Document:

EXHIBIT 10.2

                       HALLMARK FINANCIAL SERVICES, INC.

                             INCENTIVE STOCK OPTION
                                GRANT AGREEMENT

 To: _________________

      You ("Optionee")  have  been  granted  an  incentive  stock  option  to
 purchase shares of  the Common Stock  of Hallmark  Financial Services,  Inc.
 (the "Company") as follows:

      Date of Grant:                   _______________________

      Total Number of Shares Optioned: _______________________

      Exercise Price per Share:        $_____

      Exercisability Schedule:

     ===========================  ==================  ================
           Number of Shares        Not Earlier Than    Not Later Than
     ===========================  ==================  ================

     Up to ______ shares

     ---------------------------  ------------------  ----------------

     An additional ______ shares

     ---------------------------  ------------------  ----------------

     An additional ______ shares

     ---------------------------  ------------------  ----------------

     An additional ______ shares

     ===========================  ==================  ================

      The attached Terms  and Conditions comprise  an integral  part of  this
 Incentive Stock Option  Grant Agreement, and  the option  hereby  granted is
 subject to the Terms and Conditions and the 2005 Long Term Incentive Plan of
 the  Company (the "Incentive Plan").  By your signature below, you agree  to
 be bound by  the provisions of  the Incentive Stock  Option Grant  Agreement
 (including the Terms and Conditions) and the Incentive Plan.

                               HALLMARK FINANCIAL SERVICES, INC.

                               Mark E. Schwarz, Chief Executive Officer

                               OPTIONEE

<PAGE>

                           TERMS AND CONDITIONS

      The following Terms  and Conditions comprise  an integral  part of  the
 "Incentive Stock Option Grant Agreement" to which these Terms and Conditions
 are attached.

                             R E C I T A L S
                             - - - - - - - -

 A.        Optionee is  regularly employed  by Hallmark  Financial  Services,
 Inc. (the "Company") or one of its subsidiaries in a capacity that has  been
 determined by the Compensation  Committee of the Board  of Directors of  the
 Company (the "Committee") to comply with the requirements for eligibility to
 participate in  the Company's  2005 Long  Term Incentive  Plan  (hereinafter
 called the "Incentive Plan"), and the  Company desires that Optionee  remain
 in the employment of the Company  or one of its subsidiaries and  contribute
 to the growth and success of the Company.

 B.        The Committee has  determined to grant  to Optionee  an option  in
 order to encourage Optionee  to remain in the  employment of the Company  or
 one of its  subsidiaries and  contribute to the  growth and  success of  the
 Company  by  affording  Optionee  an  opportunity  to  obtain  an  increased
 proprietary interest in the Company so as to assure a closer  identification
 between Optionee's interest and the interest of the Company.

 1.        Grant of Option.

           Subject to the terms and conditions of the Incentive Plan, as such
 plan is  now  and may  be  hereafter amended,  the  Company has  granted  to
 Optionee the option to purchase from  the Company the number of shares  (the
 "Optioned Shares") of  the Common Stock,  $.03 par value  per share, of  the
 Company (unless otherwise indicated,  hereinafter "Common Stock")  indicated
 in the Incentive Stock Option Grant Agreement, at the exercise price and  in
 accordance with the exercisability schedule therein reflected.

 2.        Manner of Exercising Option.

           This option shall be  exercised by Optionee only  in the State  of
 Texas at the principal office of the Company by:

 (a)       Delivering to the Secretary or Assistant Secretary of the  Company
 a written notice specifying the number of Optioned Shares that Optionee then
 desires to purchase, which written notice shall be in substantially the form
 attached hereto as Exhibit "A" and shall be signed by Optionee; and

 (b)       Tendering the full exercise price of  such Optioned Shares (i)  in
 cash (including check, bank draft or  money order), (ii) by the delivery  of
 shares of Common Stock of the Company already owned by Optionee, (iii) by  a
 combination of cash and shares of such stock or (iv) otherwise in accordance
 with the Incentive Plan.

           As soon as practicable after such exercise of this option in whole
 or in  part  by  Optionee,  the  Company will  deliver  to Optionee  at  the
 Company's  principal  office  in  the  State  of  Texas  a   certificate  or
 certificates for the  number of  shares with  respect to  which this  option
 shall be so exercised,  issued in Optionee's name.  Each purchase  of  stock
 hereunder shall  be a  separate and  divisible  transaction and  a  complete
 contract in and of itself.

           This option shall not be exercised at any one time as to less than
 100 shares of  Common Stock (or  less than the  number of  shares of  Common
 Stock as to which this  option is then exercisable,  if that number is  less
 than 100 shares).

           Notwithstanding any provision to the contrary herein contained, if
 the Fair Market Value per Share  (as defined in the Incentive Plan)  exceeds
 the exercise price of this option per Optioned Share, the Committee, in  its
 sole discretion, may elect, in  lieu of delivering all  or a portion of  the
 Optioned Shares as  to which this  option has been  exercised, to  reimburse
 Optionee the  exercise price  tendered and  to pay  Optionee in  cash or  in
 shares of Common Stock, or a combination of cash and Common Stock, an amount
 having an aggregate value equal to the product of (i) the number of Optioned
 Shares as to which this option has  been exercised times (ii) the excess  of
 (A) the Fair  Market Value per  Share over (B)  the exercise  price of  this
 option per Optioned Share.  Such election by the Committee shall be made  by
 giving written notice to Optionee.

 3.        Compliance with Securities and Other Laws.  The Company shall  not
 be required to sell or issue  Optioned Shares if the issuance thereof  would
 constitute a violation by either Optionee or the Company of any provision of
 any law  or  regulation  of  any  governmental  authority  or  any  national
 securities exchange  or  market system.    As a  condition  of any  sale  or
 issuance of Optioned Shares, the Company may place legends on shares,  issue
 stop transfer  orders  and  require such  agreements  or  undertakings  from
 Optionee as the Company may deem necessary or advisable to assure compliance
 with any such law  or regulation, including, if  the Company or its  counsel
 deems it appropriate, representations from Optionee that (s)he is  acquiring
 the  Optioned  Shares  solely  for  investment  and  not  with  a  view   to
 distribution and that no  distribution of such  shares acquired by  Optionee
 will be  made unless  registered pursuant  to applicable  federal and  state
 securities laws  or,  in  the  opinion  of  counsel  of  the  Company,  such
 registration is unnecessary.

 4.        Early Termination of Option.  In the event that Optionee ceases to
 be an  employee of  the Company  or a  subsidiary of  the Company,  for  any
 reason, this option  shall terminate completely  as to  all Optioned  Shares
 which Optionee was not entitled to purchase at the date of such  termination
 of employment.  However,  to  the extent that  this option  could have  been
 exercised at the date of termination  of employment and Optionee could  have
 purchased Optioned Shares  at the date  of such  termination of  employment,
 giving effect to  the exercisability acceleration  provisions of Section  6,
 then this option shall continue with  respect to those Optioned Shares  that
 Optionee could have  purchased and  had not purchased  at the  date of  such
 termination of employment, to the extent set forth below:

 (a)       Discharge for Cause.  If Optionee ceases to be an employee of  the
 Company or a subsidiary by reason of  the fact that (s)he is discharged  for
 cause (as determined solely and exclusively by the Board of Directors of the
 Company in its  sole discretion), all  rights of Optionee  to exercise  this
 option shall terminate,  lapse and be  forfeited at the  time of  Optionee's
 termination of employment.

 (b)       Total and  Permanent Disability.   If  Optionee  ceases to  be  an
 employee of the Company  or a subsidiary by  reason of Optionee's total  and
 permanent disability, Optionee or Optionee's legal guardian, as appropriate,
 shall have  the  right up  to  one (1)  year  from the  date  of  Optionee's
 cessation of employment to exercise this option.

 (c)       Death.  If  Optionee dies while  an employee of  the Company or  a
 subsidiary, the personal representatives, heirs, legatees or distributees of
 Optionee, as appropriate, shall have the right  up to one (1) year from  the
 date of Optionee's death to exercise this option.

 (d)       Other Termination  of Employment.   If  Optionee ceases  to be  an
 employee of the Company or a subsidiary for any reason other than  discharge
 for cause, total and permanent disability or death, Optionee shall have  the
 right up  to three  (3) months  from  the date  of Optionee's  cessation  of
 employment to exercise this option.

 (e)       Notwithstanding the provisions of paragraphs  (b), (c) and (d)  of
 this Section 4,  this option shall  not be exercisable  under any  condition
 after the  date or  dates  specified in  the  Incentive Stock  Option  Grant
 Agreement as the latest date or dates on which this option may be exercised.

 (f)       For purposes hereof, "total  and permanent disability" shall  have
 the meaning set forth in the Company's long-term disability policy.

 5.        Nontransferability of Option.   This option shall be  transferable
 only to  the extent  permitted  under the  Incentive  Plan.   Any  attempted
 assignment, transfer,  pledge, hypothecation  or other  disposition of  this
 option contrary to the provisions of the Incentive Plan, or the levy of  any
 execution, attachment or similar process upon this option, shall be null and
 void and without effect.

 6.        Exercisability of Option.

 (a)       This option shall become and be exercisable in accordance with the
 schedule  indicated  in the  Incentive Stock  Option  Grant  Agreement.  The
 option  exercisability  schedule  will  be  accelerated  in  the  event  the
 provisions of paragraphs (b), (c) or (d) of this Section 6 apply.

 (b)       If Optionee  ceases  to  be  an  employee  of  the  Company  or  a
 subsidiary by reason of death, total and permanent disability (as defined in
 Section 4(f)  hereof)  or retirement  at  or after  the  Company's  standard
 retirement age (as recognized by the Committee from time to time),  Optionee
 or  the  personal  representatives,  heirs,  legatees  or  distributees   of
 Optionee,  as appropriate,  shall have the immediate right to exercise  this
 option as to all the Optioned Shares to the extent not previously exercised.

 (c)       If the Company experiences a Change in Control (as defined in  the
 Incentive Plan), Optionee shall  have the immediate  right to exercise  this
 option as to all the Optioned Shares to the extent not previously exercised.

 (d)       The option  exercisability  schedule  may be  accelerated  by  the
 Committee at any time in its sole discretion.

 7.        No Rights of a Stockholder  or  of Continued Employment.  Optionee
 shall not  have any  of the  rights of  a stockholder  of the  Company  with
 respect to  the  Optioned Shares  except  to the  extent  that one  or  more
 certificates for Optioned Shares shall have  been delivered to Optionee,  or
 (s)he has been  determined to be  a stockholder of  record by the  Company's
 transfer agent, upon due exercise of  this option.  Further, nothing  herein
 shall confer upon Optionee any right to remain in the employ of the  Company
 or any of  its subsidiaries, and  nothing herein shall  be construed in  any
 manner to terminate Optionee's employment at any time.

 8.        Interpretation  of  this  Agreement.  The  administration  of  the
 Incentive Plan  has been vested  in  the  Committee,  and all  questions  of
 interpretation of  this option  shall be  subject  to determination  by  the
 Committee, which determination shall be final and binding on Optionee.

 9.        Option Subject to Incentive Plan.  This option is granted  subject
 to the terms and provisions of the Incentive  Plan, as such plan is now  and
 may be hereafter subsequently amended, which Incentive Plan is  incorporated
 herein by reference.  In case of any conflict between the provisions  hereof
 and the Incentive Plan, the terms and provisions of the Incentive Plan shall
 be controlling.

<PAGE>

                                  EXHIBIT "A"
                                  -----------

                          Notice of Exercise of Option
                          ----------------------------

 I hereby exercise my  option to purchase  from Hallmark Financial  Services,
 Inc. (the  "Company") at  Dallas, Texas  ____________ shares  of its  Common
 Stock  in accordance  with  the  Company's  2005  Long  Term Incentive Plan,
 and in accordance  with my Incentive  Stock  Option  Grant  Agreement  dated
 _______________, 20___, and  hereby tender in  payment therefor cash  and/or
 Common Stock in the  amount of, and/or with  an aggregate Fair Market  Value
 per Share  (as defined  in the  2005  Long Term  Incentive Plan)  equal  to,
 $_______________, being $_____ per share.

                               (Signature of Optionee)

                               (Printed Name)

                               (Date)EXHIBIT 10.3

                       HALLMARK FINANCIAL SERVICES, INC.
                      NON-QUALIFIED STOCK OPTION AGREEMENT

     1.    Grant  of  Option.     Hallmark  Financial  Services,  Inc.   (the
 "Company") grants to  ____________________ (the  "Optionee") a non-qualified
 stock option (the "Option")  to acquire __________  shares of Common  Stock,
 $0.03 par  value,  of  Hallmark  Financial  Services,  Inc.  (the  "Shares")
 pursuant to  the  2005  Long  Term  Incentive  Plan  of  Hallmark  Financial
 Services, Inc. (the "Incentive Plan").  The  effective date of the  Option's
 grant is _______________, 20___.

     2.    Exercise Price.  The exercise price is $__________ per share.

     3.    Exercise Schedule.

           (a)  The option shall  become exercisable with  respect to 40%  of
 the Shares six months and one day  after the effective date of the  Option's
 grant and an additional  10% of the Shares  shall become exercisable on  the
 first, second, third, fourth, fifth and sixth anniversaries of the effective
 date of grant. Irrespective  of the foregoing  vesting schedule, the  Option
 shall become immediately exercisable  with respect to all  of the Shares  in
 the event of  the Optionee's death  while in service  as a  Director or  the
 termination of the Optionee's service as  a Director by reason  of total and
 permanent disability, as determined in  accordance with the Company's  long-
 term disability policy.

           (b)  The Option shall be exercisable cumulatively, in whole or  in
 part, with  respect  to  all  Shares that  are  vested  in  accordance  with
 paragraph 3(a).

     4.    Term and Termination.

           (a)  The Option shall  automatically expire and  terminate on  the
 tenth anniversary  of  the  date  of grant  to  the  extent  not  previously
 exercised.

           (b)  Upon  termination  of  the  Optionee's  service as a Director
 for any  reason  other  than  the  Optionee's death  or  total and permanent
 disability, the  Option shall  continue to  be  exercisable, to  the  extent
 vested as of the termination date  of the Optionee's service as a  Director,
 for a period  of 90 days,  but will lapse  and terminate to  the extent  not
 exercised before the end of the 90 day period.

           (c)  In the event of  the Optionee's death  or the termination  of
 the Optionee's  service as  a  Director by  reason  of total  and  permanent
 disability, the Option shall continue to be exercisable with respect to  all
 of the Shares in accordance with paragraph 3(a) for a period of one year.

     5.    Transferability.  The  Option shall  be transferable  only to  the
 extent  permitted  under  the  Incentive  Plan.  Any  attempted  assignment,
 transfer, pledge, hypothecation or other disposition of this option contrary
 to the  provisions of  the Incentive  Plan, or  the levy  of any  execution,
 attachment or similar process  upon the Option, shall  be null and void  and
 without effect..

     6.    Payment of Exercise Price.  The  Option shall be deemed  exercised
 when (i) the Company has received  written notice of exercise in  accordance
 with the terms hereof, (ii) full payment of the aggregate exercise price  of
 the Shares as  to which the  Option is exercised  has been  made, and  (iii)
 arrangements that are satisfactory to the Board in its sole discretion  have
 been made for the Optionee's payment to  the Company of the amount, if  any,
 that  the  Company  determines  to be  necessary for the Company to withhold
 in  accordance  with  applicable  federal  or  state  income tax withholding
 requirements. The  exercise price  of any  Shares  purchased shall  be  paid
 solely in cash, by certified or cashier's check, by money order, by personal
 check, or at  the option of  the Optionee, in  shares of  Common Stock  then
 owned by the Optionee (or  by a combination of  the above). For purposes  of
 determining the amount, if any, of  the exercise price satisfied by  payment
 in shares of Common Stock,  such shares of Common  Stock shall be valued  at
 their Fair Market Value per Share (as defined in the Incentive Plan) on  the
 date of exercise. Any  shares of Common Stock  delivered  in satisfaction of
 all or a portion of the  purchase price shall be appropriately endorsed  for
 transfer and assignment to the Company. The Optionee shall not be, and shall
 have no rights or privileges of, a shareholder of the Company in respect  of
 any Shares purchasable upon  the exercise of any  part of the Option  unless
 and until certificates representing  such Shares shall  have been issued  by
 the Company to the Optionee.

     7.    Adjustment of Shares.

           (a)  In the event of any change in the outstanding Common Stock by
 reason of a stock split, stock dividend, combination or reclassification  of
 shares, recapitalization, merger, or similar  event, the Board shall  adjust
 proportionally the number of  shares of Common Stock  covered by the  Option
 and the exercise  price of the  Option.  In  the event of  any other  change
 affecting  Common  Stock  or  any  distribution  (other  than  normal   cash
 dividends) to holders  of Common Stock,  such adjustments as  may be  deemed
 equitable by the  Board, including adjustments  to avoid fractional  shares,
 shall  be  made  to  give  proper effect  to such  event.  In  the  event of
 a merger,  consolidation,  acquisition  of  property  or  stock, separation,
 reorganization or liquidation,  the Board shall  be authorized  to issue  or
 assume stock options by means of substitution of new options for  previously
 issued options or an assumption of previously issued options.

           (b)  Except as otherwise expressly  provided herein, the  issuance
 by the Company of shares  of its capital stock  of any class, or  securities
 convertible into shares of capital stock of any class, either in  connection
 with direct sale  or upon the  exercise of rights  or warrants to  subscribe
 therefor, or  upon  conversion  of shares  or  obligations  of  the  Company
 convertible into such shares or other  securities, shall not affect, and  no
 adjustment by reason thereof shall be made with respect to, the number of or
 exercise price of shares then subject to the Option.

           (c)  Without  limiting  the  generality  of  the  foregoing,   the
 existence  of  the  Option  shall  not  affect  in  any  manner the right or
 power of the  Company  to make,  authorize  or  consummate  (1) adjustments,
 recapitalizations, reorganizations or other changes in the Company's capital
 structure or its business; (2) any  merger or consolidation of the  Company;
 (3) any issue by the Company  of debt securities or preferred or  preference
 stock which  would rank  above  the Common  Stock;  (4) the  dissolution  or
 liquidation of the Company; (5) any  sale, transfer or assignment of all  or
 any part of the assets or business of  the Company or any subsidiary of  the
 Company; or (6) any other corporate act or proceeding, whether of a  similar
 character or otherwise.

     8.    Issuance of Shares.  No person shall be, or have any of the rights
 or privileges of, a shareholder  of the Company with  respect to any of  the
 Shares subject to this Option unless and until the requirements of paragraph
 6 have been satisfied and certificates  representing such Shares shall  have
 been issued and delivered to such person. As a condition of any issuance  or
 transfer of the certificate for Shares, the Board may obtain such agreements
 or undertakings, as it may deem necessary or advisable to assure  compliance
 with any provision of the Incentive Plan, this Agreement (herein so  called)
 or any law or regulation including, but not limited to, the following:

        (i)     a warranty by the Optionee to  the Company, at the  time
      any Option is  exercised, that he  is acquiring the  Shares to  be
      issued to him for investment and not  with a view to, or for  sale
      in connection with, the distribution of any such Shares; and

       (ii)     a representation, warranty, or agreement to be bound  by
      any legends that  are, in the  opinion of the  Board necessary  or
      appropriate to comply  with the provisions  of any securities  law
      deemed by the Board to be applicable to the issuance of the Shares
      and are endorsed upon the Share certificates.

     9.    Law Governing.  This Agreement is to be performed in the State  of
 Texas and shall be construed and enforced in accordance with and governed by
 the laws of such state.

    10.    Interpretation. The Optionee accepts the Option subject to all the
 terms and provisions of the Incentive Plan  and this Agreement.  In case  of
 any conflict between the provisions hereof and the Incentive Plan, the terms
 and provisions of the Incentive Plan shall be controlling.

    11.    Notices.  Any notice under this Agreement shall be  in writing and
 shall be deemed to  have been duly given  when delivered personally or  when
 deposited in  the  United  States mail,  registered,  postage  prepaid,  and
 addressed, in the case of  the Company, to the  President of the Company  at
 the address indicated  on the signature  page of this  Agreement,  or if the
 Company should move its principal office, to such principal office, and,  in
 the case of  the Optionee, to  his last permanent  address as  shown on  the
 Company's records, subject to  the right of either  party to designate  some
 other address at any time hereafter in a notice satisfying the  requirements
 of this paragraph.

    12.    Heirs, Successors and  Assigns.  Each  and all  of the  covenants,
 terms, provisions and agreements contained herein shall be binding upon  and
 inure to the benefit  of Optionee's heirs,legal representatives,  successors
 and assigns.

                               HALLMARK FINANCIAL SERVICES, INC.

                               By:
                                   --------------------------
                                   Mark E. Schwarz, President

                               ------------------------------
                               ____________________, Optionee

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