Letter From Arlington to Shareholders …

Arlington Asset Investment Corp. has filed and intends to mail a letter to shareholders in connection with the company’ s 2016 annual meeting of shareholders to be held on June 9, 2016.

The full text of the letter is below:

Vote for all of the Arlington board nominees on the white proxy card

May 19, 2016
Dear Fellow Arlington Shareholder:

Arlington has a proven track record of paying strong dividends
and generating positive retruns to support the dividend
Your board and management team regularly review Arlington’s business and strategies and are dedicated to delivering value and generating significant shareholder returns. In fact, our performance has enabled Arlington to pay shareholders 25 consecutive quarterly dividends totaling $19.40 per share, reflecting the board’s priorities for shareholders. Furthermore, in the first quarter of 2016, Arlington paid a dividend of $0.625 per share. We urge you to protect your Arlington dividend and the value of your Arlington investment by voting the enclosed white proxy card today for all eight of the highly qualified and experienced nominees to the Arlington board.

Unlike the nominees of Imation Corp. and the New York City-based hedge fund, Clinton Group, Inc. (collectively, the Imation Group), Arlington’s highly qualified director nominees are aligned with shareholders and bring a deep understanding of and experience in our industry that have allowed Arlington to provide consistent results.

Meanwhile, Imation and its board have paid no dividends despite the Clinton Group’s promise during its proxy fight at Imation last year to “evaluate the return of excess cash” to Imation’s shareholders. In fact, we believe that the Imation Group intends to discontinue Arlington’s dividend if it is successful in its solicitation, falsely calling it “unsustainable.” Independent research analysts who follow Arlington’s business disagree with the Imation Group, and instead believe that Arlington continues to deliver the performance necessary to pay its robust dividend[i]:

“We are increasing our estimate of core (non-GAAP) EPS from $2.95 to $3.13 based on trends in the market and in Arlington’s portfolio, and we believe the dividend is sustainable at $2.50 for 2016.” (Wunderlich Analyst Report, 5/11/16)

“We expect [Arlington] to maintain its quarterly $0.625 dividend … we believe that the dividend is sustainable.” (Ladenburg Thalmann Analyst Report, 5/11/16)

Arlington’s director nominees are highly qualigied, experienced
and committed to driving lon-term shareholder value
The Arlington’s nominees on the white proxy card include proven professionals and leaders with many decades of industry-related experience, including in real estate, specialty finance, asset and investment management and investment banking. Importantly, your board collectively owns more than 667,000 shares of Arlington stock[ii], which is more than 60x the amount owned by the Imation Group. As significant Arlington shareholders and as fiduciaries, the first priority of your director nominees is the protection of your investment and continued creation of shareholder value.

We believe the Imation Group’s self-serving agenda
would put Arlington’s dividend and capital at significant risk
Since the Clinton Group won its proxy contest at Imation last year, Imation’s stock has lost approximately 65% of its value. This poor performance has been documented in the news, and according to one independent commentator:

“That is value destruction on a colossal scale. In August last year, when the Clinton Group got control of [Imation], [the share price] was between $3.00 and $4.00. Good job guys; the other investors won’t think much of what you have done since then, if the share price is any judge.” (Chris Mellor, The Register, 5/11/16)

This disastrous trend at Imation under the Clinton Group continues. In its recent first quarter earnings, Imation posted a net loss of $91.1 million, compared to a loss of $14.4 million in 2015 – representing a more than 500% deterioration of Imation’s results year over year – and yet Imation’s interim CEO declared the quarter successful! Just last week, Imation’s independent auditor declined to stand for re-election, for no disclosed reason – a fact that we think speaks for itself.

Meanwhile, as Imation investors have lost value in their stock and received no dividends, in only eight months, the Imation board, comprised solely of the Clinton Group nominees and directors chosen and elected by the Clinton Group nominees, has approved self-dealing transactions with the Clinton Group and other board members involving more than $50 million.[iii] This includes a $35 million investment in the Clinton Group hedge funds with off-market high performance fees for the Clinton Group. It also includes paying more than $5.1 million to a firm founded and led by Barry Kasoff, an Imation director and one of the Imation Group’s nominees to the Arlington board. The payment to Mr. Kasoff and his consulting firm for eight months of work exceeded the combined compensation of Arlington’s CEO and CFO for the entire year – and, collectively, these deals represent more than 80% of the market capitalization of Imation today! 

The Imation Group became shareholders in Arlington approximately one week prior to launching its attempt to take over Arlington. Since then, the Imation Group has disclosed plans for Arlington that are frighteningly similar to its self-serving and value destroying agenda at Imation, including:

• Taking control of Arlington’s board, management and capital;
• Terminating management; and
• Hinting that it will turn Arlington into an externally managed hedge fund business, probably by Imation itself and/or the Clinton Group.

Imation’s value destructive propositions for Arlington recently caught the attention of an independent research analyst:
“We think such external management would not align the interests of the external manager with those of shareholders, and could approximately double AI’s operating expenses … We do take issue with activism when we think the proponent is seeking to unseat the incumbent [board] and advantage itself at the expense of shareholders.” (Wunderlich Analyst Report, 5/11/16)

Protect your Arlington dividend – vote the white proxy card
We urge shareholders to avoid the excessive risk posed by the Imation Group. Vote for all of your board’s experienced and highly qualified director nominees by telephone, over the internet, or by signing, dating and returning the enclosed white proxy card today.

On behalf of your board of directors and management team, we thank you for your continued support.

Sincerely,

The Arlington Board of Directors:
Eric F. Billings      
J. Rock Tonkel, Jr.  
Daniel J. Altobello    
Daniel E. Berce       
David W. Faeder  
Peter A. Gallagher       
Ralph S. Michael, III     
Anthony P. Nader, III
 
[i] Permission to use quotations neither sought nor obtained.
[ii] Includes vested restricted stock units and restricted stock.
[iii] Imation SEC filings.