HC2 Shares Quiet Following Philip Falcone Response to MCG Capital Statement: Calls Comments 'Inaccurate'

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HC2 Holdings, Inc. ("HC2")
HCHC
announced today that it has sent a letter to MCG Capital Corporation ("MCGC") addressing inaccurate comments made by MCGC and highlighting their responsibility to maximize value for stockholders. HC2 has also modified certain terms that it believes makes the proposed offer even more attractive to MCGC stockholders. The following is a copy of the letter sent to MCGC's Board of Directors by HC2 regarding its offer. June 2, 2015 Board of Directors MCG Capital Corporation 1001 19th Street North, 10th Floor Arlington, Virginia 22209 Attention: Richard W. Neu, Chairman of the Board Ladies and Gentlemen: We were surprised and disappointed at the conclusion you reached in evaluating our May 19th proposal to acquire MCG Capital Corporation ("MCG") for $5.25 per share. We believe you should give your stockholders the benefit of evaluating HC2 and our proposal to acquire MCG with accurate, complete and up-to-date information. To that end, we question why neither MCG nor its advisors have made any effort to speak with me, my counsel, HC2 management or HC2's advisors to get their facts correct. Separately, let me address certain of the questions and issues you have raised regarding the risks associated with pursuing HC2's economically superior transaction instead of your pending transaction with PennantPark Floating Rate Capital Ltd. ("PFLT") so that there can be no doubt that the HC2 transaction is superior to the PFLT transaction and does not expose MCG stockholders to unnecessary risks to realize that value: You erroneously state that HC2's proposal requires SEC clearance. That is simply untrue. Just like the PFLT transaction, the HC2 transaction requires stockholder approval and completion of a registration statement. HC2 is confident that it can deliver voting commitments to MCG from the percentage of its stockholders necessary to approve the issuance of HC2 common stock to MCG stockholders prior to the execution of a definitive merger agreement. However, to further assuage any concern you may have, HC2 will reimburse MCG in respect of the $7 million fee payable to PFLT in the event HC2 stockholder approval is not obtained or HC2 cannot complete its registration statement. You suggest that SEC no-action relief may be required in order for HC2 to acquire MCG based on nothing more than a theory with no basis in reality. You also erroneously suggest that HC2 may be an investment company -- this is something that we regularly monitor and, if you had taken the time to ask, we would have provided you with our analysis so that you could conclude that HC2 is not an investment company. HC2 is not seeking to operate MCG as an investment adviser and, as you well know, our draft Merger Agreement contemplates that MCG will cease to be a BDC immediately prior to closing -- all this requires is the filing of a Form N-54C with the SEC that is effective immediately upon filing. MCG chose to enter into a Merger Agreement requiring it to pay PFLT a $7 million fee to accept a superior proposal. Our proposal offering your stockholders $5.25 per share is, in our view, plainly superior to PFLT's $4.75 per share transaction and nothing obligates HC2 to pay the $7 million fee to PFLT on MCG's behalf or causes our $5.25 per share offer to acquire MCG to not be superior unless we pay that fee on MCG's behalf. Nonetheless, HC2 will reimburse MCG in the amount of $7 million in the circumstances described above or in the event it breaches its covenants in the merger agreement between MCG and HC2 and such breaches result in a termination of the merger agreement by MCG. HC2 is hereby offering to expand the customary bilateral collar from 15% to 20% and to permit MCG to terminate the Merger Agreement with HC2 at no cost to MCG in the event the common stock price of HC2 (calculated on the basis of a 30-day VWAP) declines by 30% or more. These protections should address any concerns of the MCG board of Directors about changes in the value of the HC2 common stock, including due to the impact on HC2's stock price of any acquisitions or stock issuances HC2 may undertake. HC2 will commit not to pay any dividends prior to the consummation of the acquisition of MCG other than those required by the terms of its existing preferred stock instruments. HC2 will also commit not to modify its compensation practices or to commence or settle material claims or proceedings during the pendency of its transaction to acquire MCG. It also must be noted that, unlike PFLT, HC2 is internally managed and its stockholders do not bear expenses associated with paying a third party manager. You have been critical of HC2's stock for its "volatility", but you have failed to measure the stock from a performance-based perspective. The reality is that total and annualized returns of HC2 stock since I became President and Chief Executive Officer of the company are 267.9% and 154%, respectively. Additionally, during my tenure at Harbinger Group, total and annualized returns were 91.7% and 13.9%, respectively. By comparison, PFLT's total returns for the last 24 months and 12 months through June 1 (based on Bloomberg data) are 12.2% and 8.7% respectively. You criticize HC2's executive compensation policies but we would like to set the record straight. You failed to mention that a large portion of HC2's executive compensation is comprised of grants of restricted stock, which vest over a number of years, instead of up-front cash grants. Further, you have compared HC2's 2014 executive compensation to that of PFLT, but have neglected to mention that when HC2 paid $26.1 million in compensation, it also had returns of 195.8%, whereas PFLT paid approximately $8 million in advisory and administrative fees when it had returns of only 8.1% and just $30.4 million in revenue during the same period. It seems clear to us that you are bound and determined to defend your pending transaction with PFLT at all costs, even if it means depriving your stockholders of an economically superior transaction. We note that of the two MCG directors who are slated to join the Board of PFLT, one has been a board member at MCG since its initial public offering at a price of $17 per share and the other joined the MCG Board in 2007 when its stock price was $11.61. Ongoing Board roles at PFLT for Messrs. O'Keefe and Neu do not benefit MCG stockholders who are being asked to sell MCG at such a significant discount to those price levels. As you know, however, it is your responsibility to maximize value for the benefit of the MCG stockholders and, in our view, this necessitates supporting the offer from HC2 that, at a price of $5.25 per share, is approximately 10% higher than the pending PFLT transaction. Sincerely, Philip A. Falcone Chairman, President and Chief Executive Officer HC2 Holdings, Inc.
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