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:
___________________________________________________________________________
(2) Form, Schedule or Registration Statement No:
___________________________________________________________________________
(3) Filing Party:
___________________________________________________________________________
(4) Date Filed:
___________________________________________________________________________
HALLMARK FINANCIAL SERVICES, INC.
777 W. Main Street, Suite 1000
Fort Worth, Texas 76102
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 2004
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the 2004 Annual Meeting of Shareholders of
Hallmark Financial Services, Inc. (the "Company") will be held at Carter
Burgess Plaza, 777 W. Main Street, 11th Floor, Fort Worth, Texas, at 10:00
a.m., Central Daylight Time, on Thursday, May 20, 2004, for the following
purposes:
1. To elect five directors to serve until the next annual meeting
of shareholders or until their successors are duly elected and
qualified; and
2. 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 20, 2004, 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
/s/ Cecil R. Wise
------------------------
Cecil R. Wise, Secretary
Dated: April 23, 2004
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.
HALLMARK FINANCIAL SERVICES, INC.
777 W. Main Street, Suite 1000
Fort Worth, Texas 76102
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 2004
_______________________
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 2004 Annual Meeting
of Shareholders (the "Annual Meeting") to be held on Thursday, May 20, 2004,
at the time and place and for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders (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 777 W.
Main Street, Suite 1000, Fort Worth, Texas 76102. 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 23, 2004. A copy of the
Company's Annual Report for the fiscal year ended December 31, 2003, 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 five 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 shareholders entitled to
notice of and to vote at the Annual Meeting was the close of business on
April 20, 2004 (the "Record Date"). On the Record Date, there were
36,447,291 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.
ELECTION OF DIRECTORS
(Item 1)
At the Annual Meeting, five directors will be elected for a term
expiring at the 2005 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 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. The Board of Directors of the Company has determined that all of
its nominees other than Mark E. Schwarz meet the current independence
requirements of the American Stock Exchange.
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.
Director
Name Age Since Current Position(s) with the Company
---- --- ----- ------------------------------------
Mark E. Schwarz 43 2001 Chief Executive Officer, President,
Director and Chairman of the Board
Scott T. Berlin 34 2001 Director
James C. Epstein 45 2003 Director
James H. Graves 55 1995 Director
George R. Manser 72 1995 Director
Mark E. Schwarz was elected Chief Executive Officer of the Company in
January, 2003, and assumed the position of President in November, 2003.
Since 2003, Mr. Schwarz has also served as Chief Executive Officer and
Chairman of the board of directors of Geoworks Corporation, a software
development company which has discontinued active operations. Since 1993,
Mr. Schwarz has served, directly or indirectly through entities he controls,
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 Chairman of the board of
directors of Pizza Inn, Inc., an operator and franchisor of pizza
restaurants. He also currently serves as a director of Bell Industries,
Inc., a company primarily engaged in providing computer systems integration
services; Nashua Corporation, a manufacturer of specialty papers, labels and
printing supplies; SL Industries, Inc., a developer of power systems used in
a variety of aerospace, computer, datacom, industrial, medical, telecom,
transportation and utility equipment applications; and WebFinancial
Corporation, a banking and specialty finance company.
Scott T. Berlin is a Director 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.
James C. Epstein is Chairman of EWI RE, Inc., a reinsurance
intermediary and consulting firm which he founded in 1988 and led as
President until 2000. From 1985 to 1988, he served as a Vice President and
member of the reinsurance advisory board of Sedgwick Group, PLC, an
international insurance, reinsurance and consulting firm. From 1984 to
1985, he worked as a reinsurance broker at E.W. Blanch Co. Mr. Epstein began
his insurance career in 1981 as an actuary with Tillinghast & Co.
James H. Graves is a Partner of Erwin, Graves & Associates, LP, a
management consulting firm founded in 2002. He is also Chief Operating
Officer and Vice Chairman of the board of directors of Detwiler, Mitchell &
Company, a securities brokerage and investment banking firm. Previously, Mr.
Graves was a 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 earlier served as
Managing Director of J.C. Bradford & Co. and co-manager of its Corporate
Finance Department. Prior to its acquisition by Paine Webber Group Inc.,
J.C. Bradford & Co. provided investment 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., a company
operating pawn shops and jewelry stores.
George R. Manser is Chairman of Concorde Holding Co. and CAH, Inc. LLC,
each a private investment management company. From 1991 to 2003, Mr. Manser
served as a director of State Auto Financial Corp., an insurance holding
company engaged primarily in the property and casualty insurance business.
Prior to his retirement in 2000, Mr. Manser also served as Chairman of
Uniglobe Travel (Capital Cities), Inc., a franchisor of travel agencies; 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.
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.
BOARD OF DIRECTORS
Board Committees
Standing committees of the Board of Directors of the Company include
the Executive Committee, the Audit Committee, the Compensation Committee and
the Stock Option Committee.
The Executive Committee is comprised of Messrs. Schwarz (chairman),
Graves and Manser. 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 Corporation, except as limited
by the Bylaws or statute. The Executive Committee meets periodically
between meetings of the Board of Directors, but held no such meetings during
2003.
The Audit Committee is comprised of Messrs. Manser (chairman), Berlin
and Epstein. The Board of Directors has determined that all members of the
Audit Committee satisfy the current independence and experience requirements
of the American Stock Exchange and the Securities and Exchange Commission.
The Board of Directors has also determined that Mr. Manser satisfies the
requirements for an "audit committee financial expert" under applicable
rules of the Securities and Exchange Commission and has designated Mr.
Manser as its "audit committee financial expert." The Audit Committee
oversees the conduct of the financial reporting processes of the Company,
including reviewing with management and the outside auditors the audited
financial statements included in the Company's Annual Report, the Committee
chairman reviewing with the outside auditors the interim financial results
included in the Company's quarterly reports filed with the Securities and
Exchange Commission, discussing with management and the outside auditors the
quality and adequacy of internal controls, and reviewing the independence
of the outside auditors. See, Audit Committee Report. The Audit Committee
met seven times during 2003.
The Compensation Committee and the Stock Option Committee are comprised
of Messrs. Graves (chairman), Berlin and Schwarz. Because the Company is
a "controlled company," rules of the American Stock Exchange do not
require that members of the Compensation Committee be independent. 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. See, Compensation Committee Report. 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 Compensation
Committee and the Stock Option Committee met once during 2003.
Attendance at Meetings
The Board of Directors held four meetings during 2003. 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. The Company has no formal policy
with respect to the attendance of Board members at the annual meeting of
shareholders, but encourages all incumbent directors and director nominees
to attend each annual meeting of shareholders. All but one of the incumbent
directors and director nominees attended the Company's last annual meeting
of shareholders held on May 19, 2003.
Director Compensation
Each non-employee director receives a fee of $1,500 for each Board
meeting attended and a fee of $750 for each committee meeting attended. Mr.
Epstein was also granted an option to purchase 25,000 shares of the Common
Stock at a price of $0.85 per share in connection with his initial election
to the Board of Directors in May, 2003. No other compensation was paid to
any non-employee director during 2003.
Nomination of Directors
Because the Company is a "controlled company," rules of the American
Stock Exchange do not require that the Company have a nominating committee.
The Board of Directors has determined that such a committee is not
necessary to identify, evaluate and attract qualified nominees. Therefore,
the full Board of Directors acts in place of a nominating committee to
investigate qualified nominees for election to the Board when vacancies
occur. The Board of Directors has not adopted any charter or formal
procedures with respect to its consideration of director nominees.
The Board of Directors strives to identify and attract director
nominees with a variety of experience who have the business background and
personal integrity to represent the interests of all shareholders. Although
the Board of Directors has not established any specific minimum
qualifications that must be met by a director nominee, factors considered in
evaluating potential candidates include educational achievement, managerial
experience, business acumen, financial sophistication, insurance industry
expertise and strategic planning and policy-making skills. Depending upon
the current needs of the Board, some factors may be weighed more or less
heavily than others in the Board's deliberations. The Board of Directors
evaluates the suitability of a potential director nominee on the basis of
written information concerning the candidate, discussions with persons
familiar with the background and character of the candidate and personal
interviews with the candidate.
The Board of Directors will consider candidates for nomination to the
Board from any reasonable source, including shareholder recommendations. The
Board of Directors does not evaluate candidates differently based on the
source of the proposal. The Board of Directors has not, and has no present
intention to, use consultants or search firms to assist in the process of
identifying and evaluating candidates.
Shareholders may recommend director candidates for consideration by the
Board of Directors by writing to the Chairman of the Board of Directors at
the Company's headquarters in Fort Worth, Texas, giving the candidate's
name, contact information, biographical data and qualifications. A written
statement from the candidate consenting to be named as a candidate and, if
nominated and elected, to serve as a director should accompany any such
recommendation. The Board has not implemented any formal procedures for
consideration of director nominees submitted by shareholders of the Company.
The Board of Director has not received any recommendations for director
nominees from any person or group beneficially owning more than 5% of the
Common Stock of the Company.
Shareholder Communications
The Board of Directors of the Company believes that, in light of
the accessibility of its directors to informal communications, a formal
process for shareholders to communicate with directors is unnecessary. Any
shareholder communication sent to the Board of Directors, either generally
or in care of the Chairman of the Board, will be forwarded to members of the
Board without screening. Any shareholder communication to the Board of
Directors should be addressed in care of the Chairman of the Board and
transmitted to the Company's headquarters in Fort Worth, Texas. In order to
assure proper handling, the transmittal envelope should include a notation
indicating "Board Communication" or "Director Communication." All such
correspondence should identify the author as a shareholder and clearly state
whether the intended recipients are all members of the Board or only
specified individual directors. The Chairman will circulate all such
correspondence to the appropriate directors.
EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES
Executive Officers
The following persons are currently the only executive officers of the
Company:
Name Age Position(s) with the Company
---- --- ----------------------------
Mark E. Schwarz 43 Chief Executive Officer, President, Director
and Chairman
Mark J. Morrison 44 Executive Vice President and Chief Financial
Officer
Brookland F. Davis 40 President of Personal Lines Group subsidiaries
Kevin T. Kasitz 41 President of Commercial Lines Group subsidiaries
No executive officer bears any family relationship to any other
executive officer or to any director or nominee for director of the Company.
No director, nominee for director or executive officer of the Company has
been involved in any legal proceedings that would be material to an
evaluation of the management of the Company. Information concerning the
business experience of Mark E. Schwarz is provided under Election of
Directors.
Mark J. Morrison became Executive Vice President and Chief Financial
Officer of the Company on March 22, 2004. Mr. Morrison has been employed in
the property and casualty insurance industry since 1993. Prior to joining
the Company, he had since 2001 served as President of Associates Insurance
Group, a subsidiary of Travelers Property Casualty Corp. From 1996 through
2000, he served as Senior Vice President and Chief Financial Officer of
Associates First Capital Corporation. From 1995 to 1996, Mr. Morrison
served as Controller of American Eagle Insurance Group, and from 1993 to
1995, was a Director in the Credit Suisse Group of Republic Insurance Group.
From 1991 to 1993 served as a Director of Anthem Life Insurance Company.
Mr. Morrison began his career as a public accountant with Ernst & Young, LLP
from 1982 to 1991, where he completed tenure as a Senior Manager.
Brookland F. Davis has since January, 2003 served as the President of
the Company's Personal Lines Group, an integrated group of subsidiaries
handling non-standard personal automobile insurance. Since 2001, Mr. Davis
had been employed by Bankers Insurance Group, Inc., a property/casualty and
life insurance group of companies, where he began as the Chief Accounting
Officer and was ultimately promoted to President of their Texas managing
general agency and head of their nationwide non-standard personal automobile
operations. From 1998 to 2000, he served as Executive Vice President and
Chief Financial Officer of Paragon Insurance Holdings, LLC, a multi-state
personal lines managing general agency offering non-standard personal
automobile and homeowners insurance, which Mr. Davis co-founded. During
1997, Mr. Davis was a Senior Manager with KPMG Peat Marwick focusing on the
financial services practice area. From 1993 to 1997, he served as Vice
President and Treasurer of Midland Financial Group, Inc., a multi-state
property/casualty insurance company focused on non-standard automobile
insurance. Mr. Davis began his professional career in 1986 in public
accounting with first Coopers & Lybrand and later KPMG Peat Marwick, where
he ended his tenure in 1992 as a Supervising Senior Tax Specialist. Mr.
Davis is a certified public accountant licensed in Texas and Tennessee.
Kevin T. Kasitz has since April, 2003 served as the President of the
Company's Commercial Lines Group, an integrated group of subsidiaries
handling commercial insurance. Prior to joining the Company, Mr. Kasitz
had since 1991 been employed by Benfield Blanch Inc., a reinsurance
intermediary, where he served as a Senior Vice President in the Program
Services division (2000 to 2003) and Alternative Distribution division (1999
to 2000), a Vice President in the Alternative Distribution division (1994 to
1999) and a Manager in the Wholesale Insurance Services division (1991 to
1994). From 1989 to 1991, he was a personal lines underwriter for
Continental Insurance Company and from 1986 to 1989 was an internal auditor
for National County Mutual Insurance Company, a regional non-standard
automobile insurer.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning compensation of
the Chief Executive Officer and certain other persons who were executive
officers of the Company during the 2003 fiscal year. None of such persons
were executive officers of the Company at any time during the preceding two
fiscal years.
Other Annual
Name and Year Ended Compensation
Principal Position December 31 Salary ($) Bonus ($) 1 ($) 2
------------------- ----------- ---------- ----------- -----
Mark E. Schwarz 2003 150,000 -0- -0-
Chief Executive Officer
Timothy A. Bienek 2003 162,500 -0- 12,765
Chief Operating Officer 3
Scott K. Billings 2003 157,500 40,000 12,488
Chief Financial Officer 4
Brookland F. Davis 2003 142,500 40,000 12,927
President of Personal
Lines Group 5
Kevin T. Kasitz 2003 115,500 40,000 7,493
President of Commercial
Lines Group 5
-------------------------
1 Bonuses are reflected in the year paid.
2 Represents employee portion of medical coverage paid by the Company.
3 Mr. Bienek resigned from the Company in November, 2003.
4 Mr. Billings resigned from the Company in February, 2004.
5 Messrs. Davis and Kasitz were determined to have become executive
officers in November, 2003.
Option Grants in Last Fiscal Year
The following table shows all individual grants of stock options to
executive officers of the Company during the fiscal year ended December 31,
2003.
% of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Price Expiration
Granted 1 Fiscal Year ($/Sh) Date 2
--------- ----------- -------------- ----------
Scott K. Billings 25,000 13.9 0.65 03/27/08
Brookland F. Davis 25,000 13.9 0.65 03/27/08
Kevin T. Kasitz 25,000 13.9 0.65 04/01/08
------------------
1 Options are to purchase shares of the Company's Common Stock. Options
vest as to 40% of the shares six months from the date of grant and as
to an additional 20% of the shares on each of the first three
anniversaries of the grant date, subject to acceleration of vesting
upon death, disability, retirement or change in control of the Company.
2 All options are subject to earlier termination due to death, disability
or termination of employment.
Option Exercises in Last Fiscal Year and Fiscal Year-End Values
None of the executive officers of the Company exercised any options
during the fiscal year ended December 31, 2003. The following table shows
the value of unexercised options held by the executive officers named above
as of December 31, 2003.
Securities Underlying Value of Unexercised
Unexercised Options (#) In-the-Money Options ($) 1
-------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Mark E. Schwarz 2 125,000 50,000 28,438 5,125
Timothy A. Bienek 3 120,000 80,000 43,200 28,800
Scott K. Billings 4 10,000 15,000 1,400 2,100
Brookland F. Davis 10,000 15,000 1,400 2,100
Kevin T. Kasitz 10,000 15,000 1,400 2,100
------------------
1 Values stated are pre-tax and are based upon the closing price of $0.79
per share of the Common Stock on the American Stock Exchange Emerging
Company Marketplace on December 31, 2003, the last trading day of the
fiscal year.
2 Includes exercisable options to purchase 50,000 shares held by
Newcastle Partners, L.P.
3 All options terminated unexercised on February 17, 2004.
4 Unexercisable options terminated on February 13, 2004, and exercisable
options will terminate if not exercised by May 13, 2004.
Equity Compensation Plan Information
The following table sets forth information regarding shares of the
Common Stock authorized for issuance under the Company's equity compensation
plans as of December 31, 2003:
(a) Number of (b) Weighted- (c) Number of securities
securities to average remaining available
be issued upon exercise price for future issuance
exercise of of outstanding under equity
outstanding options, compensation plans
options, warrants (excluding securities
warrants and and reflected in
rights rights column (a))
------------ -------- -------------
Equity compensation
plans approved by 1,113,500 $0.61 1,378,500 2
security holders 1
Equity compensation
plans not approved 150,000 $0.38 -0-
by security holders 3
--------- ----------
TOTAL 1,263,500 $0.58 1,378,500 2
------------------
1 Includes shares of the Common Stock authorized for issuance under the
1994 Key Employee Long Term Incentive Plan and the 1994 Non-Employee
Director Stock Option Plan.
2 The 1994 Key Employee Long Term Incentive Plan and the 1994 Non-
Employee Director Stock Option Plan both terminated in accordance with
their respective terms on March 29, 2004. Consequently, as of the date
hereof, no shares of the Common Stock remain available for issuance
under any equity compensation plans of the Company.
3 Represents shares of the Common Stock issuable upon exercise of non-
qualified stock options granted to the non-employee directors of the
Company in lieu of cash compensation for their service on the Board of
Directors during fiscal 1999. The options became fully exercisable on
August 16, 2000, and terminate on March 15, 2010, to the extent not
previously exercised.
CODE OF ETHICS
The Board of Directors has adopted a Code of Ethics applicable to all
of the Company's employees, officers and directors. The Code of Ethics
covers compliance with law; fair and honest dealings with the Company, its
competitors and others; full, fair and accurate disclosure to the public;
and procedures for compliance with the Code of Ethics. This Code of Ethics
is posted on the Company's website at www.hallmarkgrp.com.
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 in 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, 2003, except that (i) the
former chief operating officer, Timothy A. Bienek, and Mark E. Schwarz,
Newcastle Partners, L.P., Newcastle Capital Management , L.P., and Newcastle
Capital Group LLC were each late filing a Form 4 reporting the rescission of
the sale of shares from Newcastle Partners, L.P. to Mr. Bienek for which the
purchase price was never paid, (ii) the former chief financial officer,
Scott K Billings, was late filing a Form 4 reporting a grant of employee
stock options, (iii) Brookland F. Davis and Kevin T. Kasitz were each late
filing a Form 3 which became due as a result of a subsequent determination
that they had become executive officers upon the resignation of the former
chief operating officer, and (iv) Thomas G. Berlin was late filing a Form 4
reporting the purchase of shares in the Company's rights offering.
RELATED PARTY TRANSACTIONS
The Chief Executive Officer, President and Chairman of the Company,
Mark E. Schwarz, is the managing member of Newcastle Capital Group, L.L.C.,
which is the general partner of Newcastle Capital Management, L.P., which is
in turn the general partner of Newcastle Partners, L.P. In November, 2002,
the Company entered into a promissory note with Newcastle Partners, L.P.
pursuant to which the Company could borrow up to $9,000,000. The promissory
note provided for a fixed interest rate of 11.75%. The unpaid principal
balance and accrued and unpaid interest became due and payable on demand at
any time after September 30, 2003.
In November, 2002, the Company borrowed $6,500,000 from Newcastle
Partners, L.P. to purchase from a major bank all of the right, title and
interest in a promissory note (the "Millers Note") payable to the bank by
Millers American Group, Inc. ("Millers"), together with all related loan
documentation and collateral. At the time of such acquisition, the Millers
Note was in default and had an outstanding balance of approximately
$15,070,000. The Millers Note was guaranteed by Trilogy Holdings, Inc.
("Trilogy"), a wholly-owned subsidiary of Millers, and was secured by all of
the issued and outstanding capital stock of Millers Insurance Company
("MIC"), a Texas-based property and casualty insurance carrier, and Phoenix
Indemnity Insurance Company ("Phoenix"), an Arizona-based property and
casualty insurance carrier, each of which was a wholly-owned subsidiary of
Trilogy at the time of the acquisition. Effective January 1, 2003, the
Company acquired all of the outstanding capital stock of Phoenix in
satisfaction of $7,000,000 of the outstanding balance of the Millers Note.
Upon its acquisition, Phoenix became a part of the Company's Personal Lines
Group of subsidiaries.
In December, 2002, the Company borrowed an additional $2,100,000 from
Newcastle Partners, L.P. to purchase two inactive subsidiaries from Millers
and to purchase Millers General Agency, Inc., an active Texas managing
general agency, from MIC. Upon their acquisitions, these subsidiaries
became the Company's Commercial Lines Group.
In September, 2003, the Company repaid all principal and accrued
interest outstanding on its promissory note to Newcastle Partners, L.P. from
the proceeds of a rights offering to its shareholders.
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
During September, 2003, the Company completed a rights offering to its
shareholders. In connection with the rights offering, the Company's largest
shareholder, Newcastle Partners, L.P., exercised its maximum basic and over-
subscription rights to acquire 18,356,594 shares of the Company's Common
Stock for an aggregate purchase price of approximately $7.3 million, the
source of which was the internal capital of Newcastle Partners, L.P. As a
result of this transaction, the percentage beneficial ownership of Newcastle
Partners, L.P. increased from approximately 43% of the outstanding Common
Stock prior to the rights offering to approximately 62% of the outstanding
Common Stock following completion of the rights offering. Such increase in
the percentage ownership of Newcastle Partners, L.P. could be deemed a
change in control of the Company. Since over 50% of the voting power in the
Company is held by Newcastle Partners, L.P., the Company is now considered
a "controlled company" under the rules of the American Stock Exchange.
Newcastle Partners, L.P. is an affiliate of Mark E. Schwarz, the Chief
Executive Officer, President and Chairman of the Company.
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) the current executive officers of the Company, (ii) each
current director and nominee for director of the Company, (iii) all current
executive officers and current directors of the Company as a group; and
(iv) 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 persons is
the same as that of the Company.
No. of Shares Percent of Class
Shareholder Beneficially Owned Beneficially Owned
----------- ------------------ ------------------
Mark E. Schwarz 1 23,215,769 63.5
Mark J. Morrison -0- -0-
Brookland F. Davis 2 131,420 0.4
Kevin T. Kasitz 2 38,705 0.1
Scott T. Berlin 3 87,500 0.2
James C. Epstein 4 324,705 0.9
James H. Graves 5 423,775 1.2
George R. Manser 5, 6 263,303 0.7
All executive officers and current
directors, as a group (6 persons) 7 24,485,177 66.1
Thomas G. Berlin 8 6,043,561 16.6
Newcastle Partners, L.P. 9 23,128,269 63.4
-----------
1 Includes 87,500 shares which may be acquired by Mr. Schwarz pursuant to
stock options exercisable on or within 60 days after the Record Date,
23,078,269 shares owned by Newcastle Partners, L.P., a limited
partnership indirectly controlled by Mr. Schwarz, and 50,000 shares
which may be acquired by Newcastle Partners, L.P. pursuant to stock
options exercisable on or within 60 days after the Record Date. See
Note 9, below.
2 Includes 15,000 shares which may be acquired pursuant to stock options
exercisable on or within 60 days after the Record Date.
3 Includes 87,500 shares which may be acquired pursuant to stock options
exercisable on or within 60 days after the Record Date. Mr. Berlin
disclaims beneficial ownership of all shares owned by his parents, Mr.
& Mrs. Thomas G. Berlin.
4 Includes 12,500 shares which may be acquired pursuant to stock options
exercisable on or within 60 days after the Record Date.
5 Includes 175,000 shares which may be acquired pursuant to stock options
exercisable on or within 60 days after the Record Date.
6 Includes 30,575 shares held by Mr. Manser's spouse, over which shares
Mr. Manser shares voting and dispositive power.
7 Includes 617,500 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/A filed with the Securities and Exchange
Commission on February 5, 2004. Includes 181,453 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.
9 As reported on Form 4 filed with the Securities and Exchange Commission
on February 17, 2004. Includes 50,000 shares which may be acquired
pursuant to stock options exercisable on or within 60 days after the
Record Date. Mark E. Schwarz is the managing member of Newcastle
Capital Group LLC, which is the general partner of Newcastle Capital
Management, L.P., which is the general partner of Newcastle Partners,
L.P. The address for Newcastle Partners, L.P. is 300 Crescent Court,
Suite 1110, Dallas, Texas 75201.
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 Amended and Restated Audit Committee Charter is attached to this
Proxy Statement as Appendix A.
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, 2003.
Audit Committee: George R. Manser (chairman)
---------------- Scott T. Berlin
James C. Epstein
INDEPENDENT PUBLIC ACCOUNTANTS
On October 10, 2003, the Company dismissed PricewaterhouseCoopers LLP
("PWC") as its independent accountants and retained KPMG LLP ("KPMG") as its
new independent accountants to audit the Company's financial statements for
the fiscal year ended December 31, 2003. The decision to change independent
accountants was recommended and approved by the Audit Committee.
PWC's reports on the Company's financial statements for the fiscal
years ended December 31, 2002 and 2001 did not contain any adverse opinion
or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. During the Company's two
preceding fiscal years and through October 10, 2003, there were no
disagreements with PWC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to PWC's satisfaction, would have caused them to make reference
thereto in connection with their reports on the Company's financial
statements. During the Company's two preceding fiscal years and through
October 10, 2003, there were no reportable events as defined in Item
304(a)(1)(iv)(B) of Regulation S-B. During the Company's two preceding
fiscal years and through October 10, 2003, the Company had not consulted
with KPMG regarding any of the matters or events set forth in Item
304(a)(2)(i) and (ii) of Regulation S-B.
The Company provided PWC with a copy of the foregoing disclosures and
requested that PWC review such disclosures and provide a letter addressed to
the Securities and Exchange Commission stating whether they agree with such
statements. A copy of PWC's response letter concurring with such disclosures
was attached as Exhibit 16 to the Company's Current Report on Form 8-K filed
October 17, 2003.
The Audit Committee has selected KPMG as independent certified public
accountants to audit the consolidated financial statements of the Company
for the 2004 fiscal year. Representatives of KPMG 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.
The following table presents fees for professional services rendered by
the Company's independent accountants for the audit of the Company's
consolidated financial statements for the fiscal years ended December 31,
2003, and December 31, 2002, and fees billed for other services rendered by
the independent accountants during those periods.
KPMG in Fiscal PWC in Fiscal PWC in Fiscal
2003 2003 2002
-------------- ------------- -------------
Audit Fees 1 $283,774 $ 75,837 $242,542
Audit-Related Fees 1, 2 -0- $158,920 $ 81,000
Tax Fees 3 -0- $ 13,250 $ 37,000
All Other Fees 4 -0- $ 67,588 -0-
1 Reflects fees for services attributable to the indicated fiscal year, a
portion of which fees were paid in the subsequent fiscal year.
2 Audit-related fees related to the preparation of required audited
financial statements for newly acquired subsidiaries.
3 Tax fees related to services in connection with federal, state and
local taxes.
4 All other fees related to services in connection with the Company's
shareholder rights offering and the termination of PWC as the Company's
auditors.
The current policy of the Audit Committee is to review and approve all
proposed audit and non-audit services prior to the engagement of independent
accountants to perform such services. Therefore, the Audit Committee does
not presently have any pre-approval policy or procedures. Review and
approval of such services generally occur at the Audit Committee's regularly
scheduled quarterly meetings. In situations where it is impractical to wait
until the next regularly scheduled quarterly meeting, the Audit Committee
has delegated to its chairman the authority to approve audit and non-audit
services up to a pre-determined level as approved by the Audit Committee.
Any audit or non-audit services approved pursuant to such delegation of
authority must be reported to the full Audit Committee at its next regularly
scheduled meeting. During fiscal 2002 and 2003, all audit and non-audit
services performed by the Company's independent accountants were approved in
advance by the Audit Committee.
SHAREHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
Any shareholder desiring to submit a proposal for inclusion in the
proxy material relating to the 2005 annual meeting of shareholders must do
so in writing. The proposal must be received at the Company's principal
executive offices by December 24, 2004. In addition, with respect to any
matter proposed by a shareholder at the 2005 Annual Meeting but not included
in the Company's proxy materials, the proxy holders designated by the
Company may exercise discretionary voting authority if appropriate notice of
the shareholder proposal is not received by the Company at its principal
executive office by March 9, 2005.
By Order of the Board of Directors,
/s/ Cecil R. Wise
------------------------
Cecil R. Wise, Secretary
April 23, 2004
Fort Worth, 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 20, 2004
The undersigned hereby appoints Mark E. Schwarz, Mark J. Morrison,
Brookland F. Davis and Kevin T. Kasitz, 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 20, 2004, at the Annual
Meeting of Shareholders to be held on May 20, 2004, or at any adjournment
thereof.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary) for all nominees listed below
INSTRUCTIONS: To withhold authority to vote for any nominee, mark the space
beside the nominee's name with an "X".
Mark E. Schwarz _____ James H. Graves _____
Scott T. Berlin _____ George R. Manser _____
James C. Epstein _____
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 below exactly as your shares are held of record. 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: ___________________, 2004 __________________________________________
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. [ ]
Appendix A
----------
HALLMARK FINANCIAL SERVICES, INC.
AMENDED AND RESTATED
AUDIT COMMITTEE CHARTER
April 12, 2004
The Board of Directors (the "Board") of Hallmark Financial Services, Inc.
(the "Company") has adopted the following Amended and Restated Audit
Committee Charter for the governance of the Audit Committee of the Board.
Purposes
--------
The purposes of the Audit Committee are to serve as an independent and
objective party to:
* Oversee the quality and integrity of the financial statements and other
financial information the Company provides to any governmental body or
the public;
* Oversee the independent auditors' qualifications and independence;
* Oversee the performance of the Company's independent auditors;
* Oversee the performance of the Company's internal auditors, if any;
* Oversee the Company's accounting and financial reporting processes and
the audits of the Company's financial statements;
* Oversee the Company's systems of internal controls regarding finance,
accounting, and ethics compliance established by the Board and
management of the Company;
* Provide a means for open communication among the independent auditors,
internal auditors, financial and senior management and the Board; and
* Perform such other duties as are directed by the Board.
The Audit Committee shall prepare annually a report meeting the requirements
of any applicable regulations of the Securities and Exchange Commission (the
"SEC") to be included in the Company's proxy statement relating to its
annual meeting of stockholders.
Membership
----------
The Audit Committee shall be comprised of three or more directors, as
determined by the Board, none of whom shall be an affiliate of the Company
or any of its subsidiaries or an employee or a person who receives any
compensation from the Company or any of its subsidiaries other than fees
paid for service as a director. The members of the Audit Committee shall be
elected by the Board annually and shall serve until their successors shall
be duly elected and qualified. Unless the Board otherwise determines in
accordance with the listing standards of the American Stock Exchange.
("Amex") and applicable rules and regulations of the SEC, each member shall
be "independent" as defined from time to time by the listing standards of
Amex and by applicable rules and regulations of the SEC. The Board shall
annually review and determine the independence of each member of the Audit
Committee. No member may accept, directly or indirectly, any consulting,
advisory, or other compensatory fees from the Company or any of its
subsidiaries other than director or committee fees. No member shall serve on
an audit committee of more than three public companies unless the Board
determines that such simultaneous service would not impair the ability of
such director to effectively serve on the Audit Committee.
Each member of the Audit Committee shall be able to read and understand
financial statements at the time of his or her appointment. The Company
shall appoint at least one member who is "financially sophisticated" as
defined under the applicable Amex listing standards and shall use its
reasonable efforts to appoint at least one member who qualifies as an "audit
committee financial expert" as defined by applicable rules and regulations
of the SEC.
An audit committee financial expert shall not be deemed an "expert" for any
purpose, including for purposes of Section 11 of the Securities Act of 1933.
The designation of an Audit Committee member as an audit committee financial
expert does not impose any duties, obligations or liability on the audit
committee financial expert that are greater than those imposed on other
Audit Committee members, nor does it affect the duties, obligations or
liability of any other Audit Committee member.
Notwithstanding the foregoing membership requirements, no action of the
Audit Committee shall be invalid by reason of any such requirement not being
met at the time such action is taken.
Structure and Meetings
----------------------
The Board shall appoint one member of the Audit Committee as chairperson.
The chairperson shall be responsible for leadership of the Audit Committee
and reporting to the Board. The Audit Committee shall meet as many times
per year as the members deem necessary, but in any event at least four times
per year. The Audit Committee should meet at least annually with management
and the independent auditors in separate executive sessions to discuss any
matters that the Audit Committee or each of these groups believe should be
discussed privately.
Accountability of the Independent Auditors
------------------------------------------
The independent auditors shall be accountable to and report directly to the
Audit Committee. The Audit Committee shall have the sole authority and
responsibility with respect to the selection, engagement, compensation,
oversight, evaluation and, where appropriate, dismissal of the Company's
independent auditors engaged for the purpose of preparing or issuing an
audit report or performing other audit, review or attest services for the
Company. The Audit Committee shall annually select and engage the Company's
independent auditors retained to audit the financial statements of the
Company. The Audit Committee, or a member thereof, must approve in advance
any service, whether an audit or a non-audit service, provided to the
Company by the Company's independent auditors, including the plan and scope
of any such service and related fees.
Committee Authority and Responsibilities
----------------------------------------
The Audit Committee shall have the authority to take all actions it deems
advisable to fulfill its responsibilities and duties. The Audit Committee
has the authority to retain, at the Company's expense and on such terms as
the Audit Committee deems necessary or advisable, professional advisors
(including, without limitation, special legal counsel, accounting experts,
or other consultants) to advise the Audit Committee in connection with the
exercise of its powers and responsibilities as set forth in this Audit
Committee Charter. Such professional advisors may be the same as or
different from the Company's primary legal counsel, accounting experts and
other consultants. The Company shall provide for appropriate funding, as
determined by the Audit Committee, for payment of (i) compensation to the
independent auditors employed by the Company for the purpose of preparing or
issuing an audit report or related work or performing other audit, review or
attest services; (ii) compensation to any special legal counsel, accounting
experts or other consultants employed by the Audit Committee; and (iii)
ordinary administrative expenses of the Audit Committee.
In connection with its purposes, powers and responsibilities, the Audit
Committee shall:
Oversee Independent Auditors
----------------------------
* Annually review the performance, experience and qualifications of the
independent auditors' team and the quality control procedures of the
independent auditors and discharge the independent auditors when
circumstances warrant;
* Review the disclosures in the Company's periodic reports filed with the
SEC regarding any approved non-audit services provided or to be
provided by the independent auditors;
* Periodically obtain and review a report from the independent auditors
regarding all relationships between the independent auditors and the
Company that may impact the independence of the independent auditors,
and discuss such report with the independent auditors. The Audit
Committee shall also recommend any appropriate action to the Board in
response to the written report necessary to satisfy itself of the
independence of the independent auditors;
* Ensure the rotation, at least every five years, of the lead audit
partner having responsibility for the audit and the concurring review
partner responsible for reviewing the audit in accordance with
applicable Amex listing standards and applicable laws, rules and
regulations;
* Set, review and modify as appropriate, policies in accordance with the
Amex listing standards and applicable laws, rules and regulations for
hiring employees or former employees of the Company's independent
auditors;
Review Financial Information and Processes
------------------------------------------
* Review with management and the independent auditors the Company's
quarterly or annual financial information, including matters required
to be reviewed under applicable legal, regulatory or Amex requirements,
prior to the release of earnings and prior to the filing of the
Company's Quarterly Report on Form 10-Q or Annual Report on Form 10-K,
as the case may be;
* Review and, as appropriate, discuss with management and the independent
auditors the Company's earnings releases, including the use of "pro
forma" or "adjusted" non-GAAP information, as well as financial
information and earnings guidance, if any, provided to analysts or
rating agencies;
* Upon completion of any annual audit, meet separately with the
independent auditors and management and review the Company's financial
statements and related notes, the results of their audit, any report or
opinion rendered in connection therewith, any significant difficulties
encountered during the course of the audit (including any restrictions
on the scope of work or access to required information), any
significant disagreements with management concerning accounting or
disclosure matters, any significant adjustment proposed by the
independent auditors and the adequacy and integrity of the Company's
internal accounting controls and the extent to which major
recommendations made by the independent auditors have been implemented
or resolved;
* Regularly review with the Company's independent auditors any audit
problems or difficulties and management's response;
* Resolve any disagreements between the independent auditors and
management regarding the Company's accounting or financial reporting
practices;
* Review and consider with the independent auditors and management the
matters required to be discussed by Statement of Auditing Standards
Nos. 61, 89 and 90. These discussions shall include consideration of
the quality of the Company's accounting principles as applied in its
financial reporting, including review of estimates, reserves and
accruals, review of judgmental areas, review of audit adjustments
(whether or not recorded) and such other inquiries as may be
appropriate. These discussions shall also include the review of reports
from the independent auditors that include (i) all critical accounting
policies and practices used; (ii) all alternative treatments of
financial information within generally accepted accounting principles
that have been discussed with management, their ramifications and the
preferences of the independent auditors; and (iii) other material
written communications between the independent auditors and management.
Based on the foregoing review, the Audit Committee shall make its
recommendation to the Board as to the inclusion of the Company's
audited financial statements in the Company's annual report on Form
10-K;
* Review any disclosures provided by the Chief Executive Officer, the
Chief Financial Officer or the independent auditors to the Audit
Committee regarding significant deficiencies in the design or operation
of internal control over financial reporting which could adversely
affect the Company's ability to record, process, summarize, and report
financial data;
* Review with management and the independent auditors any significant
transactions that are not a normal part of the Company's operations and
changes, if any, in the Company's accounting principles or their
application;
Process Improvement
-------------------
* Consider and approve, if appropriate, major changes to the Company's
accounting principles and practices as suggested by the independent
auditors or management;
* Regularly apprise the Board, through minutes and special presentations
as necessary, of significant developments in the course of performing
the Audit Committee's duties;
* Conduct an annual evaluation with the Board regarding the performance
of the Audit Committee.
Ethical and Legal Compliance
----------------------------
* Review any disclosures provided by the Chief Executive Officer or
the Chief Financial Officer to the Audit Committee regarding (i)
significant deficiencies or weaknesses in the design or operation of
internal control over financial reporting which could adversely affect
the Company's ability to record, process, summarize, and report
financial data; and (ii) any fraud, including that which involves
management or other employees who have a significant role in the
Company's internal control over financial reporting;
* Review with the Company's in-house or outside legal counsel any legal
matter that could have a significant effect on the Company's financial
statements, including the status of pending litigation and other areas
of oversight to the legal and compliance area as may be appropriate;
* Review with management and the independent auditors the Company's
policies and procedures regarding compliance with its internal policies
as well as applicable laws and regulations, including without
limitation with respect to maintaining books, records and accounts and
a system of internal accounting controls in accordance with Section
13(b)(2) of the Securities Exchange Act of 1934;
General
-------
* Review and approve all related-party transactions;
* Perform any other activities consistent with this Charter, the
Company's Articles of Incorporation and Bylaws, the rules of Amex
applicable to its listed companies, and governing law as the Audit
Committee or the Board deems necessary or appropriate;
* Establish procedures for the receipt, retention and treatment of
complaints regarding accounting, internal controls, and other auditing
matters and for the confidential, anonymous submission by Company
employees of concerns regarding questionable accounting or auditing
practices.
Review of Committee Charter
---------------------------
At least annually, the Audit Committee shall review and reassess the
adequacy of this Charter. The Audit Committee shall report the results of
the review to the Board and, if necessary, make recommendations to the Board
to amend this Charter.
Limitations
-----------
The Audit Committee has the responsibilities and powers set forth in this
Charter, and management and the independent auditors for the Company are
accountable to the Audit Committee. Management, not the Audit Committee, is
responsible for the preparation in accordance with GAAP, and the
completeness and accuracy, of the Company's financial statements. The
independent auditors, not the Audit Committee, are responsible for the
planning and conduct of audits of the Company's financial statements and
reviews of the Company's quarterly financial statements prior to the filing
of each quarterly report on Form 10-Q.