sc13da105606spe_07012008.htm

0000921895-08-001949.txt : 20080701 0000921895-08-001949.hdr.sgml : 20080701 20080701113433 ACCESSION NUMBER: 0000921895-08-001949 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20080701 DATE AS OF CHANGE: 20080701 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: Specialty Underwriters Alliance, Inc. CENTRAL INDEX KEY: 0001297568 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 200432760 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-80472 FILM NUMBER: 08928407 BUSINESS ADDRESS: STREET 1: 222 S. RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: (312) 277-1600 MAIL ADDRESS: STREET 1: 222 S. RIVERSIDE PLAZA CITY: CHICAGO STATE: IL ZIP: 60606 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HALLMARK FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000819913 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE CARRIERS, NEC [6399] IRS NUMBER: 870447375 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 777 MAIN STREET, SUITE 1000 CITY: FORT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8173481600 MAIL ADDRESS: STREET 1: 777 MAIN STREET STREET 2: STE 1000 CITY: FORT WORTH STATE: TX ZIP: 76102 FORMER COMPANY: FORMER CONFORMED NAME: ACOI INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CREDIT OPTICAL INC /DE/ DATE OF NAME CHANGE: 19910611 FORMER COMPANY: FORMER CONFORMED NAME: PYRAMID GROWTH INC DATE OF NAME CHANGE: 19890124 SC 13D/A 1 sc13da105606spe_07012008.htm sc13da105606spe_07012008.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

(Rule 13d-101)

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT

TO § 240.13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO

§ 240.13d-2(a)

(Amendment No. 1)1

Specialty Underwriters’ Alliance Inc.

(Name of Issuer)

Common Stock, par value $.01 per share

(Title of Class of Securities)

84751T309

(CUSIP Number)

STEVEN WOLOSKY, ESQ.

OLSHAN GRUNDMAN FROME ROSENZWEIG & WOLOSKY LLP

Park Avenue Tower

65 East 55th Street

New York, New York 10022

(212) 451-2300

(Name, Address and Telephone Number of Person

Authorized to Receive Notices and Communications)

July 1, 2008

(Date of Event Which Requires Filing of This Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§ 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box ¨.

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See § 240.13d-7 for other parties to whom copies are to be sent.

_______________

1 The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

CUSIP NO. 84751T309

1	NAME OF REPORTING PERSON Hallmark Financial Services, Inc.
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS WC, OO
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION Nevada
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 1,429,615
	8	SHARED VOTING POWER 0
	9	SOLE DISPOSITIVE POWER 1,429,615
	10	SHARED DISPOSITIVE POWER 0
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,429,615
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		¨
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.7%
14	TYPE OF REPORTING PERSON IC, CO

CUSIP NO. 84751T309

1	NAME OF REPORTING PERSON American Hallmark Insurance Company of Texas
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS WC
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION Texas
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 1,308,615
	8	SHARED VOTING POWER 0
	9	SOLE DISPOSITIVE POWER 1,308,615
	10	SHARED DISPOSITIVE POWER 0
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,308,615
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		¨
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.9%
14	TYPE OF REPORTING PERSON IC, CO

CUSIP NO. 84751T309

1	NAME OF REPORTING PERSON Hallmark Specialty Insurance Company
2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP		(a) o (b) o
3	SEC USE ONLY
4	SOURCE OF FUNDS WC
5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)		¨
6	CITIZENSHIP OR PLACE OF ORGANIZATION Oklahoma
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH	7	SOLE VOTING POWER 100,000
	8	SHARED VOTING POWER 0
	9	SOLE DISPOSITIVE POWER 100,000
	10	SHARED DISPOSITIVE POWER 0
11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 100,000
12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES		¨
13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.7%
14	TYPE OF REPORTING PERSON IC, CO

CUSIP NO. 84751T309

The following constitutes Amendment No. 1 (“Amendment No. 1”) to the Schedule 13D filed by the undersigned. This Amendment No. 1 amends the Schedule 13D as specifically set forth.

Item 3. Source and Amount of Funds or Other Consideration.

Item 3 is hereby amended in its entirety to read as follows:

The net investment cost (including commissions, if any) of the shares of Common Stock held by the Reporting Persons was approximately $7,058,356.10 in the aggregate, all of which was obtained from cash on hand of the applicable Reporting Person. The net investment cost of Hallmark was approximately $113,139.30, the net investment cost of AHIC was approximately $6,452,714.80 and the net investment cost of HSIC was $492,502.00.

Item 4. Purpose of Transaction.

Item 4 is hereby amended to add the following:

As previously disclosed, on June 16, 2008, Hallmark delivered to the Company’s Board of Directors a proposal with respect to a transaction (the “Proposal”) pursuant to which each outstanding share of Common Stock of the Company would be converted into Hallmark common stock at a pre-determined formula. The Company publicly announced on June 26, 2008 that its Board of Directors unanimously concluded not to accept the Proposal. On July 1, 2008, Hallmark delivered to the Company’s Board of Directors a letter reaffirming the Proposal (the “July 1 Letter”). The offer price of $6.50 in Hallmark stock for each outstanding share of the Company represents a significant 37% premium to the Company’s trailing 30-day average closing price of $4.74 per share on June 13, 2008, the business day prior to delivery of the Proposal. In the July 1 Letter, Hallmark stated that it remains committed to its Proposal and strongly believes that the Proposal offers significant and compelling benefits to the Company’s shareholders. Hallmark reiterated that its senior management stands ready to meet with the members of the Board of the Company and answer any questions concerning the Proposal. A copy of the Proposal and the July 1 Letter are attached as exhibits hereto and are incorporated herein by reference.

Item 5. Interest in Securities of the Issuer.

Item 5(a)-(c) is hereby amended in its entirety to read as follows:

(a) The aggregate percentage of shares of Common Stock reported to be owned by the Reporting Persons is based upon 14,697,355 shares outstanding, which is the total number of shares of Common Stock outstanding as reported in the Company’s Form 10-Q for the quarter ended March 31, 2008 as filed with the Securities and Exchange Commission on May 12, 2008.

As of the filing date of this Amendment No. 1, AHIC beneficially owned 1,308,615 shares of Common Stock, representing approximately 8.9% of the Company’s issued and outstanding Common Stock.

CUSIP NO. 84751T309

As of the filing date of this Amendment No. 1, HSIC beneficially owned 100,000 shares of Common Stock, representing approximately 0.7% of the Company’s issued and outstanding Common Stock.

As of the filing date of this Amendment No. 1, Hallmark owned 21,000 shares of Common Stock, representing 0.1% of the Company’s issued and outstanding Common Stock. As the parent of AHIC and HSIC, Hallmark may be deemed to beneficially own an additional 1,308,615 shares of Common Stock owned by AHIC and an additional 100,000 shares of Common Stock owned by HSIC, representing (together with shares owned directly by Hallmark) an aggregate of 1,429,615 shares of Common Stock or approximately 9.7% of the issued and outstanding Common Stock.

(b) Each of the Reporting Persons has the sole power to vote and dispose of the shares of Common Stock reported as beneficially owned by them in this Statement.

(c) Schedule B annexed hereto lists all the transactions in the Company’s Common Stock by the Reporting Persons during the past 60 days. Such transactions in the Common Stock were effected in the open market.

Item 7. Materials to be Filed as Exhibits.

Item 7 is hereby amended to add the following exhibits:

99.1

Proposal Letter from Hallmark Financial Services, Inc. to the Board of Directors of Specialty Underwriters’ Alliance Inc., dated June 16, 2008.

99.2

Letter from Hallmark Financial Services, Inc. to the Board of Directors of Specialty Underwriters’ Alliance Inc., dated July 1, 2008.

CUSIP NO. 84751T309

SIGNATURES

After due inquiry and to the best of his knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.

Dated: July 1, 2008	Hallmark Financial Services, Inc.

	By:	/s/ Mark E. Schwarz
	Name:	Mark E. Schwarz
	Title:	Executive Chairman

	American Hallmark Insurance Company of Texas

	By:	/s/ Mark E. Schwarz
	Name:	Mark E. Schwarz
	Title:	Director

	Hallmark Specialty Insurance Company

	By:	/s/ Mark E. Schwarz
	Name:	Mark E. Schwarz
	Title:	Director

CUSIP NO. 84751T309

SCHEDULE B

Transactions in the Common Stock During the Past 60 Days

Shares of Common Stock Purchased

Price Per

Share($)

Date of

Purchase

Hallmark Financial Services, Inc.
15,000	5.35	6/30/08
6,000	5.40	6/30/08

American Hallmark Insurance Company of Texas
7,011	4.79	6/03/08
2,500	4.80	6/04/08
100	4.80	6/05/08
150,100	4.85	6/06/08
304,900	4.85	6/09/08
200,000	4.85	6/10/08
291,400	4.92	6/12/08
100	4.90	6/16/08
10,724	4.90	6/18/08
6,500	4.99	6/19/08
318,980	5.04	6/20/08

Hallmark Specialty Insurance Company
70,000	4.85	6/11/08
30,000	5.04	6/20/08

EX-99.1 2 ex991to13da105606spe_070108.htm ex991to13da105606spe_070108.htm

Exhibit 99.1


777 Main Street, Suite 1000 Fort Worth, Texas 76102 P \| 817.348.1600 F \| 817.348.1815 www.hallmarkgrp.com

June 16, 2008

Mr. Courtney C. Smith, Chairman, President and Chief Executive Officer

Mr. Peter E. Jokiel, Executive Vice President and Chief Financial Officer, Director

Mr. Robert E. Dean, Director

Mr. Raymond C. Groth, Director

Mr. Paul A. Philip, Director

Mr. Robert H. Whitehead, Director

Mr. Russell E. Zimmermann, Director

Specialty Underwriters Alliance Inc.

222 South Riverside Plaza

Chicago, IL 60606

To: Board of Directors of Specialty Underwriters Alliance Inc.

I am pleased to present the enclosed proposal by Hallmark Financial Services, Inc. ("Hallmark") to acquire all of the outstanding stock of Specialty Underwriters’ Alliance Inc. (“SUAI” or the "Company").

Our proposal is subject to confirmatory due diligence, which we are prepared to commence immediately, the negotiation of a definitive acquisition agreement and the receipt of all necessary shareholder and regulatory approvals. In addition, because the consideration would consist of our common stock, we would provide you with the opportunity to conduct appropriate due diligence with respect to Hallmark.

We are prepared to deliver a draft merger agreement to SUAI and begin discussions immediately. With SUAI’s full cooperation, we are confident that we will be able to complete due diligence, negotiate a definitive agreement, and immediately thereafter begin preparations for the necessary regulatory and shareholder approvals (approval of Hallmark shareholders is assured through the indicated willingness of Newcastle Partners, L.P., our majority stockholder, to support this transaction). Accordingly, we believe a transaction could realistically be completed within approximately 120 days.

We believe Hallmark’s proposal to acquire SUAI in a share-for-share transaction offers significant and compelling benefits to SUAI shareholders, including the following:

1.	Our offer price of $6.50 in Hallmark stock for each outstanding share of SUAI represents a significant 30% premium to SUAI’s closing share price on Friday, June 13, of $4.99 per share. Our offer price represents an even greater 37% premium to SUAI’s trailing 30-day average closing price of $4.74.

2.	SUAI shareholders’ upside potential will not be capped. In addition to realizing an immediate significant 30% premium for their shares today, SUAI shareholders will retain a continuing ownership interest in Hallmark and will participate in any future gains in Hallmark shares.

3.	SUAI’s business model will be greatly enhanced by the addition of Hallmark’s “A-” rated paper. This will allow SUAI to grow through the addition of programs that are rating sensitive, as was initially contemplated in the original SUAI business model.

4.	Hallmark enjoys a strong capital position and will commit its capital to support future growth of SUAI’s business.

Hallmark produced a 16% ROE in 2007 and a 16% ROE in 1Q 2008. SUAI produced a 10% ROE in 2007 and a 10% ROE 1Q 2008 (including a one-time accounting benefit for deferred taxes). SUAI lacks prospects for meaningfully increasing its ROE in the foreseeable future. This transaction will allow SUAI shareholders to enjoy a much higher return on their pro-rata share of invested capital in a combined company.

6.	This share-for-share transaction will create a much broader, more actively traded shareholder base. This will benefit not only the existing shareholders through enhanced liquidity, but will enhance the prospect of attracting additional quality investors.

In sum Hallmark believes with a larger, stronger corporate platform, pursuing additional business opportunities in this soft-rate environment, either through acquisition or operating relationships, SUAI shareholders’ prospects for future returns will be greatly enhanced through this transaction as compared to what they are today.

As such, we request a meeting with SUAI’s board of directors and/or management as soon as possible to discuss our proposal. Hallmark’s senior management stands ready to meet with you and answer any questions concerning our proposal. We look forward to receiving your response.

Very truly yours,

Mark E. Schwarz

Executive Chairman

Hallmark Financial Services, Inc.


777 Main Street, Suite 1000 Fort Worth, Texas 76102 P \| 817.348.1600 F \| 817.348.1815 www.hallmarkgrp.com

June 16, 2008

Mr. Courtney C. Smith

Chairman, President and Chief Executive Officer

Specialty Underwriters Alliance Inc.

222 South Riverside Plaza

Chicago, IL 60606

Dear Courtney:

On behalf of Hallmark Financial Services, Inc. ("Hallmark"), I am pleased to present this proposal to acquire all of the outstanding stock of Specialty Underwriters’ Alliance Inc. (“SUAI” or the "Company") in a stock for stock merger.

The following are the key elements of this proposal. It is understood that definitive terms and agreements remain subject to both a due diligence review and negotiations between the parties.

I.	Expected Purchase Price: We contemplate a share exchange whereby Hallmark will acquire all of the outstanding stock of SUAI at an exchange ratio where each share of SUAI is valued at $6.50 in Hallmark common stock.

II.

Source of Financing: The share exchange will be from currently authorized, but unissued shares of Hallmark. The proposed transaction will result in SUAI shareholders receiving more than 20% the outstanding shares of Hallmark and, accordingly, will require Hallmark shareholder approval. However please note that Newcastle Partners, L.P., which owns approximately 70% of Hallmark’s shares, has indicated its willingness to support the transaction.

III.

Conditions to Closing: We expect limited conditions. SUAI would be expected to obtain all necessary corporate approvals (including shareholder approval) and regulatory approvals. In addition, we would ask that SUAI obtain satisfactory waiver of change in control provisions in existing material contracts and other material third party consents.

IV.

Timing of Due Diligence: Our proposal is subject to confirmatory due diligence and we would naturally expect that SUAI would want to conduct its own due diligence with respect to Hallmark. Accordingly, each party will provide to the other reasonable access to its management personnel, books, records and other information relating to their business as a party may reasonably request to assist in this effort. All access, investigations, contacts and communications will be made only after communication to and coordination with the other party and in such a manner as not to interfere unduly with the normal conduct of the party’s business. Hallmark has an experienced due diligence team and anticipates it can conduct its due diligence rapidly, needing three full days on-site in Chicago, Illinois, with a team of 6-8 individuals and then approximately two weeks thereafter to conclude.

V.	Organizational Assumptions: We anticipate minimal changes to the Company’s existing operations or staff. We expect to maintain the continued employment of all key management personal.

VI.

Confidentiality Agreement: Hallmark would expect to execute a customary confidentiality agreement in connection with conducting due diligence. Hallmark understands that such an agreement may contain a customary standstill restriction and is prepared to enter into one to facilitate a transaction with SUAI.

VII.

Definitive Purchase Agreement: Following completion of due diligence, we expect the parties to proceed with negotiation and execution of a definitive purchase agreement (“Definitive Agreement”) containing the terms and conditions set forth herein, such additional terms as may be agreed by the parties, and such other reasonable, customary and mutually satisfactory representations, warranties, covenants and indemnities as the parties may mutually agree.

VIII.

Fees & Expenses: Each party hereto will be responsible for and bear all its own costs and expenses incurred at any time in connection with pursuing, negotiating or consummating the Transaction, including without limitation, the preparation, negotiation and execution of this Letter of Interest and the Definitive Agreement.

IX.

Termination: This Letter of Interest may be terminated (a) at any time by the mutual agreement of the parties hereto or (b) at the option of any party, if after 60 days after the acceptance of this letter, a Definitive Agreement has not been executed and delivered for any reason. In any event, this Letter of Interest will terminate upon execution of, and will be superseded by, the Definitive Agreement.

Expiration: The terms of this Letter of Interest are deemed to expire if not agreed and accepted in its entirety by end of the business day (5:00 p.m. CST), June 20, 2008. Acceptance will be constituted by the full execution of the signature page of this letter and the delivery of such to the designated Hallmark contact person.

XI.

Publicity: Except as required by law, no press release or other public announcement with respect to this Letter of Interest or the Transaction shall be made by any party hereto, and each party will direct its representatives not to make directly or indirectly, any such press release or public announcement, without in each case each party’s prior written consent. If a party is required by law to make any such disclosure, such party must first provide to the other party the content of the proposed disclosure, the reasons that such disclosure is required by law, and the time and place that the disclosure will be made.

XII.	Counterparts: This Letter of Interest may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute the same instrument.

XIII.

Other Matters: This proposal letter shall be governed and construed under the laws of the State of Texas without regard to conflicts of laws principles.

XIV.	Contact Information: In response to this proposal, please contact:

Mark J. Morrison

President & Chief Executive Officer

Hallmark Financial Services, Inc.

777 Main Street, Suite 1000

Fort Worth, Texas 76102

(817) 348-1728

(817) 348-1815 fax

E-Mail: mmorrison@hallmarkgrp.com

With the exception of paragraphs (IV), (VII) and (XIV), which are intended to be legally binding obligations, this Letter of Interest represents a non-binding expression of intent and will not obligate any party in any way.

We look forward to hearing from you. If you have any questions, please call me at your convenience.

Very truly yours,

Mark E. Schwarz

Executive Chairman

Hallmark Financial Services, Inc.

ACKNOWLEDGED & ACCEPTED ON BEHALF OF SPECIALTY UNDERWRITERS’ ALLIANCE INC.:

Signature: _________________________________________ Date: _____________________

Name: _________________________________________ Title: _____________________

EX-99.2 3 ex992to13da105606spe_070108.htm ex992to13da105606spe_070108.htm

Exhibit 99.2


777 Main Street, Suite 1000 Fort Worth, Texas 76102 P \| 817.348.1600 F \| 817.348.1815 www.hallmarkgrp.com

July 1, 2008

Mr. Courtney C. Smith, Chairman, President and Chief Executive Officer

Mr. Peter E. Jokiel, Executive Vice President and Chief Financial Officer, Director

Mr. Robert E. Dean, Director

Mr. Raymond C. Groth, Director

Mr. Paul A. Philip, Director

Mr. Robert H. Whitehead, Director

Mr. Russell E. Zimmermann, Director

Specialty Underwriters’ Alliance Inc.

222 South Riverside Plaza

Chicago, IL 60606

To: the Board of Directors of Specialty Underwriters’ Alliance Inc.

I am writing to reaffirm the written proposal by Hallmark Financial Services, Inc. ("Hallmark") to acquire all of the outstanding stock of Specialty Underwriters’ Alliance Inc. (“SUAI”) delivered in person to Courtney Smith at our dinner meeting on June 16.

Hallmark remains committed to our proposal to acquire SUAI in a stock-for-stock transaction and strongly believes that our proposal offers significant and compelling benefits to SUAI shareholders. Our offer price of $6.50 in Hallmark stock for each outstanding share of SUAI represents a significant 37% premium to SUAI’s trailing 30-day average closing price of $4.74 per share on Friday, June 13, the day prior to delivery of our proposal.

Hallmark is deeply disappointed by SUAI’s June 26 publicly-stated response to our proposal: “After due deliberation, the SUAI Board unanimously concluded not to accept this offer”.

In our June 16 written proposal, we requested a meeting with SUAI’s Board of Directors and/or management as soon as possible to discuss our proposal. Beginning on June 17, numerous attempts to speak to you and your advisors went unanswered.

How is it possible that, on behalf of SUAI shareholders, the Board fully and fairly considered Hallmark’s proposal while at the same time refusing to engage us in any dialogue? If the Board is truly endeavoring to act in the best interests of its shareholders, why deny yourselves the benefit of having all information available before making an important decision? There is no possible downside, only upside.

In your June 26 press release you state SUAI’s unanimous conclusion to “remain independent and continue with the execution of its current business strategy, which the Board believes represents a better long-term value for the company's shareholders”. We again question: How is it conceivable to arrive at this conclusion without a willingness to engage in discussions with Hallmark regarding the merits of its proposal.

Hallmark reiterates its wish to enter into constructive dialogue with SUAI to achieve a friendly combination that we believe will be a win-win outcome for SUAI shareholders:

SUAI shareholders will receive an immediate significant 37% premium to SUAI’s trailing 30-day average closing price as of Friday, June 13.

SUAI shareholders’ upside potential will not be capped. SUAI shareholders will retain a continuing ownership interest in Hallmark and will benefit from any future gains in Hallmark shares.

As the largest SUAI shareholder, with beneficial ownership of 1,429,615 shares representing 9.7% of the common stock outstanding, we ask that you not summarily dismiss our proposal and deny your shareholders this truly outstanding opportunity. Hallmark is a bona fide buyer, without a financing contingency, and requires no unusual conditions to close. Our proposal is a firm proposal, subject only to confirmatory due diligence, the negotiation of a mutually satisfactory definitive agreement and customary shareholder and regulatory approvals.

As stated previously, Hallmark’s senior management stands ready to meet with you and answer any questions concerning our proposal. We look forward to hearing from you.

Very truly yours,

Mark E. Schwarz

Executive Chairman

Hallmark Financial Services, Inc.

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