SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. )
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e) (2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
(Name of Registrant as Specified In Its Charter)
HALLMARK FINANCIAL SERVICES, INC.
___________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, If Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
___________________________________________________________________________
(2) Aggregate numer of securities to which transactions applies:
___________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
___________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
___________________________________________________________________________
(5) Total Fee Paid
___________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] 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:
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(3) Filing Party:
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(4) Date Filed:
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HALLMARK FINANCIAL SERVICES, INC.
14651 Dallas Parkway, Suite 900
Dallas, Texas 75240
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 23, 2001
_______________________
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 2001 Annual Meeting
of Shareholders (the "Annual Meeting") to be held on Wednesday, May 23,
2001, 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 and in the
discretion of the proxy holder on any other matter that 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 27, 2001. A copy of the
Company's Annual Report for the fiscal year ended December 31, 2000, is
enclosed herewith. Except as expressly incorporated by reference herein,
such Annual Report does not constitute a 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:
1. Election of six directors to serve until the next annual
meeting of shareholders or until their successors are duly elected and
qualified; and
2. 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 11, 2001 (the "Record Date"). On the Record Date, there were
11,049,133 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. Except as otherwise indicated, the mailing address for all
directors and executive officers is the same as that of the Company.
No. of Shares Percent of Class
Shareholder Beneficially Beneficially
Owned Owned
----------------------- ------------ ------------
Ramon D. Phillips 1 776,476 6.8
Linda H. Sleeper 1 323,000 2.8
Raymond A. Kilgore 2 623,047 5.5
James H. Graves 3 235,000 2.1
George R. Manser 3, 4 185,700 1.7
C. Jeffrey Rogers 3 182,500 1.6
Scott T. Berlin 5 -0- -0-
Mark E. Schwarz 6 1,708,901 15.5
All executive officers
and current directors,
as a group (9 persons) 7 4,284,195 34.0
Derby Trust PLC 8 1,838,000 16.6
Thomas G. Berlin 9 1,111,900 10.1
------------------------
1 Includes 320,000 shares which may be acquired pursuant to stock options
exercisable on or within 60 days after the Record Date.
2 Includes 220,000 shares which may be acquired pursuant to stock options
exercisable on or within 60 days after the Record Date.
3 Includes 157,500 shares which may be acquired pursuant to stock options
exercisable on or within 60 days after the Record Date.
4 Includes 9,000 shares held by Mr. Manser's spouse, over which shares
Mr. Manser shares voting and dispositive authority.
5 Mr. Berlin disclaims beneficial ownership of all shares owned by his
parents, Mr. & Mrs. Thomas G. Berlin.
6 Represents shares owned by Newcastle Partners, L.P., a limited
partnership in which Mr. Schwarz serves as the sole general partner.
The address for Newcastle Partners, L.P. is 200 Crescent Court, Suite
670, Dallas, Texas 75201.
7 Includes 1,552,500 shares which may be acquired pursuant to stock
options exercisable on or within 60 days after the Record Date.
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 21, 2000. Includes 40,600 shares over which Mr.
Berlin shares voting and dispositive power with his spouse. The
address for Mr. Berlin is 37500 Eagle Road, Willoughby Hills, Ohio
44094. Thomas G. Berlin is the father of Scott T. Berlin.
ELECTION OF DIRECTORS
(Item 1)
At the Annual Meeting, six directors will be elected for a term
expiring at the 2002 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.
Except as discussed below, 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.
Ramon D. Phillips, currently the Chairman of the Board and formerly the
President and Chief Executive Officer of the Company, has previously
announced his planned retirement. At the request of the Board of Directors,
Mr. Phillips has agreed to remain as Chairman of the Board for an
indeterminate period to assist in the assimilation of new Board members.
However, Mr. Phillips does not expect to complete his term and will vacate
his position as a director not later than December 31, 2001, or at such
earlier time as the remaining directors determine his service is no longer
required to complete the contemplated transition.
The Board of Directors recommends a vote FOR election of each nominee
below.
Director
Name Age Since Current Position(s) with the Company
----------------- --- -------- --------------------------------------
Ramon D. Phillips 67 1989 Director and Chairman of
the Board
Linda H. Sleeper 53 1996 President, Chief Executive
Officer and Director
James H. Graves 52 1995 Director
George R. Manser 69 1995 Director
Scott T. Berlin 31 2001 Director
Mark E. Schwarz 40 2001 Director
Ramon D. Phillips served as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company from 1989 until commencing
a planned transfer of management responsibilities during 2000. 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 (1986-1989) and director (1979-1989).
Mr. Phillips was again elected to Pizza Inn's board of directors in 1990
and continues to serve in that capacity.
Linda H. Sleeper was elected President and Chief Executive Officer
during 2000 as part of the planned transfer of management responsibilities
from Mr. Phillips. Ms. Sleeper joined the Company as Vice President of
Corporate Development and Administration in 1993 and was promoted to
Executive Vice President and Chief Operating Officer in 1994. From 1992
until 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.
James H. Graves is Managing Director of UBS Warburg, Inc., an
international financial services firm which provides investment banking,
underwriting and brokerage services. He was a Managing Director of Paine
Webber Group Inc. prior to its acquisition by UBS Warburg in November 2000,
and was Chief Operating Officer of J.C. Bradford & Co. at the time of its
acquisition by Paine Webber Group Inc. in June 2000. Mr. Graves had
previously served as Managing Director of J.C. Bradford & Co. and co-manager
of its Corporate Finance Department. In these capacities, 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. Mr. Graves also serves as a director of
Cash America International, Inc.
George R. Manser is Chairman of Uniglobe Travel (Capital Cities), Inc.,
a franchisor of travel agencies, President of Concorde Holding Co., a
private investment management company, and a director of State Auto
Financial Corp., an insurance holding company that engages primarily in the
property and casualty insurance business. Prior to his retirement in 2000,
Mr. Manser also served as a director of CheckFree Corporation, a provider of
financial electronic commerce services, software and related products, and
as an advisory director of J.C. Bradford & Co. From 1995 to 1999, Mr.
Manser served as the Director of Corporate Finance of Uniglobe Travel USA,
L.L.C., a franchisor of travel agencies, and also served as a director of
Cardinal Health, Inc. and AmerLink Corp. From 1984 to 1994, he 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.
Scott T. Berlin was elected by the incumbent directors of the Company
to fill a vacancy created by increasing the number of directors constituting
the Board of Directors effective January 1, 2001. He is a Senior Vice
President focused on the corporate finance and mergers/acquisitions practice
at Brown, Gibbons, Lang & Company, an investment banking firm serving middle
market companies. Prior to joining Brown, Gibbons, Lang & Company in 1997,
Mr. Berlin was a lending officer in the Middle Market Group at The Northern
Company.
Mark E. Schwarz was elected by the incumbent directors of the Company
to fill a vacancy created by increasing the number of directors constituting
the Board of Directors effective January 1, 2001. Mr. Schwarz has served
since 1993 as the sole general partner of Newcastle Partners, L.P., a
private investment firm. Since 2000, he has also served as the President
and sole Managing Member of Newcastle Capital Group, L.L.C., the general
partner of Newcastle Capital Management, L.P., a private investment
management firm. From 1995 until 1999, Mr. Schwarz was also a Vice
President of Sandera Capital Management, L.L.C., a private investment firm
associated with the Lamar Hunt family. From 1993 until 1996, Mr. Schwarz
was a securities analyst and portfolio manager for SCM Advisors, L.L.C., an
investment advisory firm. Mr. Schwarz presently serves as a director of
Bell Industries, Inc., a company primarily engaged in providing computer
systems integration services, and Tandycrafts, Inc., a manufacturer of
frames, framed art, mirrors, and other wall decor products. He is also a
nominee for election as a director of Nashua Corporation, a manufacturer of
specialty papers, labels and printing supplies. Mr. Schwarz was a director
of Aydin Corporation, a defense electronics manufacturer, from 1998 until
its acquisition by L-3 Communications Corporation in 1999.
Board Committees and Meetings
Standing committees of the Board of Directors of the Company include
the Audit Committee, the Compensation Committee and the Stock Option
Committee. During 2000, each of these committees was composed of James H.
Graves, George R. Manser and C. Jeffrey Rogers. Scott T. Berlin and Mark E.
Schwarz were elected to the Board effective January 1, 2001, and have not
yet been assigned to any of the standing committees. Following the 2001
Annual Meeting, the Board of Directors intends to make new committee
assignments.
Mr. Graves is the current chairman of the Audit Committee. The Audit
Committee oversees management's conduct of the financial reporting process
of the Company, including reviewing the Company's financial reports,
internal controls, independent audits and legal compliance. See, Audit
Committee Report. The Audit Committee met three times during 2000.
Mr. Rogers was the chairman of the Compensation Committee and the Stock
Option Committee during 2000, but withdrew from both committees effective
January 1, 2001. At the direction of the full Board, the Compensation
Committee reviews and makes recommendations with respect to compensation
of the executive officers of the Company. 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. Neither the
Compensation Committee nor the Stock Option Committee met during 2000, but
did approve certain matters by unanimous written consent.
During 2000, the full Board of Directors acted in place of a Nominating
Committee to investigate qualified nominees for election to the Board. The
Board has not implemented any formal procedures for consideration of
nominees submitted by shareholders of the Company.
The Board of Directors held four meetings during 2000. 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.
Director Compensation
In consideration of their service on the Board during 2000, each non-
employee director was granted a non-qualified option to purchase 50,000
shares of the Common Stock at an exercise price of $0.375, which was the
fair market value of the Common Stock on the date of grant. Effective the
fourth quarter of 2000, the Company commenced paying the non-employee
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 2000.
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, 2000.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors of the Company is
composed of three independent directors and operates under a written charter
adopted by the Board of Directors in accordance with applicable rules of the
Securities and Exchange Commission and the American Stock Exchange. A copy
of the Audit Committee Charter is included as Exhibit A to this Proxy
Statement.
The primary purpose of the Audit Committee is to assist the Board in
fulfilling its responsibility to oversee management's conduct of the
Company's financial reporting process. In discharging its oversight role,
the Audit Committee is empowered to investigate any matter brought to its
attention with full access to all books, records, facilities and personnel
of the Company and is authorized to retain outside counsel, auditors or
other experts for this purpose. Subject to any action that may be taken by
the full Board, the Audit Committee also has the authority and
responsibility to select, evaluate and, where appropriate, replace the
Company's independent certified public accountants.
The Company's management is responsible for preparing the Company's
financial statements and the independent accountants are responsible for
auditing those financial statements. The role of the Audit Committee is to
monitor and oversee these processes.
In this context, the Audit Committee has reviewed and discussed the
consolidated financial statements with both management and the independent
accountants. The Audit Committee also discussed with the independent
accountants the matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees). The Audit Committee
received from the independent accountants the written disclosures required
by Independence Standards Board Standard No. 1 (Independence Discussions
with Audit Committees), and the Audit Committee discussed with the
independent accountants their independence.
Based upon the Audit Committee's review and discussions with management
and the independent accountants, the Audit Committee recommended to the
Board of Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission for the year ended December 31, 2000. The Audit
Committee also retained PricewaterhouseCoopers LLP as the Company's
independent accountants for the 2001 fiscal year.
Audit Committee: James H. Graves, George R. Manser, C. Jeffrey Rogers
EXECUTIVE OFFICERS AND COMPENSATION
Executive Officers
The following persons are the executive officers of the Company:
Name Age Position(s) with the Company
----------------- --- -------------------------------------------------
Ramon D. Phillips 67 Chairman of the Board
Linda H. Sleeper 53 President, Chief Executive Officer and Director
Raymond A. Kilgore 52 Senior Vice President, Secretary and Director
Johnny J. DePuma 63 Senior Vice President and Chief Financial Officer
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 and
Linda H. Sleeper is provided under Election of Directors.
Raymond A. Kilgore has served as Senior Vice President of the Company
since 1994. From 1988 until 1994, Mr. Kilgore served as Vice President of
the Company, and also served as interim Chief Executive Officer from 1988
until 1989. He has served as a director of the Company from 1988 until the
expiration of his current term. From 1985 until 1988, Mr. Kilgore was a
Vice President of Cash America Investments, Inc. (now known as Cash America
International, Inc.), a publicly held company operating pawn shops and
jewelry stores.
John J. DePuma joined the Company in 1990 as Vice President and Chief
Financial Officer and was promoted to his present position in 1994. For 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.
Summary Compensation Table
The following table sets forth certain information concerning
compensation of the Chief Executive Officer and the other executive officers
of the Company for the last three fiscal years.
Year Other Annual All Other
Name and Ended Compensation Compensation
Principal Position Dec. 31 Salary ($) Bonus ($) ($) (1) ($) (2)
----------------------------- ------- ---------- --------- ------------ ------------
Ramon D. Phillips 2000 252,495 28,000 -0- 16,023
Chairman of the Board 3 1999 209,077 -0- 3,750 18,181
1998 217,463 -0- 10,000 20,257
Linda H. Sleeper 2000 176,923 30,000 -0- -0-
President and Chief 1999 145,800 -0- -0- -0-
Executive Officer 3 1998 139,504 -0- -0- 4,500
Raymond A. Kilgore 2000 106,469 10,000 -0- -0-
Senior Vice President and 1999 101,325 -0- -0- -0-
Secretary 1998 99,376 -0- -0- 4,500
John J. DePuma 2000 119,954 18,000 -0- -0-
Senior Vice President and 1999 111,300 -0- -0- -0-
Chief Financial Officer 1998 108,731 -0- -0- -0-
1 Represents car allowance and life insurance allowance.
2 Represents the incremental annual increase in the accrued cash
surrender value of a reverse split-dollar insurance policy on the life
of Ramon D. Phillips which is payable to the estate of Mr. Phillips in
the event of his death. See, Certain Transactions. Prior to 1999,
also includes director fees.
3 Mr. Phillips also served as President and Chief Executive Officer until
the election of Ms. Sleeper as President in September 2000 and as Chief
Executive Officer in December 2000. Prior to her promotions, Ms.
Sleeper served as Executive Vice President and Chief Operating Officer.
Option Grants in Last Fiscal Year
The following table shows all individual grants of stock options to the
executive officers of the Company during the fiscal year ended December 31,
2000.
% of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Granted 1 Fiscal Year ($/Sh) Date 2
--------- ----------- -------------- ----------
Ramon D. Phillips 300,000 29.7 0.4375 06/22/10
Linda H. Sleeper 300,000 29.7 0.4375 06/22/10
Raymond A. Kilgore 50,000 5.0 0.4375 06/22/10
John J. DePuma 50,000 5.0 0.4375 06/22/10
-------------------
1 Options are to purchase shares of the Company's Common Stock. Options
vest as to 40% of the shares six months from the date of grant and as
to an additional 20% of the shares on each of the first three
anniversaries of the grant date, subject to acceleration of vesting
upon death, disability or retirement.
2 All options are subject to earlier termination due to death, disability
or termination of employment.
Option Exercises in Last Fiscal Year and Fiscal Year-End Values
None of the executive officers of the Company exercised any options
during the fiscal year ended December 31, 2000. The following table shows
the value of unexercised options held by the executive officers as of
December 31, 2000.
Securities Underlying Value of Unexercised
Unexercised Options (#) In-the-Money Options ($) 1
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Ramon D. Phillips 320,000 180,000 92,500 45,000
Linda H. Sleeper 320,000 180,000 92,500 45,000
Raymond A. Kilgore 220,000 30,000 67,500 7,500
Johnny J. DePuma 220,000 30,000 67,500 7,500
-------------------
1 Values stated are pre-tax and are based upon the closing price of
$0.6875 per share of the Common Stock on the American Stock Exchange
Emerging Company Marketplace on December 29, 2000, the last trading day
of the fiscal year.
Executive Compensation Agreements
The Company previously entered into an Executive Compensation Agreement
with each of Ramon D. Phillips, Raymond A. Kilgore, Linda H. Sleeper and
John J. DePuma. The term of the agreements with Mr. Kilgore and Mr. DePuma
expired on December 31, 2000. The term of the agreement with Mr. Phillips
was extended to expire immediately following the 2002 annual meeting of the
shareholders of the Company. The term of the agreement with Ms. Sleeper was
extended to expire December 31, 2002.
The Executive Compensation Agreements with Mr. Phillips and Ms. Sleeper
specify minimum levels of base salary and benefits and provide for an
automobile allowance and the reimbursement of certain expenses. In Mr.
Phillips' case, reimbursement includes expenses incurred in connection with
equipping an office in his home. The agreement with Mr. Phillips also
provides for him to provide consulting services to the Company and receive
specified compensation and continued benefits for one year after the
expiration of the primary term of his employment. 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 each agreement, 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 the sum of
(a) the executive's then current annual salary, plus (b) the highest amount
of bonus and other cash compensation received by the executive during any
one of the three preceding fiscal years. The agreement with Ms. Sleeper
also provides that the Company will, for a period of one year, maintain
health insurance for her and her family (if applicable) substantially
comparable to that available to her immediately prior to the terminating
event. 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
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. The policy was surrendered during 2001.
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 PricewaterhouseCoopers LLP ("PWC")
as independent certified public accountants to audit the consolidated
financial statements of the Company for the 2000 fiscal year. PWC also
reported on the Company's consolidated financial statements for the fiscal
years ended December 31, 1999, 1998 and 1997. Representatives of PWC 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 2002 annual meeting of shareholders must do
so in writing. The proposal must be received at the Company's principal
executive offices by December 28, 2001.
By Order of the Board of Directors,
/s/ Raymond A. Kilgore
-----------------------------
Raymond A. Kilgore, Secretary
April 27, 2001
Dallas, Texas
[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 23, 2001
The undersigned hereby appoints Ramon D. Phillips, Linda H. Sleeper 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 vote, as designated below, all
shares of Common Stock of Hallmark Financial Services, Inc. held of record
by the undersigned as of April 11, 2001, at the Annual Meeting of
Shareholders to be held on May 23, 2001, or at any adjournment thereof.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as marked to the contrary) all nominees listed below
INSTRUCTIONS: To withhold authority to vote for any nominee, mark the space
beside the nominee's name with an "X".
Ramon D. Phillips ____ George R. Manser ____
Linda H. Sleeper ____ Scott T. Berlin ____
James H. Graves ____ Mark E. Schwarz ____
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.
[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: ____________________ , 2001 ____________________________________
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. [ ]