Exhibit 10 (bh)
AMENDMENT NO. 3
Loan Agreement Between Hallmark Financial Services, Inc.
And Dorinco Reinsurance Company
This Amendment No. 3 is made and entered into effective as of
November 19, 1999, by and between Hallmark Financial Services, Inc., a
Nevada corporation (the "Borrower"), and Dorinco Reinsurance Company, a
Michigan corporation (the "Lender").
WHEREAS, Borrower and Lender have entered into a Loan Agreement
dated March 10, 1997, which Loan Agreement has previously been amended
by an Amendment No. 1 executed by Borrower on July 31, 1998 and by
Lender on August 14, 1998, and an Amendment Xx. 0 xxxxxxxxx xx xx Xxxxx
0, 0000 (xx amended, the "Agreement");
WHEREAS, Borrower has prepaid $3,966,670 of the original principal
amount of the Promissory Note and has executed a renewal Promissory
Note of even date herewith reflecting the new principal balance of
$3,033,330 and certain revised payment terms;
WHEREAS, Borrower and Lender desire to set forth certain
additional agreements and further amend the Agreement as provided
herein;
THEREFORE, in consideration of the mutual covenants contained
herein the parties hereby agree as set forth below.
A. Lender acknowledges receipt from Borrower of reduced monthly
principal payments on the Promissory Note of $20,000 on September 30
and October 31, 1999, as well as a principal prepayment of $3,966,670
on November 19, 1999. Lender hereby waives any default under the
Agreement resulting from such reduced monthly principal payments and
waives all prepayment penalties set forth in the Promissory Note.
B. Subsections 1.s. and 1.t. of the Agreement are hereby deleted
in their entirety.
C. Subsection 1.x. of the Agreement is hereby deleted in its
entirety and the following Subsection 1.x. is substituted in its place:
"x. 'Flatiron Documents' means that certain Sale
and Assignment Agreement and that certain Premium Receivable
Servicing Agreement, each dated to be effective as of
November 18, 1999, between HFC and FPF, Inc."
D. Subsection 1.z. of the Agreement is hereby deleted in its
entirety and the following Subsection 1.z. is substituted in its place:
"z. 'Outstanding Debt' means any obligation,
indebtedness or liability now or hereafter owed by HFC
pursuant to the Flatiron Documents."
E. Subsection 0.xx. of the Agreement is hereby deleted in its
entirety and the following Subsection 0.xx. is substituted in its
place:
"ac. 'Promissory Note' means the Promissory Note
dated November 19, 1999, in the original principal amount of
$3,033,330.00 from Borrower, as maker, payable to the order
of Lender, and all extensions, renewals, substitutions and
modifications thereof."
F. Section 2 of the Agreement is hereby deleted in its entirety
and the following Section 2 is substituted in its place:
"2. Promissory Note Commitment. Lender will loan to
Borrower the sum of $3,033,330.00 upon the terms and
conditions set forth in this Agreement and the Promissory
Note for the purposes set forth in Subsection 6.k. of this
Agreement."
G. The introductory paragraph of Section 3 of the Agreement is
hereby deleted in its entirety and the following introductory paragraph
of Section 3 is substituted in its place:
"3. Collateral. In order to secure the Indebtedness,
Borrower has caused ACO to pledge to Lender the Pledged Stock
pursuant to the terms of the Pledge Agreement attached hereto
as Exhibit B. Lender shall not presently have or claim any
security interest in the Restricted Stock. Upon the
occurrence of any "triggering event" specified below,
Borrower shall, and shall cause ACO to, within ten (10) days,
execute and deliver to Lender a Stock Pledge and Security
Agreement in substantially the same form as Exhibit B
(without any material change thereto) covering the Restricted
Stock, together with certificates representing the Restricted
Stock, and thereafter such Restricted Stock shall be deemed
Pledged Stock for purposes of this Agreement; provided,
however, that the pledge of the Restricted Stock to Lender
shall in all events be subject to any required regulatory
approval by the Commissioner or otherwise. For purposes of
this Section 3, a "triggering event" means:"
H. Subsections 3.c. and 3.d. of the Agreement are hereby deleted
in their entirety.
I. Subsection 4.e. of the Agreement is hereby deleted in its
entirety and the following Subsection 4.e. is substituted in its place:
"4. Conditions to this Agreement.
"e. Reinsurance Treaty. Borrower shall have caused
AH to offer, for the time period set forth in the table
contained in this paragraph, to reinsure a portion of its
Personal Lines Auto Quota Share Reinsurance with Lender, the
form and content of such reinsurance treaty to be
substantially similar to Exhibit D attached to and made a
part of this Agreement, in amounts sufficient to allow for
the following schedule of ceded premiums:
Treaty Years Ceded Premium
07/01/99 to 06/30/00 $ 9,000,000
07/01/00 to 06/30/01 $ 9,000,000
07/01/01 to 06/30/02 $ 9,000,000
07/01/02 to 06/30/03 $ 9,000,000
07/01/03 to 06/30/04 $ 9,000,000
Premiums ceded to Lender pursuant to a reinsurance treaty
with a managing general agency for whom Borrower or an
Affiliate serves as the program administrator or similar
function will not be counted toward satisfaction of the
foregoing schedule of ceded premiums."
J. The words "NationsBank Loan Documents" in Subsections 5.i.,
5.m. and 5.o.(ii) of the Agreement are hereby deleted and the words
"Flatiron Documents" substituted in their place.
K. Subsection 6.k. of the Agreement is hereby deleted in its
entirety and the following Subsection 6.k. is substituted in its place:
"6. Affirmative Covenants.
"k. Use of Proceeds. Borrower may use up to
$1,000,000 of the proceeds of the Promissory Note for the
general corporate purposes of Borrower including, without
limitation, the acquisition of computer hardware and
software. Borrower shall use the balance of the proceeds of
the Promissory Note to purchase additional shares of the
capital stock or otherwise contribute to the equity capital
of HFC."
L. Subsection 6.m.(i) of the Agreement is hereby deleted in its
entirety and the following Subsection 6.m.(i) is substituted in its
place:
"6. Affirmative Covenants.
"m. Statutory Capital and Surplus.
"(i) Borrower shall cause AH to maintain
Statutory Capital and Surplus of at least $4,000,000 as of
the date of each reporting period required by law or required
by the Texas Department of Insurance."
M. Subsection 6.m.(ii) of the Agreement is hereby deleted
in its entirety.
N. Subsection 6.o. of the Agreement is hereby deleted in its
entirety and the following Subsections 6.o. is substituted in its
place:
"6. Affirmative Covenants.
"o. Reinsurance Treaty. Borrower shall cause AH to
continue to offer, for the time period set forth in the table
contained in this paragraph, to reinsure a portion of its
Personal Lines Auto Quota Share Reinsurance with Lender,
the form and content of such reinsurance treaty to be
substantially similar to Exhibit D attached hereto, in
amounts sufficient to allow for the following schedule of
ceded premiums:
Treaty Years Ceded
Premium
07/01/99 to 06/30/00 $ 9,000,000
07/01/00 to 06/30/01 $ 9,000,000
07/01/01 to 06/30/02 $ 9,000,000
07/01/02 to 06/30/03 $ 9,000,000
07/01/03 to 06/30/04 $ 9,000,000
Premiums ceded to Lender pursuant to a reinsurance treaty
with a managing general agency for whom Borrower or an
Affiliate serves as the program administrator or similar
function will not be counted toward satisfaction of the
foregoing schedule of ceded premiums."
O. Subsection 7.a.(v) of the Agreement is hereby deleted in its
entirety.
P. The words "NationsBank Loan Documents" in Subsections 7.e and
7.g. of the Agreement are hereby deleted and the words "Flatiron
Documents" substituted in their place.
Q. Except as expressly amended hereby, all terms and conditions
of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No. 3 to be effective as of the date set forth above.
BORROWER:
HALLMARK FINANCIAL SERVICES, INC.
By:_________________________________
Name: Xxxxx X. Xxxxxxx
Title: Executive Vice President
LENDER:
DORINCO REINSURANCE COMPANY
By:_________________________________
Name: _____________________________
Title: _____________________________
