration"), such Failed Registration shall not be deemed to constitute a
registration under this Section 2.1 and the Investor shall retain its rights
pursuant to this Section 2.1. Any expenses in connection with a Failed
Registration shall be paid in accordance with Article 4 hereof.
2.2 Shelf Registration. Not later than the Shelf Registration Filing
Date (as defined below), the Company will prepare and file with the
Commission a registration statement under the Securities Act covering all of
the Registrable Securities then outstanding, and the Company will use its
reasonable best efforts to obtain the effectiveness of such registration as
soon as practicable as would permit or facilitate the original issuance or
subsequent resale and distribution of all of such Registrable Securities by
the Holders. If, however, the Company shall furnish to the Holders a
certificate signed by the Chief Operating Officer of the Company within 30
days of the Shelf Registration Filing Date stating that, in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration
statement to be filed by reason of a material pending transaction, then the
Company shall have the right to defer such filing for a period of not more
than sixty 60 days after the Shelf Registration Filing Date. Such
registration statement shall contain (unless the Holders otherwise direct)
substantially the "Plan of Distribution" attached hereto as Annex A. "Shelf
Registration Filing Date" shall mean the third anniversary of the date
hereof, provided that the Company's market capitalization on such date is
greater than $300 million; provided, however, that if the Company's market
capitalization on such date is less than or equal to $300 million, then the
Shelf Registration Filing Date shall be 30 days following the first date
thereafter (the "Market Capitalization Threshold Date") that the Company's
market capitalization exceeds $300 million, and the Company shall give the
Investor prompt written notice of the occurrence of the Market
Capitalization Threshold Date.
2.3 Underwriting.
(a) The resale distribution of the Registrable Securities covered by
the registration statements referred to in Section 2.1 and 2.2 above shall
be effected by means of the method of distribution selected by the Holders
holding a majority in interest of the Registrable Securities. The Holders
holding a majority in interest of the Registrable Securities may also change
the resale distribution method from time to time (subject to amendment of
the registration statement at the expense of the Holders as required to
describe such changes). If such distribution is effected by means of an
underwriting, the right of any Holder to registration pursuant to this
Article 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein.
(b) If such distribution is effected by means of an underwriting, the
Company (together with all Holders proposing to distribute their securities
through such underwriting) shall enter into an underwriting agreement in
customary form with a managing underwriter of nationally recognized standing
selected for such underwriting by the Company and approved by a majority in
interest of the Holders, which approval shall not be unreasonably withheld;
provided, however, that the liability of each Holder shall be limited to an
amount equal to the net proceeds from the offering received by such Holder.
(c) Notwithstanding any other provision of this Article 2, if the
managing underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, the Company shall so advise all
Holders of Registrable Securities, and the number of shares of Registrable
Securities to be included in the underwriting shall be allocated among the
Holders of Registrable Securities that have elected to participate in such
underwritten offering pro rata according to the number of Registrable
Securities held by each Holder. Without the consent of a majority in
interest of the Holders, no securities other than Registrable Securities
shall be covered by such registration.
(d) If any Holder disapproves of the terms of the underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the other Holders. The Registrable Securities so
withdrawn shall also be withdrawn from registration.
ARTICLE 3
COMPANY REGISTRATION
3.1 Notice of Registration to Investor. If at any time or from time to
time from and after the date hereof, the Company shall determine to register
any of its securities, either for its own account or the account of a
security holder or holders, other than (i) a registration relating solely to
employee benefit plans on Form S-8 (or any successor form), (ii) a
registration on Form S-4 (or any successor form), (iii) a registration on
any form that does not permit secondary sales or (iv) a registration
relating solely to a rights offering, the Company will:
(a) promptly give to the Investor written notice thereof; and
(b) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all of the Registrable Securities specified in a written request,
made within 15 days after receipt of such written notice from the Company
described in Section 3.1(a), by the Investor, but only to the extent that
the original issuance or resale distribution of such Registrable Securities
is not already covered by an effective registration statement under Article
2 above.
3.2 Underwriting.
(a) If the registration of which the Company gives notice is for an
offering involving an underwriting, the Company shall so advise the Investor
as part of the written notice given pursuant to Section 3.1(a). In such
event, the right of the Investor to registration pursuant to this Article 3
shall be conditioned upon the Investor's participation in such underwriting
and the inclusion of the Investor's Registrable Securities in the
underwriting to the extent provided herein. The Investor shall (together
with the Company) enter into an underwriting agreement in customary form
with the managing underwriter selected for such underwriting by the Company;
provided, however, that the liability of the Investor shall be limited to an
amount equal to the net proceeds from the offering received by the Investor.
(b) Notwithstanding any other provision of this Article 3, if the
managing underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, the Company shall so advise the
Investor, and the number of shares of Common Stock to be included in such
registration shall be allocated as follows: (i) first, for the account of
the Company, all shares of Common Stock proposed to be sold by the Company;
and (ii) second, for the account of the Investor and any other shareholders
of the Company participating in such registration, the number of shares of
Common Stock requested to be included in the registration by the Investor
and such other shareholders in proportion, as nearly as practicable, to the
respective number of shares that are proposed to be offered and sold by the
Investor and such other shareholders at the time of filing the registration
statement. No Registrable Securities or other shares of Common Stock
excluded from the underwriting in this Article 3 by reason of the
underwriters' marketing limitation shall be included in such registration.
(c) The Company shall so advise the Investor and the other shareholders
distributing their securities through such underwriting of any such
limitation and the number of shares that may be included in the
registration. If the Investor disapproves of the terms of any such
underwriting, the Investor may elect to withdraw therefrom by written notice
to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
(d) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Article 3 prior to the effectiveness
of such registration, whether or not the Investor has elected to include
Registrable Securities in such registration.
ARTICLE 4
EXPENSES OF REGISTRATION
All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Articles 2, 3 and 5 hereof and the
reasonable fees of one counsel for the Holders of Registrable Securities in
the case of a registration pursuant to Article 2 hereof (up to $5,000) shall
be borne by the Company. All Selling Expenses relating to Registrable
Securities registered on behalf of a Holder shall be borne by such Holder.
ARTICLE 5
REGISTRATION PROCEDURES
(a) In the case of each registration effected by the Company pursuant
to this Agreement, the Company will keep each Holder advised in writing as
to the initiation of each registration and as to the completion thereof.
The Company agrees to use its reasonable best efforts to effect or cause
such registration to permit the sale of the Registrable Securities covered
thereby by the Holders thereof in accordance with the intended method or
methods of distribution thereof described in such registration statement.
In connection with any registration of any Registrable Securities, the
Company shall:
(i) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its reasonable best
efforts to cause such registration statement filed to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus included
therein as may be necessary to effect and maintain the effectiveness of
such registration statement pursuant to the applicable rules and
regulations of the Commission and the instructions applicable to the
form of such registration statement (provided, however, that the
Company shall not be obliged to maintain the effectiveness of such
registration statement longer than through the earlier of (A) two years
following the effective date of such registration statement and (B)
such time as all Registrable Securities registered thereunder have been
sold pursuant to such registration statement), and furnish to the
Holders of the Registrable Securities covered thereby copies of any
such supplement or amendment prior to its use and/or filing with the
Commission;
(iii) permit one legal counsel for the Holders of Registrable
Securities to be included in a registration statement to review and
comment upon a registration statement, and all amendments and
supplements thereto, within a reasonable amount of time prior to its
filing with the Commission, and not file any registration statement, or
amendment or supplement thereto, in a form to which such legal counsel
reasonably and timely objects. The Company shall furnish to such legal
counsel, without charge, copies of any correspondence from the
Commission to the Company or its representatives relating to any
registration statement;
(iv) promptly notify the Holders of Registrable Securities to be
included in a registration statement hereunder, the sales or placement
agent, if any, therefor and the managing underwriter of the securities
being sold, and confirm such advice in writing, (A) when such
registration statement or the prospectus included therein or any
prospectus amendment or supplement or post-effective amendment has been
filed and, with respect to such registration statement or any post-
effective amendment, when the same has become effective, (B) of the
issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or the initiation of any
proceedings for that purpose, (C) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose, (D) of any request
by the Commission for any amendment or supplement to a registration
statement or related prospectus or related information or (E) if, at
any time when a prospectus is required to be delivered under the
Securities Act, such registration statement or prospectus, or any
document incorporated by reference in any of the foregoing, contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing. In
the case of clause (E), the Company shall promptly prepare a supplement
or amendment to such registration statement to correct such untrue
statement or omission;
(v) use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of such registration statement
or any post-effective amendment thereto or of any order suspending or
preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such
registration statement for sale in any jurisdiction at the earliest
practicable date;
(vi) furnish to each Holder of Registrable Securities to be
included in such registration statement hereunder, each placement or
sales agent, if any, therefor and each underwriter, if any, thereof,
without charge, a conformed copy of such registration statement and any
amendment and supplement thereto (in each case including all exhibits
and documents incorporated by reference) and such number of copies of
the prospectus included in such registration statement (including each
preliminary prospectus, any summary prospectus and any free writing
prospectus), and any amendment or supplement thereto, as such Holder,
agent, if any, and underwriter, if any, may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by
such Holder, sold by such agent or underwritten by such underwriter and
to permit such Holder, agent and underwriter to satisfy the prospectus
delivery requirements of the Securities Act;
(vii) use its reasonable best efforts to (A) register or qualify
the Registrable Securities to be included in such registration
statement under such other securities laws or blue sky laws of such
states of the United States or the District of Columbia as may be
reasonably requested by the Holders of a majority of such Registrable
Securities participating in such registration, each placement or sales
agent, if any, therefor or the managing underwriter, if any, thereof,
(B) keep such registrations or qualifications in effect and comply with
such laws at all times during the period described in Section 5(a)(ii)
above, and (C) take any and all such actions as may be reasonably
necessary to enable such Holder, agent, if any, and underwriter, if
any, to consummate the disposition in such jurisdictions of such
Registrable Securities; provided, however, that in order to fulfill the
foregoing obligations under this Section 5(a)(vii), the Company shall
not (unless otherwise required to do so in any jurisdiction) be
required to (1) qualify generally to do business as a foreign company
or a broker-dealer, (2) execute a general consent to service of process
or (3) subject itself to taxation;
(viii) furnish, at the request of the Holders of a majority of
such Registrable Securities participating in such registration, on the
date that such Registrable Securities are delivered to the underwriters
for sale, if such securities are being sold through underwriters, or,
if such securities are not being sold through underwriters, on the date
that the registration statement with respect to such securities becomes
effective, (i) an opinion, dated as of such date, of counsel
representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an
underwritten public offering and reasonably satisfactory to a majority
in interest of the Holders, addressed to the underwriters, if any, and
to such Holders and (ii) a letter, dated as of such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders,
addressed to the underwriters, if any, and, if permitted by applicable
accounting standards, to such Holders; and
(ix) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission in connection with
any registration hereunder.
(b) The Company may require each Holder of Registrable Securities as to
which any registration is being effected to furnish in writing to the
Company such information regarding such Holder and such Holder's method of
distribution of such Registrable Securities as the Company may from time to
time reasonably request. Each such Holder agrees to notify the Company as
promptly as practicable of any inaccuracy or change in information
previously furnished by such Holder to the Company or of the occurrence of
any event as a result of which any prospectus relating to such registration
contains an untrue statement of a material fact regarding such Holder or the
distribution of such Registrable Securities or omits to state any material
fact regarding such Holder or the distribution of such Registrable
Securities required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and
promptly to furnish to the Company any additional information required to
correct and update any previously furnished information or required so that
such prospectus shall not contain, with respect to such Holder or the
distribution of such Registrable Securities, an untrue statement or a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing.
(c) Each of the Holders will comply with the provisions of the
Securities Act with respect to disposition of the Registrable Securities to
be included in any registration statement filed by the Company.
ARTICLE 6
INDEMNIFICATION
6.1 The Company will indemnify each Holder, each of its officers,
directors and partners, such Holder's legal counsel and independent
accountants, if any, each person controlling such Holder within the meaning
of Section 15 of the Securities Act, each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement or prospectus, or any amendment
or supplement thereto, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act or any state
securities laws applicable to the Company and relating to action or inaction
by the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each of its officers,
directors and partners, such Holder's legal counsel and independent
accountants, each person controlling such Holder, each such underwriter and
each person who controls any such underwriter for any legal and other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent
that any such expense, claim, loss, damage, liability or action arises out
of or is based on any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to the Company by such Holder expressly for use in
such registration statement or prospectus, or any amendment or supplement
thereto.
6.2 Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, severally indemnify the Company, each of its
directors and officers, its legal counsel and independent accountants, each
underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers, directors, partners, legal counsel
and independent accountants, if any, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
such registration statement or prospectus, or any amendment or supplement
thereto, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such Holders, such
directors, officers, partners, legal counsel, independent accountants,
underwriters and control persons for any legal and other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement or
prospectus or amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly
for use in such registration statement or prospectus, or any amendment or
supplement thereto; provided, however, that the obligations of each Holder
hereunder shall be limited to an amount equal to the net proceeds to such
Holder of Registrable Securities sold pursuant to such registration
statement.
6.3 Each party entitled to indemnification under this Article 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld). The Indemnified Party may participate in
such defense at such party's expense; provided, however, that the
Indemnifying Party shall bear the expense of such defense of the Indemnified
Party if representation of both parties by the same counsel would be
inappropriate due to actual or potential conflicts of interest. The failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Agreement, unless such
failure is materially prejudicial to the ability of the Indemnifying Party
to defend the action. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party of a release from all liability in
respect of such claim or litigation.
6.4 If the indemnification provided for in Section 6.1 or 6.2 is
unavailable or insufficient to hold harmless an Indemnified Party, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of the expenses, claims, losses, damages or
liabilities (or actions or proceedings in respect thereof) referred to in
Section 6.1 or 6.2, in such proportion as is appropriate to reflect the
relative fault of the Company on the one hand and the Holders of Registrable
Securities on the other hand in connection with statements or omissions
which resulted in such expenses, claims, losses, damages or liabilities (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Holders
of Registrable Securities and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The Company and the Holders agree that it would not
be just and equitable if contributions pursuant to this Section 6.4 were to
be determined by pro rata allocation (even if all Holders of Registrable
Securities were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this Section 6.4. The
amount paid by an Indemnified Party as a result of the expenses, claims,
losses, damages or liabilities (or actions or proceedings in respect
thereof) referred to in the first sentence of this Section 6.4 shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any claim,
action or proceeding which is the subject of this Section 6.4. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The obligations of
Holders of Registrable Securities to contribute pursuant to this Section 6.4
shall be several in proportion to the respective amount of Registrable
Securities sold by them pursuant to a registration statement, and shall be
limited to an amount equal to the net proceeds to each such Holder of
Registrable Securities sold pursuant to such registration statement.
ARTICLE 7
RULE 144 REPORTING
With a view to making available the benefits of certain rules and
regulations of the Commission that may at any time permit the sale of
securities of the Company to the public without registration, the Company
agrees to use its reasonable best efforts to:
7.1 Make and keep public information regarding the Company available, as
those terms are understood and defined in Rule 144, at all times after the
date hereof; and
7.2 File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act.
ARTICLE 8
TRANSFER OF REGISTRATION RIGHTS
The rights to cause the Company to register Registrable Securities
under Section 2.2 of this Agreement, together with all related rights and
obligations, may be assigned by a Holder to any other person; provided,
however, that (A) the transferor shall furnish to the Company written notice
of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned prior to
such transfer and (B) such transferee shall agree in writing to be subject
to all applicable restrictions set forth in this Agreement. In each case,
such rights may only be transferred together with the underlying Registrable
Securities in a transfer permitted by the Securities Act and applicable
state securities laws. Any such permitted transferee or assignee shall be
deemed a Holder hereunder.
ARTICLE 9
LIMITATIONS ON REGISTRATION RIGHTS GRANTED TO OTHER SECURITIES
From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of a majority of the
Registrable Securities then outstanding, enter into any agreement with any
holder or prospective holder of any securities of the Company providing for
the grant to such holder of registration rights superior to those granted
herein.
ARTICLE 10
MISCELLANEOUS
10.1 Governing Law. The laws of the State of Texas shall govern the
interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under principles of conflicts of
law.
10.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors and assigns of each of the parties hereto and shall
inure to the benefit of and be binding upon each Holder of any Registrable
Securities.
10.3 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
10.4 Notices. All notices, requests, consents and other communications
hereunder shall be made in writing and shall be deemed given (i) when made
if made by hand delivery, (ii) one business day after being deposited with
an overnight courier if made by courier guaranteeing overnight delivery,
(iii) on the date indicated on the notice of receipt if made by first-class
mail, return receipt requested or (iv) on the date of confirmation of
receipt of transmission by facsimile, addressed as follows:
(a) if to the Company, at
Hallmark Financial Services, Inc.
777 Main Street, Suite 1000
Fort Worth, TX 76102
Facsimile: (817) 348-1815
Attention: Chief Financial Officer
with a copy to:
McGuire, Craddock & Strother, P.C.
3550 Lincoln Plaza
500 N. Akard Street
Dallas, Texas 75201
Facsimile: (214) 954-6868
Attention: Steven D. Davidson, Esq.
(b) if to the Investor, in care of:
Newcastle Partners, L.P.
300 Crescent Court, Suite 1110
Dallas, TX 75201
Facsimile: (214) 661-7475
Attention: Steven J. Pully
with a copy to:
Olshan Grundman Frome Rosenzweig & Wolosky LLP
65 East 55th Street
New York, New York 10022
Facsimile: (212) 451-2222
Attention: Steven Wolosky, Esq.
(c) if to a Holder, to the address reflected on the records of the
Company, or such other address or addresses as shall have been furnished in
writing by such party to the Company and to the other parties to this
Agreement.
10.5 Severability. The invalidity, illegality or unenforceability of one
or more of the provisions of this Agreement in any jurisdiction shall not
affect the validity, legality or enforceability of the remainder of this
Agreement in such jurisdiction or the validity, legality or enforceability
of this Agreement, including any such provision, in any other jurisdiction,
it being intended that all rights and obligations of the parties hereunder
shall be enforceable to the fullest extent permitted by law.
10.6 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
10.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
constitute one instrument.
10.8 Amendment and Modification. This Agreement may be amended, modified
or supplemented in any respect only by written agreement by the Company and
Holders representing at least a majority of the Registrable Securities,
voting together as a single class; provided, that no such amendment shall
unfairly discriminate against a particular Holder relative to the other
Holders. Any action taken by the Holders, as provided in this Section 10.8,
shall bind all Holders.
IN WITNESS WHEREOF, the undersigned have hereunto affixed their signatures.
Newcastle Special Opportunity
Fund [I] [II], L.P.
Hallmark Financial Services, Inc. By: Newcastle Capital Management,
L.P., its general partner
By By
_____________________________ _____________________________
Its Its
_____________________________ _____________________________
ANNEX A
PLAN OF DISTRIBUTION
We are registering the shares offered by this prospectus on behalf of
the selling shareholders. The selling shareholders, which as used herein
includes 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 shareholder 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, at varying prices determined at the time of sale or at
negotiated prices.
The selling shareholders 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;
* short sales;
* 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 shareholders 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 shareholders 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 shareholders to include the
pledgee, transferee or other successors in interest as selling shareholders
under this prospectus. The selling shareholders 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 shareholders 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 shareholders 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 shareholders 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 shareholders 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 shareholders
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 shareholders 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 shareholders 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 shareholders, 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 these 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 shareholders that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of shares in
the market and to the activities of the selling shareholders 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
shareholders for the purpose of satisfying the prospectus delivery
requirements of the Securities Act. The selling shareholders may indemnify
any broker-dealer that participates in transactions involving the sale of
the shares against certain liabilities, including liabilities arising under
the Securities Act.
We have agreed to indemnify the selling shareholders against
liabilities, including liabilities under the Securities Act and state
securities laws, relating to the registration of the shares offered by this
prospectus.
We have agreed with the selling shareholders to keep the registration
statement that includes this prospectus effective until the earlier of (1)
two years following the effective date of the registration statement and (2)
such time as all shares of common stock covered by this prospectus have been
sold pursuant to this prospectus.