NexPoint Special Committee Board MCC Company Proposal Court Opinion MCC/Sierra Merger MCC/Sierra Agreement Sierra

Transcription

1 VIA April 1, 2019 Mr. Arthur S. Ainsberg Ms. Karin Hirtler-Garvey Medley Capital Crpratin 280 Park Avenue, 6 th Flr East New Yrk, NY Re: NexPint Prpsal Dear Ms. Hirtler-Garvey & Mr. Ainsberg: NexPint Advisrs, L.P. ( NexPint, and tgether with its affiliates, we ), is writing the tw f yu, as the nly remaining members f the Special Cmmittee (the Special Cmmittee ) f the Bard f Directrs (the Bard ) f Medley Capital Crpratin ( MCC r the Cmpany ) t reiterate ur willingness t negtiate with the Special Cmmittee and t prpse enhancements t the terms f ur riginal prpsal t becme the external investment advisr f MCC (the Prpsal ). We believe this ffer (even befre any negtiatins with the Special Cmmittee) represents the best alternative fr yur stckhlders as cmpared t every ther alternative available t the Cmpany. As we are sure yu re bth well aware, n March 11, 2019, the Curt f Chancery f the State f Delaware (the Curt ), handed dwn a Memrandum Opinin (the Opinin ), which, amng ther things, enjined the vte f the stckhlders f the Cmpany with respect t the prpsed merger (the MCC/Sierra Merger and the underlying Merger Agreement dated August 9, 2018, the MCC/Sierra Agreement ), between the Cmpany and Sierra Incme Crpratin ( Sierra ). The Curt s pinin was frankly scathing, finding that the Bard vilated its fiduciary duties fr (amng ther reasns) its failure t negtiate with us in any way. LET US HELP YOU CORRECT THAT FLAGRANT BREACH OF YOUR FIDUCIARY DUTIES AND DO WHAT IS IN THE BEST INTEREST OF YOUR STOCKHOLDERS ENGAGE WITH US NOW. First and fremst, we urge yu t NOT apprve any extensin f the Outside Date f March 31, Even thugh the Curt stated that the deal prtectins [in the MCC/Sierra Agreement] are nt within the range f reasnableness, rather than creating a ptential cntractual issue with Sierra, yu shuld terminate the MCC/Sierra Agreement nw (which wuld be withut liability t MCC) s that yu can negtiate with us. 1 As nted abve, we have enhanced ur Prpsal since it was last presented, and we remain eager t engage with the Special Cmmittee n each and every aspect f the Prpsal. We als stand 1 See pages f the Opinin. In the alterative, yu culd agree nt t terminate the MCC/Sierra Agreement s lng as Sierra agrees that the definitins f Cmpeting Prpsal and Superir Prpsal wuld cver this Prpsal. 1

2 Page 2 ready t negtiate an external management agreement with Sierra and MCC n a cmbined basis, and have prepared enhanced terms f that prpsal (the Pst Merger Prpsal ) which are set frth n Exhibit A heret. The Prpsal: 1. External Investment Advisry Agreement between MCC and NexPint: Reduced annualized management fee f 1.25% n the grss assets f the Cmpany. Reduced incentive fee f 15% n incme and capital gains (with retentin f the current hurdle rate f %). Implementatin f an Expense Cap f 0.50% 2. We expect these terms result in an aggregate annual savings t the Cmpany s stckhlders f apprximately $5.7 millin (based n assets as f September 30, 2018) ver the Cmpany s current fee arrangement and expense reimbursement. These savings wuld inure directly t the benefit f the Cmpany s stckhlders, and we believe will help eliminate sme f the discunt in the Cmpany s shares (we believe a large part f the remaining discunt results simply frm Medley Management, Inc. being yur manager, which ur Prpsal als addresses). Finally, we believe that remaining an externally managed Business Develpment Cmpany ( BDC ), mitigates ptential cnflicts f interest in a manner that benefits stckhlders and is respnsive t the cncerns viced by the Curt and many large stckhlders. 2. $10 Millin Payment frm NexPint t the Cmpany Upn executin f the investment advisry agreement with NexPint, we will make a ne-time $10 millin payment t MCC. The $10 millin injectin wuld inure directly t the benefit f MCC s stckhlders and wuld represent the equivalent f a 5.7% increase f $0.18 n a per share market value f $ NexPint will purchase at least $30 Millin f MCC shares One-third f which wuld be made during the 60 days fllwing the transactin, an additinal nethird f which wuld be made during the fllwing 90 days, and the final ne-third f which wuld be made during the fllwing 90 days, in each case either in pen market purchases at the then current market price, if belw net asset value ( NAV ), r directly frm the Cmpany at NAV. 2 Expense Cap means that NexPint will pay, absrb r reimburse the rdinary perating expenses f the Cmpany (the Ordinary Operating Expenses ), t the extent necessary s that, fr any fiscal year, the Cmpany s Ordinary Operating Expenses d nt exceed 0.50% per annum f the Cmpany s average daily grss assets.

3 Page 3 We believe these purchases will further align ur interests with stckhlders, and will prvide liquidity t supprt trading prices f the Cmpany s cmmn stck. Benefits f the Prpsal 1. Replaces Management with a Tp Quartile Manager with a Track Recrd f Success NexPint-advised funds include: NexPint Strategic Opprtunities Fund s ( NHF ), which has returned a cumulative 124% frm September 2012 thrugh December 31, 2018, while MCC is dwn ver 59% during the same time perid. NexPint Residential Trust, Inc. ( NXRT ), which spun ut frm NHF in 2015, has returned 204.1% since the spin-ff. NexPint Capital, Inc., the NexPint-advised nn-traded BDC, has returned 24.5% since inceptin (September 2014). 2. Appints an Adviser with Unrivaled Expertise Our team nt nly has decades f experience in managing credit investments and riginatins, but als has unrivaled expertise in maximizing value in stressed and distressed investments and is therefre well psitined t maximize the value f the Cmpany s prtfli. In additin, as ne f the cuntry s largest and mst experienced credit managers, we are well psitined t successfully manage MCC s prtfli f secured flating rate instruments. We als have significant acquisitin experience and have cntinued t prvide investrs with unique pprtunities t create stckhlder value. In 2017, Highland Capital Management Fund Advisrs, L.P., an affiliate f NexPint ( HCMFA ), successfully cmpleted the unprecedented cnversin f a 1940 Act registered pen-end mutual fund, the Highland Flating Rate Opprtunities Fund ( FRO ; NYSE:HFRO), t a clsed-end fund in rder t preserve fr FRO s existing stckhlders a $279 millin judgment in favr f the fund. In 2015, the spin-ff f NXRT frm NHF, nted abve. Investrs that held their NHF and NXRT shares thrugh and after the spin-ff have experienced a cmbined 250% return since September 25, Mst recently, HCMFA successfully cmpleted the cnversin f anther pen-end mutual fund, Highland Glbal Allcatin Fund (NYSE:HGLB), t a clsed-end fund in rder t preserve the fund s access t a unique private equity-style asset that the fund wuld have therwise been required t sell due t new liquidity guidelines gverning pen-end funds.

4 Page 4 3. Cmpensates Stckhlders instead f Management The Prpsal prvides nearly $68.5 millin f cnsideratin that inures directly t the benefit f MCC s stckhlders, including $10 millin f immediate cash, $30 millin in share purchases and ver $28.5 millin f aggregate fee and expense savings ver at least the next five years. The Prpsal eliminates the inapprpriate valuatin disparity present in the MCC/Sierra Merger and als ensures that mre than $100 millin f cash is prperly retained by the Cmpany as ppsed t being paid as merger cnsideratin t Medley Management Inc. s stckhlders. 4. Unprecedented Stckhlder Lyalty Prgram. T prmte lyalty and lng-time alignment f interests amng stckhlders, NexPint ffers an incentive t investrs that buy and hld shares f its advised funds fr a perid f at least twelve mnths thrugh its Stckhlder Lyalty Prgram. Fr example, if a participant cntributes $10,000 t his r her accunt during a defined trading perid t purchase shares and NexPint has determined the participant s grss-up will be 2%, NexPint will make a crrespnding cntributin f $200, r 2% f the ttal $10,000, t purchase additinal shares fr the participant. NexPint cntinues t be interested in pursuing ur Prpsal with the Cmpany and stands ready and able t negtiate. Based upn what we have utlined abve, we believe that yu have a fiduciary bligatin t negtiate with us, and the MCC/Sierra Agreement shuld nt create an impediment t ding s. We have retained advisrs t assist us with the Prpsal. We are ready t engage immediately and anticipate that we culd prceed with negtiating and finalizing an agreement with respect the Prpsal expeditiusly. Yu still have a chance t act in the best interest f stckhlders and fulfill yur fiduciary duties by engaging with us with respect t the Prpsal. WE URGE YOU TO DO SO IMMEDIATELY. We hpe t meet with yu r t discuss by phne all aspects f either Prpsal. Please cntact Thmas Surgent as sn as pssible (phne: (972) , tsurgent@nexpintadvisrs.cm). Regards, NexPint Advisrs, L.P.

5 Page 5 NexPint Advisrs, L.P. NexPint, tgether with its affiliates, is a multibillin-dllar glbal alternative investment manager funded in 1993 by Jim Dnder and Mark Okada. A pineer in the leveraged lan market, the firm has evlved ver 25 years, building n its credit expertise and value-based apprach t expand int ther asset classes. Tday, NexPint and its affiliates perate a diverse investment platfrm, serving bth institutinal and retail investrs wrldwide. In additin t high yield credit, ur investment capabilities include public equities, real estate, private equity and special situatins, structured credit, and sectr- and regin-specific verticals built arund specialized teams. Our registered prducts huse $6.1 billin in AUM acrss multiple vehicles, including tw publicly traded clsed-end funds; ne externally-managed, publicly traded REIT; ne business develpment cmpany; 13 pen-end mutual funds; ne ETF; and tw clsed-end interval funds, and are supprted by ver 48 investment prfessinals. NexPint and its affiliates are under cmmn wnership alng with NexBank Capital, Inc., a financial services cmpany that includes a cmmercial and investment bank with assets f apprximately $8.3 billin. We bring ver 25 years f experience in credit, distressed and private equity investing, including the investment f ver $10 billin in special situatins, stressed and/r distressed assets ver the past five years and current investments in such assets ttaling $1.0 billin.

6 Page 6 Exhibit A Optin B: The Pst-Merger Prpsal 1. External Investment Advisry Agreement between the Surviving Cmpany in the Merger Between MCC and Sierra (the Surviving Cmpany ) and NexPint Reduced annualized management fee f 1.25% n the grss assets f the Surviving Cmpany. Reduced incentive fee f 15% n incme and capital gains (with retentin f the current hurdle rate f %). Implementatin f an Expense Cap f 0.50%. The Pst-Merger Prpsal prvides nearly $108 millin f cnsideratin that inures directly t the benefit f MCC s stckhlders, including $25 millin f immediate cash, $50 millin in share purchases and ver $33 millin f aggregate fee and expense savings ver at least the next five years. 2. $25 Millin Payment frm NexPint t the Cmpany Upn executin f the investment advisry agreement with NexPint, we will make a ne-time $25 millin payment t the Surviving Cmpany. The $25 millin injectin wuld inure directly t the benefit f the Surviving Cmpany s stckhlders, wuld represent the equivalent f a 14.3% increase f $0.46 n MCC s per share market value f $3.22 and 3.6% increase f $0.26 n Sierra s per share value f $ NexPint Will Purchase at Least $50 Millin f the Surviving Cmpany s Shares. One-third f which wuld be made during the 60 days fllwing the transactin, an additinal nethird f which wuld be made during the fllwing 90 days, and the final ne-third f which wuld be made during the fllwing 90 days, in each case either in pen market purchases at the then current market price, if belw NAV, r directly frm the Cmpany at NAV. These purchases wuld be made in additin t the share repurchase prgram prpsed t be cnducted by the Surviving Cmpany.