Hallmark Makes Acquisitions

Hallmark Financial Services Inc. (Hallmark), a Dallas-based firm that primarily engages in the marketing and financing of non-standard automobile insurance in the Texas, announced it purchased from LaSalle Bank a promissory note payable by Millers American Group, Inc. (Millers), for a purchase price of $6.5 million. The Millers note, which is presently in default, has an outstanding balance of approximately $15 million.

The Millers note is secured by the capital stock of Millers Insurance Company (MIC), a Texas-based property and casualty insurance carrier, and Phoenix Indemnity Insurance Company (Phoenix), an Arizona-based property and casualty insurance carrier.

Hallmark also announced that, in lieu of immediate foreclosure, it has negotiated with Millers to accept the stock of Phoenix in satisfaction of $7.0 million of the outstanding balance of the Millers note. The proposed exchange is contingent on execution of a mutually acceptable definitive agreement and regulatory approval of Hallmark’s Form A application for change of control previously filed with the Arizona Department of Insurance. If consummated, the proposed transaction would result in Phoenix becoming a wholly-owned subsidiary of Hallmark.

Hallmark and Millers also negotiated Hallmark’s proposed acquisition of Millers General Agency and two inactive service company subsidiaries of Millers, as well as certain contracts and fixed assets of MIC, for cash and the assumption of certain debt. Upon consummation of the proposed acquisitions, the newly acquired Hallmark subsidiaries would employ all MIC personnel and provide fee-based claims and financial administrative services to MIC. Consummation of these proposed transactions are also contingent on execution of mutually acceptable definitive agreements and obtaining required regulatory approvals. The stock of MIC would continue to be held by Hallmark as collateral for the remaining balance of the Millers note while the parties
evaluate the recapitalization or reorganization of MIC.

Newcastle Partners L.P., an affiliate of Mark E. Schwarz, chairman of Hallmark, provided a $9.0 million interim financing facility to Hallmark for the purchase of the Millers note and consummation of the proposed transactions with Millers. Hallmark intends to retire the bridge loan within the next year with the proceeds from a rights offering to its shareholders.

Topics Mergers & Acquisitions