Hallmark Financial Issues Letter to Stockholders of Specialty Underwriters' Alliance
25 April 2009 - 5:30AM
PR Newswire (US)
FORT WORTH, Texas, April 24 /PRNewswire-FirstCall/ -- Stockholders
of Specialty Underwriters' Alliance, Inc. (NASDAQ:SUAI) should
expect to receive by mail as early as today the following letter
dated April 22, 2009 from Hallmark Financial Services, Inc.
(NASDAQ:HALL). The letter has also been posted to
http://www.suaitownhall.com/. 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:
-- 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 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) or CALL TOLL FREE (800) 322-2885
DATASOURCE: Hallmark Financial Services, Inc. CONTACT: Dan
Sullivan, or Jeanne Carr, both of MacKenzie Partners, Inc.,
+1-212-929-5500 Web Site: http://www.suaitownhall.com/
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