Exhibit 10.2

 

Revolving Facility B Agreement

 

This REVOLVING FACILITY B AGREEMENT (this “Facility B Agreement”), dated as of
December 17, 2015, is between HALLMARK FINANCIAL SERVICES, INC., a Nevada
corporation (“Borrower”), and FROST BANK, a Texas state bank (“Lender”).

 

RECITALS:

 

Borrower, American Hallmark Insurance Company of Texas, a Texas insurance
corporation (“AHIC”), Hallmark Insurance Company, an Arizona insurance
corporation (“HIC”), and Lender have entered into the Second Restated Credit
Agreement dated as of June 30, 2015 (such agreement, together with all
amendments and restatements thereto, including the Credit Agreement Amendment
(as defined herein), the “Credit Agreement”).

 

Borrower has requested a revolving line of credit in the original principal
amount of $30,000,000.00, which revolving line of credit will be in addition to
the Revolving Commitment.

 

Lender has agreed to provide the additional $30,000,000 revolving line of credit
to Borrower, subject to the terms of this Facility B Agreement.

 

AGREEMENT:

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto agree as follows:

 

ARTICLE I

Definitions

 

1.1              Definitions. For purposes of this Facility B Agreement:

 

“Facility B Agreement Date” means December 17, 2015.

 

“Facility B Borrowing” means a borrowing by Borrower of Facility B Loans made by
Lender pursuant to Section 2.1.

 

“Facility B Commitment” means $30,000,000.

 

“Facility B Loan” has the meaning specified in Section 2.1 of this Facility B
Agreement.

 

“Facility B Loan Notice” means a notice of a Facility B Borrowing request
pursuant to Section 2.2(a), substantially in the form of Exhibit B.

 

“Facility B Maturity Date” means the first to occur of (a) December 17, 2022,
(b) the date the Facility B Commitment is terminated pursuant to either
Section 2.6 hereof or Section 9.2 of the Credit Agreement, and (c) the date the
Obligations are accelerated.

 

“Facility B Note” means the promissory note made by Borrower in favor of Lender
evidencing the Facility B Loans made by Lender, substantially in the form of
Exhibit A.

 

“Facility B Outstanding Amount” means, as of any date of determination, the
aggregate outstanding principal amount of all Facility B Loans, after giving
effect to any Facility B Borrowing and any principal payment of Facility B Loans
occurring on such date.

 

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“Facility B Termination Date” means the earlier of (a) the Facility B Maturity
Date and (b) December 17, 2017.

 

1.2              Other Definitions. All capitalized terms not otherwise defined
herein have the same meanings as in the Credit Agreement.

 

ARTICLE II

Facility B LOANS

 

2.1              Facility B Loans. Subject to the terms and conditions of this
Facility B Agreement and the Credit Agreement, Lender agrees to make loans (each
such loan, a “Facility B Loan”), to Borrower from time to time on any Business
Day during the period from December [▲], 2015 to the Facility B Termination Date
in an aggregate amount not to exceed at any time outstanding the Facility B
Commitment. Prior to the Facility B Termination Date, Borrower may borrow, repay
and reborrow Facility B Loans, all in accordance with this Facility B Agreement.

 

2.2              Facility B Borrowings.

 

(a)             Facility B Borrowings. Each Facility B Borrowing shall be made
upon Borrower’s irrevocable notice to Lender, which may be given by telephone.
Each such notice must be received by Lender not later than 2:00 p.m. (i) one
Business Day prior to the requested date of any Facility B Borrowing of
Eurodollar Rate Loans and (ii) one Business Day prior to the requested date of
any Facility B Borrowing of Prime Rate Loans (subject to Section 2.7 hereof).
Each such telephonic notice must be confirmed promptly by delivery to Lender of
a written Facility B Loan Notice appropriately completed and signed by an
Authorized Signatory of Borrower. Each Facility B Loan Notice (whether
telephonic or written) shall specify (i) the requested date of the Facility B
Borrowing (which shall be a Business Day), (ii) the principal amount of the
Facility B Loan to be borrowed and (iii) whether such Facility B Borrowing will
be a Eurodollar Rate Loan or a Prime Rate Loan. Each Facility B Loan shall be in
the principal amount of $100,000 or any whole multiple of $25,000 in excess
thereof or the unused portion of the Facility B Commitment.

 

(b)            Funding. Upon satisfaction of the applicable conditions set forth
in Section 2.14, Lender shall make the proceeds of each Facility B Borrowing
available to Borrower by crediting the account of Borrower on the books of
Lender with the amount of such funds.

 

2.3              Repayment. The unpaid principal of all Facility B Loans shall
be due and payable on the following dates and in the following amounts:

 

Payment Date Payment Amount     Each Payment Date on and after April 1, 2018
and prior to the Facility B Maturity Date An amount equal to 1/28th of the
aggregate principal amount of all Facility B Loans outstanding on the Facility B
Termination Date     The Facility B Maturity Date The remaining unpaid principal
of all
Facility B Loans

 

2.4              Voluntary Prepayments. Borrower may at any time or from time to
time voluntarily prepay the Facility B Loans in whole or in part without premium
or penalty. Each voluntary prepayment shall be accompanied by all accrued and
unpaid interest thereon.

 

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2.5              Mandatory Prepayments. On each date that the Facility B
Outstanding Amount exceeds the Facility B Commitment, Borrower shall prepay the
Facility B Loans in an amount equal to such excess. Each mandatory prepayment
shall be accompanied by all accrued and unpaid interest thereon.

 

2.6              Termination and Reduction of Facility B Commitment.

 

(a)             Borrower shall have the right to terminate or reduce the
Facility B Commitment at any time. Each reduction shall be in the minimum amount
of $500,000 and a whole multiple of $100,000 in excess thereof.

 

(b)            On the Facility B Termination Date, the Facility B Commitment
shall automatically reduce to zero and terminate.

 

(c)             Borrower shall not have any right to rescind any termination or
reduction. Once terminated or reduced, the Facility B Commitment may not be
reinstated.

 

2.7              Interest on Facility B Loans Generally.

 

(a)             Subject to the provisions of Sections 2.7(b) and 2.9 hereof,
(i) each Eurodollar Rate Loan shall bear interest on the outstanding principal
amount thereof from the borrowing date, the effective date of the election by
Borrower that the Facility B Loan becomes a Eurodollar Rate Loan or such other
date on which the Facility B Loan becomes a Eurodollar Rate Loan (as applicable)
to but not including the date on which another interest rate becomes applicable
to the Facility B Loan pursuant to the terms of this Facility B Agreement at a
rate per annum equal to the lesser of (A) the Highest Lawful Rate and (B) the
Eurodollar Rate, and (ii) each Prime Rate Loan shall bear interest on the
outstanding principal amount thereof from the borrowing date, the effective date
of the election by Borrower that the Facility B Loan becomes a Prime Rate Loan
or such other date on which the Facility B Loan becomes a Prime Rate Loan (as
applicable) to but not including the date on which another interest rate becomes
applicable to the Facility B Loan pursuant to the terms of this Facility B
Agreement at a rate per annum equal to the lesser of (A) the Highest Lawful Rate
and (B) the Prime Rate. Subject to Sections 2.7(b) and 2.9, all of the
Facility B Loan shall be a Eurodollar Rate Loan or a Prime Rate Loan, and not
more than once in each calendar month Borrower may elect whether all of the
Facility B Loan shall be a Eurodollar Rate Loan or a Prime Rate Loan. Each such
election (a) shall be made upon Borrower’s irrevocable notice to Lender (which
may be given by telephone) and (b) must be received by Lender not later than
10:00 a.m. one Business Day prior to the Business Day on which the new interest
rate is to apply. Each Facility B Loan Notice (whether telephonic or written)
shall specify the requested date of the conversion of the applicable interest
rate (which shall be a Business Day). Each such telephonic notice must be
confirmed promptly by delivery to Lender of a written Facility B Loan Notice
appropriately completed and signed by an Authorized Signatory of Borrower.

 

(b)            Subject to the provisions of Section 2.9 hereof, if at any time
Lender has notified Borrower that the provisions of Sections 4.2 or 4.3 of the
Credit Agreement apply, each Facility B Loan shall bear interest on the
outstanding principal amount thereof from the date on which Lender determines or
is notified that the provisions of Sections 4.2 or 4.3 of the Credit Agreement
apply, to and including the date on which Lender notifies Borrower that the
provisions of Sections 4.2 and 4.3 of the Credit Agreement no longer apply, at a
rate per annum equal to the lesser of (i) the Highest Lawful Rate and (ii) the
Prime Rate. Borrower may not request a Eurodollar Rate Loan until Lender
notifies Borrower that the provisions of Sections 4.2 or 4.3 of the Credit
Agreement no longer apply.

 

(c)             Interest on the Facility B Loans shall be due and payable in
arrears on each Interest Payment Date and at such other times as may be
specified herein. Interest hereunder shall be due and payable in accordance with
the terms hereof before and after judgment, and before and after the
commencement of any proceeding under any Debtor Relief Law.

 

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2.8              Computations. Subject to Section 10.11 of the Credit Agreement,
interest on the Facility B Loans, fees and any other amounts due hereunder shall
be calculated on the basis of actual days elapsed over a year of 360 days,
unless such calculation would result in a rate greater than the highest rate
permitted by Applicable Law, in which case interest shall be computed on the
basis of a year of 365 days or 366 days in a leap year, as the case may be.
Nothing herein shall be deemed to obligate Lender to obtain the funds for any
Facility B Loan in any particular place or manner or to constitute a
representation by Lender that it has obtained or will obtain the funds for any
Facility B Loan in any particular place or manner.

 

2.9              Interest After an Event of Default. (a) If an Event of Default
exists (other than an Event of Default specified in Section 9.1(e) or (f) of the
Credit Agreement), at the option of Lender, and (b) after an Event of Default
specified in Section 9.1(e) or (f) of the Credit Agreement and during any
continuance thereof, automatically and without any action by Lender, the
Obligations shall bear interest at a rate per annum equal to the lesser of
(i) the Default Rate and (ii) the Highest Lawful Rate. Such interest shall be
payable on the earlier of demand or the Facility B Loan Termination Date and
shall accrue until the earlier of (a) waiver or cure (to the satisfaction of
Lender) of the applicable Event of Default, (b) agreement by Lender to rescind
the charging of interest at the Default Rate, or (c) payment in full of the
Obligations. Lender shall not be required to accelerate the maturity of the
Facility B Loans, to exercise any other rights or remedies under the Loan
Documents, or to give notice to Borrower of the decision to charge interest at
the Default Rate. Lender will undertake to notify Borrower, after the effective
date, of the decision to charge interest at the Default Rate.

 

2.10          Payments Generally. (a)  Each payment (including prepayments) by
Borrower of the principal of or interest on the Facility B Loans and any other
amount owed under this Facility B Agreement or any other Loan Document shall be
made not later than 2:00 p.m. on the date specified for payment under this
Facility B Agreement to Lender at Lender’s Office, in Dollars constituting
immediately available funds. All payments received by Lender after 2:00 p.m.
shall be deemed received on the next succeeding Business Day and any applicable
interest or fee shall continue to accrue.

 

(b)            If any payment under this Facility B Agreement or any other Loan
Document shall be specified to be made upon a day which is not a Business Day,
it shall be made on the next succeeding day which is a Business Day. Any
extension of time shall in such case be included in computing interest and fees,
if any, in connection with such payment.

 

(c)             Borrower agrees to pay principal, interest, fees and all other
amounts due under the Loan Documents without deduction for set-off or
counterclaim or any deduction whatsoever.

 

(d)            If some but less than all amounts due from Borrower are received
by Lender, Lender shall apply such amounts in the following order of priority:
(i) to the payment of Lender’s expenses incurred under the Loan Documents then
due and payable, if any; (ii) to the payment of all other fees under the Loan
Documents then due and payable; (iii) to the payment of interest then due and
payable on the Facility B Loans and the Revolving Loans, to be applied as
determined by Lender in its sole discretion; (iv) to the payment of all other
amounts not otherwise referred to in this Section 2.10(d) then due and payable
under the Loan Documents; and (v) to the payment of principal then due and
payable on the Facility B Loans and the Revolving Loans, in each case applied
against the Facility B Loans and the Revolving Loans as determined by Lender in
its sole discretion.

 

2.11          Booking the Facility B Loans. Lender may make, carry or transfer
each Facility B Loan at, to or for the account of any of its branch offices or
the office of any Affiliate.

 

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2.12          Collateral. Payment of the Obligations is secured on the
Facility B Agreement Date by a perfected first priority security interest in all
of the authorized, issued and outstanding capital stock and other Equity
Interests of each of AHIC and HIC.

 

2.13          Unused Fee. For so long as the Facility B Commitment is in effect,
Borrower shall pay to Lender a fee (the “Unused Fee”) on each Payment Date,
commencing with April 1, 2016. The Unused Fee is equal to a per annum rate of
0.25% multiplied by the actual daily amount by which the Facility B Commitment
(as it exists on each determination date) exceeds the Facility B Outstanding
Amount (as of each determination date). The Unused Fee shall be calculated
quarterly in arrears and shall accrue regardless of whether any condition in
Article III hereof has been satisfied. Subject to Section 10.11 of the Credit
Agreement, the Unused Fee shall be fully earned when paid and is not refundable.

 

2.14          Conditions Precedent to each Facility B Loan. The obligation of
Lender to make any Facility B Loan is subject to (a) receipt by Lender of the
following items which are to be delivered, in form and substance reasonably
satisfactory to Lender and (b) satisfaction of the following conditions, in form
and substance reasonably satisfactory to Lender:

 

(a)             Representations and Warranties. All of the representations and
warranties of Borrower and each other Obligor under this Facility B Agreement
and each other Loan Document, which, pursuant to Section 8.23 of the Credit
Agreement, are made at and as of the time of each Facility B Loan, shall be true
and correct when made, except to the extent applicable to a specific date, both
before and after giving effect to the application of the proceeds of such
Facility B Loan.

 

(b)            No Default or Event of Default. There shall not exist a Default
or Event of Default.

 

(c)             Conditions of Effectiveness. All conditions of effectiveness to
this Facility B Agreement set forth in Article III hereof shall have been
satisfied.

 

(d)            Litigation. There shall be no Litigation pending against, or, to
Borrower’s or any Obligor’s knowledge, threatened against Borrower, any other
Obligor, or any Subsidiary, or in any other manner relating directly and
adversely to Borrower, any other Obligor, or any Subsidiary, or any of their
respective properties, in any court or before any arbitrator of any kind or
before or by any Governmental Authority which could reasonably be expected to
have a Material Adverse Effect.

 

(e)             Material Adverse Change. There shall have occurred no change in
the business, assets, operations, prospects or conditions (financial or
otherwise) of Borrower, any other Obligor, or any Subsidiary since December 31,
2014, which caused or could reasonably be expected to cause a Material Adverse
Effect.

 

2.15          Repayment. The unpaid principal of the Facility B Loan not
otherwise sooner paid as required pursuant to Section 2.3 hereof, together with
all accrued unpaid interest thereon, shall be due and payable on the Facility B
Maturity Date.

 

2.16          Prepayment. Borrower may, upon notice to Lender, at any time or
from time to time voluntarily prepay any Facility B Loan in whole or in part
without premium or penalty; provided that (a) such notice must be received by
Lender not later than 10:00 a.m. one Business Day prior to the date of
prepayment, and (b) any prepayment shall be in a principal amount of $100,000 or
a whole multiple of $100,000 in excess thereof (or, if less, the unpaid
principal amount of the Facility B Loan). Each such notice shall specify the
date and amount of such prepayment. If such notice is given by Borrower,
Borrower shall make such prepayment and the payment amount specified in such
notice shall be due and payable on the date specified therein. Any voluntary
prepayment shall be accompanied by all accrued and unpaid interest on the amount
prepaid, together with any additional amounts required pursuant to Article IV of
the Credit Agreement. All prepayments shall be applied (a) first to accrued
interest and (b) second to outstanding principal.

 

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2.17          Use of Proceeds. Borrower shall not use the proceeds of any
Facility B Loan for any purpose other than to make capital contributions to AHIC
and HIC.

 

2.18          Permitted Debt. Prior to the Facility B Maturity Date, the unpaid
principal of the Facility B Loan shall be deemed to be Permitted Debt.

 

ARTICLE III

Conditions Precedent

 

3.1              Conditions. The effectiveness of this Facility B Agreement is
subject to the satisfaction of the following conditions precedent:

 

(a)             Documents. Lender shall have received the following in number of
counterparts and copies as Lender may request:

 

(i)                 Facility B Agreement. This Facility B Agreement executed by
Borrower and Lender.

 

(ii)               Facility B Note. The duly executed Facility B Note in the
form of Exhibit A, payable to the order of Lender, and in the amount of the
Facility B Commitment.

 

(iii)             Arbitration and Notice of Final Agreement. The Arbitration and
Notice of Final Agreement executed by Borrower, HIC, AHIC and Lender.

 

(iv)             Borrower Certificate. A certificate of officers acceptable to
Lender of Borrower certifying as to (A) the incumbency of the officers signing
such certificate and the Loan Documents to which it is a party, (B) an original
certified copy of its Articles of Incorporation or Certificate of Incorporation,
as applicable, certified as true, complete and correct as of a date acceptable
to Lender by the appropriate authority of the State of Nevada, (C) a copy of its
By-Laws, as in effect on the Agreement Date, (D) a copy of the resolutions of
its Board of Directors authorizing it to execute, deliver and perform the Loan
Documents to which it is a party, (E) an original certificate or certificates of
good standing, existence and qualification issued by the appropriate authority
or authorities of the States of Nevada and Texas (certified as of a date
acceptable to Lender), (F) the accuracy of the representations and warranties in
the Loan Documents, (G) no Default or Event of Default exists, and (H) no
Material Adverse Change having occurred.

 

(v)               Facility B Fee. A line of credit fee in the amount of
$75,000.00, which line of credit fee shall be (subject to Section 10.10 of the
Credit Agreement) fully earned and non-refundable upon receipt.

 

(vi)             UCC and Lien Searches. Searches of the Uniform Commercial Code,
Tax lien and other records as Lender may require.

 

(vii)           Opinions of Borrower’s Counsel. Opinions of counsel to Borrower
addressed to Lender, dated the Agreement Date and covering such matters incident
to the transactions contemplated hereby as Lender or Special Counsel may
reasonably request.

 

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(viii)         Obligor Proceedings. Evidence that all corporate proceedings of
each Obligor and each other Person (other than Lender) taken in connection with
the transactions contemplated by this Agreement and the other Loan Documents
shall be reasonably satisfactory in form and substance to Lender and Special
Counsel; and Lender shall have received copies of all documents or other
evidence which Lender or Special Counsel may reasonably request in connection
with such transactions.

 

(ix)             Expenses. Reimbursement for reasonable Attorney Costs incurred
in connection with this Facility B Agreement.

 

(x)               Credit Agreement Amendment. A First Amendment to Second
Restated Credit Agreement executed by Borrower, AHIC, HIC and Lender in form and
substance satisfactory to the parties thereto (the “Credit Agreement
Amendment”).

 

(xi)             Other Documents. In form and substance satisfactory to Lender
and Special Counsel, such other documents, instruments and certificates as
Lender may reasonably require in connection with the transactions contemplated
hereby.

 

(b)            No Default. No Default or Event of Default shall exist either
before or after giving effect to this Facility B Agreement.

 

(c)             Representations and Warranties.

 

(i)                 All of the representations and warranties contained in
Article VIII of the Credit Agreement and in the other Loan Documents shall be
true and correct on and as of the date of this Facility B Agreement with the
same force and effect as if such representations and warranties had been made on
and as of such date, except to the extent such representations and warranties
speak to a specific date or schedule attached to a Loan Document.

 

(ii)               All of the representations and warranties contained in
Article V of this Facility B Agreement shall be true and correct, both before
and after giving effect to this Facility B Agreement.

 

ARTICLE IV

OBLIGATIONS

 

4.1              Obligations. Borrower agrees that the obligations, indebtedness
and liabilities arising under this Facility B Agreement, the Facility B Note or
under any other promissory note executed and/or delivered in connection herewith
shall be deemed “Obligations” (as defined in the Credit Agreement), “Secured
Obligations” (as defined in the Credit Agreement) and “Indebtedness” (as defined
in each Security Document), as applicable.

 

ARTICLE V

Representations and Warranties

 

5.1              Representations and Warranties of Borrower. Borrower hereby
represents and warrants to Lender that (a) the execution, delivery and
performance of this Facility B Agreement and any and all other Loan Documents
executed and/or delivered in connection herewith have been authorized by all
requisite action on the part of Borrower and will not violate any Organizational
Document of Borrower, (b) the representations and warranties contained in the
Credit Agreement, as amended hereby, and each other Loan Document are true and
correct on and as of the date hereof (both before and after giving effect to
this Facility B Agreement) as though made on and as of the date hereof, except
to the extent such representations and warranties speak to a specific date or
schedule attached to a Loan Document, (c) this Facility B Agreement constitutes
a valid and legally binding agreement enforceable against Borrower, (d) no
Default or Event of Default exists either before or after giving effect to this
Facility B Agreement, and (e) after giving effect to this Facility B Agreement,
Borrower is in full compliance with all covenants and agreements contained in
the Credit Agreement, and the other Loan Documents to which it is a party or it
or its property is subject.

 

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ARTICLE VI

Miscellaneous

 

6.1              Loan Document. This Facility B Agreement is a Loan Document.

 

6.2              Severability. The provisions of this Facility B Agreement are
intended to be severable. If for any reason any provision of this Facility B
Agreement shall be held invalid or unenforceable in whole or in part in any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective to
the extent of such invalidity or unenforceability without in any manner
affecting the validity or enforceability thereof in any other jurisdiction or
the remaining provisions hereof in any jurisdiction.

 

6.3              Counterparts. This Facility B Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any party hereto may execute this Facility B Agreement by
signing any such counterpart. Delivery of an executed counterpart of a signature
page of this Facility B Agreement by facsimile or in electronic (i.e., “pdf” or
“tif”) format shall be effective as delivery of a manually executed counterpart
of this Facility B Agreement.

 

6.4              GOVERNING LAW. THIS FACILITY B AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS. THE LOAN DOCUMENTS ARE PERFORMABLE IN SAN ANTONIO, BEXAR COUNTY,
TEXAS, AND BORROWER AND EACH OTHER OBLIGOR WAIVES THE RIGHT TO BE SUED
ELSEWHERE. BORROWER AND LENDER AGREE THAT THE STATE AND FEDERAL COURTS OF TEXAS
LOCATED IN SAN ANTONIO, TEXAS SHALL HAVE JURISDICTION OVER PROCEEDINGS IN
CONNECTION WITH THIS FACILITY B AGREEMENT AND THE OTHER LOAN DOCUMENTS.

 

6.5              WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY KNOWINGLY
VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT
PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM
ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED THEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER ENTERING
INTO THIS FACILITY B AGREEMENT AND MAKING ANY FACILITY B LOAN.

 

6.6              ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.

  

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Executed as of the date first written above.

 

BORROWER:       HALLMARK FINANCIAL SERVICES, INC.,   a Nevada corporation      
        By:     Print Name:     Print Title:  

  

Revolving Facility B Agreement – Signature Page

 

  

LENDER: FROST BANK,   a Texas state bank             By:     Print Name:      
Print Title:  

 

Revolving Facility B Agreement – Signature Page

 

 

EXHIBIT A

 

Facility B Note

 

Revolving Facility B Agreement – Exhibit A

 

 

 

[image_001.jpg]

 

PROMISSORY NOTE
(Facility B Note)

 

$30,000,000.00December 17, 2015

 

For value received, HALLMARK FINANCIAL SERVICES, INC., a Nevada corporation
(“Borrower”), does hereby promise to pay to the order of FROST BANK, a Texas
state bank (“Lender”), at P.O. Box 34746, San Antonio, Texas 78265, or at such
other address as Lender shall from time to time specify in writing, in lawful
money of the United States of America, the sum of THIRTY MILLION AND NO/100
DOLLARS ($30,000,000.00), or so much thereof as from time to time may be
disbursed by Lender to Borrower under the terms of the Revolving Facility B
Agreement dated of even date herewith, between Borrower and Lender (such
agreement, together with all amendments and restatements thereto, the
“Facility B Agreement”, capitalized terms not otherwise defined herein have the
meaning specified in the Facility B Agreement), and be outstanding, together
with interest from date hereof on the principal balance outstanding from time to
time as hereinafter provided. Interest shall be computed on a per annum basis of
a year of 360 days and for the actual number of days elapsed, unless such
calculation would result in a rate greater than the highest rate permitted by
Applicable Law, in which case interest shall be computed on a per annum basis of
a year of 365 days or 366 days in a leap year, as the case may be.

 

ARTICLE VII Payment Terms. Interest only on amounts outstanding hereunder shall
be due and payable quarterly as it accrues, on the first day of each and every
calendar quarter, beginning April 1, 2016, and continuing regularly and
quarterly thereafter until December 17, 2022, when the entire amount of
principal and accrued interest then remaining unpaid shall be then due and
payable; interest being calculated on the unpaid principal each day principal is
outstanding and all payments made credited to any collection costs and late
charges, to the discharge of the interest accrued and to the reduction of the
principal, in the order provided in the Facility B Agreement (subject to
Paragraph 7). Principal shall be payable as provided in Section 2.3 of the
Facility B Agreement.

 

ARTICLE VIII Late Charge. If a payment is made more than 10 days after it is
due, Borrower will be charged (subject to Paragraph 8), in addition to interest,
a delinquency charge of (a) 5% of the unpaid portion of the regularly scheduled
payment, or (b) $250.00, whichever is less. Additionally, upon maturity of this
Note, if the outstanding principal balance (plus all accrued but unpaid
interest) is not paid within 10 days of the maturity date, Borrower will be
charged (subject to Paragraph 8) a delinquency charge of (a) 5% of the sum of
the outstanding principal balance (plus all accrued but unpaid interest), or
(b) $250.00, whichever is less. Borrower agrees with Lender that the charges set
forth herein are reasonable compensation to Lender for the handling of such late
payments.

 

ARTICLE IX Interest Rate.

 

9.1              Subject to and in accordance with the terms of the Facility B
Agreement and Paragraphs 3(b) and 4 of this Note, (i) each Eurodollar Rate Loan
shall bear interest on the outstanding principal amount thereof from the
borrowing date, the effective date of the election by Borrower that the
Revolving Loan becomes a Eurodollar Rate Loan or such other date on which the
Revolving Loan becomes a Eurodollar Rate Loan (as applicable) to but not
including the date on which another interest rate becomes applicable to the
Revolving Loan pursuant to the terms of the Facility B Agreement at a rate per
annum equal to the lesser of (A) the Highest Lawful Rate and (B) the Eurodollar
Basis plus 3.00%, and (ii) each Prime Rate Loan shall bear interest on the
outstanding principal amount thereof from the borrowing date, the effective date
of the election by Borrower that the Revolving Loan becomes a Prime Rate Loan or
such other date on which the Revolving Loan becomes a Prime Rate Loan (as
applicable) to but not including the date on which another interest rate becomes
applicable to the Facility B Loan pursuant to the terms of the Facility B
Agreement at a rate per annum equal to the lesser of (A) the Highest Lawful Rate
and (B) the Prime Rate.

 

 

 

 

“Eurodollar Basis” means for any day a rate per annum equal to the “London
Interbank Offered Rate” for a three-month term, as published in The Wall Street
Journal (U.S. Edition) in the “London Interbank Offered Rates” column (or if The
Wall Street Journal (U.S. Edition) is not published on such day, in the issue
most recently published); provided, the Eurodollar Basis shall never be less
than a rate of 0.15% per annum. Borrower acknowledges that (a) if more than one
London Interbank Offered Rate is published at any time by The Wall Street
Journal, the highest of such London Interbank Offered Rates shall constitute the
London Interbank Offered Rate hereunder; provided, if the highest of such London
Interbank Offered Rates shall be less than 0.15% per annum, such rate shall be
deemed to be 0.15% per annum for purposes of this Note and each other Loan
Document, and (b) if at any time The Wall Street Journal ceases to publish a
London Interbank Offered Rate, Lender shall have the right to select a
substitute rate that Lender determines, in the exercise of its reasonable
commercial discretion, to be comparable to such London Interbank Offered Rate,
and the substituted rate as so selected, upon the sending of written notice
thereof to Borrower, shall constitute the London Interbank Offered Rate
hereunder; provided, if such substituted rate shall be less than 0.15% per
annum, such rate shall be deemed to be 0.15% per annum for purposes of this Note
and each other Loan Document. The Wall Street Journal London Interbank Offered
Rate is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any customer. Each determination by Lender of the
London Interbank Offered Rate shall be conclusive and binding absent manifest
error, and may be computed using any reasonable averaging and attribution
method.

 

9.2              If Lender has sent to Borrower the notice provided for in
either Section 4.2 or 4.3 of the Facility B Agreement, until Lender has notified
Borrower that the provisions Section 4.2 or 4.3 of the Facility B Agreement, as
appropriate, do not apply, interest on the outstanding and unpaid principal
balance hereof shall be computed at a per annum rate equal to the lesser of
(i) the Prime Rate and (ii) the Highest Lawful Rate, said rate to be effective
as provided in Section 2.7(b) of the Facility B Agreement, except as provided in
Paragraph 4.

 

“Prime Rate” means the maximum “latest” “U.S.” prime rate of interest per annum
published from time to time in the “Money Rates” section of The Wall Street
Journal (U.S. Edition) or in any successor publication to The Wall Street
Journal. Borrower understands that the Prime Rate may not be the best, lowest,
or most favored rate of Lender or The Wall Street Journal, and any
representation or warranty in that regard is expressly disclaimed by Lender.
Borrower acknowledges that (a) if more than one U.S. prime rate is published at
any time by The Wall Street Journal, the highest of such prime rates shall
constitute the Prime Rate hereunder and (b) if at any time The Wall Street
Journal ceases to publish a U.S. prime rate, Lender shall have the right to
select a substitute rate that Lender determines, in the exercise of its
reasonable commercial discretion, to be comparable to such prime rate, and the
substituted rate as so selected, upon the sending of written notice thereof to
Borrower, shall constitute the Prime Rate hereunder. Upon each increase or
decrease hereafter in the Prime Rate, the rate of interest upon the unpaid
principal balance hereof shall be increased or decreased by the same amount as
the increase or decrease in the Prime Rate, such increase or decrease to become
effective as of the day of each such change in the Prime Rate and without notice
to Borrower or any other Person.

 

ARTICLE X Default Rate. If an Event of Default exists, subject to the provisions
of Section 2.9 of the Facility B Agreement, and in addition to all other rights
and remedies of Lender hereunder, interest on the outstanding and unpaid
principal balance hereof shall be computed at a rate per annum equal to the
lesser of (a) the Eurodollar Rate in effect at such time plus 2% and (b) the
Highest Lawful Rate, but in no event in excess of the highest rate permitted by
Applicable Law, and such accrued interest shall be immediately due and payable.
Borrower acknowledges that it would be extremely difficult or impracticable to
determine Lender’s actual damages resulting from any event of default, and such
accrued interest is a reasonable estimate of those damages and does not
constitute a penalty.

 

  2 

 

 

ARTICLE XI Prepayment. Borrower reserves the right to prepay, prior to maturity,
all or any part of the principal of this Note without penalty. Any prepayments
shall be applied first to accrued interest and then to principal. Borrower will
provide written notice to the holder of this Note of any such prepayment of all
or any part of the principal at the time thereof. All payments and prepayments
of principal or interest on this Note shall be made in lawful money of the
United States of America in immediately available funds, at the address of
Lender indicated above, or such other place as the holder of this Note shall
designate in writing to Borrower. All partial prepayments of principal shall be
applied to the last installments payable in their inverse order of maturity.

 

ARTICLE XII Default. It is expressly provided that if an Event of Default exists
(except as provided in the last sentence of this Paragraph 6), the holder of
this Note may, at its option, without further notice or demand, (a) declare the
outstanding principal balance of and accrued but unpaid interest on this Note at
once due and payable, (b) refuse to advance any additional amounts under this
Note, (c) foreclose all Liens securing payment hereof, (d) pursue any and all
other rights, remedies and recourses available to the holder hereof, including
but not limited to any such rights, remedies or recourses under the Loan
Documents, at law or in equity, or (e) pursue any combination of the foregoing;
and in the event default is made in the prompt payment of this Note when due or
declared due, and the same is placed in the hands of an attorney for collection,
or suit is brought on same, or the same is collected through probate, bankruptcy
or other judicial proceedings, then Borrower agrees and promises to pay all
costs of collection, including Attorney Costs. Upon the occurrence of an Event
of Default specified in Section 9.1(e) or (f) of the Facility B Agreement, the
outstanding principal balance of and accrued but unpaid interest on this Note
shall thereupon and concurrently therewith become due and payable and the
Facility B Commitment shall forthwith terminate, all without any action by
Lender or any holder of this Note and without presentment, demand, protest or
other notice of any kind, all of which are expressly waived, anything in the
Loan Documents to the contrary notwithstanding.

 

ARTICLE XIII No Usury Intended; Usury Savings Clause. In no event shall interest
contracted for, charged or received hereunder, plus any other charges in
connection herewith which constitute interest, exceed the maximum interest
permitted by Applicable Law. The amounts of such interest or other charges
previously paid to the holder of this Note in excess of the amounts permitted by
Applicable Law shall be applied by the holder of this Note to reduce the
principal of the indebtedness evidenced by the Note, or, at the option of the
holder of this Note, be refunded. To the extent permitted by Applicable Law,
determination of the legal maximum amount of interest shall at all times be made
by amortizing, prorating, allocating and spreading in equal parts during the
period of the full stated term of the loan and indebtedness, all interest at any
time contracted for, charged or received from Borrower hereof in connection with
the loan and indebtedness evidenced hereby, so that the actual rate of interest
on account of such indebtedness is uniform throughout the term hereof.

 

ARTICLE XIV Security. This Note has been executed and delivered pursuant to the
Facility B Agreement, and is secured by, inter alia, the Loan Documents. The
holder of this Note is entitled to the benefits and security provided in the
Loan Documents.

 

ARTICLE XV Joint and Several Liability; Waiver. Each maker, signer, surety and
endorser hereof, as well as all heirs, successors and legal representatives of
said parties, shall be directly and primarily, jointly and severally, liable for
the payment of all indebtedness hereunder. Lender may release or modify the
obligations of any of the foregoing persons or entities, or guarantors hereof,
in connection with this Note without affecting the obligations of the others.
All such persons or entities expressly waive presentment and demand for payment,
notice of default, notice of intent to accelerate maturity, notice of
acceleration of maturity, protest, notice of protest, notice of dishonor, and
all other notices and demands for which waiver is not prohibited by Law, and
diligence in the collection hereof; and agree to all renewals, extensions,
indulgences, partial payments, releases or exchanges of collateral, or taking of
additional collateral, with or without notice, before or after maturity. No
delay or omission of Lender in exercising any right hereunder shall be a waiver
of such right or any other right under this Note.

 

  3 

 

 

ARTICLE XVI Texas Finance Code. In no event shall Chapter 346 of the Texas
Finance Code (which regulates certain revolving loan accounts and revolving
tri-party accounts) apply to this Note. To the extent that Chapter 303 of the
Texas Finance Code is applicable to this Note, the “weekly ceiling” specified in
such article is the applicable ceiling; provided that, if any Applicable Law
permits greater interest, the Law permitting the greatest interest shall apply.

 

ARTICLE XVII Governing Law, Venue. This Note is being executed and delivered,
and is intended to be performed in the State of Texas. Except to the extent that
the Laws of the United States may apply to the terms hereof, the substantive
Laws of the State of Texas shall govern the validity, construction, enforcement
and interpretation of this Note. In the event of a dispute involving this Note
or any other instruments executed in connection herewith, the undersigned
irrevocably agrees that venue for such dispute shall lie in any court of
competent jurisdiction in Bexar County, Texas.

 

ARTICLE XVIII Purpose of Loan. Borrower agrees that advances under this Note
shall be used solely for the purposes stated in the Facility B Agreement.

 

ARTICLE XIX Captions. The captions in this Note are inserted for convenience
only and are not to be used to limit the terms herein.

 

The Remainder of This Page Is Intentionally Left Blank.

  

  4 

 

 

  BORROWER:         HALLMARK FINANCIAL SERVICES, INC.,   a Nevada corporation  
            By:     Print Name:       Print Title:  

 

  5 

 

 

EXHIBIT B

Facility B Loan Notice

 

Revolving Facility B Agreement – Exhibit B

 

 

Facility B Loan Notice

 

Date: ___________, _____

 

To: Frost Bank

 

Ladies and Gentlemen:

 

Reference is made to the Revolving Facility B Agreement dated as of December 17,
2015 (such agreement, together with all amendments and restatements thereto, the
“Facility B Agreement”; the terms defined therein being used herein as therein
defined), between Hallmark Financial Services, Inc., as Borrower, and Frost
Bank, as Lender.

 

The undersigned hereby requests a Facility B Borrowing:

 

ARTICLE XX On ___________________ (a Business Day).

 

ARTICLE XXI In the amount of $ _______.

 

The undersigned hereby requests a change of the interest rate applicable to the
Facility B Loan on _________________ (a Business Day) (the “Effective Date”):

 

1. Existing loan type:

 

¨Eurodollar Rate Loan

 

¨Prime Rate Loan

 

2. Requested loan type (to be effective on Effective Date):

 

¨Eurodollar Rate Loan

 

¨Prime Rate Loan

 

The undersigned hereby certifies that the following statements are true on the
date hereof, and will be true on the date of the Facility B Borrowing, before
and after giving effect thereto and to the application of the proceeds thereof,
and before and after giving effect to the change of the interest rate applicable
to the Facility B Loan, as applicable:

 

21.1          the conditions precedent specified in Section 2.14 of the
Facility B Agreement have been satisfied with respect to the Facility B
Borrowing and will remain satisfied on the date of such Borrowing; and

 

21.2          after giving effect to the Facility B Borrowing, the Facility B
Outstanding Amount shall not exceed the Facility B Commitment.

 

The Facility B Borrowing requested herein complies with Section 2.1 and 2.2(a)
of the Facility B Agreement.

 

Revolving Facility B Agreement – Exhibit B

 

 

  HALLMARK FINANCIAL SERVICES, INC.,   a Nevada corporation               By:  
  Print Name:       Print Title:  

 

Revolving Facility B Agreement – Exhibit B