Document:

EXHIBIT 10(bs)

 December 30, 2002

 Dorinco Reinsurance Company
 1320 Waldo Avenue, Suite 200
 Midland, Michigan  48642

 Attention:  David E. Chamberlain

 RE:  Loan Agreement dated  March 10, 1997,  and amended by  Amendment No.  1
      executed August 14, 1998, Amendment No.  2 effective March 5, 1999  and
      Amendment No.  3  effective  November 19,  1999  and  Amendment  No.  4
      effective November 8, 2001 (as  amended, the "Loan Agreement")  between
      Hallmark Financial Services, Inc. ("Borrower") and Dorinco  Reinsurance
      Company ("Lender")

 Dear Mr. Chamberlain:

 The purpose of this letter is to obtain written acknowledgement of  Lender's
 consent to  a  restructuring  of Borrower's  ownership  in  certain  of  its
 subsidiaries and waiver of Sections 6.g.  and 7.h. of the Loan Agreement  in
 connection with such restructuring.  This  letter will further evidence  the
 termination of that certain Stock Pledge and Security Agreement (the "Pledge
 Agreement") dated  March 11,  1997, between  Lender and  ACO Holdings,  Inc.
 ("ACO") and the release of all collateral held by Lender therunder.

 Borrower's Board  of  Directors proposes  to  cause ACO  to  contribute  the
 outstanding  capital  stock  of  Hallmark  Finance  Corporation  ("HFC")  to
 American Hallmark Insurance  Company of Texas  ("AH").  As  a result of  the
 restructuring, HFC would be a wholly-owned subsidiary of AH rather than ACO.
 HFC would continue to be an indirect wholly-owned subsidiary of Borrower.  A
 primary purpose of this restructuring is  to enhance AH's Statutory  Capital
 and Surplus (as defined in the Loan Agreement).

 In accordance with the Loan Agreement,  the capital stock of HFC is  pledged
 to Lender pursuant to  the terms of that  certain Stock Pledge and  Security
 Agreement (the "Pledge  Agreement") dated March  11, 1997,  between ACO  and
 Lender.   In order  to permit  the equity  in  HFC to  be included  in  AH's
 Statutory Capital and  Surplus, Lender has  agreed to  terminate the  Pledge
 Agreement and release  all of the  Pledged Stock (as  defined in the  Pledge
 Agreement) from Lender's security  interest.  Lender  has further agreed  to
 return to ACO all  certificates representing the Pledged  Stock and to  file
 releases of any financing statements covering the Pledged Stock.

<PAGE>

 Page 2
 December 30, 2002
 Dorinco Reinsurance Company Lender's Consent

 Please acknowledge  Lender's  consent  to the  proposed  restructuring,  its
 waiver of  Sections  6.g. and  7.h.  of  the Loan  Agreement  in  connection
 therewith and its  termination of the  Pledge Agreement and  release of  the
 Pledged Stock by  executing and returning  to the  undersigned the  enclosed
 duplicate original  of  this  letter.   Thank  you  for  your  courtesy  and
 cooperation in this matter.

 Very truly yours,

 HALLMARK FINANCIAL SERVICES, INC.

 By: /s/ Mark E. Schwarz
     ----------------------------------
     Mark E. Schwarz,
     Chairman of the Board of Directors

 CONSENTED TO AND AGREED AS OF DECEMBER 30, 2002:

 By: /s/ David E. Chamberlain
     ----------------------------------
     David E. Chamberlain
     Vice PresidentEXHIBIT 10(bt)

                            TERMINATION AGREEMENT
                            ---------------------

      This Termination Agreement (the "Agreement")  is made and entered  into
 as of December 30, 2002, by and between HALLMARK FINANCIAL SERVICES, INC., a
 Texas corporation  (the  "Company"), and  LINDA  H. SLEEPER,  an  individual
 ("Sleeper").

                                  Recitals:

      A.   Sleeper has been employed by the Company pursuant to an  Executive
 Compensation Agreement dated August  24, 1994, which Executive  Compensation
 Agreement has   been  amended by  a First  Executive Compensation  Agreement
 Amendment  dated  August   24,  1995,  a   Second  Amendment  to   Executive
 Compensation Agreement  dated November  30,  1995, letter  agreements  dated
 December 29, 1998, and December 14, 1999, and a Third Amendment to Executive
 Compensation Agreement dated November 15, 2000 (as amended, the  "Employment
 Agreement").

      B.   The Employment  Agreement expires  by its  terms on  December  31,
 2002, and the Board of Directors of the Company has determined not to  renew
 or extend the Employment Agreement.

      C.   In order to provide a  smooth transition of responsibilities,  the
 Company and  Sleeper  desire  to enter  into  certain  agreements  regarding
 Sleeper's  post-employment  services  to   the  Company,  defining   certain
 employment benefits and confirming certain covenants.

                            Agreement:

      NOW, THEREFORE, for and  in consideration of  the premises, the  mutual
 covenants  and  promises  herein  contained  and  other  good  and  valuable
 consideration, the receipt and sufficiency of which are hereby acknowledged,
 the Company and Sleeper hereby agree as follows:

      1.   Termination of Employment.   The Company  and Sleeper  acknowledge
 and agree that Sleeper's employment with the Company will terminate  without
 further action by either party  as of December 31,  2002.  The Company  will
 pay to  Sleeper her  accrued compensation  through  December 31,  2002,  and
 reimburse Sleeper for ordinary and  necessary business expenses incurred  on
 behalf of the Company in the course of her duties through December 31, 2002,
 in accordance with  Company's customary practice.   Sleeper  may retain  the
 laptop computer presently provided  to her by the  Company, provided that  a
 representative of the Company designated by  the Chief Executive Officer  is
 permitted to confirm that no proprietary or confidential information of  the
 Company is stored on such computer.

      2.   Consulting Services.     Sleeper  shall  serve as  an  independent
 contractor to  provide  consulting services  to  the Company  as  reasonably
 requested by  the Chief  Executive Officer   or  his designee  for a  period
 commencing January  1,  2003, and  continuing  through the  earlier  of  (a)
 Sleeper's commencement  of  other employment,  or  (b) June  30,  2003  (the
 "Consulting Period").  During  the Consulting Period,  Sleeper shall not  be
 required to maintain any designated working hours or working days, but shall
 be reasonably available  to respond to  telephone inquiries  from the  Chief
 Executive Officer of the Company.

      3.   Remuneration and Benefits.   During the Consulting Period, Sleeper
 shall receive  as her  sole  remuneration the  sum  of $8,750.00  per  month
 payable in equal bi-monthly installments due on the 1st and 15th day of each
 calendar month.   During the Consulting  Period, the Company  shall pay  the
 premiums to  permit  Sleeper to  continue  her health  insurance  under  The
 Consolidated Omnibus Budget  Reconciliation Act  of 1986  (COBRA).   Sleeper
 shall not participate in  any other benefit programs  of the Company  during
 the Consulting Period,  other than as  expressly provided  in the  Company's
 stock option and 401(k) plans.

      4.   Complete   Satisfaction.      The   compensation,   reimbursement,
 remuneration and benefits  provided to Sleeper  by the  Company pursuant  to
 Sections 1 and 3 above shall be in full and complete satisfaction of any and
 all amounts  otherwise  payable  to  Sleeper in  connection  with  or  as  a
 consequence of her employment with the  Company or the termination  thereof,
 her post-employment  consulting  services  to  the  Company  and  her  other
 covenants and agreements contained herein.  Sleeper acknowledges and  agrees
 that, subsequent to the Consulting Period,  she will not be entitled to  any
 further  remuneration  or  benefits  from  the  Company.    Sleeper  further
 acknowledges and agrees that the benefits  provided to her pursuant to  this
 Agreement exceed the benefits to which she would otherwise be entitled under
 normal Company policy.

      5.   Board Membership.   Sleeper may remain  a member of  the Board  of
 Directors of the Company  until the next annual  meeting of shareholders  of
 the Company.  Sleeper  acknowledges and agrees that  she will not stand  for
 re-election at the next annual meeting of shareholders of the Company.

      6.   Press Release.  The Company and Sleeper will in good faith attempt
 to compose  a  mutually agreeable  press  release announcing  the  Company's
 management changes and  providing a positive  characterization of  Sleeper's
 contributions to the Company.  In the event the parties cannot timely  agree
 on the form of the press release,  the Company may issue such press  release
 as it deems prudent to comply with applicable securities laws.

      7.   Confidentiality.    In addition to  any other  agreements with  or
 duties to  the Company,  Sleeper agrees  that  she will  not, at  any  time,
 without the express written  consent of the Chief  Executive Officer of  the
 Company, publish, disclose or divulge to any person, firm or corporation, or
 use, directly or indirectly, for her own benefit or the benefit of any  such
 person, firm  or  corporation  other  than  the  Company,  any  confidential
 information of the Company, its subsidiaries and/or its affiliates.  Sleeper
 acknowledges and agrees that, in the event of her violation of this covenant
 of  confidentiality,  the  Company  will  suffer  irreparable  injury   and,
 therefore, shall be  authorized and  entitled to  obtain from  any court  of
 competent jurisdiction preliminary and  permanent injunctive relief as  well
 as an equitable accounting  of all profits or  benefits arising out of  such
 violation.  Such rights and remedies of the Company shall be cumulative  and
 in addition to  any other rights  or remedies to  which the  Company may  be
 entitled including, but not limited to, damages suffered by the Company.

      8.   Early Termination of  Non-Compete.   The Company  agrees that  the
 covenant against competition contained  in Paragraph 6  of that certain  Key
 Employee Stock  Option  Agreement  between the  Company  and  Sleeper  dated
 November 23, 1993, shall cease to be of any further force and effect at such
 time as Sleeper  is no  longer a member  of the  Board of  Directors of  the
 Company.

      9.   Release.  Sleeper hereby releases, acquits and forever  discharges
 the Company, its affiliates, subsidiaries and parents, and their  respective
 shareholders, directors, officers, employees, attorneys, agents, successors,
 and assigns  from any  and all  claims, obligations,  liabilities,  demands,
 actions, and causes of action of any kind or character whatsoever, known  or
 unknown, foreseen or  unforeseen, arising as  a result of  or in  connection
 with her employment by  the Company or  the termination thereof,  including,
 but not  limited to,  any such  claims, obligations,  liabilities,  demands,
 actions, or causes of action arising under Title VII of the Civil Rights Act
 of 1964, the Age Discrimination in  Employment Act (as amended by the  Older
 Workers' Benefit Protection  Act), the Americans  With Disabilities Act,  or
 any other federal or  state employment statutes or  relating to any  benefit
 plans of the Company.

      10.  Entire Agreement.   This Agreement contains  the entire  agreement
 between the Company and Sleeper and supersedes any and all prior  agreements
 with respect  to the  subject matter  hereof.   This  Agreement may  not  be
 amended, changed or modified  except by written  instrument executed by  the
 parties hereto.   Nothing  contained in  this Agreement  shall abrogate  the
 rights of the parties under  that certain Indemnification Agreement  between
 the Company and Sleeper dated July 23, 2002, which Indemnification Agreement
 shall remain in full force and effect.

      9.   Non-Waiver.  The failure by the Company or Sleeper to complain  of
 any act or omission on the  part of the other, no  matter how long the  same
 may continue, shall not be deemed to be  a waiver by the Company or  Sleeper
 of any of their respective rights under  this Agreement.  The waiver by  the
 Company or Sleeper of  any breach of  this Agreement shall  not be deemed  a
 waiver of any subsequent breach of the  same or any other provision of  this
 Agreement.

      10.  Severability.  In the event that  any provision of this  Agreement
 shall prove to be  illegal, invalid, void  or unenforceable, such  provision
 shall be deemed to be severable from the other provisions of this Agreement,
 which shall remain binding on the parties hereto.  In the event that any  of
 the terms  or provisions  of this  Agreement shall  be held  to be  illegal,
 invalid, void or unenforceable solely by  virtue of the fact that such  term
 or provision exceeds the permissible bounds  of applicable law with  respect
 to its scope or duration, the parties request that any court examining  such
 issue employ great latitude in reforming  this Agreement so as to make  this
 Agreement, as reformed, valid, binding and enforceable.

      11.  Binding Effect.  This Agreement shall be binding upon the  parties
 hereto and their respective heirs, successors and assigns.

      12.  Company Defined.   Any reference  to Company  herein includes  the
 Company and its affiliates, subsidiaries, and parents.

      13.  Governing Law and Venue.  This Agreement shall be governed by  and
 construed in accordance with the laws of the State of Texas.  This Agreement
 has been executed and is performable in Dallas, Texas, and any action,  suit
 or proceeding  to enforce  or construe  any  of the  terms hereof  shall  be
 brought in a court of competent jurisdiction in Dallas County, Texas.

      14.  Headings.  The headings  of all paragraphs  in this Agreement  are
 inserted for  convenience  of  reference  only  and  shall  not  affect  the
 construction hereof.

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement  on
 the date set  forth opposite  the respective  signatures below,  but in  all
 events to be effective as of the date first hereinabove set forth.

                                    HALLMARK FINANCIAL SERVICES, INC.

                               By:
                                    -----------------------------------------
                                    Mark E. Schwarz, Chairman of the Board of
                                    Directors

                                    -----------------------------------------
                                    Linda H. Sleeper

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