EXHIBIT 99.3
HALLMARK FINANCIAL SERVICES, INC.
50,000,000 Shares of Common Stock
Offered Pursuant to Rights Distributed to Security Holders
_____________, 2005
Dear Security Holders:
This notice is being distributed by Hallmark Financial Services, Inc.
(the "Company") to all holders of record of shares of its common stock, par
value $0.03 per share (the "Common Stock"), at the close of business on
April 20, 2005 (the "Record Date"), in connection with a distribution in a
rights offering (the "Rights Offering") of non-transferable subscription
rights (the "Rights") to subscribe for and purchase shares of its Common
Stock. The Rights are described in the Company's Prospectus dated ________,
2005 (the "Prospectus").
In the Rights Offering, the Company is offering an aggregate of
50,000,000 shares of Common Stock (the "Underlying Shares"), as described in
the Prospectus.
The Rights will expire, if not exercised, at 5:00 p.m., Dallas, Texas
time, on ________, 2005, unless extended in the sole discretion of the
Company (as it may be extended, the "Expiration Date").
As described in the Prospectus, you will receive one Right for each
share of Common Stock owned of record at the close of business on the Record
Date. Each Right allows you to subscribe for 1.37 shares of Common Stock
(the "Basic Subscription Privilege") at the cash price of $0.90 per share
(the "Subscription Price").
In addition, each holder of Rights who exercises their Basic
Subscription Privilege in full will be eligible to subscribe (the "Over-
Subscription Privilege") at the Subscription Price for shares of Common
Stock that are not otherwise purchased pursuant to the exercise of Rights by
other holders of Rights under the Basic Subscription Privilege (the "Excess
Shares"), subject to availability and proration as described below. Shares
of Common Stock will be available for purchase pursuant to the Over-
Subscription Privilege only to the extent that any Underlying Shares are not
subscribed for pursuant to the Basic Subscription Privilege. If there are
not enough Excess Shares to satisfy all subscriptions made under the Over-
Subscription Privilege, the Company will allocate the remaining Excess
Shares pro-rata (subject to the elimination of fractional shares) among
those Rights holders who exercised their Over-Subscription Privileges, in
proportion to the number of Underlying Shares each beneficial holder
exercising the Over-Subscription Privilege has purchased pursuant to the
Basic Subscription Privilege; provided, however, that if such pro-rata
allocation results in any Rights holder being allocated a greater number of
Excess Shares than such holder subscribed for pursuant to the exercise of
such holder's Over-Subscription Privilege, then such holder will be
allocated only such number of Excess Shares as such holder subscribed for
and the remaining Excess Shares will be allocated among all other holders
exercising the Over-Subscription Privilege on the same pro-rata basis
outlined above. Such proration will be repeated until all Excess Shares
have been allocated to the full extent of the Over-Subscription Privilege.
See "The Offering/Subscription Rights/Over-Subscription Privilege" in the
Prospectus.
The Rights are evidenced by non-transferable Rights certificates (the
"Rights Certificates") and will cease to have any value at the close of
business on the Expiration Date.
Enclosed are copies of the following documents:
1. Prospectus;
2. Rights Certificate;
3. Instructions as to Use of Rights Certificates;
4. Notice of Guaranteed Delivery for Rights Certificates;
5. Substitute Form W-9 (including Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9); and
6. A return envelope addressed to Securities Transfer Corporation, the
Subscription Agent.
Your prompt action is requested. To exercise Rights, you should
properly complete and sign the Rights Certificate (or the Notice of
Guaranteed Delivery if you are following the Guaranteed Delivery Procedures)
and forward it, with payment of the Subscription Price in full for each
share of Common Stock subscribed for pursuant to the Basic Subscription
Privilege and the Over-Subscription Privilege, to the Subscription Agent,
as indicated in the Prospectus. The Subscription Agent must receive the
Rights Certificate or Notice of Guaranteed Delivery with payment of the
Subscription Price, including final clearance of any checks, prior to 5:00
p.m., Dallas, Texas time, on the Expiration Date. FAILURE TO RETURN THE
PROPERLY COMPLETED RIGHTS CERTIFICATE WITH THE CORRECT PAYMENT WILL RESULT
IN YOUR NOT BEING ABLE TO EXERCISE YOUR RIGHTS. A Rights holder cannot
revoke the exercise of its Rights. Rights not exercised prior to the
Expiration Date will expire.
Additional copies of the enclosed materials and assistance or
information may be obtained from the Subscription Agent. The Subscription
Agent's telephone number is (469) 633-0101.
Very truly yours,
HALLMARK FINANCIAL SERVICES, INC.