U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 1
Annual Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission file number 0-16090
HALLMARK FINANCIAL SERVICES, INC.
(Name of Small Business Issuer in Its Charter)
Nevada 87-0447375
(State or Other Jurisdiction (I.R.S. Employer I.D. No.)
of Incorporation or Organization)
14651 Dallas Parkway, Suite 900, Dallas, Texas 75240
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (972) 404-1637
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, American Stock Exchange Emerging Company
3 cents par value Marketplace
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes XX No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. Yes XX No
State issuer's revenues for its most recent fiscal year - $16,587,550.
State the aggregate market value of the voting stock held by non-affiliates
- - $4,258,823 as of March 19, 1999.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. Common Stock, 3 cents
par value - 11,048,133 shares outstanding as of March 19, 1999.
<PAGE>
This Amendment No. 1 amends and supplements the Annual Report on Form
10-KSB filed by Hallmark Financial Services, Inc. (the "Company") on March
29, 1999, by adding the information required by Items 9, 10, 11 and 12 of
Part III of Form 10-KSB.
Risks Associated with Forward-Looking Statements Included in this Form 10-
KSB/A
This Form 10-KSB/A contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934, which are intended to be covered by
the safe harbors created thereby. These statements include the plans and
objectives of management for future operations, including plans and
objectives relating to future growth of the Company's business activities
and availability of funds. The forward-looking statements included herein
are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and
market conditions, regulatory framework, and future business decisions, all
of which are difficult or impossible to predict accurately and many of
which are beyond the control of the Company. Although the Company believes
that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore,
there can be no assurance that the forward-looking statements included in
this Form 10-KSB will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein,
the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and
plans of the Company will be achieved.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Directors
Directors of the Company serve for annual terms or until their
successors are elected and qualify. Certain information concerning the
directors of the Company is set forth below:
<TABLE>
Director
Name Age Since Position(s) with the Company
<S> <C> <C> <S>
Ramon D. Phillips 65 1989 President, Chief Executive
Officer, Director and Chairman of
the Board of Directors
Linda H. Sleeper 51 1996 Executive Vice President, Chief
Operating Officer and Director
Raymond A. Kilgore 50 1988 Senior Vice President, Secretary
and Director
Jack R. Daugherty 51 1988 Director
Kenneth H. Jones, Jr. 64 1991 Director
<PAGE>
Samuel W. Rizzo 63 1991 Director
A. R. Dike 63 1993 Director
James H. Graves 50 1995 Director
George R. Manser 67 1995 Director
C. Jeffrey Rogers 51 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
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.
<PAGE>
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 Partner and Managing Director of J.C. Bradford &
Co., a Nashville based regional securities firm which provides investment
banking, underwriting and brokerage services. He serves as co-manager of
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
General Partner, Inc., which owns and franchises the Bonanza Family
Restaurant chain of restaurants.
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 65 President, Chief Executive Officer,
Director and Chairman of the Board of
Directors
Linda H. Sleeper 51 Executive Vice President, Chief
Operating Officer and Director
Raymond A. Kilgore 50 Senior Vice President, Secretary and
Director
Johnny J. DePuma 61 Senior Vice President and Chief
Financial Officer
</TABLE>
No executive officer bears any family relationship to any other
executive officer or director of the Company. (See "Directors" above for
information concerning the business experience of Ramon D. Phillips, Linda
H. Sleeper and Raymond A. Kilgore.)
<PAGE>
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.
Section 16(a) Beneficial Ownership Reporting Compliance
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, 1998.
Item 10. Executive Compensation.
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 $100,000 for fiscal 1998.
<TABLE>
Other All
Annual Other
Name Year Compen- Compen-
and Ended sation sation
Position Dec. 31 Salary ($) Bonus ($) $* $**
<S> <C> <C> <C> <C> <C>
Ramon D. Phillips 1998 217,463 -0- 10,000 20,257
President, Chief 1997 212,000 -0- 45,736 25,909
Executive Officer 1996 200,000 100,000 15,744 26,975
and Chairman of
the Board of
Directors
Linda H. Sleeper 1998 139,504 -0- -0- 4,500
Executive Vice 1997 133,923 -0- 736 7,500
President and 1996 130,000 70,000 744 6,750
Chief Operating
Officer
Raymond A. Kilgore 1998 99,376 -0- -0- 4,500
Senior Vice 1997 94,423 -0- 576 7,500
President and 1996 90,500 40,000 561 11,250
Secretary
Johnny J. DePuma 1998 108,731 -0- -0- -0-
Senior Vice 1997 103,923 -0- 638 -0-
President and 1996 100,000 40,000 620 -0-
Chief Financial
Officer
</TABLE>
<PAGE>
* Represents car allowance, life insurance allowance, premiums on long-
term disability insurance and the portion of premiums on a reverse split-
dollar insurance policy on the life of Ramon D. Phillips which are
considered compensation to Mr. Phillips for federal income tax purposes.
(See, Item 12--Certain Relationships and Related Transactions.)
** Represents director fees and the incremental annual increase in the
accrued cash surrender value of a reverse split-dollar insurance policy on
the life of Ramon D. Phillips which is payable to the estate of Mr.
Phillips in the event of his death. (See, "Director Compensation" below
and Item 12--Certain Relationships and Related Transactions.)
Option Grants in Last Fiscal Year
No stock options or stock appreciation rights were granted to the
Named Executive Officers during the fiscal year ended December 31, 1998.
Option Exercises in Last Fiscal Year and Fiscal Year-End Values
Shown below is information with respect to the Named Executive
Officers regarding option exercises during the fiscal year ended December
31, 1998, and the value of unexercised options held as of December 31,
1998.
<TABLE>
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options (#) Options ($)*
Shares
Acquired on Value
Name Exercise (#) Received
Exer- Unexer- Exer- Unexer-
cisable cisable cisable cisable
<S> <C> <C> <C> <C> <C> <C>
Ramon D.
Phillips** -0- -0- 200,000 -0- 12,500 -0-
Linda H.
Sleeper -0- -0- 200,000 -0- 12,500 -0-
Raymond A.
Kilgore** -0- -0- 200,000 -0- 12,500 -0-
Johnny J.
DePuma** -0- -0- 200,000 -0- 12,500 -0-
</TABLE>
* Values stated are pre-tax and are based upon the closing price of
$0.4375 per share of the Common Stock on the American Stock Exchange
Emerging Company Marketplace on December 31, 1998, the last trading day of
the fiscal year.
** Does not include certain warrants to purchase shares of the Company's
Common Stock issued in consideration of the agreement to pledge shares of
the Common Stock to secure a line of credit for the Company. (See, Item
12--Certain Relationships and Related Transactions.)
<PAGE>
Director Compensation
During the first three quarters of 1998, the Company paid 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 1998. Commencing in the fourth quarter of
1998, the Company suspended the payment of fees to directors.
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
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.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table and the notes thereto set forth certain
information regarding the beneficial ownership of the Common Stock as of
the date hereof, by (I) each director of the Company; (ii) all executive
officers and 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) 656,476 5.8
Raymond A. Kilgore (1) 603,047 5.4
Linda H. Sleeper (1) 203,000 1.8
Jack R. Daugherty (2) 276,768 2.5
Kenneth H. Jones, Jr. (3) 125,357 1.1
Samuel W. Rizzo (3, 4) 205,262 1.8
A. R. Dike (3) 116,000 1.0
James H. Graves (5) 172,500 1.5
George R. Manser (5, 6) 123,200 1.1
C. Jeffrey Rogers (5) 120,000 1.1
All executive officers and
directors, as a group
(11 persons) (7) 2,736,181 21.9
Derby Trust PLC (8) 1,838,000 16.6
Heartland Advisors, Inc. (9) 1,170,600 10.6
</TABLE>
1 Includes 200,000 shares which may be acquired pursuant to stock
options exercisable on the date hereof.
2 Includes 125,000 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the date hereof.
3 Includes 102,500 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the date hereof.
4 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.
5 Includes 95,000 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the date hereof.
6 Includes 9,000 shares held by Mr. Manser's spouse, over which shares
Mr. Manser shares voting and dispositive authority.
7 Includes 1,422,500 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the date hereof.
<PAGE>
8 As reported on Schedule 13D filed with the Securities and Exchange
Commission in February, 1996. The address for Derby Trust PLC is 1
Connaught Place, London W2 2DY, United Kingdom.
9 As reported on Schedule 13G filed with the Securities and Exchange
Commission on January 11, 1999. Includes 1,060,000 shares over which
Heartland Advisors, Inc. has no voting power. The address for Heartland
Advisors, Inc. is 790 North Milwaukee Street, Milwaukee, Wisconsin 53202.
In January 1999, the Company entered into a letter of intent with
Onyx Insurance Group, Inc. ("Onyx") pursuant to which Onyx would acquire a
majority stake in the Company in return for an approximately $8 million
equity investment. The letter of intent calls for Onyx to purchase
12,308,000 newly-issued shares of the Common Stock of the Company,
representing an approximate 52% ownership interest in the Company. The
completion of the proposed transaction remains subject to the execution of
definitive agreements, shareholder and regulatory approval and other
customary conditions.
Item 12. Certain Relationships and Related 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 through October 1,
1994, but were successively extended by the Board of Directors through
October 1, 1998. The exercise price of each Guaranty Warrant was $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 on the day
preceding the date of grant. In September 1998, the Board agreed to accept
shares of the Company s issued and outstanding Common Stock (valued for
such purpose at the last reported sale price of the Common Stock on the
American Stock Exchange Emerging Company Marketplace on the day preceding
exercise) in lieu of cash in payment of the exercise price of the Guaranty
Warrants.
On October 1, 1998, certain of the holders exercised their respective
Guaranty Warrants and delivered to the Company shares of the previously
issued and outstanding Common Stock. The following table indicates the
executive officers and directors who exercised Guaranty Warrants, the
number of shares of the Common Stock delivered in payment of the exercise
price and the number of shares issued upon exercise of the Guaranty
Warrants.
<PAGE>
<TABLE>
No. Of Shares
Warrant Recipient No. Of Shares Delivered Issued Upon Exercise
<S> <C> <C>
Ramon D. Phillips 176,990 309,733
Raymond A. Kilgore 161,219 282,133
Johnny J. DePuma 11,429 20,000
Jack R. Daugherty 61,467 107,567
Kenneth H. Jones, Jr. 9,143 16,000
Samuel W. Rizzo 28,572 50,000
</TABLE>
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.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HALLMARK FINANCIAL SERVICES, INC.
(Registrant)
Date: April 28, 1999 /s/ Ramon D. Phillips
Ramon D. Phillips, President (Chief
Executive Officer)
Date: April 28, 1999 /s/ Johnny J. DePuma
Johnny J. DePuma, Vice President
(Chief Financial Officer/Principal
Accounting Officer)
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: April 28, 1999 /s/ Ramon D. Phillips
Ramon D. Phillips, Director
Date: April 28, 1999 /s/ Linda H. Sleeper
Linda H. Sleeper, Director
Date: April 28, 1999 /s/ Raymond A. Kilgore
Raymond A. Kilgore, Director
Date: April 28, 1999 /s/ Jack R. Daugherty
Jack R. Daugherty, Director
Date: April 28, 1999 /s/ Kenneth H. Jones, Jr.
Kenneth H. Jones, Jr., Director
Date: April 28, 1999 /s/ Samuel W. Rizzo
Samuel W. Rizzo, Director
Date: April 28, 1999 /s/ A. R. Dike
A. R. Dike, Director
Date: April 28, 1999 /s/ James H. Graves
James H. Graves, Director
Date: April 28, 1999 /s/ C. Jeffrey Rogers
C. Jeffrey Rogers, Director
Date: April 28, 1999 /s/ George R. Manser
George R. Manser, Director
