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:	_______________, 20____
	 	 	 
	 	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 2015 Long Term Incentive Plan of the Company (the “2015 LTIP”). 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 2015 LTIP.

 

	 	HALLMARK FINANCIAL SERVICES, INC.
	 	 	 
	 	By:	 
	 	 	 
	 	OPTIONEE
	 	 	 
	 	 	 

 

    	Incentive Stock Option Grant Agreement	Page 1

    	 	 	 

    

 

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.

 

RECITALS

 

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 2015 Long Term Incentive Plan (hereinafter called
the “2015 LTIP”), 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 2015 LTIP, 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 2015 LTIP.

 

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.

 

    	Incentive Stock Option Grant Agreement	Page 2

    	 	 	 

    

 

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 2015 LTIP) 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 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. For purposes hereof, “total and permanent
disability” shall have the meaning set forth in the Company’s long-term disability policy.

 

    	Incentive Stock Option Grant Agreement	Page 3

    	 	 	 

    

 

(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.

 

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.

 

5.            Nontransferability
of Option. This option shall be transferable only to the extent permitted under the 2015 LTIP. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of this option contrary to the provisions of the 2015 LTIP, 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(b) 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 2015 LTIP), 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.

 

    	Incentive Stock Option Grant Agreement	Page 4

    	 	 	 

    

 

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 2015 LTIP 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 2015 LTIP. This option is granted subject to the terms and provisions of the 2015 LTIP, as such plan is now
and may be hereafter subsequently amended, which 2015 LTIP is incorporated herein by reference. In case of any conflict between
the provisions hereof and the 2015 LTIP, the terms and provisions of the 2015 LTIP shall be controlling.

 

    	Incentive Stock Option Grant Agreement	Page 5

    	 	 	 

    

 

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 2015 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 2015 Long Term Incentive Plan) equal to, $_______________, being $_____ per share.

 

	 	 
	 	(Signature of Optionee)
	 	 
	 	 
	 	(Printed Name)
	 	 
	 	 
	 	(Date)

 

    	Incentive Stock Option Grant Agreement	Page 6Exhibit 10.3

 

HALLMARK FINANCIAL SERVICES, INC.

NON-QUALIFIED STOCK OPTION GRANT 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 2015 Long Term Incentive Plan of Hallmark Financial Services,
Inc. (the “2015 LTIP”). 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 2015 LTIP. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of this option contrary to the provisions of the 2015 LTIP, or the levy of any execution, attachment
or similar process upon the Option, shall be null and void and without effect..

 

    	Non-Qualified Stock Option Agreement	Page 1

    	 	 	 

    

 

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 2015 LTIP) 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.

 

    	Non-Qualified Stock Option Agreement	Page 2

    	 	 	 

    

 

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 2015 LTIP, 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 2015 LTIP and this Agreement. In case of any conflict
between the provisions hereof and the 2015 LTIP, the terms and provisions of the 2015 LTIP shall be controlling.

 

31.          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.

 

42.          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.

 

    	Non-Qualified Stock Option Agreement	Page 3

    	 	 	 

    

 

	 	HALLMARK FINANCIAL SERVICES, INC.
	 	 	 
	 	By:	 
	 	 	 
	 	 	 
	 	________________________, Optionee

 

    	Non-Qualified Stock Option Agreement	Page 4

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