SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
[ ] Preliminary Proxy Statement
[ XX ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
HALLMARK FINANCIAL SERVICES, INC.
(Name of Registrant as Specified In Its Charter)
Hallmark Financial Services, Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ XX ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction
applies:
________________________________________________________
2) Aggregate number of securities to which transaction
applies:
________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: ___/
________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________
___/ Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:
_____________________________________________
2) Form, Schedule or Registration Statement No.:
_____________________________________________
<PAGE>
3) Filing Party:
_____________________________________________
4) Date Filed:
_____________________________________________
HALLMARK FINANCIAL SERVICES, INC.
14651 Dallas Parkway, Suite 900
Dallas, Texas 75240
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1998
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders
of Hallmark Financial Services, Inc. (the "Company") will be held at Hotel
Inter-Continental Dallas (formerly The Grand Kempinski Dallas), 15201
Dallas Parkway, Dallas, Texas, at 10:00 a.m., Dallas time, on Wednesday,
May 27, 1998, for the following purposes:
5) To elect ten directors to serve until the next Annual Meeting
of Shareholders or until their successors are duly elected and qualified;
6) To transact such other business that may properly come before
the meeting or any adjournment thereof.
Shareholders of record at the close of business on April 13, 1998,
are entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof.
All shareholders of the Company are cordially invited to attend the
Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Raymond A. Kilgore, Secretary
Dated: April 24, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE.
IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
<PAGE>
HALLMARK FINANCIAL SERVICES, INC.
14651 Dallas Parkway, Suite 900
Dallas, Texas 75240
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1998
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Hallmark Financial Services, Inc.,
a Nevada corporation (the "Company"), to be voted at the 1998 Annual
Meeting of Shareholders (the "Annual Meeting") to be held on Wednesday,
May 27, 1998, at the time and place and for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders (the "Notice"), and
at any adjournment(s) thereof. When proxies in the accompanying form are
properly executed and received, the shares represented thereby will be
voted at the Annual Meeting in accordance with the directions noted
thereon. If no direction is indicated on the proxy, the shares represented
thereby will be voted for the election of each of the nominees for director,
in favor of the other proposals set forth in the Notice and in the
discretion of the proxy holder on any other matter that<PAGE>
may properly come
before the meeting.
Submitting a proxy will not affect a shareholder's right to vote in
person at the Annual Meeting. Any shareholder who gives a proxy may revoke
it at any time before it is exercised by delivering written notice of
revocation to the Company, by substituting a new proxy executed on a later
date, or by making a written request in person at the Annual Meeting that
the proxy be returned. However, mere attendance at the Annual Meeting
will not of itself revoke the proxy.
All expenses of preparing, assembling and mailing this Proxy Statement
and the enclosed materials and all costs of soliciting proxies will be
paid by the Company. In addition to solicitation by mail, proxies may be
solicited by officers and regular employees of the Company by telephone or
in person. Such officers and employees who solicit proxies will receive
no compensation for their services other than their regular salaries.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of shares they hold, and the Company may reimburse them for
reasonable out-of-pocket expenses they incur in forwarding these materials.
The principal executive offices of the Company are located at 14651
Dallas Parkway, Suite 900, Dallas, Texas 75240. The Company's mailing
address is the same as that of its principal executive offices.
This Proxy Statement and the accompanying form of proxy are first
being mailed or given to shareholders on or about April 24, 1998. A copy
of the Company's Annual Report for the fiscal year ended December 31, 1997,
<PAGE>
is enclosed herewith, but constitutes no part of the materials used for
the solicitation of proxies.
PURPOSES OF THE MEETING
At the Annual Meeting, the shareholders of the Company will consider
and vote on the following matters:
7) Election of ten directors to serve until the next Annual
Meeting of Shareholders or until their successors are duly
elected and qualified;
8) Transaction of such other business as may properly come
before the meeting or any adjournment thereof.
QUORUM AND VOTING
The record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting was the close of business on
April 13, 1998 (the "Record Date"). On the Record Date, there were
10,662,277 shares of Common Stock of the Company, par value $0.03 per
share (the "Common Stock"), issued and outstanding, each of which is
entitled to one vote on all matters to be acted upon at the Annual Meeting.
There are no cumulative voting rights. The presence, in person or by
proxy, of holders of one-third of the outstanding shares of Common Stock
entitled to vote at the meeting is necessary to constitute a quorum to
transact business. Assuming the presence of a quorum, directors will be
elected by a plurality of the votes cast. The affirmative vote of the
holders of a majority of the shares of Common Stock actually voted will
be required for the approval of all other matters to come before the Annual
Meeting.
Abstentions and broker non-votes will be counted solely for purposes
of determining whether a quorum is present at the Annual Meeting. Pursuant
to the Bylaws of the Company, abstentions and broker non-votes will not be
counted in determining the number of shares voted on any matter and will
have no effect on the election of directors or the approval of any
proposal submitted to a vote of the shareholders at the Annual Meeting.
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table and the notes thereto set forth certain information
regarding the beneficial ownership of the Common Stock as of the Record
Date, by (I) each current director and nominee for director of the Company;
(ii) all executive officers and current directors of the Company as a
group; and (iii) each other person known to the Company to own beneficially
more than five percent of the presently outstanding Common Stock. Unless
otherwise indicated, the persons identified in the table have sole voting
and dispositive power with respect to the shares shown as beneficially
owned by them. The mailing address for all directors and executive
officers is the same as that of the Company.
<PAGE>
<TABLE>
No. of Shares Percent of Class
Shareholder Beneficially Owned Beneficially Owned
<S> <C> <C>
Ramon D. Phillips (1) 833,466 7.5
Raymond A. Kilgore (2) 764,266 6.9
Linda H. Sleeper (3) 203,000 1.9
Jack R. Daugherty (4) 323,235 3.0
Kenneth H. Jones, Jr. (5) 722,000 6.7
Samuel W. Rizzo (6) 221,334 2.0
A. R. Dike (7) 103,500 1.0
James H. Graves (8) 160,000 1.5
George R. Manser (9) 110,700 1.0
C. Jeffrey Rogers (8) 107,500 1.0
All executive officers and 3,707,501 29.0
current directors, as a group
(11 persons)(10)
Derby Trust PLC (11) 1,838,000 17.2
</TABLE>
(1) Includes 200,000 shares which may be acquired pursuant to stock
options exercisable on the Record Date and 309,733 shares which may be
acquired upon exercise of a Common Stock Purchase Warrant.
(2) Includes 200,000 shares which may be acquired pursuant to stock
options exercisable on the Record Date and 282,133 shares which may be
acquired upon exercise of a Common Stock Purchase Warrant.
(3) Includes 200,000 shares which may be acquired pursuant to stock
options exercisable on the Record Date.
(4) Includes 110,000 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the Record Date and
107,567 shares which may be acquired upon exercise of a Common Stock
Purchase Warrant.
(5) Includes 90,000 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the Record Date and
16,000 shares which may be acquired upon exercise of a Common Stock
Purchase Warrant. Also includes 600,000 shares held as trustee of
trusts for the benefit of children of Jack R. Daugherty, over which
shares Mr. Jones disclaims beneficial ownership.
(6) Includes 90,000 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the Record Date and
50,000 shares which may be acquired upon exercise of a Common Stock
Purchase Warrant. Also includes 5,000 shares held by Mr. Rizzo's
spouse, over which shares he exercises no voting or dispositive
authority, and 20,000 shares held by an irrevocable trust, over which
shares Mr. Rizzo shares voting and dispositive authority. Mr. Rizzo
disclaims beneficial ownership of all shares held by his spouse and such
trust.
(7) Includes 90,000 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the Record Date.
<PAGE>
(8) Includes 82,500 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the Record Date.
(9) Includes 82,500 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the Record Date. Also
includes 8,400 shares held by Mr. Manser's spouse, over which shares Mr.
Manser shares voting and dispositive authority.
(10) Includes 2,130,433 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the Record Date or upon
exercise of Common Stock Purchase Warrants.
(11) The address for Derby Trust PLC is 1 Connaught Place, London W2 2DY,
United Kingdom.
ELECTION OF DIRECTORS
(Item 1)
The Company's Board of Directors for the ensuing year will consist of
ten directors who are to be elected for a term expiring at the 1999 annual
meeting of the Company's shareholders or when their successors are elected
and qualify. Directors will be elected by a plurality of the votes cast at
the Annual Meeting. Cumulative voting is not permitted in the election of
directors.
The Company's Board of Directors has proposed the election of the
following slate of nominees for election as directors at the Annual Meeting.
None of the nominees was selected on the basis of any special arrangement
or understanding with any other person. None of the nominees bears any
family relationship to any other nominee or to any executive officer of
the Company. In the absence of instructions to the contrary, shares
represented by proxy will be voted for the election of each nominee named
below. Each nominee has accepted nomination and agreed to serve if
elected. If any nominee becomes unable to serve before election, shares
represented by proxy may be voted for the election of a substitute nominee
designated by the Board of Directors.
The Board of Directors recommends a vote FOR election of each
nominee below.
<PAGE>
<TABLE>
Director
Name Age Since Current Position(s) with the Company
<S> <C> <C> <S>
Ramon D.
Phillips 64 1989 President, Chief Executive Officer,
Director and Chairman of the Board of
Directors
Linda H. Sleeper 50 1996 Executive Vice President, Chief
Operating Officer and Director
Raymond A.
Kilgore 49 1988 Senior Vice President, Secretary
and Director
Jack R.
Daugherty 50 1988 Director
Kenneth H.
Jones, Jr. 63 1991 Director
Samuel W.
Rizzo 62 1991 Director
A. R. Dike 62 1993 Director
James H. Graves 49 1995 Director
George R. Manser 66 1995 Director
C. Jeffrey Rogers 50 1995 Director
</TABLE>
Ramon D. Phillips has served as President, Chief Executive Officer
and Chairman of the Board of Directors of the Company since May 1989. For
12 years before joining the Company, Mr. Phillips was an executive with
Pizza Inn, Inc., a restaurant chain, holding the positions of Vice
President - Finance (1977 - 1986), Executive Vice President (1986 - May
1989) and director (1979 - May 1989). Mr. Phillips was again elected to
Pizza Inn's board of directors in August 1990 and continues to serve in
that capacity.
Linda H. Sleeper joined the Company as Vice President of Corporate
Development and Administration in May 1993 and was promoted to Executive
Vice President and Chief Operating Officer in December 1994. From 1992
until May 1993, Ms. Sleeper was self-employed as a management consultant.
From 1989 until 1992, she served as a Vice President for Audisys
Corporation, a financial consulting firm, and was Senior Assistant
Treasurer of Southmark Corporation from 1988 until 1989. Ms. Sleeper held
various offices at Pizza Inn, Inc. from 1979 until 1988, completing her
tenure as Vice President of Finance. Ms. Sleeper was an accountant with
Peat, Marwick, Mitchell & Co. from 1975 until 1979. She is a certified
public accountant.
Raymond A. Kilgore has served as Senior Vice President of the Company
since December 1994. From February 1988 until December 1994, Mr. Kilgore
served as Vice President of the Company, and also served as interim Chief
<PAGE>
Executive Officer from August 1988 until May 1989. From 1985 until
February 1988, Mr. Kilgore was a Vice President of Cash America Investments,
Inc. (now known as Cash America International, Inc.) ("Cash America"),
a publicly held company operating pawn shops and jewelry stores.
Jack R. Daugherty founded Cash America in 1983 and has served as its
Chairman of the Board and Chief Executive Officer since that time.
Kenneth H. Jones, Jr. is a director and Vice-Chairman of KBK Capital
Corp., a publicly held corporation engaged in commercial finance, and has
served in such capacities since January 1995. For 25 years prior to
January 1995, Mr. Jones was in the private practice of law as a member of
the Fort Worth, Texas firm of Decker, Jones, McMackin, McClane, Hall &
Bates, P.C. or its predecessors, and remains "of counsel" with such firm.
Mr. Jones is also a director of AmeriCredit Corp., a publicly held company
engaged in automobile finance.
Samuel W. Rizzo has served as a consultant to Service Corporation
International ("SCI"), a publicly held funeral services company, since
1990. He served as Executive Vice President of SCI from 1990 until October
1995, as Chief Financial Officer of SCI from 1990 until February 1995, and
as Treasurer of SCI from 1993 until February 1995. Mr. Rizzo served as
Executive Assistant to the Chairman of the Board of SCI from 1987 to 1990.
He is also a director of Cash America and Tanknology Environmental, Inc.,
a publicly held company engaged in the environmental services business.
A. R. Dike has served as President and Chairman of Willis Corroon
Life Inc. of Texas, a multi-line insurance agency, since 1991. Mr. Dike
served as Chairman and Chief Executive Officer of The Insurance Alliance,
Inc. from 1988 to 1991. He is also a director of Cash America.
James H. Graves is a Managing Director and Partner of J.C. Bradford
& Co., a Nashville based regional securities firm which provides investment
banking, underwriting and brokerage services. He serves on the firm'
s Commitment Committee and jointly heads the Corporate Finance Department,
which provides general investment banking services for corporate clients.
In this capacity, Mr. Graves has rendered advisory services to the Company.
Prior to joining J.C. Bradford & Co. in 1991, Mr. Graves had for 11 years
been employed by Dean Witter Reynolds, where he completed his tenure as
the head of the Special Industries Group in New York City.
George R. Manser is Director of Corporate Finance of Uniglobe Travel
USA, L.L.C., a franchisor of travel agencies. Mr. Manser also presently
serves as a director of Cardinal Health, Inc., Check-Free Systems, Inc.,
AmerLink Corp. and State Auto Financial Corp., and is an advisory director
of J.C. Bradford & Co. From 1984 to 1994, Mr. Manser also served as a
director and Chairman of North American National Corporation and its
subsidiaries, Pan-Western Life Insurance Company, Brookings International
Life Insurance Company and Howard Life Insurance Company. During this
period, he also served as the Chairman and a director of National Masonic
Provident Association and as a director of DevelopMed Associates, Inc.
C. Jeffrey Rogers is Vice Chairman, President, Chief Executive
Officer and a director of Pizza Inn, Inc., which owns, franchises and
supplies a chain of pizza restaurants located in the United States and
various foreign countries. Prior to joining Pizza Inn, Inc. in 1989, Mr.
Rogers was President, Chief Executive Officer and a director of USA Cafes
<PAGE>
General Partner, Inc., which owns and franchises the Bonanza Family
Restaurant chain of restaurants.
Board Committees and Meetings
Standing committees of the Board of Directors of the Company include
the Executive Committee, the Audit Committee, the Compensation Committee,
the Stock Option Committee and the Nominating Committee.
The Executive Committee is presently composed of Messrs. Jones
(chairman), Phillips, Dike and Rogers. Between meetings of the Board of
Directors, the Executive Committee has the full power and authority of the
Board in the management of the business and affairs of the Company, except
to the extent limited by statute and the Bylaws of the Company. The
Executive Committee meets periodically between meetings of the Board of
Directors and held four such meetings during 1997.
The Audit Committee is presently composed of Messrs. Rizzo
(chairman), Jones, Graves and Manser. The Audit Committee consults with
management regarding reports and recommendations submitted by the Company's
independent auditors, reviews the independent auditors' billings, and makes
recommendations to the full Board with respect to the engagement or
dismissal of independent auditors. The Audit Committee met twice during
1997.
The Compensation Committee is presently composed of Messrs. Graves
(chairman), Daugherty and Dike. At the direction of the full Board, this
committee reviews and makes recommendations with respect to compensation of
the executive officers of the Company. The Compensation Committee did not
meet during 1997.
The Stock Option Committee is presently composed of Messrs. Graves
(chairman), Daugherty and Dike. The Stock Option Committee administers the
Company's 1991 Key Employee Stock Option Plan and 1994 Key Employee Long
Term Incentive Plan, including the determination of participants therein
and the grant of options thereunder. The Stock Option Committee did not
meet during 1997, but approved certain matters by the unanimous written
consent of its members.
The Nominating Committee was formed during 1997 and is presently
composed of Messrs. Rogers (chairman) and Daugherty. The Nominating
Committee investigates and recommends to the Board of Directors qualified
nominees for election to the Board. The Nominating Committee has not yet
implemented procedures for consideration of nominees submitted by
shareholders of the Company. The Nominating Committee did not meet during
1997.
The Board of Directors held four meetings during 1997. Various
matters were also approved by the unanimous written consent of the Board of
Directors during the last fiscal year. Each director attended at least 75%
of the aggregate of (i) the total number of meetings of the Board of
Directors and (ii) the total number of meetings held by all committees of
the Board on which such director served.
<PAGE>
Director Compensation
The Company pays all directors a fee of $1,500 for each Board meeting
attended and a fee of $750 for each committee meeting attended. No other
compensation was paid to any non-employee director during 1997.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The Company's executive officers, directors and beneficial owners of
more than 10% of the Company's Common Stock are required to file reports of
ownership and changes of ownership of the Common Stock with the Securities
and Exchange Commission.
Based solely upon information provided to the Company by individual
directors, executive officers and beneficial owners, the Company believes
that all such reports were timely filed during and with respect to the
fiscal year ended December 31, 1997, except that, to the Company's
knowledge, Derby Trust PLC did not file any reports under Section 16(a).
EXECUTIVE OFFICERS AND COMPENSATION
Executive Officers
The following persons are the executive officers of the Company:
<TABLE>
Name Age Position(s) with the Company
<S> <C> <S>
Ramon D.
Phillips 64 President, Chief Executive Officer, Director
and Chairman of the Board of Directors
Linda H. Sleeper 50 Executive Vice President, Chief Operating
Officer and Director
Raymond A.
Kilgore 49 Senior Vice President, Secretary and Director
Johnny J.
DePuma 60 Senior Vice President and Chief Financial
Officer
</TABLE>
No executive officer bears any family relationship to any other
executive officer or to any director or nominee for director of the
Company. Information concerning the business experience of Ramon D.
Phillips, Linda H. Sleeper and Raymond A. Kilgore is provided under
Election of Directors.
Johnny J. DePuma joined the Company in August 1990 as Vice President
and Chief Financial Officer and was promoted to his present position in
December 1994. For the 10 years prior to joining the Company, he was Vice
President and Chief Financial Officer of HiLite Industries, Inc., a
manufacturer of original equipment auto parts.
<PAGE>
Summary Compensation Table
The following table sets forth certain information concerning
compensation of the Chief Executive Officer and certain other executive
officers of the Company (the "Named Executive Officers") for the last three
fiscal years. No other executive officer's salary and bonus totaled more
than $100,000 for fiscal 1997.
<TABLE>
Name and Year Other Annual All Other
Principal Ended Salary Bonus Compensation Compensation
Position Dec.31 ($) ($) ($)1 ($)2
<S> <C> <C> <C> <C> <C>
Ramon D.
Phillips 1997 212,000 -0- 45,736 25,909
President,
Chief
Executive 1996 200,000 100,000 15,744 26,975
Officer and
Chairman
of the Board
of Directors 1995 174,667 -0- 2,624 15,608
Linda H.
Sleeper 1997 133,923 -0- 736 7,500
Executive
Vice President
and 1996 130,000 70,000 744 6,750
Chief Operating
Officer 1995 107,083 -0- -0- -0-
Raymond A.
Kilgore 1997 94,423 -0- 576 7,500
Senior Vice
President and 1996 90,500 40,000 561 11,250
Secretary
1995 90,500 -0- -0- 8,000
Johnny J.
DePuma 1997 103,923 -0- 638 -0-
Senior Vice
President 1996 100,000 40,000 620 -0-
and Chief
Financial
Officer 1995 100,000 -0- -0- -0-
</TABLE>
(1) Represents car allowance, life insurance allowance premiums on long-
term disability insurance and the portion of premiums on a reverse split-
dollar insurance policy on the life of Ramon D. Phillips which are
considered compensation to Mr. Phillips for federal income tax purposes.
See, Certain Transactions.
(2) Represents director fees and the incremental annual increase in the
accrued cash surrender value of a reverse split-dollar insurance policy on
the life of Ramon D. Phillips which is payable to the estate of Mr. Phillips
<PAGE>
in the event of his death. See, Election of Directors and Certain
Transactions.
Option Grants in Last Fiscal Year
No stock options or stock appreciation rights were granted to the
Named Executive Officers during the fiscal year ended December 31, 1997.
Option Exercises in Last Fiscal Year and Fiscal Year-End Values
Shown below is information with respect to the Named Executive
Officers regarding option exercises during the fiscal year ended December
31, 1997, and the value of unexercised options held as of December 31,
1997.
<TABLE>
Value of Unexercised
Securities Underlying In the Money
Shares Unexercised Options (#) Options ($) (1)
Acquired on Value Exer- Unexer- Exer- Unexer-
Name Exercise (#) Received cised cisable cised cisable
<S> <C> <C> <C> <C> <C> <C>
Ramon D.
Phillips(2) -0- -0- 200,000 -0- 162,500 -0-
Linda H.
Sleeper -0- -0- 200,000 -0- 162,500 -0-
Raymond A.
Kilgore(2) -0- -0- 200,000 -0- 162,500 -0-
Johnny J.
DePuma(2) -0- -0- 200,000 -0- 162,500 -0-
</TABLE>
(1) Values stated are pre-tax and are based upon the closing price of
$1.1875 per share of the Common Stock on the American Stock Exchange
Emerging Company Marketplace on December 31, 1997, the last trading day of
the fiscal year.
(2) Does not include certain warrants to purchase shares of the Company's
Common Stock issued in consideration of the agreement of Messrs. Phillips,
Kilgore and DePuma to pledge their respective shares of the Common Stock
to secure a line of credit for the Company. See, Certain Transactions.
Executive Compensation Agreements
The Company has entered into an Executive Compensation Agreement with
each of Ramon D. Phillips, Raymond A. Kilgore, Linda H. Sleeper and Johnny
J. DePuma. Each agreement is for a two year term, which term is
automatically extended by an additional year on the first day of each
calendar year unless notice has previously been given to the executive that
the agreement will not be so renewed. The Executive Compensation Agreement
with the Chief Executive Officer specifies minimum levels of base salary
and benefits and provides for various performance bonuses. The agreement
with each other executive officer provides for compensation and bonus as
determined by the Chief Executive Officer, subject to review by the Board
<PAGE>
or the Compensation Committee. Each agreement includes covenants of the
executive to at all times maintain the confidentiality of the Company's
trade secrets and not to compete with the Company during the term of
employment and for two years thereafter.
Pursuant to these agreements, if the Company terminates the executive
without "cause" (as defined therein), or the executive resigns within six
months after a "change of control" (as defined therein), the Company is
obligated to pay the executive a lump sum cash payment equal to two times
(three times in the case of the Chief Executive Officer) the sum of (a)
the executive's then current annual salary (but not less than the
executive's highest annual salary during the preceding three fiscal years),
plus (b) the highest amount of bonus and other cash compensation received
by the executive during any one of the three preceding fiscal years. In
addition, all incentive stock options granted under the Company's 1991 Key
Employee Stock Option Plan and 1994 Key Employee Long Term Incentive Plan
provide for accelerated vesting in the event of a change of control of the
Company.
CERTAIN TRANSACTIONS
Guaranty Warrants
In October 1992, the Company issued to its executive officers and
directors warrants (the "Guaranty Warrants") to purchase shares of its
Common Stock in consideration for the recipients' agreement to pledge
shares of the Company's Common Stock owned by them to secure a working
capital line of credit from a commercial bank. The bank advised management
that the pledges were necessary in view of regulatory restrictions on the
Company's ability to grant security interests in the stock or assets of its
insurance subsidiary.
The Guaranty Warrants were originally exercisable between October 2,
1992 and October 1, 1994. In March 1994, the Board of Directors extended
the exercisability of the Guaranty Warrants through October 1, 1996. In
March 1996, the Board of Directors again extended the exercisability of the
Guaranty Warrants through October 1, 1998, at which time they will expire
to the extent not exercised. The exercise price of each Guaranty Warrant
is $0.50 per share, an amount equal to the last reported sale price of the
Common Stock on the American Stock Exchange Emerging Company Marketplace
prior to October 2, 1992. The Guaranty Warrants are not transferrable,
except to the estate of a deceased recipient.
The following table indicates the current executive officers and
directors holding Guaranty Warrants, the number of shares of the Common
Stock pledged by the recipient and the number of shares issuable upon
exercise of the Guaranty Warrants.
<TABLE>
No. Of Shares
Warrant Recipient No. Of Shares Pledged Issuable Upon Exercise
<S> <C> <C>
Ramon D. Phillips 309,733 309,733
Raymond A. Kilgore 282,133 282,133
Johnny J. DePuma 20,000 20,000
Jack R. Daugherty 107,567 107,567
Kenneth H. Jones, Jr. 16,000 16,000
Samuel W. Rizzo 50,000 50,000
</TABLE>
<PAGE>
Split-Dollar Life Insurance
In April 1991, the Company entered into a Reverse Split-Dollar
Agreement (the "Split-Dollar Agreement") with Ramon D. Phillips with respect
to a so-called reverse split-dollar life insurance policy on Mr. Phillips.
The Split-Dollar Agreement obligates the Company to pay the entire premium
for the policy while the Split-Dollar Agreement is in effect. The policy
provides for the death benefits to be divided between the policy's
$1,000,000 face amount and its accrued cash surrender value. The Company
was designated as beneficiary of the face amount of the policy and Mr.
Phillips' estate was designated as beneficiary of the accrued cash
surrender value of the policy.
Mr. Phillips owns the policy, but the Split-Dollar Agreement restricts
all his ownership rights except the right to borrow against the policy's
cash surrender value. The Split-Dollar Agreement provides that Mr. Phillips
may not change the beneficiary of the face amount benefit or surrender the
policy for its cash value while the Split-Dollar Agreement is in effect.
The Split-Dollar Agreement may be terminated by either party as of the end
of any policy year and will automatically terminate upon Mr. Phillips'
retirement, resignation or discharge, with or without cause.
OTHER BUSINESS
(Item 2)
The Board of Directors knows of no other business to be brought
before the Annual Meeting. If, however, any other business should properly
come before the Annual Meeting, the persons named in the accompanying proxy
will vote the proxy as they in their discretion may deem appropriate, unless
they are directed by the proxy to do otherwise.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Coopers & Lybrand ("C&L") as
independent certified public accountants to audit the consolidated financial
statements of the Company for the 1998 fiscal year. C&L also reported on
the Company's consolidated financial statements for the fiscal years ended
December 31, 1997, 1996 and 1995. Representatives of C&L are expected to
be present at the Annual Meeting, will have the opportunity to make a
statement if they so desire and are expected to be available to respond
to appropriate questions from shareholders.
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Any shareholder desiring to submit a proposal for inclusion in the
proxy material relating to the 1999 annual meeting of shareholders must do
so in writing. The proposal must be received at the Company's principal
executive offices by December 25, 1998.
By Order of the Board of Directors
Raymond A. Kilgore, Secretary
April 24, 1998
Dallas, Texas
<PAGE>
[FRONT]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
HALLMARK FINANCIAL SERVICES, INC.
TO BE HELD MAY 27, 1998
The undersigned hereby appoints Ramon D. Phillips and Raymond A.
Kilgore, and each of them individually, as the lawful agents and Proxies
of the undersigned, with full power of substitution, and hereby authorizes
each of them to represent and to vote, as designated below, all the shares
of Common Stock of Hallmark Financial Services, Inc. held of record by the
undersigned on April 13, 1998, at the Annual Meeting of Shareholders to be
held at 10:00 a.m. on May 27, 1998, or at any adjournment thereof.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as marked to the all nominees listed below
contrary)
INSTRUCTIONS: To withhold authority to vote for any nominee, mark the
space beside the nominee's name with an "X".
Ramon D. Phillips _____ Samuel W. Rizzo _____
Linda H. Sleeper _____ A. R. Dike _____
Raymond A. Kilgore _____ James H. Graves _____
Jack R. Daugherty _____ George R. Manser _____
Kenneth H. Jones _____ C. Jeffrey Rogers _____
2. In their discretion, the Proxies are authorized to vote on any other
matter which may properly come before the Annual Meeting or any adjournment
thereof.
When properly executed, this proxy will be voted in the manner
directed herein by the undersigned shareholder. IF NO DIRECTION IS
SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS PROPOSED
IN ITEM 1.
The undersigned hereby revokes all previous proxies relating to the
shares covered hereby and confirms all that said Proxies may do by virtue
hereof.
<PAGE>
[BACK]
Please sign exactly as your name appears below. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Date:____________, 1998 _________________________________
Signature
PLEASE MARK, SIGN, DATE
AND RETURN THE PROXY
CARD PROMPTLY, USING
THE ENCLOSED ENVELOPE.
_________________________________
Signature, if held jointly
PLEASE CHECK THIS BOX IF YOU INTEND TO BE PRESENT AT THE ANNUAL
MEETING OF SHAREHOLDERS. [ ]
