ATTENTION SPECIALTY
UNDERWRITERS’ STOCKHOLDERS
VOTE
FOR HALLMARK FINANCIAL’S THREE HIGHLY QUALIFIED,
INDEPENDENT
DIRECTOR NOMINEES
VOTE
THE GOLD PROXY CARD TODAY!
April 22,
2009
Dear
Fellow SUA Stockholders,
Hallmark
Financial Services, Inc. (“Hallmark”) is the second largest stockholder of
Specialty Underwriters’ Alliance, Inc. (“SUA” or the “Company”), beneficially
owning 9.9% of the Company’s outstanding common stock. We are asking
for your vote at the 2009 annual meeting of stockholders of SUA in order to
elect our three highly qualified, independent director nominees: Robert M.
Fishman, Mark E. Pape and C. Gregory Peters. Our nominees possess a
wealth of property and casualty insurance industry expertise.
Directors
That Are
Truly
Independent
Need to Be in the SUA Board Room and in Sufficient
Number
In its
effort to discredit us, the Company has written to you that Hallmark’s campaign
represents some disguised effort by Hallmark to obtain control of the SUA
Board. The fact is that
THE CANDIDATES WE NOMINATED SET FORTH
ON THE GOLD PROXY CARD ARE ENTIRELY INDEPENDENT OF HALLMARK
and, if
elected, will just like all directors have fiduciary responsibilities to act in
the best interests of
all
stockholders. Our nominees would bring significant industry,
financial and public company expertise, as well as a fresh perspective, to the
current board. If elected, these nominees will represent less than a
majority of the SUA Board (and 50% of the independent directors) but
nevertheless we believe will have a sufficient presence
TO MAKE A DIFFERENCE
on the
issues that matter to stockholders. In this light, it is our hope you will agree
that simply adding one stockholder-nominated director to the current seven
person board – the hollow gesture offered by the Company to Hallmark to avoid a
shakeup of the status quo – is simply not acceptable.
Our
Focus…and Their Hope
Hallmark’s
nominees are focused on the following critical issues that we believe currently
face SUA, as further discussed in our proxy statement:
·
|
We
believe SUA is underperforming
financially
|
·
|
We
believe SUA’s strategic and business model is
weak
|
·
|
We
believe SUA suffers from corporate governance
deficiencies
|
·
|
We
believe SUA has not created stockholder
value
|
Curiously,
rather than addressing these critical financial, strategic and governance
problems facing SUA, the Company appears to blame the economic environment alone
for the Company’s problems and low stock price. The Company stated in
its letter to stockholders dated April 1, 2009 that “the capital markets and
general business activities have been severely impacted by the economic
environment and credit crisis…[and that it believes] these events have adversely
impacted our business and our current stock valuation.” The
implication is that, as general business conditions improve, somehow things will
get better for SUA and its stockholders. We do not believe this will
happen without seriously addressing the problems facing the
Company.
SUA’s
numerous missteps long preceded the economic downturn and the Company’s failure
to address this does nothing to improve operations or enhance stockholder
value. Consider that, among other things:
·
|
Since
its IPO in November 2004 through December 31, 2008, the Company’s
cumulative total stockholder return has been
negative 72%
,
far underperforming the S&P 500 (when that index reflects the worst
bear market in a generation).
|
·
|
The
Company’s annual growth in book value per share for the five-year period
ended December 31, 2008 has been a paltry
1.6%
.
|
·
|
During
the same five-year period, the Company has only reported a cumulative
total of $2.271 million in net income, or an
average of $454,000
annually
. As a result, the Company’s average return on
equity has been
a mere fraction of a
single percent
.
|
·
|
According
to SNL Financial, SUA’s expense ratio has been significantly higher than
the industry average for each year during the past four completed fiscal
years. In fact, SUA’s expense ratio has averaged
more than fourteen
percentage points
higher than the industry average during this
period.
|
·
|
As
of December 31, 2008, SUA had only nine partner-agents. SUA’s
top five partner-agents in 2008 made up over 90% of SUA’s written
premiums, which is relatively unchanged from 2005, when these same five
partner-agents made up 100% of SUA’s written premiums. SUA’s
failure to expand its partner-agent relationships puts the Company’s
business at risk if its relationship with one significant partner-agent
(such as Risk Transfer Holdings) were to
deteriorate.
|
IF
YOU WANT NEW HIGHLY QUALIFIED INDEPENDENT DIRECTORS WHO RECOGNIZE AND WILL SEEK
TO SERIOUSLY ADDRESS THE DIFFICULT FINANCIAL, BUSINESS AND STRATEGIC CHALLENGES
WE BELIEVE FACE SUA – VOTE THE GOLD PROXY CARD!
Corporate
Governance Deficiencies
The
Company states that it has purportedly reached out to large stockholders
following conference calls (excluding Hallmark, we would add) in trumpeting its
Board and its corporate governance. However, the following actions in
2008 in our view constitute genuine corporate governance problems:
·
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In
2008, the current Board approved bylaw amendments that eliminated basic
rights of stockholders, including changes
which:
|
™
|
expressly
eliminated stockholders’ rights (a) to call special meetings of
stockholders and (b) to fill vacancies on the SUA Board (even when
directors have been removed by stockholders);
and
|
™
|
added
stringent advance notice requirements for stockholder nominations of
directors.
|
·
|
In
2008, the Board and management approved eight new employment and change of
control agreements with members of SUA’s senior management team obligating
the Company to make golden parachute payments to executives in certain
circumstances, including a change of
control.
|
·
|
In
2008, without engaging in any meaningful dialogue, the SUA Board
determined to reject a bona fide offer from a credible buyer (Hallmark),
which we believe had real prospects to enhance stockholder
value.
|
To defend
its behavior last summer, the Company would have you believe that it was
Hallmark, and not SUA or Courtney Smith (the Company’s Chief Executive Officer),
that was “unresponsive” when Hallmark made its offer in June 2008. We
believe this characterization of the events of last June is disingenuous and
self-serving. The incident that SUA is relying on for this assertion
is a perfunctory two sentence email from Mr. Smith to Mr. Schwarz (Hallmark’s
Executive Chairman), sent after several attempts by Mr. Schwarz to speak with
Mr. Smith and which formally directed Mr. Schwarz to forward “in writing” any
“additional information that [Hallmark] would like to share with
[SUA].” While Hallmark stood ready and willing at any time to engage
in a dialogue that might help SUA reach a more thoughtful decision on Hallmark’s
offer, SUA on the other hand appears to act as if formally requesting
“additional information” in writing satisfied the Board’s obligations to have
all of the information required to act in the best interests of stockholders,
and that somehow Hallmark’s failure to send any such information made Hallmark
the “unresponsive” party.
Hallmark’s
Interest and the Shakeup It Has Caused
Hallmark
did not withdraw its proposal to acquire SUA and Mr. Schwarz has attempted to
discuss a potential transaction which would benefit all stockholders with SUA
senior officers as recently as March 2, 2009. While SUA now wields
our continuing interest in the Company as a scare tactic with stockholders to
maintain the status quo, it is our view that our continuing interest in a
transaction is a significant positive for SUA stockholders. In fact,
SUA’s effort to obtain a “standstill” obligation from Hallmark as part of its
proposal to add just one Hallmark nominee – an obligation that would prevent
Hallmark from pursuing any transaction (or from nominating additional director
candidates) for the foreseeable future – would in our view harm SUA’s
stockholders. We believe this demand further underscores that the
hollow compromise offered by SUA was designed to avoid addressing the serious
and real issues we believe face the Company.
Interestingly,
while the SUA Board rejected our proposal out of hand last summer, we point out
that SUA now writes that it in fact will consider a sale or merger of the
Company.
But how – we ask – can this
same current Board be trusted to make an informed decision on behalf of SUA’s
stockholders on a proposed transaction – or on any other potentially value
enhancing opportunity – for the benefit of SUA
stockholders?
Our nominees will, subject to their fiduciary
duties, not approve any proposed transaction, whether made by Hallmark or a
third party, unless they believe it will be in the best interests of all
stockholders and maximize stockholder value.
HALLMARK’S
NOMINEES ARE HIGHLY QUALIFIED INDEPENDENT DIRECTORS WHO POSSESS THE RIGHT
COMBINATION OF SKILLS AND EXPERIENCE TO ASSIST THE BOARD IN MAKING THE TOUGH
DECISIONS NECESSARY FOR RESTORING AND ENHANCING STOCKHOLDER VALUE AT
SUA.
Hallmark
strongly urges you to reject the status quo at SUA, and to sign and return the
GOLD PROXY CARD
to elect
Hallmark’s nominees.
Thank you
for your time.
Sincerely,
|
|
/s/
Mark E. Schwarz
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|
Mark
E. Schwarz
Director
& Executive Chairman
Hallmark
Financial Services, Inc.
|
If
you have any questions, require assistance in voting your
GOLD
proxy card,
or
need additional copies of Hallmark’s proxy materials, please
contact
MacKenzie
Partners, Inc. at the address or phone numbers listed below.
105
Madison Avenue
New York,
New York 10016
(212)
929-5500 (Call Collect)
proxy@mackenziepartners.com
or
CALL
TOLL FREE (800) 322-2885