Attached hereto is a letter dated April 20, 2016 that FISI is mailing to shareholders in which FISI comments on the proxy contest by Clover Partners, L.P.
(
Clover
) and the other participants in its solicitation with respect to the 2016 Annual Meeting. As previously announced, Clover has publicly disclosed that it intends to pursue a proxy contest to elect two nominees to the FISI
Board of Directors at the 2016 Annual Meeting.
Financial Institutions, Inc. (
FISI
) its directors and certain of its executive officers are deemed to be participants in the solicitation of
proxies from FISIs shareholders in connection with the matters to be considered at FISIs 2016 Annual Meeting of Shareholders. On April 19, 2016, FISI filed a definitive proxy statement and accompanying definitive
BLUE
proxy card with the Securities and Exchange Commission (
SEC
) in connection with the solicitation of proxies from FISIs shareholders in connection with the matters to be considered at FISIs 2016 Annual Meeting of
Shareholders. Information regarding the names of FISIs directors and executive officers and their respective interests in FISI by security holdings or otherwise can be found in such definitive proxy statement, including the schedules and
appendices thereto. INVESTORS AND SHAREHOLDERS ARE STRONGLY ENCOURAGED TO READ ANY SUCH PROXY STATEMENT AND THE ACCOMPANYING
BLUE
PROXY CARD AND OTHER DOCUMENTS FILED BY FINANCIAL INSTITUTIONS WITH THE SEC CAREFULLY AND IN THEIR
ENTIRETY WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION. Shareholders may obtain the definitive proxy statement, any amendments or supplements to the proxy statement, the accompanying
BLUE
proxy card, and other
documents filed by FISI with the SEC for no charge at the SECs website at
www.sec.gov
. Copies will also be available at no charge at the Investor Relations section of FISIs corporate website at www.fiiwarsaw.com, by writing to
FISIs Corporate Secretary at Financial Institutions, Inc., 220 Liberty Street, Warsaw, New York 14569, or by calling FISIs Corporate Secretary at (585) 786-1100.
Enclosed you will find Financial Institutions, Inc.s proxy materials for the 2016 Annual Meeting of Shareholders to be held on Friday, June 3,
2016, at 10:00 a.m., local time, at our Corporate Headquarters in Warsaw, New York. Please vote
TODAY
by telephone, Internet or by signing, dating and returning the enclosed
BLUE
proxy card in the postage-paid envelope provided
and
VOTE FOR ALL
four of your Board of Directors highly-qualified and very experienced nominees to ensure that we continue our success at delivering shareholder value. Your Board and management who collectively own approximately
5.5% of FISI equity believe that
we are delivering on our strategic plan which has resulted in total shareholder returns over the last three years of over 66%, outperforming both the S&P 500 and KBW Nasdaq Regional Bank Index.
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We believe that voting
FOR ALL
four of your Boards nominees will help ensure that we are best positioned to continue to execute on our strategic plan and deliver outstanding
shareholder returns.
You may soon receive proxy solicitation materials from Clover Partners L.P., an investment firm based in Dallas, Texas, which began
accumulating its current position in FISI by buying and selling FISI stock less than nine months ago. Clover Partners has nominated two candidates for election to the Board of Directors at the Annual Meeting and has publicly called for an immediate
sale of FISI. We strongly urge you to discard any white proxy card or voting instruction form you may receive from Clover Partners. Even a WITHHOLD vote with respect to Clover Partners nominees on its white proxy card will cancel any proxy
previously given to FISI.
We believe that FISI has a significant opportunity for continued growth and do not believe that an immediate sale of FISI is in
the best interest of shareholders. We also believe that Clover Partners nominees do not have the necessary experience and skill sets to advance our strategic plan. Further, we believe that they are being proposed as directors solely to advance
Clover Partners short-term agenda to seek the immediate sale of FISI.
Please vote your
BLUE
proxy card TODAY to ensure that we are best positioned to continue to execute on our strategic plan and deliver outstanding returns for
shareholders through exceptional service provided to our customers in Western New York.
Our rolling three-year strategic plan is working. Over the past three years, the Board and management have improved the financial
performance of FISI, outperformed the market and our peer group on stock price, and delivered consistent dividend growth. Over the last three years, we:
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FISI has driven significantly better shareholder returns than its proxy peers
2
:
Total Shareholder Returns from January 1, 2013 to December 31, 2015
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Total Shareholder Returns for the periods ending December 31, 2015
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FISI
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S&P 500
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Russell 2000
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KBW Regional Bank Index
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5-year TSR
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74.0
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%
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62.5
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%
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55.2
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%
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56.5
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%
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3-year TSR
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66.4
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%
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43.3
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%
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39.2
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%
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50.4
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%
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1-year TSR
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15.0
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%
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(0.7
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%)
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(4.4
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%)
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5.9
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%
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Your Board and management team are confident that our strategy will continue to work and produce great results. We have
maintained our diligent focus on growing our core banking franchise, which continues to add value for shareholders. At the same time, FISI, with oversight from the Board, made the strategic decision to diversify our income streams beyond net
interest income, by increasing the proportion of non-interest income from fees and commissions, in order to generate more balanced income growth. FISI has advanced its ability to benefit from a more diversified revenue stream beyond general interest
income on loans and other interest-earning assets. By executing on our strategic plan, we have been able to
invest in the future while continuing to deliver results for shareholders.
Immediate Sale of FISI Not in Best Interest of Shareholders
Despite the important progress that we are making in executing on our strategic three-year plan, Clover Partners insists that an immediate sale should be
pursued. Clover Partners typically invests in poor performing companies who fail to create shareholder value; however, we do not meet Clover Partners typical company profile. A typical Clover Partners activist target manages its expenses
poorly, averaging a poor efficiency ratio of nearly 80%, while we currently have an efficiency ratio of 62% despite investing in two new income generating platforms in the past
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Peer group, as disclosed in the proxy statement for the 2016 Annual Meeting, includes: 1st Source Corp., Arrow
Financial Corp., Berkshire Hills Bancorp Inc., Brookline Bancorp Inc., Camden National Corp., Chemung Financial Corp., City Holding Co., CNB Financial Corp., Enterprise Bancorp Inc., First Busey Corp., First Commonwealth Financial, First Community
Bancshares Inc, First Financial Corp., First Merchants Corp., First Mid-Illinois Bancshares, Horizon Bancorp, Lakeland Bancorp, MainSource Financial Group, Merchants Bancshares Inc., Meridian Bancorp Inc., MidWestOne Financial Grp Inc., NBT Bancorp
Inc., Peoples Bancorp Inc., Pinnacle Financial Partners, S&T Bancorp Inc., Tompkins Financial Corporation, TowneBank, Washington Trust Bancorp Inc. Excludes members of our proxy statement Regional Peer Group that were acquired during
2015.
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two years.
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Given FISIs strong performance of 13.2% return on average tangible common equity compared to an average of 4.2% for
Clover Partners recent activist targets, it is not clear to us why Clover Partners is seeking an immediate sale of FISI.
Your Board and
management are confident that large institutional and private shareholders support our strategic direction and do not agree with Clover Partners short-term view of FISI. Richard Humphrey, who represents over 6% ownership in FISI, recently
expressed his support for our strategic plan:
This letter follows our recent conversations and is intended to reiterate our support for Financial Institutions,
Inc. to continue its current strategy, which we believe has delivered great value for both shareholders and the community
We have been impressed by the progress that has been made during the last three years on improving the operational
performance of the bank which has led to increased value for shareholders through both stock price and increased dividends. Richard Humphrey; 3/22/16
In line with our Boards commitment to create value for our shareholders, which remains the highest priority for FISI, we regularly evaluate a broad
range of strategies to enhance value for all FISI shareholders. However, we do not believe that an immediate sale of FISI is in the best interest of shareholders.
Clover Partners Nominees Would Not Bring New or Relevant
Experience, Skills or Competencies to the Board
On April 1, 2016, Clover Partners provided us with notice of its intention to nominate two director candidates for election to the Board: 32-year-old
Johnny Guerry, a Managing Partner at Clover Partners, and 61-year-old Terry Philen, Chief Financial Officer of Custom Extrusions Holdings, LLC, a privately-held aluminum processing company. We question Clover Partners choice of nominees to
replace highly-qualified, experienced and valued members of your Board. We do not believe that either
of Clover Partners proposed nominees would bring to the Board any relevant experience, skills or competencies not already present among
the current Board members and its newest nominee. We also do not believe that either of Clover Partners nominees would help advance our strategic plan to drive the creation of long-term shareholder value.
This public nomination of two director candidates follows an earlier private request for Board representation by Mr. Guerry at the end of January 2016.
The Boards Nominating & Governance Committee (Committee) underwent a thorough evaluation process on par with the evaluation process that all of our director nominees undergo, including:
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Reviewing background materials on Mr. Guerry, his professional history and affiliations
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Conducting an in-person interview between Mr. Guerry and members of the Committee
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Contacting third-party references provided by Mr. Guerry
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Engaging in other standard and appropriate diligence procedures
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Importantly, FISI reached out to selected
Hampden Bancorp board members the only public company and the only bank where Mr. Guerry has served as a director,
and, notably, his board service was limited to less than six months
. Notably, none of the Hampden Bancorp Board
members responded to our request for a discussion.
In ultimately recommending against adding Mr. Guerry to the Board, the Committee considered that
Mr. Guerry has:
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Very limited public company or bank board experience
served on only one board for less than six months
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No operating company experience
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No understanding of the community banking market in Western New York
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No ties to Western New York
Mr. Guerry is based in Texas
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Includes campaigns since January 1, 2012 where Clover Partners has made specific public demands.
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No strategic view for how to create shareholder value at FISI outside of an immediate sale of FISI
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We
believe that Mr. Philen similarly lacks the credentials and competencies to serve as a value-additive member of your Board. Similarly, Mr. Philen has:
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Very limited public company board experience
served less than two years on the board of a hotel company
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No experience serving on the board of directors of a bank
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No recent or relevant banking experience
worked for a small Texas bank over 22 years ago
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No ties to Western New York
Mr. Philen, like Mr. Guerry, is based in Texas
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This lack
of relevant or recent banking experience as well as very limited public company board and no bank board experience, coupled with our belief that Mr. Philen has no understanding of the community banking market in Western New York and shares with
Mr. Guerry the same narrowly-focused strategy for FISI a sale affirms our belief that Mr. Philen, like Mr. Guerry, is not a suitable candidate for our Board.
Understanding what our customers in Western New York expect from FISI, coupled with the critical role that FISI plays in the community, are two qualities
that we believe are paramount to serving on your Board. Notably, Clover Partners nominees do not have an understanding of the community banking market in Western New York, business connections in this region or ties to the community, which are
important resources that help us to generate business. We take our commitment to the customers and communities that we serve very seriously and have made it a priority to develop your Board with this commitment in mind. We do not believe that
Mr. Guerry nor Mr. Philen share this commitment.
FISI Board is Highly Qualified and Aligned with ALL Shareholders
Your Board is comprised of eleven highly-qualified and very experienced directors, ten of whom are independent and all of whom are actively engaged
in overseeing initiatives for enhancing shareholder value. There is a broad and diverse set of skills and experiences represented on your Board, including in the areas of banking, strategic planning, economic development, corporate governance,
legal, accounting, finance, economics, real estate, investment management, marketing, mergers and acquisitions, risk management and capital allocation. Additionally, each of the members of your Board has ties to the communities that we serve, which
supports our community banking culture and serves as a source for generating business.
With an aggregate ownership of over 5.5% of FISIs equity, your entire Board and management are aligned with and invested in the future
success of FISI.
We consistently evaluate opportunities to recruit new independent and highly-qualified directors who have perspectives, insights,
experiences, competencies and relationships that expand and complement the skills sets currently included on your Board and advance FISIs ability to deliver value to shareholders.
Three new independent directors Kim VanGelder, Andrew
Dorn, Jr. and Robert Glaser have been nominated to the Board over the last two years, underscoring our efforts to refresh our Board with talented, experienced and diverse professionals.
At the end of February 2016, FISI nominated
Ms. VanGelder, a highly-regarded information technology executive with substantial and relevant cybersecurity expertise, for election to your Board. Ms. VanGelder currently serves as the chief information officer and senior vice president
of Eastman Kodak Company in Rochester, New York. If elected, Ms. VanGelder would be an independent director and, in addition to having strong ties to Western New York and extensive public company leadership experience, would bring over 30 years
of business and technology experience, including experience developing and executing critical information technology and cybersecurity strategies to deliver business results.
We believe that our four highly-qualified and very experienced director nominees for election to your Board at the Annual Meeting
Martin Birmingham,
Samuel Gullo, Kim VanGelder
and
James Wyckoff
have the integrity, knowledge, investor perspective, breadth of relevant and diverse experiences, relationships, and commitment to the long-term success of FISI necessary to enable FISI
to continue executing on its strategic initiatives.
PLEASE VOTE THE
BLUE
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PROTECT YOUR INVESTMENT!
YOUR VOTE IS IMPORTANT FOR THE FUTURE OF FISI
Your vote at the upcoming Annual Meeting is important in shaping our future, no matter how many shares you own. We are asking for your support by voting the
BLUE
proxy card to
VOTE FOR ALL
four highly-qualified and very experienced nominees and ensure that FISI continues its successful long-term plan to build long-term shareholder value. Whether or not you plan to attend the Annual
Meeting, we urge you to sign, return and date the enclosed
BLUE
proxy card today in the postage-paid envelope provided. If you are voting by phone or Internet, please follow the instructions on the enclosed
BLUE
proxy
card. Please vote each and every
BLUE
proxy card or voting instruction form you receive since you may hold multiple accounts.
We also urge
you to discard any white proxy card or voting instruction form that you may receive from Clover Partners. Even a WITHHOLD vote with respect to Clover Partners nominees on its white proxy card or voting instruction form will cancel any proxy or
voting instruction form previously given to FISI.
We ask you to VOTE the
BLUE
proxy card today in favor of your Boards four
highly-qualified and very experienced nominees, who will be committed to executing on a strategic plan that has delivered increased growth, increased profitability, and achieved a 66% increase in total shareholder returns.
On behalf of your Board of Directors, we thank you for your continued support. We look forward to communicating further with you in the coming weeks.
Sincerely,
Board of Directors of Financial Institutions, Inc.
PLEASE VOTE THE
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Safe Harbor Statement
This letter may contain forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the
safe harbors created by such laws. These forward-looking statements can generally be identified as such by the context of the statements, including words such as believe, expect, anticipate, plan,
may, would, intend, estimate, guidance and other similar expressions, whether in the negative or affirmative. Similarly, statements that describe the objectives, plans or goals of Financial
Institutions, Inc. (FISI) are forward-looking. Such forward-looking statements include, but are not limited to, statements regarding the anticipated proxy contest by Clover Partners, L.P. and the other participants in its solicitation,
FISIs ability to continue to execute on and implement its strategic growth plan, FISIs opportunities for continued growth, FISIs initiatives to improve its financial and operational performance and increase its growth and
profitability, FISIs future stock price and dividend growth, FISIs future returns to shareholders, FISIs ability to continue to strengthen its balance sheet and grow its core business, FISIs ability to continue to strengthen
its regulatory compliance procedures, FISIs ability to continue to profitably grow its commercial lending business, FISIs ability to enhance its competitive position through diversified income streams, FISIs ability to leverage its
client base to offer its clients additional fee-based products, FISIs future returns from its existing fee-based platforms and the effect of those platforms on overall shareholder value, FISIs ability to continue to maintain expense
discipline, FISIs plans to continue to return cash to its shareholders through cash dividends and future increases that may be made thereto, FISIs actions taken or contemplated to enhance its long-term prospects and create and return
value for its shareholders, FISIs future operational and financial performance, FISIs future growth and profitability, the effect that the election of FISIs nominees to the FISI Board will have on FISIs execution of its
long-term plan and long-term shareholder value, and the future effect of FISIs strategic growth plan on FISIs growth, profitability and total shareholder returns. Such forward-looking statements are not guarantees of future operational
or financial performance and are based on current expectations, estimates, forecasts and projections and managements current beliefs and assumptions, all of which involve a number of significant risks and uncertainties, any one or more of
which could cause actual results to differ materially from those described in FISIs forward-looking statements. There are a number of important risks and uncertainties that could cause FISIs actual events or results to differ materially
from those indicated or implied by such forward-looking statements, including, but not limited to: FISIs ability to implement its strategic plan, FISIs ability to redeploy investment assets into loan assets, whether FISI experiences
greater credit losses than expected, whether FISI experiences breaches of its, or third party, information systems, the attitudes and preferences of FISIs customers, FISIs ability to successfully integrate and profitably operate SDN and
Courier Capital, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and FISIs compliance with regulatory requirements, changes in interest rates, general
economic and credit market conditions nationally and regionally, and the actions of activist investors, including the amount of related costs incurred by FISI and the disruption caused to FISIs business activities by these actions.
Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in FISIs Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and other documents filed with the SEC.
Except as required by law, FISI undertakes no obligation to revise these statements, whether to reflect new information or the occurrence of unanticipated events or otherwise, following the date of this letter.
Important Additional Information And Where To Find It
Financial Institutions, Inc. (FISI) its directors and certain of its executive officers are deemed to be participants in the solicitation of
proxies from FISIs shareholders in connection with the matters to be considered at FISIs 2016 Annual Meeting of Shareholders. On April 19, 2016, FISI filed a definitive proxy statement and accompanying definitive
BLUE
proxy card with the Securities and Exchange Commission (
SEC
) in connection with the solicitation of proxies from FISIs shareholders in connection with the matters to be considered at FISIs 2016
Annual Meeting of Shareholders. Information regarding the names of FISIs directors and executive officers and their respective interests in FISI by security holdings or otherwise can be found in such definitive proxy statement, including the
schedules and appendices thereto. INVESTORS AND SHAREHOLDERS ARE STRONGLY ENCOURAGED TO READ ANY SUCH PROXY STATEMENT AND THE ACCOMPANYING
BLUE
PROXY CARD AND OTHER DOCUMENTS
PLEASE VOTE THE
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FILED BY FINANCIAL INSTITUTIONS WITH THE SEC
CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION. Shareholders may obtain the definitive proxy statement, any amendments or supplements to the proxy statement, the accompanying
BLUE
proxy card, and other documents filed by FISI with the SEC for no charge at the SECs website at
www.sec.gov
. Copies will also be available at no charge at the Investor Relations section of FISIs corporate website at
www.fiiwarsaw.com, by writing to FISIs Corporate Secretary at Financial Institutions, Inc., 220 Liberty Street, Warsaw, New York 14569, or by calling FISIs Corporate Secretary at (585) 786-1100.
Disclaimer
Financial Institutions, Inc. has neither
sought nor obtained the consent from any third party to use any statements or information contained in this letter that have been obtained or derived from statements made or published by such third parties. Any such statements or information should
not be viewed as indicating the support of such third parties for the views expressed herein.
IMPORTANT!
PLEASE VOTE THE
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WE URGE YOU
NOT
TO SIGN ANY white PROXY CARD OR VOTING
INSTRUCTION FORM SENT TO YOU BY CLOVER PARTNERS
Remember, you can vote your shares by telephone or
via
the Internet. Please follow the
easy instructions on the enclosed
BLUE
proxy card.
If you have any questions or need assistance in voting
your shares, please contact our proxy solicitor:
Morrow & Co., LLC
470 West Avenue
Stamford, CT 06902
Shareholders Call Toll Free: (800) 662-5200
Banks and Brokers Call Collect: (203) 658-9400
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