FrontFour Responds to Transaction Presentation Issued by Medley Capital

MCC's Flawed Rationale

FrontFour's Response

Independence of Transaction Process

Three Special Committees were formed consisting of independent directors; each committee hired an independent financial advisor

• Based on the merger proxy statement, it does not appear a standalone sale of MCC was ever considered
• Despite MCC's failure to pursue a standalone sale, MDLY had previously evaluated various strategic alternatives and conducted a 12-month sale process, which did not result in a transaction
• The 31 counterparties that evaluated MDLY during its failed process were precluded, by MDLY's confidentiality agreement, from making standalone offers to MCC
• The MCC Special Committee even acknowledged "the fact that the MCC Merger Agreement precludes MCC from actively soliciting competing proposals…"
• Independent financial advisors were hired by the MCC Special Committee only approximately one month before the deal announcement
• The MCC Special Committee and its financial advisors were at a disadvantage given Broadhaven's and Goldman Sach's engagement by MDLY for the prior 9 months
• Broadhaven was subsequently engaged by SIC in connection with the currently proposed transaction - we question Broadhaven's independence with respect to SIC given its prior engagement by MDLY on its sale process
• The fact that since 2011 all of MCC's independent directors chose not to elect to receive MCC stock in lieu of their cash compensation fees is indicative of a significant misalignment between the interests of these directors and the interests of shareholders

Accretive to Shareholders

"Substantial" earnings per share accretion of 15.7% and 29.8% for SIC and MCC equity, respectively

• This projection is significantly reliant upon MDLY's unrealistic financial projections in which aggressive revenue growth is derived from a category known as "other" - there isn't enough transparency in the proxy statement to justify such growth, which calls into question management's accretion projections
• "Other" revenue growth goes from ~$12MM in '17 to an estimated $15MM in '18, ~$22MM in '19, ~$30MM in '20, to a whopping ~$41MM in '21
• This growth in "other" revenue serves as the pillar for MDLY's forecasted growth and thus the foundation supporting MDLY's valuation - we question these projections and perhaps so did the 31 counterparties who passed on purchasing MDLY
• There is no further detail regarding this growth - the proxy statement indicates that the MCC Special Committee and financial advisors relied on management's projections and provides little transparency as to these projections despite their significance in the overall transaction and valuation rationale
• The MCC Special Committee even acknowledges in the proxy statement "uncertainties about MDLY's ability to grow business (and earnings)…"

Valuation Uplift From Internally Managed Structure

Internally managed BDCs have historically traded at higher multiples than externally managed BDCs

• Contrary to MCC's assertion, the proxy statement states that the transaction will dilute the Company's NAV per share by 8.4%
• The proxy statement highlights the following concerning factors taken into consideration by the MCC Special Committee:
• "the Combined Company has not traded before and there is no way to determine with certainty the price at which it will trade, both initially and in the long term"
• "the Combined Company would still have the same management team as before"
• We are concerned that the equity of the combined company will continue to trade at a material discount to NAV given Brook Taube's and senior management's continued involvement, historical track record of significant value destruction, and the fact that SIC shareholders will be afforded liquidity for the first time likely resulting in significant selling pressure
• MCC's board has the contractual right to terminate MDLY as the external manager upon 60 days' notice; however, the new proposed employment agreements provide for an initial term of 24 months (30 months in the case of the CEO)

Improved Cost Efficiency

Combined company will have more efficient, shareholder-friendly cost structure

• MCC's assertions regarding improved cost efficiencies are questionable as the proxy statement indicates that the independent committees and financial advisors relied on the financials provided by management
• In addition, there are significant risk disclaimers throughout the proxy statement as to the ability of the combined company to achieve these cost benefits

Significant Governance Improvement

Greater board independence and other shareholder-friendly bylaw provisions

• MCC has stated that "[T]he senior leadership and investment management teams [would] remain intact"
• Brook Taube will remain at the helm as the combined company's Chairman, CEO and Chief Investment Officer
• The board will remain classified with Brook Taube's term extending to 2021
• Two "independent" directors of the MCC Special Committee are guaranteed board seats and a significant raise in cash compensation

MCC Share Performance Since Shareholders Expressed Concerns 

MCC is down 18%

• MCC's stock has consistently lost value since 2013 we believe, among other things, due to poor underwriting by MDLY management
• MCC's stock price experienced a precipitous decline on December 4, 2018 (-4%) after earnings were released and NAV was once again written down this time from $6.43 to $5.90 per share or ~9%
• The stock price continued to decline after earnings were released
• Suggesting that this decline is attributable to communications from concerned shareholders is a desperate attempt to win your vote