PRE 14A 1 a2198078zpre14a.htm PRE 14A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

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Check the appropriate box:

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Preliminary Proxy Statement

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under §240.14a-12

 

DEERFIELD CAPITAL CORP.

(Name of Registrant as Specified In Its Charter)

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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

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LOGO


DEERFIELD CAPITAL CORP.
6250 North River Road, 9th Floor
Rosemont, Illinois 60018
(773) 380-1600

April     , 2010

Dear Stockholder:

        On behalf of the Board of Directors (the "Board") of Deerfield Capital Corp. (the "Company"), I cordially invite you to attend the Annual Meeting of Stockholders (the "Meeting") of the Company, which will be held on May     , 2010, at 10:00 a.m. EDT, at                                    . The matters to be considered by our stockholders at the Meeting are described in detail in the accompanying materials. Among the matters that you will be considering are: (i) the authorization of the issuance of shares of our common stock in connection with our proposed acquisition (the "Acquisition") of Columbus Nova Credit Investments Management, LLC from Bounty Investments, LLC ("Bounty") and the potential issuance of additional shares of our common stock upon the conversion of $25 million in aggregate principal amount of senior subordinated convertible notes (the "Convertible Notes") that Bounty has agreed to purchase and (ii) the election of two Class III directors. This proxy is solicited on behalf of the Board.

        We are seeking stockholder approval of the issuance of shares of our common stock in connection with the proposed Acquisition and the potential issuance of additional shares of our common stock upon the conversion of the Convertible Notes to satisfy NASDAQ Listing Rule 5635(a), which requires stockholder approval prior to the issuance of securities in connection with the acquisition of the stock or assets of another company if the issuance would constitute more than 20% of the total number of shares of common stock outstanding before the issuance. As a result, the issuances of our common stock must be approved by our stockholders holding a majority of the votes cast on the proposal (provided that a quorum is present in person or by proxy at the Meeting). Stockholder approval of the issuance of shares of our common stock in connection with the Acquisition and the potential issuance of additional shares of our common stock upon the conversion of the Convertible Notes is required to complete the Acquisition and Bounty's purchase of the Convertible Notes which are conditioned on each other. We will not complete one transaction without the other.

        Stockholders of record at the close of business on April 19, 2010 (the "Record Date") are entitled to receive notice of and vote at the Meeting and any adjournment or postponement thereof.

        After careful consideration, including consideration of the unanimous recommendation of a special committee of the Board comprised solely of disinterested directors, our Board recommends that you vote "FOR" the proposal to authorize the issuances of our common stock and "FOR" the other proposals set forth in the Notice of Annual Meeting of Stockholders and the Proxy Statement.


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        It is very important that you be represented at the Meeting regardless of the number of shares you own. Even if you plan to attend the Meeting, I urge you to submit your vote promptly. You may vote your shares via a toll-free telephone number, over the Internet, or by marking, signing and dating your proxy card and returning it in the envelope provided, as described in further detail herein. Voting by phone, over the Internet or by proxy card will not prevent you from voting in person, but will ensure that your vote is counted if, for whatever reason, you are unable to attend.

        Your continued support and interest in the Company are sincerely appreciated.

  Sincerely,

 

 

LOGO

 

Peter H. Rothschild
Interim Chairman

        These proxy materials are being mailed to stockholders of record on or about April     , 2010.


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DEERFIELD CAPITAL CORP.
6250 North River Road, 9th Floor
Rosemont, Illinois 60018
(773) 380-1600

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May    , 2010

Dear Stockholder:

        You are cordially invited to attend the Annual Meeting of Stockholders (the "Meeting") of Deerfield Capital Corp. (the "Company"), to be held on May             , 2010, at 10:00 a.m. EDT, at                                    .

        At the Meeting, you will be asked to consider and vote upon proposals to:

        1.     Approve (i) the issuance of 4,545,455 shares of common stock, par value $0.001 per share (the "Common Stock"), of the Company (the "Acquisition Shares") in connection with the Company's proposed acquisition (the "Acquisition") of Columbus Nova Credit Investments Management, LLC ("CNCIM") from Bounty Investments, LLC ("Bounty") pursuant to an Acquisition and Investment Agreement (the "Acquisition Agreement"), dated as of March 22, 2010, by and among the Company, Bounty and CNCIM and (ii) the potential issuance of 4,132,231 shares of Common Stock (as such amount may be adjusted in certain events or increased in connection with the payment of PIK Interest (as defined herein)) (the "Conversion Shares") upon the conversion of $25 million in aggregate principal amount of senior subordinated convertible notes (the "Convertible Notes") that Bounty has agreed to purchase pursuant to the Senior Subordinated Convertible Notes Purchase Agreement (the "Convertible Notes Agreement"), dated as of March 22, 2010, between the Company and Bounty (the issuance of the Acquisition Shares together with the potential issuance of the Conversion Shares, the "Stock Issuances");

        2.     Elect two Class III directors to serve on the board of directors of the Company (the "Board") for a three-year term and until their successors have been duly elected or appointed and qualified;

        3.     Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010; and

        4.     Approve any adjournment or postponement of the Meeting, if necessary or appropriate, to solicit additional proxies in the event that there are not sufficient votes at the time of the Meeting to approve Proposal Nos. 1 or 2.

        We will also conduct such other business as may properly come before the Meeting or any adjournment thereof.

        These items of business are described in further detail in the Proxy Statement accompanying this Notice of Annual Meeting of Stockholders.

        After careful consideration, including consideration of the unanimous recommendation of a special committee of the Board comprised solely of disinterested directors, our Board recommends that you vote "FOR" Proposal Nos. 1, 2, 3 and 4.

        Your vote is important. You should read the attached Proxy Statement and the information incorporated by reference into the Proxy Statement carefully. Whether or not you plan to attend the Meeting, you are urged to vote your shares promptly either by telephone, by Internet or by mail as described in further detail herein. You may revoke your proxy at any time before it is exercised at the Meeting by giving written notice to our Corporate Secretary, by attending the Meeting and voting in person or by submitting a proxy bearing a later date.


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        These proxy materials are being mailed to stockholders of record on or about April     , 2010.

        Thank you very much for your continued support.

  By order of the Board:

 

 

GRAPHIC

 

Robert A. Contreras
Senior Vice President, General Counsel & Secretary

Rosemont, Illinois
April     , 2010


Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on May     , 2010.

In accordance with the rules issued by the Securities and Exchange Commission, we are providing access to our proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of our proxy materials on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting.

The Company's Proxy Statement and Annual Report on Form 10-K for the fiscal year ended December 31, 2009 are available at http://www.deerfieldcapital.com.



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  Page  

SUMMARY TERM SHEET

    1  
 

The Companies (Page 31)

   
1
 
 

Summary of the Transactions

    2  
 

Principal Reasons for the Transactions (Page 31)

    2  
 

Principal Terms of the Transactions (Page 32)

    3  
 

Selected Unaudited Pro Forma Condensed Combined Financial Data (Page 82)

    8  
 

Regulatory Approvals To Be Obtained in Connection with the Transactions (Page 63)

    9  
 

Interests of Certain of our Directors and Executive Officers in the Transactions (Page 63)

    9  
 

Impact of the Stock Issuances on Existing Stockholders (Page 64)

    10  
 

Dissenters' or Appraisal Rights of Existing Stockholders (Page 65)

    11  
 

Vote Required and Recommendation of the Special Committee and the Board (Page 65)

    11  
 

Election of Class III Directors (Page 70)

    11  
 

Ratification of Deloitte (Page 72)

    12  

QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

   
13
 

FORWARD-LOOKING STATEMENTS

   
21
 

RISK FACTORS

   
25
 

PROPOSAL NO. 1 APPROVAL OF THE STOCK ISSUANCES

   
31
 
 

The Companies

   
31
 
 

Principal Reasons for the Transactions

    31  
 

Principal Terms of the Transactions

    32  
 

Background of the Acquisition and the Issuance of the Convertible Notes

    37  
 

Acquisition Agreement

    41  
 

Stockholders Agreement

    54  
 

Convertible Notes Agreement

    57  
 

Registration Rights

    62  
 

Transition Services Agreement

    63  
 

Regulatory Approvals To Be Obtained in Connection with the Transactions

    63  
 

Interests of Certain of our Directors and Executive Officers in the Transactions

    63  
 

Impact of the Stock Issuances on Existing Stockholders

    64  
 

Dissenters' or Appraisal Rights of Existing Stockholders

    65  
 

Vote Required and Recommendation of the Special Committee and the Board

    65  

PROPOSAL NO. 2 ELECTION OF DIRECTORS

   
70
 
 

Our Board of Directors

   
70
 
 

Information Concerning Director Nominees

    70  
 

Vote Required and Board Recommendation

    71  

PROPOSAL NO. 3 RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTING FIRM

   
72
 
 

Principal Accounting Firm Fees

   
72
 
 

Pre-Approval of the Independent Registered Public Accounting Firm's Services

    72  
 

Vote Required and Board Recommendation

    73  

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  Page  

PROPOSAL NO. 4 APPROVAL OF THE ADJOURNMENT OR POSTPONEMENT OF THE MEETING

    74  
 

Adjournment or Postponement

   
74
 
 

Vote Required and Board Recommendation

    74  

DESCRIPTION OF CAPITAL STOCK

   
75
 
 

General

   
75
 
 

Common Stock

    75  
 

Preferred Stock

    76  
 

Power to Reclassify Shares of Our Capital Stock

    76  
 

Power to Issue Preferred Stock and Additional Shares of Common Stock

    76  
 

Restrictions on Ownership and Transfer

    77  
 

Warrants

    77  
 

Transfer Agent and Registrar

    78  

IMPORTANT PROVISIONS OF MARYLAND LAW AND OUR CHARTER AND BYLAWS

   
79
 
 

Removal of Directors

   
79
 
 

Business Combinations

    79  
 

Control Share Acquisitions

    80  
 

Subtitle 8

    81  
 

Advance Notice of Director Nominations and New Business

    81  
 

Anti-Takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws

    81  

SELECTED FINANCIAL DATA OF THE COMPANY

   
82
 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CNCIM

   
83
 
 

Overview

   
83
 
 

History of Operations

    83  
 

Trends

    86  
 

Critical Accounting Policies

    87  
 

Results of Operations

    88  
 

Contractual Obligations and Commitments

    90  
 

Off-Balance Sheet Arrangements

    90  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

   
92
 

DEERFIELD CAPITAL CORP. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DECEMBER 31, 2009 (DOLLARS IN THOUSANDS)

   
93
 

DEERFIELD CAPITAL CORP. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

   
94
 

DEERFIELD CAPITAL CORP. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

   
95
 
 

Note 1—Basis of Presentation

   
95
 
 

Note 2—Purchase Price of CNCIM

    96  
 

Note 3—Pro Forma Adjustments

    97  

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  Page  

INFORMATION ON OUR BOARD OF DIRECTORS AND ITS COMMITTEES

    102  
 

Our Process for Nominating Director Candidates

   
102
 
 

Directors Not Standing For Election

    102  
 

Bounty Designees

    105  
 

Majority Voting Bylaw

    106  
 

Number of Board Meetings in 2009

    107  
 

Director Attendance at Annual Meetings

    107  
 

Committees of our Board

    107  
 

Director Independence

    110  
 

Audit Committee and Audit Committee Financial Expert

    110  
 

Audit Committee Report

    111  
 

Compensation Committee Interlocks and Insider Participation

    111  

EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

   
112
 
 

Executive Officers

    112  
 

Section 16(a) Beneficial Ownership Reporting Compliance

    112  
 

Code of Ethics

    112  

EXECUTIVE COMPENSATION

   
114
 
 

Compensation Discussion and Analysis

    114  
 

Elements of Named Executive Officer Compensation

    117  
 

Summary Compensation Table

    119  
 

2009 Grants of Plan-Based Awards

    120  
 

2009 Outstanding Equity Awards at Fiscal Year-End

    121  
 

2009 Stock Vested

    121  
 

Potential Payments Upon Termination or Change of Control

    122  
 

Compensation and Risk

    123  
 

Compensation of our Non-Employee Directors

    123  
 

2009 Director Compensation(1)

    123  
 

Compensation Committee Report

    125  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   
126
 
 

Persons That Beneficially Own More Than 5% of Our Voting Securities

   
126
 
 

Ownership of Our Common Stock By Directors and Executive Officers

    127  

TRANSACTIONS WITH RELATED PERSONS AND CERTAIN CONTROL PERSONS

   
128
 
 

Transactions With Related Persons

   
128
 
 

Our Controls for Approving Transactions with Related Persons

    129  

STOCKHOLDER PROPOSALS FOR THE 2011 ANNUAL MEETING

   
130
 

COMMUNICATIONS WITH THE BOARD

   
130
 

ANNUAL REPORT ON FORM 10-K

   
130
 

HOUSEHOLDING

   
130
 

SOLICITATION OF PROXIES

   
131
 

OTHER MATTERS

   
131
 

iii


 

Documents Furnished With This Proxy Statement:

    Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the SEC on March 23, 2010.

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SUMMARY TERM SHEET

        This summary highlights selected information from this Proxy Statement, the annexes attached hereto and the documents referred to or incorporated by reference herein, and may not contain all of the information that is important to you. Below is a summary of the terms of the Acquisition (as defined below) and the issuance of the Acquisition Shares (as defined below), the Convertible Notes Agreement (as defined below) and the potential issuance of the Conversion Shares (as defined below), the Senior Notes Discharge (as defined below), the Trust Preferred Exchange (as defined below) and the DPLC Restructuring (as defined below) (collectively, the "Transactions") and the proposals we are asking you to consider at the Annual Meeting of Stockholders (the "Meeting"). To better understand the Transactions and the proposals we are asking you to consider, you should read this entire Proxy Statement carefully, as well as those additional documents to which we refer. Each item in this summary includes a page reference directing you to a more complete description of that topic. You may obtain the information incorporated by reference into this Proxy Statement by following the instructions set forth in the section entitled "Where You Can Find More Information". Unless otherwise noted or the context otherwise requires, we refer to Deerfield Capital Corp. as the "Company," "DFR," "we," "us," "our" or "our Company."


The Companies (Page 31)

Deerfield Capital Corp.

        We are a Maryland corporation with an Investment Management segment that manages approximately $9.2 billion of client assets (as of January 1, 2010), including bank loans and other corporate debt, residential mortgage-backed securities ("RMBS"), government securities and asset-backed securities ("ABS"). In addition, we have a Principal Investing segment that has an investment portfolio comprised of fixed income investments, including bank loans and other corporate debt and RMBS. On December 21, 2007, we completed our acquisition of Deerfield & Company LLC ("D&C"), pursuant to a merger agreement, dated as of December 17, 2007 (the "Merger Agreement"), among us, DFR Merger Company, LLC (our wholly-owned subsidiary that was merged into D&C), D&C and Triarc Companies, Inc. (as sellers' representative) (the "Merger"). As a result of the Merger, each of D&C and Deerfield Capital Management LLC ("DCM"), our investment manager, became our indirect, wholly-owned subsidiaries, and we became internally managed. Historically, we had elected to be taxed as a real estate investment trust ("REIT"). However, our status as a REIT terminated in 2008 when we converted to a C corporation.

Bounty Investments, LLC ("Bounty")

        Bounty is an investment vehicle managed by Renova U.S. Management LLC ("RUSM," "Columbus Nova" or "CN"). Founded in 2000, Columbus Nova is a privately-held investment management firm with offices in New York, New York and Charlotte, North Carolina. Bounty is controlled indirectly by Viktor Vekselberg, the Chairman of the Supervisory Committee of the Renova Group.

Columbus Nova Credit Investments Management, LLC ("CNCIM")

        CNCIM, a wholly-owned subsidiary of Bounty, is an investment manager specializing in bank loans. As of December 31, 2009, CNCIM manages approximately $1.8 billion in bank loans and structured product assets in Columbus Nova CLO Ltd. 2006-I, Columbus Nova CLO Ltd. 2006-II, Columbus Nova CLO Ltd. 2007-I and Columbus Nova CLO Ltd. 2007-II (collectively, the "CNCIM CLOs"). Founded in 2006, CNCIM is based in Charlotte, North Carolina.

 


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Summary of the Transactions

        The Company has entered into a series of agreements which provide for (i) the acquisition of CNCIM in consideration for the issuance of the Acquisition Shares, (ii) the issuance of the Convertible Notes (as defined below) and the potential issuance of the Conversion Shares pursuant to the Convertible Notes Agreement, (iii) the payment and discharge of 100% of the principal amount of outstanding Senior Notes at an aggregate discount of 25.6% from the face amount of the Senior Notes plus accrued interest, (iv) the exchange of $95 million of the $120 million of outstanding Trust Preferred Securities (as defined below) for $95 million of New Subordinated Notes (as defined below), which, among other things, results in the decrease of the amount of interest payable by the Company and (v) the DPLC Restructuring pursuant to which, among other things, outstanding warrants issued to the Pegasus Parties (as defined below) to purchase three million shares of Common Stock have been cancelled. See "Principal Terms of the Transactions."


Principal Reasons for the Transactions (Page 31)

        The Board and the Company's management believe that the Transactions, of which the Stock Issuances are a part, are very compelling as they offer the best opportunity to meet the multiple objectives of the Company's operating strategies and should increase stockholder value. The Acquisition will provide a significant increase in assets under management ("AUM") and management fee income, and the related Transactions will result in the elimination of the Company's near-term debt maturities, reduce our total debt and remove a number of restrictive debt covenants. As a result of the transactions with Bounty, we believe the ongoing relationship between the Company and Bounty will result in opportunities for the Company to grow both organically and via acquisitions that may not have otherwise been available to the Company.

        Since March 2008, the Board and the Company's management have been focused on executing operating strategies to increase stockholder value by growing the Company through the acquisition of management contracts for collateralized debt obligations ("CDOs") (including collateralized loan obligations ("CLOs")) and the consolidation of CDO managers. The strategies also included the exploration of strategic transactions that could improve the Company's overall position in the asset management industry. Subsequent to the formulation of the strategies, the Company was able to consolidate two CDO management contracts, Robeco CDO II Limited and Mayfair Euro CDO I B.V., in July 2008 and February 2009, respectively. The Company also engaged in discussions with multiple potential strategic partners in an effort to best position the Company for profitable growth. None of these discussions resulted in consummated transactions because we did not believe the opportunities were consistent with the Company's strategic objectives and accordingly were not in the best interests of the Company or its stockholders. However, the Company has successfully negotiated the Acquisition and related Transactions which will add AUM, refinance the Company's capital structure with long-term capital and should allow the Company the flexibility to fund additional acquisitions and support organic growth through raising additional AUM from existing and future clients.

        While the Company successfully returned to profitability for each quarter of 2009, significant challenges face the Company in future years. Prominent among them is the 2012 maturity of the Senior Notes, the increasing interest rate payable on the Senior Notes and the restrictive covenants associated with the Senior Notes. An important aspect of the Transactions is the immediate retirement of the Senior Notes at a significant discount through the issuance of the Convertible Notes with less restrictive covenants and a longer maturity, which significantly increases the Company's financial flexibility going forward. If the holders of the Convertible Notes elect to convert them to Common Stock, the Company's balance sheet will be de-levered significantly and it will have no near term debt maturity or refinancing issues.

        In order to satisfy conditions of the Transactions, the Company was able to negotiate significant economic benefits relating to the exchange of $95 million of the Trust Preferred Securities for the New

 

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Subordinated Notes. These benefits include a significant reduction in our interest expenses for five years upon the satisfaction of certain conditions and the elimination of restrictive financial covenants.

        Taken as a whole, the Transactions are transformative for the Company in that we believe they should allow for growth in AUM and revenue, a reduction in interest expense and a significantly stronger balance sheet going forward. We believe these actions create value for the Company's stockholders while providing a firm foundation for future growth and value enhancement.


Principal Terms of the Transactions (Page 32)

The Acquisition and Issuance of the Acquisition Shares

        On March 22, 2010, the Company entered into an Acquisition and Investment Agreement (the "Acquisition Agreement") with Bounty and CNCIM, pursuant to which the Company has agreed to acquire all of the outstanding equity interests of CNCIM from Bounty (the "Acquisition") for a total purchase price of $32.5 million consisting of (i) the issuance of 4,545,455 shares (at an implied price of $5.50 per share) (the "Acquisition Shares") of the Company's common stock, par value $0.001 per share (the "Common Stock"), and (ii) deferred payments totaling $7.5 million in cash payable in five equal annual installments beginning six months after the closing date of the Acquisition and the issuance of the Convertible Notes (the "Closing Date"). The Acquisition Shares would represent approximately 40.2% of the issued and outstanding Common Stock as of the Record Date on a fully diluted basis.

        The Company has agreed to pay the cost of transferring the operations of CNCIM as estimated on the Closing Date, which are currently estimated to be approximately $1.2 million. Bounty has agreed to pay the costs in excess of such amount. Bounty has also agreed to indemnify the Company for losses relating to CNCIM's operating liabilities arising prior to the Closing Date (other than liabilities under certain employment agreements, liabilities relating to the CNCIM CLOs' management agreements, liabilities relating to actions taken pursuant to the Transition Services Agreement (as defined below) and the expenses of the transfer of operations described above) for one year from the Closing Date, as well as certain pre-closing tax liabilities for three years from the Closing Date, up to $5 million in the aggregate.

        The Acquisition Agreement contains customary representations and warranties by CNCIM, limited representations and warranties by Bounty with respect to CNCIM and customary representations and warranties by the Company. The Acquisition Agreement also contains customary covenants of CNCIM and the Company, including with respect to the operation of their respective businesses between the date of the Acquisition Agreement and the Closing Date.

        The consummation of the transactions contemplated by the Acquisition Agreement (the "Closing") is subject to several closing conditions, including, among other things, the approval by the Company's stockholders of the Stock Issuances (as defined below), the consummation of the Senior Notes Discharge (as defined below), the absence of certain governmental constraints and the absence of a material adverse effect on the business of CNCIM or the Company.

        The Acquisition Agreement contains certain termination rights for the Company and Bounty and provides that, upon the termination of the Acquisition Agreement under specified circumstances, the Company will be required to pay to Bounty a termination fee in the amount of $1.5 million, plus Bounty's reasonable and documented out-of-pocket legal fees and expenses in connection with the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement. At the Closing, the Company will pay Bounty's (i) reasonable and documented out-of-pocket legal fees and expenses and (ii) reasonable and documented out-of-pocket financial advisor fees and expenses in an amount not to exceed $500,000 in connection with the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement.

 

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        Pursuant to a Stockholders Agreement (the "Stockholders Agreement") to be entered into between the Company and Bounty on the Closing Date, the Company has agreed to increase the size of its board of directors (the "Board") to nine members, and Bounty will have the right to designate three of our directors (one of whom must qualify as an independent director if necessary to ensure that a majority of the members of the Board are independent) so long as Bounty owns at least 25% of the outstanding Common Stock (calculated assuming all Conversion Shares (as defined below) then issuable pursuant to the Convertible Notes (as defined below) are outstanding (the "Outstanding Common Stock")), two directors so long as Bounty owns at least 15% of the Outstanding Common Stock and one director so long as Bounty owns at least 5% of the Outstanding Common Stock. Bounty will also have the right to appoint one Board observer so long as Bounty owns at least 15% of the Outstanding Common Stock. See "Information on Our Board of Directors and Its Committees—Bounty Designees." Pursuant to the Stockholders Agreement, for so long as Bounty owns at least 5% of the Outstanding Common Stock, the Company will adopt, and continue to maintain, a majority voting bylaw (the "Majority Voting Bylaw") substantially in the form attached as Annex D to this Proxy Statement requiring that, in uncontested elections, each nominee for election to the Board must be elected by a majority of the votes cast at a meeting called for the election of directors. Bounty would own approximately 40.2% of the Company's Common Stock issued and outstanding on the Record Date on a fully diluted basis as a result of the issuance of the Acquisition Shares (and approximately 56.2% of the Company's Common Stock if, in addition, all of the Convertible Notes to be purchased by Bounty at the Closing are converted), and will therefore have substantial ability (or the absolute power) to block the election of any director nominated by the Nominating & Corporate Governance Committee of our Board (the "Nominating Committee") as a result of the Majority Voting Bylaw. See "Information on our Board of Directors and its Committees—Majority Voting Bylaw."

        Pursuant to the Stockholders Agreement, the Board will establish a strategic committee of the Board (the "Strategic Committee"), which will continue to exist for so long as Bounty owns at least 25% of the Outstanding Common Stock. The Strategic Committee will initially consist of four members: two directors designated by Bounty and two directors designated by those independent directors of the Company not designated by Bounty. The Strategic Committee will report and make recommendations to the Board regarding implementing certain strategic initiatives. None of Bounty's rights with respect to the Board or the Strategic Committee are transferable, including in connection with any sale by Bounty of its Common Stock or Convertible Notes.

        Pursuant to the Stockholders Agreement, for so long as Bounty owns at least 5% of the Outstanding Common Stock, if the Company proposes to issue any securities (subject to specified exceptions), including shares of Common Stock, other capital stock or convertible securities, then Bounty will have a preemptive right to purchase securities in such issuance up to its pro rata portion of such securities (calculated based solely on the Common Stock issued or issuable to Bounty upon conversion of the Convertible Notes as a percentage of the then-outstanding Common Stock prior to the issuance of such securities) at the same purchase price as the Company's proposed issuance to other purchasers.

        Pursuant to the Stockholders Agreement, Bounty has agreed that, until the earlier of the third anniversary of the Closing or the date on which Bounty owns less than 15% of the Outstanding Common Stock, Bounty will not, either alone or together with others, engage in any proxy contest for the election of the Company's directors or make any stockholder proposals with respect to the Company. Bounty has also agreed that as a condition precedent to any sale by it of Common Stock representing 15% or more of the Outstanding Common Stock, Bounty will require the buyer of such Common Stock to agree to abide by these restrictions. Pursuant to the Stockholders Agreement, Bounty has agreed that, until the earlier of the third anniversary of the Closing or the date on which Bounty owns less than 10% of the Outstanding Common Stock, Bounty will not engage in Short Sales (as defined in the Stockholders Agreement) or enter into any swap or other arrangement that transfers

 

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to another person any of the economic consequences of ownership of the Common Stock or Convertible Notes.

        In connection with the Acquisition Agreement, we entered into a Transition Services Agreement (the "Transition Services Agreement") with Bounty and CNCIM, pursuant to which we are providing services to CNCIM in connection with CNCIM's management of the CNCIM CLOs.

The Convertible Notes Agreement and Potential Issuance of the Conversion Shares

        On March 22, 2010, the Company entered into a Senior Subordinated Convertible Notes Agreement (the "Convertible Notes Agreement") with Bounty pursuant to which Bounty has agreed to purchase for cash $25 million in aggregate principal amount of our senior subordinated convertible notes (the "Convertible Notes"), convertible into 4,132,231 shares of Common Stock (as such amount may be adjusted in certain events or increased in connection with the payment of PIK Interest (as defined below)) (the "Conversion Shares") at an initial conversion price of $6.05 per share, subject to adjustment. Together with the Acquisition Shares, the Conversion Shares would represent approximately 56.2% of the issued and outstanding Common Stock as of the Record Date after completion of the Transactions. The issuance of the Acquisition Shares and the potential issuance of the Conversion Shares are collectively referred to as the "Stock Issuances." We may issue and sell up to an additional $25 million of Convertible Notes under the Convertible Notes Agreement, subject to Bounty's approval, although we have no agreement with respect to any such additional issuances at this time. The holders of Convertible Notes will have the right, at any time, to convert the principal amount of the Convertible Notes held by such holders into Conversion Shares at the conversion rate, which will initially be approximately 165.29 shares per $1,000 principal amount of Convertible Notes (the "Conversion Rate") (equal to a conversion price of $6.05 per share), and is subject to adjustment from time to time for specified events.

        The total number of shares of Common Stock issuable upon conversion of the Convertible Notes may increase from time to time due to any one or more of the following factors:

    the issuance of up to $25 million in aggregate principal amount of additional Convertible Notes;

    the payment of interest in-kind ("PIK Interest") on the Convertible Notes then outstanding (as discussed below); and

    adjustments to the Conversion Rate due to customary anti-dilution adjustments and a price protection provision set forth in the Convertible Notes Agreement.

        Stockholders are being asked to approve the issuance of all Conversion Shares then issuable pursuant to the Conversion Rate as the same may be adjusted throughout the term of the Convertible Notes Agreement pursuant to the foregoing provisions.

        We intend to close the issuance and sale of the Convertible Notes to Bounty simultaneously with the closing of the Acquisition on the Closing Date. All Convertible Notes issued on the Closing Date or thereafter will mature on the date that is seven years and six months following the Closing Date. Interest on the Convertible Notes will be payable to the holders of the Convertible Notes quarterly in arrears on each January 1, April 1, July 1 and October 1. The Company will pay interest in cash at a per annum rate starting at 8% and increasing to 11% depending on the interest period in which interest is due and payable; provided, that the Company may, in its sole discretion and upon notice to the holders of the Convertible Notes, elect to pay up to 50% of the interest payment due to any holder of the Convertible Notes in PIK Interest, so long as the payment of PIK Interest would not be prohibited by, or constitute a default under, any other indebtedness or preferred stock (if outstanding) of the Company and its subsidiaries (a "PIK Election"). To the extent that the Company has made a PIK Election, then the Company will pay interest at a per annum rate (the "PIK Interest Rate") ranging from 10% to 12% depending upon the interest period in which interest is due and payable. If the

 

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Company makes a PIK Election, then the PIK Interest Rate will apply to the calculation of all interest due (in cash or in-kind) on the date upon which interest is due and payable to the holders of the Convertible Notes and for all subsequent periods for which interest is paid.

        We may not redeem the Convertible Notes prior to the second anniversary of the Closing Date. Thereafter, the Company may redeem all or a part of the Convertible Notes upon not less than 30 nor more than 60 days' notice to the holders of the Convertible Notes at a redemption price equal to 100% of the principal amount of the Convertible Notes plus (i) if the redemption date is on or prior to the third anniversary of the Closing Date, a premium equal to the interest rate then in effect as an additional percentage of principal amount and (ii) if the redemption date is after the third anniversary of the Closing Date but on or prior to the fourth anniversary of the Closing Date, a premium equal to one-half of the interest rate then in effect as an additional percentage of principal amount, in each case, plus accrued and unpaid interest on the Convertible Notes redeemed to the applicable redemption date. The Company is not required to make any mandatory redemption or sinking fund payments in respect of the Convertible Notes.

        The Convertible Notes Agreement contains customary representations, warranties and covenants by Bounty and the Company, including negative covenants that restrict the Company's ability to effect a consolidation or merger, or sell, transfer, lease or otherwise dispose of all or substantially all of its assets. The consummation of the transactions contemplated by the Convertible Notes Agreement is subject to several closing conditions, including, among other things, the approval of the Stock Issuances by the Company's stockholders, the consummation of the Acquisition, the consummation of the Senior Notes Discharge and the absence of certain governmental constraints.

        The Convertible Notes Agreement contains events of default customary for agreements of its type (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company and its material subsidiaries, all outstanding Convertible Notes will become due and payable immediately without further action or notice. If any other type of event of default occurs and is continuing, then the holders of at least 331/3% in principal amount of the then outstanding Convertible Notes may declare all of the outstanding Convertible Notes to be due and payable immediately.

The Senior Notes Discharge

        On March 22, 2010, the Company and D&C, a wholly-owned subsidiary of the Company, entered into a Payment Agreement and Release (the "Senior Notes Discharge Agreement") with the holders of the Series A Senior Secured Notes issued by D&C (the "Series A Notes") and the holders of the Series B Senior Secured Notes issued by D&C (the "Series B Notes" and, together with the Series A Notes, the "Senior Notes"), pursuant to which we have agreed with the holders of the Senior Notes to discharge all of the approximately $48.9 million in aggregate principal amount of Series A Notes outstanding at approximately 64.1% of the principal amount thereof plus accrued interest, and all of the approximately $25.1 million in aggregate principal amount of the Series B Notes outstanding at approximately 94.5% of the principal amount thereof plus accrued interest, or an aggregate discount of approximately 25.6% from the face amount of the Senior Notes plus accrued interest (the "Senior Notes Discharge"). The Company is required to consummate the Senior Notes Discharge if the Company completes one or more debt or equity financing transactions or recapitalization transactions (or any combination of debt or equity financing and recapitalization transactions), which result in cash proceeds to the Company or D&C in an aggregate amount of at least $25 million on or prior to July 31, 2010. The issuance of the Convertible Notes would trigger this requirement. The Company intends to use the proceeds of the issuance of the Convertible Notes, together with other available funds, to effect the Senior Notes Discharge. Upon consummation of the Senior Notes Discharge, all obligations and liabilities of the Company and D&C under the Senior Notes will be released and the intercreditor agreement related to the Senior Notes will be terminated.

 

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        Effective upon the date of the Senior Notes Discharge Agreement, the Company released certain of the holders of the Senior Notes from their obligation to indemnify the Company for losses related to certain matters pursuant to the terms of the Merger Agreement (which indemnification obligations would otherwise have remained in effect until June 30, 2010).

The Trust Preferred Exchange

        On March 4, 2010, the Company entered into an exchange agreement (the "Exchange Agreement") with Taberna Preferred Funding V, Ltd., Taberna Preferred Funding VII, Ltd., Taberna Preferred Funding VIII, Ltd. and Taberna Preferred Funding IX Ltd. (collectively, "Taberna"), to exchange $95 million of the $120 million aggregate outstanding principal amount of trust preferred securities (the "Trust Preferred Securities") previously issued by three wholly-owned indirect subsidiaries of the Company, Deerfield Capital Trust I, Deerfield Capital Trust II and Deerfield Capital Trust III, for $95 million aggregate outstanding principal amount of junior subordinated notes (the "New Subordinated Notes") issued by the Company (the "Trust Preferred Exchange"). The Trust Preferred Exchange was completed on March 4, 2010. An aggregate of $25 million in principal amount of Trust Preferred Securities issued by Deerfield Capital Trust I were not exchanged and remain outstanding.

        The New Subordinated Notes are governed by a junior subordinated indenture (the "New Indenture"), dated March 4, 2010, between the Company and The Bank of New York Mellon Trust Company, National Association, as trustee. Pursuant to the New Indenture, the New Subordinated Notes bear a fixed interest rate of 1.00% per annum commencing on April 30, 2010, payable quarterly through April 30, 2015 or an earlier date upon which certain specified events occur (the "Modification Period"). Thereafter, the New Subordinated Notes will be subject to a variable interest rate equal to LIBOR plus 2.58% per annum, payable quarterly on the then outstanding principal amount of the New Subordinated Notes until maturity on October 30, 2035. The Company may redeem the New Subordinated Notes on or after October 30, 2010 at par for cash or replacement securities acceptable to the holders.

        The New Indenture contains certain restrictive covenants including, among other things, (i) a covenant that requires all asset management activities to be conducted by the Company and its subsidiaries, and which permits the Company to sell equity and material assets of DCM only if all asset management fees and proceeds from equity and asset sales are subject to the limits on restricted payments set forth in the New Indenture, (ii) a debt covenant that permits the Company and DCM to incur indebtedness only if the proceeds of such indebtedness are subject to the limits on restricted payments set forth in the New Indenture and (iii) a restricted payments covenant that restricts the ability of the Company to pay dividends or make distributions in respect of its equity securities, subject to a number of exceptions and conditions. If the Company fails to complete one or more transactions that in the aggregate result in the repayment or refinancing of the Senior Notes upon terms that improve the credit position of the holders of the New Subordinated Notes by satisfying all of the following conditions: (i) increased pro forma interest coverage; (ii) reduced pro forma debt-to-equity ratio; (iii) the aggregate principal amount of any permitted refinancing indebtedness under the New Indenture is less than the aggregate principal amount of the Senior Notes; and (iv) after such transaction(s), the pro forma GAAP consolidated net worth of the Company is either positive or has improved (a "Credit Enhancing Transaction") within certain time periods, then the Modification Period will terminate and certain exceptions to the restricted payments covenant will no longer be available to the Company. We currently expect that the issuance of the Convertible Notes and consummation of the Senior Notes Discharge will satisfy the requirement that the Company complete a Credit Enhancing Transaction.

 

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Deerfield Pegasus Loan Capital LP ("DPLC") Restructuring

        The Company announced on March 22, 2010 that it entered into a Termination Agreement (the "Termination Agreement") with Pegasus Deerfield (AIV), LLC, (the "Pegasus Investor"), PGS Management, LLC, ("PM", and together with the Pegasus Investor, the "Pegasus Parties"), DPLC, DCM, DPLC General Partner LLC, ("DLC GP"), Deerfield Loan Manager LLC ("DLM" and together with the Company, DCM and DLM, the "Deerfield Parties") and Jonathan Trutter, pursuant to which (i) the Pegasus Parties waived certain rights with respect to the Stock Issuances and (ii) the Deerfield Parties and the Pegasus Parties terminated or amended certain provisions of agreements related to DPLC and cancelled warrants to purchase three million shares of Common Stock, which is all of the warrants previously issued to the Pegasus Parties (the "DPLC Restructuring"). Pursuant to the Termination Agreement, (i) DLC GP and DPLC released all partners of DPLC from their unfunded capital commitments to DPLC as of the date of the Termination Agreement, (ii) DPLC will make distributions of $9.0 million to the Pegasus Investor and an amount equal to his entire capital account balance to Jonathan Trutter and (iii) on or after the date the Pegasus Investor receives the distribution described in clause (ii), DLC GP will be permitted to withdraw an amount equal to the entire portion of its capital account attributable to DLM's investment in DLC GP and distribute such amount to DLM. Additionally, the Company will grant the Pegasus Investor and certain of its associates warrants to purchase an aggregate of 250,000 shares of Common Stock at an exercise price of $4.25 per share.


Selected Unaudited Pro Forma Condensed Combined Financial Data (Page 82)

        The following selected unaudited pro forma condensed combined financial data was prepared using the purchase method of accounting, with the Company treated as the acquirer. The selected unaudited pro forma condensed combined statements of operations for the year ended December 31, 2009 data gives effect to the Transactions as if they had occurred on January 1, 2009. The unaudited pro forma condensed combined balance sheet data at December 31, 2009 gives effect to the Transactions as if they had occurred on December 31, 2009.

        The unaudited pro forma condensed combined financial data is provided for illustration purposes only and does not purport to represent what the actual combined results of operations or financial position of the Company would have been had the Transactions occurred at the beginning of the period presented or on the date indicated, nor is it necessarily indicative of future operating results or financial position. The selected unaudited pro forma condensed combined financial data as of and for the for the year ended December 31, 2009 is derived from the unaudited pro forma condensed combined financial statements included elsewhere in this Proxy Statement and should be read in conjunction with those statements and the related notes. See "Unaudited Pro Forma Condensed Combined Financial Information."

Selected Unaudited Pro Forma Condensed Combined Statements of Operations Data:

 
  Year Ended
December 31, 2009
 
 
  (in thousands)
 

Net interest income

  $ 33,775  

Provision for loan losses

    20,114  

Investment advisory fees

    26,100  

Total net revenue

    39,761  

Total expense

    37,710  

Net other income and gain

    74,929  

Net income

    74,566  

 

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Selected Unaudited Pro Forma Condensed Combined Balance Sheet Data:

 
  As of
December 31, 2009
 
 
  (in thousands)
 

Cash and cash equivalents

  $ 20,706  

Total assets

    702,183  

Long-term debt

    363,072  

Total stockholders' equity

    28,561  


Regulatory Approvals To Be Obtained in Connection with the Transactions(Page 63)

        We do not believe that the Company, Bounty or CNCIM are required to obtain any U.S. federal or state regulatory approvals to complete the Transactions described herein. In the United States, we must comply with applicable federal and state securities laws and the Listing Rules of the NASDAQ Stock Market LLC ("NASDAQ") in connection with the Stock Issuances. The Company has applied to have the Acquisition Shares and the Conversion Shares listed on NASDAQ.


Interests of Certain of our Directors and Executive Officers in the Transactions (Page 63)

        Peter W. May, a member of the Board, is a director of and, indirectly, a significant stockholder in Wendy's/Arby's Group, Inc., which owns approximately $48.9 million in principal amount of Series A Notes that are expected to be discharged by the Company for an aggregate amount of approximately $30.8 million plus all unpaid and accrued interest in cash as of the closing date of the Transactions. Mr. May has indicated that he intends to resign from the Board following the consummation of the Transactions and the Board intends to fill the vacancy created thereby with an individual who qualifies as an independent director.

        Jonathan W. Trutter, our Chief Executive Officer and a member of the Board, owns approximately $637,000 in principal amount of Series A Notes that are expected to be discharged by the Company for an aggregate amount of approximately $408,000 plus all unpaid and accrued interest in cash as of the closing date of the Transactions.

        On March 22, 2010, we entered into a letter agreement (the "2010 Rothschild Compensation Agreement") with Peter H. Rothschild setting forth the fees payable to him for his services as Interim Chairman of the Board for the year ending December 31, 2010. The 2010 Rothschild Compensation Agreement provides for a base fee during 2010 of $41,667 per month and an expense reimbursement of $10,000 per month for expenses relating to office space, information technology and other items which Mr. Rothschild pays to his firm which provides him with office space and related infrastructure. This agreement is subject to cancellation upon 30 days' notice at the discretion of the Compensation Committee of the Board (the "Compensation Committee") as well as upon the occurrence of certain other specified events. The 2010 Rothschild Compensation Agreement also provides for two discretionary fees, a "Capital Transaction Success Fee" not to exceed $1 million and a "Non-Capital Transaction Success Fee" not to exceed $500,000, which may be paid if certain specified conditions are met. The conditions for payment of the discretionary fees include, but are not limited to, Mr. Rothschild playing an instrumental role in arranging and completing a strategic transaction that substantially increases shareholder value. The Compensation Committee has complete discretion over whether to award the Capital Transaction Success Fee and the Non-Capital Transaction Success Fee and over the amount of the fees and the portion payable as cash or non-cash compensation, and the Compensation Committee has not yet finally determined the amount of such fees to be paid in connection with the consummation of the Transactions.

        In consideration of their services rendered as members of the special committee of the Board (the "Special Committee"), Robert E. Fischer and Stuart I. Oran are each entitled to compensation in an amount equal to $15,000 per month (not to exceed $90,000 total) and Robert B. Machinist, as

 

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Chairman of the Special Committee, is entitled to compensation in an amount equal to $45,000 per month (not to exceed $180,000 total).

        The Compensation Committee has discussed but not yet finally determined to award special bonuses to officers and directors of the Company upon consummation of the Transactions. The Special Committee has advised Bounty that such bonuses, if paid, together with any discretionary fees paid pursuant to the 2010 Rothschild Compensation Agreement, would not exceed $1.3 million in the aggregate.


Impact of the Stock Issuances on Existing Stockholders (Page 64)

        The Stock Issuances will significantly dilute the Common Stock ownership percentages of our existing stockholders.

    Assuming the issuance of the 4,545,455 Acquisition Shares and no other issuances of shares as of the date of approval by our stockholders, Bounty would own approximately 40.2% of our Common Stock issued and outstanding as of the Record Date on a fully diluted basis.

    Assuming the issuance of the Acquisition Shares, if in addition Bounty elects to convert the entire $25 million in aggregate principal amount of the Convertible Notes and we have not elected to pay PIK Interest, we expect to issue approximately 4,132,231 Conversion Shares. In such event Bounty would own approximately 56.2% of our Common Stock issued and outstanding as of the Record Date on a fully diluted basis.

    Assuming the issuance of the Acquisition Shares, if in addition Bounty elects to convert the entire principal amount of the Convertible Notes and we have elected to pay the maximum permitted amount of PIK Interest, we would expect the maximum amount of Conversion Shares to be issued to be approximately 5,208,869. In such event Bounty would own approximately 59.1% of our Common Stock issued and outstanding as of the Record Date on a fully diluted basis.

        The actual number of Conversion Shares issuable may vary due to the adjustment provisions in the Convertible Notes, including in respect of the issuance of shares of our Common Stock or other equity securities by the Company, mergers or sales of assets by the Company, dividends or distributions of cash or property by the Company, spin-offs or tender or exchange offers. As a result of the Stock Issuances, Bounty will become a significant stockholder of the Company with substantial influence (or even control) over matters submitted to a vote of our stockholders, including the election of directors, amendment of our organizational documents, acquisitions or other business combinations involving the Company and potentially the ability to prevent extraordinary transactions such as a takeover attempt.

        The Stockholders Agreement provides that if Bounty holds at least 25% of the Outstanding Common Stock (including shares issuable upon conversion of the Convertible Notes), Bounty will have the right to designate three out of nine directors to the Board (one of whom must qualify as an independent director if necessary to ensure that a majority of the members of the Board are independent). If Bounty holds less than 25% but 15% or more of the Outstanding Common Stock, then Bounty will have the right to designate two out of nine directors to the Board, and if Bounty holds less than 15% but 5% or more of the Outstanding Common Stock, Bounty will have the right to designate one director out of nine directors to the Board. Upon consummation of the Transactions, the Board will establish the Strategic Committee consisting of two directors designated by Bounty and two directors designated by those independent directors of the Company not designated by Bounty. The Strategic Committee will report and make recommendations to the Board regarding implementing certain strategic initiatives. As a result, the directors elected to the Board by Bounty may exercise significant influence on matters considered by the Board. Bounty may have interests that diverge from, or even conflict with, those of the Company and its other stockholders.

 

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        As of December 31, 2009, the Company had net operating losses ("NOLs") of approximately $209.0 million, which will begin to expire in 2028 if not used, and net capital losses ("NCLs") of approximately $422.8 million, which will begin to expire in 2012 if not used. The issuance of the Acquisition Shares will result in an "Ownership Change" for purposes of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the "Code"). As a result of the occurrence of the Ownership Change, our ability to use our NOLs, NCLs and certain built-in losses to reduce our taxable income in a future year would generally be limited to an annual amount (the "Section 382 Limitation") equal to the fair market value of the Common Stock immediately prior to the Ownership Change multiplied by the long term tax-exempt interest rate in effect in the month of the Ownership Change, which for the month of April 2010 is 4.03%.

        Our Charter currently contains transfer restrictions to prevent investors from aggregating ownership of our Common Stock and triggering an Ownership Change. Since the issuance of the Acquisition Shares will result in an Ownership Change, our Board has exempted the Stock Issuances from the restrictions set forth in Article IX of the Charter. If the Transactions are consummated and the Acquisition Shares are issued to Bounty, our Board has agreed to terminate the restrictions on ownership and transfer contained in Article IX of the Charter.


Dissenters' or Appraisal Rights of Existing Stockholders (Page 65)

        Under applicable Maryland law, the Company's stockholders do not have dissenters' or appraisal rights in connection with the Stock Issuances, and we do not plan to independently provide stockholders with any such rights.


Vote Required and Recommendation of the Special Committee and the Board (Page 65)

        For the approval of the Stock Issuances, you may vote in favor of the proposal, against the proposal or abstain from voting. If a quorum is present, approval of the proposal requires the affirmative vote of a majority of all votes cast on the proposal.

        In developing its recommendation to the stockholders to vote in favor of the Stock Issuances, the Special Committee and the Board considered many factors, including the positive and negative factors described in the section of this Proxy Statement entitled "Proposal No. 1—Approval of the Stock Issuances—Vote Required and Recommendation of the Special Committee and the Board", and concluded that the Stock Issuances are advisable and in the best interests of the Company and its stockholders. Our Board believes that the Company's financial position, capital structure and business will be strengthened as a result of the Acquisition and the Stock Issuances and the use of proceeds thereof.

        After careful consideration, including consideration of the unanimous recommendation of the Special Committee, our Board, other than Peter W. May who because of a conflict of interest took no part in the consideration of the Acquisition or the Stock Issuances, recommends that the Company's stockholders vote "FOR" Proposal No. 1.


Election of Class III Directors (Page 70)

        The term of the Class III directors, Jonathan W. Trutter and Robert B. Machinist, expires at the Meeting. Those directors have been nominated for re-election to serve as directors for a term expiring at our annual meeting in 2013 and until their successors are duly appointed or qualified.

        For the election of directors, you may vote in favor of one or both of the nominees or withhold your vote as to one or both of the nominees. You will be voting with respect to the nominees that were nominated by our Board based on a recommendation from the Nominating Committee and you will not be able to vote for more than two persons. If a quorum is present, then the nominees receiving a plurality of all of the votes cast at the Meeting will be elected.

 

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        Our Board recommends a vote "FOR" the election as directors of each of Jonathan W. Trutter and Robert B. Machinist.


Ratification of Deloitte (Page 72)

        The Audit Committee of our Board (the "Audit Committee") has appointed Deloitte & Touche LLP ("Deloitte") to audit the financial statements of the Company for the fiscal year ending December 31, 2010. Deloitte was our independent registered public accounting firm for our 2008 and 2009 fiscal years. Deloitte representatives are expected to attend the Meeting and, therefore, will have the opportunity to make a statement and be available to respond to questions. In the event of a negative vote on such ratification, the Audit Committee will reconsider its selection.

        For the proposal to ratify the appointment of Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2010, you may vote in favor of the proposal, vote against the proposal or abstain from voting. If a quorum is present, approval of the proposal requires the affirmative vote of a majority of all votes cast on the proposal.

        Our Board recommends a vote "FOR" ratification of the appointment of Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2010.

 

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QUESTIONS AND ANSWERS ABOUT THE MEETING AND VOTING

        The following are some of the questions, and answers to those questions, that you as a stockholder of the Company may have regarding the Acquisition, the Stock Issuances and the other matters being considered at the Meeting to which this Proxy Statement relates. The information in this section does not provide all of the information that may be important to you with respect to the matters being considered at the Meeting. Therefore, you should read this Proxy Statement carefully, as well as the full contents of the other documents to which this Proxy Statement refers or incorporates by reference. These documents contain information that may be important to you in determining how you will vote on the matters to be considered at the Meeting. See "Where You Can Find More Information" beginning on Page 130.

Q:    When is the Meeting and where will it be held?

A:
The Meeting will be held on May , 2010, at 10:00 a.m. EDT, at                                    . The date, time and place of any adjournment or postponement of the Meeting will be established in accordance with our governing documents and applicable law. Directions to the Meeting are posted on the "DFR Stockholder Info" section of our website, http://www.deerfieldcapital.com, and may also be obtained by contacting our Legal Department, in writing, at Deerfield Capital Corp., Attn: General Counsel, 6250 North River Road, 9th Floor, Rosemont, Illinois 60018 or by phone at (773) 380-1600. Information on our website is not incorporated into this Proxy Statement.

Q:    Why am I receiving these proxy materials?

A:
You are receiving a Proxy Statement because you were a record owner of shares of the Company's Common Stock on the Record Date, and that entitles you to vote on the matters being considered at the Meeting. This Proxy Statement is designed to assist you in voting and provides the information that we are required to provide to you under the rules of the Securities and Exchange Commission (the "SEC").

Q:    What am I being asked to vote on?

A:
You are being asked to vote on the following matters:

1.
Approval of (i) the issuance 4,545,455 shares of Common Stock (at an implied price of $5.50 per share) in connection with the Company's proposed Acquisition of CNCIM from Bounty and (ii) the potential issuance of 4,132,231 shares of Common Stock (as such amount may be adjusted in certain events or increased in connection with the payment of PIK Interest) upon the conversion of $25 million in aggregate principal amount of Convertible Notes that Bounty has agreed to purchase at the Closing (if converted at the initial Conversion Rate). As described in more detail in this Proxy Statement, the Company intends to use the proceeds of the sale of the Convertible Notes, together with other funds, to pay and discharge all of the approximately $74 million in aggregate principal amount of Senior Notes outstanding for an aggregate purchase price of $55 million plus accrued interest, which is an aggregate discount of approximately 25.6% from their face amount. The reduction to the interest rate terms and the modification to the restricted payment covenant in the New Subordinated Notes issued in the Trust Preferred Exchange will not remain in place unless we complete a Credit Enhancing Transaction. Consummation of the Senior Notes Discharge will satisfy this requirement. (See "Proposal No. 1—Approval of the Stock Issuances—Principal Terms of the Transactions");

2.
Election of two Class III directors to serve on the Board for a three-year term and until their successors have been duly elected or appointed and qualified;

3.
Ratification of the appointment of Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2010; and

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    4.
    Approval of any adjournment or postponement of the Meeting, if necessary or appropriate, to solicit additional proxies in the event that there are not sufficient votes at the time of the Meeting to approve Proposal Nos. 1 and 2.

    We will also conduct such other business as may properly come before the Meeting or any adjournment thereof.

Q:    Why is stockholder approval of the Stock Issuances described in Proposal No. 1 required?

A:
Under NASDAQ Listing Rule 5635(a), stockholder approval is required prior to the issuance of a listed company's common stock when the aggregate number of shares to be issued in connection with the acquisition of stock or assets of another company exceeds 20% of the total outstanding shares of common stock of such company before the issuance.

    Pursuant to the Acquisition Agreement, we have agreed to issue 4,545,455 shares of our Common Stock to Bounty in connection with our acquisition of CNCIM. Pursuant to the Convertible Notes Agreement, we have also agreed to issue $25 million in aggregate principal amount of Convertible Notes to Bounty for cash. The Convertible Notes are convertible at the holder's option into Common Stock of the Company at any time at the Conversion Rate, which will initially be approximately 165.29 shares per $1,000 principal amount of Convertible Notes (equal to a conversion price of $6.05 per share) subject to adjustment in certain events. Accordingly, the Convertible Notes will initially be convertible into 4,132,231 shares of Common Stock (as such amount may be adjusted in certain events or increased in connection with the payment of PIK Interest). The Convertible Notes bear interest at rates ranging from 8% to 11%, and the Company may elect to pay 50% of the interest on the Convertible Notes in-kind as PIK Interest (in which case interest rates will range from 10% to 12%). To the extent that we pay PIK Interest, additional shares of Common Stock will be issuable to the holder of the Convertible Notes at the Conversion Rate on the full amount of such PIK Interest.

    The number of shares to be issued in the Acquisition plus the number of shares initially issuable upon conversion of the Convertible Notes equals approximately 56.2% of our Common Stock issued and outstanding on the Record Date.

Q:    Will the Stock Issuances described in Proposal No. 1 dilute the existing stockholders' percentage of ownership in the Company?

A:
Yes. The issuance of the Acquisition Shares and the Conversion Shares will significantly dilute your existing holdings of our Common Stock.

    Assuming the issuance of the 4,545,455 Acquisition Shares and no other issuances of shares as of the date of approval by our stockholders, Bounty would own approximately 40.2% of our Common Stock issued and outstanding as of the Record Date on a fully diluted basis, and your ownership will have been diluted by that amount.

    Assuming the issuance of the Acquisition Shares, if in addition Bounty elects to convert the entire $25 million in aggregate principal amount of the Convertible Notes and we have not elected to pay PIK Interest, we expect to issue approximately 4,132,231 Conversion Shares. In such event Bounty would own approximately 56.2% of our Common Stock issued and outstanding as of the Record Date on a fully diluted basis.

    Assuming the consummation of the issuance of the Acquisition Shares, if in addition Bounty elects to convert the entire $25 million in aggregate principal amount of the Convertible Notes and we have elected to pay the maximum permitted amount of PIK Interest, we would expect the maximum amount of Conversion Shares to be issued to be approximately

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        5,208,869. In such event Bounty would own approximately 59.1% of our Common Stock issued and outstanding as of the Record Date on a fully diluted basis.

Q:    What will happen if our stockholders vote to approve the Stock Issuances described in Proposal No. 1?

A:
If the Stock Issuances are approved, we expect to complete the Acquisition and the issuance of the Convertible Notes on or around May , 2010.

Q:    What will happen if our stockholders do not vote to approve the Stock Issuances described in Proposal No. 1?

A:
If the Stock Issuances are not approved, we will not be able to complete the Acquisition, and the issuance of the Convertible Notes, which is contingent upon the completion of the Acquisition, will not occur. Additionally, the restrictions contained in Article IX of the Charter will remain in effect.

    We intend to use the proceeds of the sale of the Convertible Notes, together with other funds, to effect the Senior Notes Discharge. If we are unable to complete the sale of the Convertible Notes, we will not be able to complete the Senior Notes Discharge.

    Certain of the benefits of the Trust Preferred Exchange, including the reduction to the interest rate terms and the modification of the restricted payment covenant in the New Subordinated Notes, will not become permanent unless we complete a Credit Enhancing Transaction. The issuance of the Convertible Notes and consummation of the Senior Notes Discharge will qualify as a Credit Enhancing Transaction. If we do not complete the issuance of the Convertible Notes and Senior Notes Discharge and are not able to complete another Credit Enhancing Transaction (i) by August 31, 2010, then certain exceptions to the restricted payment covenant in the New Subordinated Notes will revert to the terms contained in the Trust Preferred Securities and (ii) by December 21, 2012, then the interest rate terms of the New Subordinated Notes will revert to the terms contained in the Trust Preferred Securities, which in each case are less advantageous to the Company. See "Proposal No. 1—Approval of the Stock Issuances—Principal Terms of the Transactions."

Q:    Why is the Company engaging in the Acquisition and the Stock Issuances?

A:
Since March 2008, the Board and the Company's management have been focused on executing operating strategies to increase stockholder value by growing the Company through the acquisition of CDO management contracts. The strategies also include the exploration of strategic transactions that could improve the Company's overall position in the asset management industry. The Acquisition and related transactions enable us to satisfy both objectives by expanding our management fee base at a faster rate and lower cost than we would otherwise be able to do through internal growth alone, especially considering the challenges facing CDO investment managers in the current financial and credit markets, and improve the Company's capital structure.

    The Acquisition and the Stock Issuances, together with the Senior Notes Discharge, the Trust Preferred Exchange and the DPLC Restructuring, will de-lever our capital structure, reduce our interest expense, increase our book value and enhance overall stockholder value, including by completing the Senior Notes Discharge at a discount to the face value of the Senior Notes and terminating covenants in the Senior Notes and Trust Preferred Securities that were exchanged that place restrictions on our flexibility to manage and conduct our business. By reducing the principal amount of debt on our balance sheet and extending the maturity thereof, eliminating certain restrictive covenants and adding to our AUM, the Transactions should allow us the flexibility to

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    fund additional acquisitions and support organic growth through raising additional AUM from existing and future clients.

Q:    Is there a break-up fee under the Acquisition Agreement?

A:
Yes. Under certain circumstances, we are required to pay Bounty a termination fee of $1.5 million and reimburse Bounty's legal expenses in connection with the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement upon termination of the Acquisition Agreement.

Q:    Why does the Board recommend I vote "FOR" Proposal No. 1?

A:
In developing its recommendation to the stockholders to vote in favor of the Stock Issuances, our Board considered many factors, including the positive and negative factors described in the section of this Proxy Statement entitled "Proposal No. 1—Approval of the Stock Issuances—Vote Required and Recommendation of The Special Committee and The Board" and concluded that the Stock Issuances are advisable and in the best interests of the Company and our stockholders. Our Board believes that the Company's financial position, capital structure and business will be strengthened as a result of the Acquisition and the Stock Issuances and the use of proceeds thereof. After careful consideration, including consideration of the unanimous recommendation of the Special Committee, our Board, other than Peter W. May who because of a conflict of interest took no part in the consideration of the Acquisition or the issuance of the Convertible Notes, recommends that the Company's stockholders vote "FOR" Proposal No. 1.

Q:    Do I have dissenters' or appraisal rights if I object to the Stock Issuances described in Proposal No. 1?

A:
No. Under applicable Maryland law, the Company's stockholders do not have dissenters' or appraisal rights in connection with the Stock Issuances or the other matters being voted upon at the Meeting, and we do not plan to independently provide stockholders with any such rights.

Q:    What is the impact upon the Company's existing NOLs and NCLs if the stockholders vote to approve the Stock Issuances described in Proposal No. 1?

A:
As of December 31, 2009, the Company had NOLs of approximately $209.0 million, which will begin to expire in 2028 if not used, and NCLs of approximately $422.8 million, which will begin to expire in 2012 if not used. The Company did not recognize for financial statement purposes any net assets associated with NOLs and NCLs and believes it is unlikely that the Company would have generated sufficient income to utilize a substantial amount of the NOLs and NCLs. The issuance of the Acquisition Shares will result in an "Ownership Change" for purposes of Sections 382 and 383 of the Code. As a result of the occurrence of the Ownership Change, our ability to use our NOLs, NCLs and certain recognized built-in losses to reduce our taxable income in a future year would generally be limited to the Section 382 Limitation. NOLs, NCLs and certain recognized built-in losses that exceed the Section 382 Limitation in any year will continue to be allowed as carryforwards for the remainder of the carryforward period, and such NOLs, NCLs and recognized built-in losses can be used to offset taxable income for years within the carryforward period subject to the Section 382 Limitation in each year. However, if the carryforward period for any such tax attributes were to expire before that loss is fully utilized, the unused portion of that loss would be lost. We believe that the Section 382 Limitation imposed on the Company due to the Ownership Change will severely limit the Company's ability to use existing NOLs and NCLs to offset future taxable income. Our Charter currently contains transfer restrictions to prevent investors from aggregating ownership of our Common Stock and triggering an Ownership Change.

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    Since the issuance of the Acquisition Shares will result in an Ownership Change, our Board has exempted the Stock Issuances from the restrictions set forth in Article IX of the Charter. If the Transactions are consummated and the Acquisition Shares are issued to Bounty, our Board has agreed to terminate the restrictions on ownership and transfer contained in Article IX of the Charter.

Q:    How does our Board recommend I vote on Proposal Nos. 2, 3 and 4?

A:
Our Board recommends a vote "FOR" Proposal No. 2—Election of Directors, "FOR" Proposal No. 3—Ratification of Independent Public Accounting Firm, and "FOR" Proposal No. 4—Approval of the Adjournment or Postponement of the Meeting.

Q:    What other matters may arise at the Meeting?

A:
Other than Proposal Nos. 1, 2, 3 and 4 described in this Proxy Statement, we do not expect any other matters to be presented for a vote at the Meeting. If any other matter is properly brought before the Meeting, your proxy gives authority to the proxies named therein to vote on such matters in their discretion.

Q:    Do I need to vote to approve the Acquisition or the sale of the Convertible Notes?

A:
No. However, stockholder approval of the Stock Issuances is a condition to consummation of the Acquisition and the issuance of the Convertible Notes.

Q:    Who is entitled to vote at the Meeting?

A:
Only those stockholders who owned Common Stock at the close of business on the Record Date, which was April 19, 2010, are entitled to vote at the Meeting. At the close of business on the Record Date, we had 6,455,357 shares of Common Stock outstanding entitled to cast a vote on the proposals presented in this Proxy Statement, which were held by                 stockholders of record. Each outstanding share of our Common Stock entitles its holder to one vote.

Q:    How do I vote?

A:
Stockholders can vote in person at the Meeting or by proxy. There are three ways to vote by proxy:

    By Telephone—visit https://secure.amstock.com/voteproxy/login2.asp to view our proxy materials and obtain the toll free number to call;

    By Internet—visit www.voteproxy.com and follow the on-screen instructions; or

    By Mail—if you received your proxy materials by mail, you can vote by mail by marking, signing, dating and returning the proxy card in the envelope provided.

    Telephone and Internet voting for stockholders of record will close at 11:59 p.m. EDT on May     , 2010.

    If you properly complete, sign and return a proxy card, your shares will be voted as you specify. However, if you sign and return a proxy card but do not specify a vote with respect to the proposal, your shares will be voted as our Board recommends with respect to the proposal and in the proxy's discretion with respect to any other matter that may be properly considered at the Meeting.

    If you are a beneficial owner (that is, your shares are held in "street name" by a bank, broker or other nominee or intermediary, which we collectively refer to as "brokers"), you will receive voting

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    instructions or a voting information form from the holder of record. You must follow the instruction of the holder of record in order for your shares to be voted.

    If you plan to attend the Meeting, you must present identification containing a photograph, such as a driver's license or passport. If you are a stockholder of record, your name will be verified against the list of stockholders of record on the Record Date prior to your being admitted to the Meeting. If you are not a stockholder of record, but hold shares in "street name" through a broker, you should provide proof of beneficial ownership on the Record Date, such as your most recent account statement prior to April 19, 2010, a copy of the voting instruction card provided to you by your broker or other similar evidence of ownership. If you do not provide photo identification or comply with the procedures outlined above, you will not be admitted to the Meeting.

Q:    How can I revoke my vote?

    You may revoke your vote at any time before it is exercised at the Meeting by:

      Delivering written notice of such revocation to our Corporate Secretary prior to the Meeting at the address listed below;

      Submitting a telephone vote, an Internet vote or a properly executed proxy card bearing a later date that we receive before the polls close at the Meeting; or

      Attending the Meeting and voting in person.

    If you hold your shares in "street name" (that is, through a broker), you may revoke a previous vote only by following the procedures established by the broker.

    You may provide written notice to our Corporate Secretary at Deerfield Capital Corp., Attention: Corporate Secretary, 6250 North River Road, 9th Floor, Rosemont, Illinois 60018.

Q:    What is a "quorum"?

A:
A "quorum" is a majority of the outstanding shares of Common Stock, which may be present in person at the Meeting or represented by proxy. The presence of a majority of the votes entitled to be cast, represented in person or by proxy, will constitute a quorum for the transaction of business at the Meeting. Your shares will be counted for purposes of determining a quorum if you attend the Meeting and vote in person or if you vote by telephone, by internet or by submitting a properly executed proxy card by mail. Abstentions and withheld votes will be counted for determining whether a quorum is present for the Meeting. The presence at the Meeting, in person or by proxy, of the holders of at least 3,227,679 shares of our Common Stock will be required to establish a quorum.

Q:    What vote is required for approval of each proposal?

A:
With respect to Proposal No. 1 for the approval of the Stock Issuances, you may vote in favor of the proposal, against the proposal or abstain from voting on the proposal. Approval of the proposal requires the affirmative vote of a majority of all votes cast on the proposal (provided that a quorum is present at the Meeting). Abstentions are not considered votes cast and will therefore have no effect on the outcome of the vote on this proposal.

    With respect to Proposal No. 2 for the election of director nominees, you may vote in favor of one or both of the nominees or withhold your vote as to one or both of the nominees. You will be voting with respect to the nominees that were nominated by our Board based on a recommendation from the Nominating Committee, and you will not be able to vote for more than two persons. There is no cumulative voting in the election of directors. If a quorum is present,

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    then the nominees receiving a plurality of all of the votes cast at the Meeting will be elected. "Plurality" means that the individuals who receive the greatest number of votes cast "FOR" are elected as directors. Withheld votes will have no effect in the election of directors because the directors will be elected by a plurality of all of the votes cast at the Meeting.

    With respect to Proposal No. 3 for the ratification of the appointment of Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2010, you may vote in favor of the proposal, against the proposal or abstain from voting on the proposal. Approval of the proposal requires the affirmative vote of a majority of all votes cast on the proposal (provided that a quorum is present). Abstentions are not considered votes cast and will therefore have no effect on the outcome of the vote on this proposal.

    With respect to Proposal No. 4 for the approval of any adjournment or postponement of the Meeting, if necessary or appropriate, you may vote in favor of the proposal, against the proposal or abstain from voting on the proposal. Approval of the proposal requires the affirmative vote of a majority of all votes cast on the proposal (provided that a quorum is present). Abstentions are not considered votes cast and will therefore have no effect on the outcome of the vote on this proposal.

Q:    If my shares of Common Stock are held in "street name" by my broker, will my broker automatically vote my shares for me?

A:
Other than with respect to certain routine matters, brokers holding shares of our Common Stock for beneficial owners must vote those shares according to the specific instructions they receive from the beneficial owners, unless the brokers have been given discretionary voting power by the beneficial owners. In certain circumstances, brokers holding shares for a beneficial owner may not have discretionary voting power and may not have received voting instructions from the beneficial owner of the shares. In such cases, a broker may not vote on a proposal, which is known as a "broker non-vote." Broker non-votes will be counted for purposes of determining whether a quorum is present at the Meeting, but are not counted as votes cast.

    Proposal No. 1, approval of the Stock Issuances, Proposal No. 2, election of Class III directors, and Proposal No. 4, approval of adjournment or postponement of the Meeting, are not "routine" matters. Accordingly, if you do not provide voting instructions to your broker with respect to Proposal Nos. 1, 2 or 4, your broker may not exercise discretion and is prohibited from giving a proxy to vote your shares with respect to such proposals. With respect to Proposal Nos. 1, 2 and 4, broker non-votes will have no effect on the approval of such proposals.

    Proposal No. 3, ratification of the appointment of Deloitte as the Company's independent registered public accounting firm, is a "routine" matter. Accordingly, even if you do not provide voting instructions to your broker, your broker may exercise discretion and may give a proxy to vote your shares with respect to such proposal.

    You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. If you give instructions on how to vote to your broker, you may later revoke the instructions by taking the steps described in the information that you receive from your broker.

Q:    Who counts the votes?

A:
American Stock Transfer & Trust Company ("AST") will receive and tabulate the proxies. AST will act as the independent inspector of election and will certify the results.

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Q:    Who will solicit and pay the cost of soliciting proxies?

A:
The Company will pay the cost of soliciting proxies, including the expenses related to the printing and mailing of this Proxy Statement. In addition to solicitation by mail, proxies may be solicited personally, or by telephone or other electronic means, by our directors, officers or other employees without additional compensation for such services. We will also pay approximately $9,500 (plus reimbursement of out-of-pocket expenses) to Georgeson, Inc. ("Georgeson") to assist with the solicitation of proxies. Georgeson may solicit proxies by telephone or other electronic means or in person. The Company will also reimburse Georgeson for routine out-of-pocket expenses in connection with this proxy solicitation. The Company will also request that banking institutions, brokerage firms, custodians, trustees, nominees, fiduciaries and other like parties forward the solicitation materials to the beneficial owners of Common Stock held of record by such persons, and the Company will, upon request of such record holders, reimburse forwarding charges and out-of-pocket expenses. In addition, the Company will indemnify Georgeson against any losses arising out of the firm's proxy soliciting services on our behalf.

Q:    Will representatives of Deloitte be present at the Meeting and available to answer questions?

A:
Yes. We expect that representatives of Deloitte will be present at the Meeting, will be given the opportunity to make a statement if they desire to do so and will be available to answer questions.

Q:    When is this Proxy Statement and Notice being mailed?

A:
This Proxy Statement, proxy card and Notice are first being mailed to the Company's stockholders on or about April , 2010.

Q:    Where can I obtain access to these proxy materials?

A:
A copy of this Proxy Statement, proxy card and Notice will be mailed to each stockholder of the Company entitled to vote at the Meeting. In addition, this Proxy Statement is available at http://www.deerfieldcapital.com. The Notice contains instructions on how to access this Proxy Statement and our other proxy materials online and how to vote your shares.

Q:    Who can help answer my questions, and where can I get additional information about matters described in this Proxy Statement and additional information about the Company?

A:
If you have questions about the matters described in this Proxy Statement, or how to submit your proxy, or if you need additional copies of the Proxy Statement or the enclosed proxy card or voting instructions, you should contact Georgeson, our proxy solicitor, at 1-800-280-0857. If you would like additional information about the Company, please refer to our annual, quarterly and current reports, proxy statements and other information on file with the SEC.

IMPORTANT NOTE

        No person is authorized to make any representation with respect to the matters described in this Proxy Statement other than those contained, or incorporated by reference, in this Proxy Statement and, if given or made, such representation must not be relied upon as having been authorized by us or any other person or entity. This Proxy Statement, and the information incorporated herein, provides you with detailed information about the proposals to be considered and voted upon at the Meeting. The information in this Proxy Statement is current as of the date of this Proxy Statement. Stockholders are urged to carefully review this Proxy Statement, which discusses each of the proposals to be voted upon at the Meeting, including the accompanying annexes containing the agreements relating to the Acquisition and the issuance of the Convertible Notes, the text of the Majority Voting Bylaw and the information incorporated herein.

        This Proxy Statement does not constitute the solicitation of a proxy from any person in any jurisdiction where it is unlawful to make such proxy solicitation. The delivery of this Proxy Statement shall not, under any circumstances, imply that there has not been any change in the information set forth herein since the date of this Proxy Statement.

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FORWARD-LOOKING STATEMENTS

        The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by or on behalf of the Company. Certain statements made in this Proxy Statement may constitute forward-looking statements (within the meaning of Section 27.A of the Securities Act 1933, as amended (the "Securities Act"), and Section 21.E of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) regarding the expectations of management with respect to revenues, profitability, and adequacy of funds from operations, among other things. All statements containing a projection of revenues, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure or other financial items, a statement of management's plans and objectives for future operations, or a statement of future economic performance contained in management's discussion and analysis of financial condition and results of operations, including statements related to new products, volume growth and statements encompassing general optimism about future operating results and non-historical information, are forward-looking statements within the meaning of the Act.

        The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements:

Relating to the Acquisition and the Stock Issuances:

    The ability to integrate CNCIM into the business of the Company successfully and the amount of time and expense spent and incurred in connection with the integration;

    The failure to realize the economic benefits that the Company anticipates as a result of the Acquisition;

    The failure to uncover all risks and liabilities associated with the Acquisition;

    The impact of the issuance of $25 million in aggregate principal amount of Convertible Notes and the use of proceeds thereof, including its impact on the Company's liquidity, ability to raise additional capital and financial condition;

    The impact of the Stock Issuances on the Company's Common Stock, including dilution of the ownership of the Company's Common Stock;

    The failure to obtain any necessary third party consents or satisfy any of the other conditions of the Acquisition;

    Adverse effects on the market price of our Common Stock and on our operating results because of a failure to complete the Acquisition and the Stock Issuances;

    The impact of the Stock Issuances on our ability to use our NOLs, NCLs and certain recognized built-in losses to offset future taxable income and gains;

    The reduction in CNCIM CLO management fees or AUM resulting from payment defaults by issuers of the underlying collateral, downgrades of the underlying collateral by the rating agencies or depressed market values of the underlying collateral, all of which may contribute to the triggering of certain structural provisions and/or events of default built into CLOs; and

    Significant transaction costs and/or unknown liabilities and general economic and business conditions that affect the Company following the completion of the Acquisition and the Stock Issuances.

Relating to our Business Generally:

    Effects of the recent dislocation and weakness in the mortgage market and credit markets generally;

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    Effects of the recent global economic crisis and recession;

    Effects of leverage and indebtedness on our assets and performance;

    Failure to comply with covenants contained in the agreements governing our indebtedness and failure to obtain waivers for future non-compliance;

    Limitations and restrictions contained in instruments and agreements governing our indebtedness;

    Our ability to maintain adequate liquidity, including our ability to raise additional capital and secure additional financing;

    Our ability to maintain compliance with the Listing Rules of NASDAQ and to maintain the listing of our securities on a national securities exchange;

    Our ability to generate earnings or raise capital to maintain positive stockholders' equity;

    Rapid changes in the fair values of our assets, making it difficult for us to comply with our exemption from registration under the Investment Company Act of 1940, as amended;

    Increases in borrowing costs relative to interest received on our assets;

    The costs and effects of the current SEC investigation into certain mortgage securities trading procedures in connection with which the SEC has requested information from the Company and DCM regarding certain mortgage securities trades of ours;

    Changes in strategy, including investment strategy;

    Effect of the current market conditions on management fees and equity cash flows from CDOs;

    Loss of key personnel, most of whom are not bound by employment agreements;

    Our ability to enter into, and the effects of, any potential strategic transaction;

    Adverse changes in accounting principles, tax laws or legal or regulatory requirements;

    Failure to comply with applicable laws and regulations;

    Liability resulting from actual or potential future litigation;

    The costs, uncertainties and other effects of legal and administrative proceedings;

    The costs of obtaining, and the potential inability to obtain, necessary or prudent insurance to cover our business operations;

    The impact of competition; and

    Actions of domestic and foreign governments and the effect of war or terrorist activity.

Relating to our Investment Management Segment:

    Continued reductions in AUM and related reductions in our investment advisory fee revenue, due to such factors as weak investment performance, substantial illiquidity or price volatility in the fixed income instruments in which we invest, loss of key portfolio management or other personnel (or lack of availability of additional key personnel if needed for expansion), reduced investor demand for the types of investment products that we offer or loss of investor confidence due to weak investment performance, volatility of returns, general declines in economic conditions and adverse publicity;

    Non-renewal or early termination of investment management agreements or removal of DCM as investment manager pursuant to the terms of such investment management agreements;

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    Pricing pressure on the advisory fees that we can charge for our investment advisory services;

    Our ability to assume or otherwise acquire additional CDO management contracts on favorable terms, or at all;

    Difficulty in increasing AUM, or efficiently managing existing AUM, due to market-related constraints on trading capacity, inability to hire the necessary additional or replacement personnel or lack of potentially profitable trading opportunities;

    The reduction in CDO management fees or AUM resulting from payment defaults by issuers of the underlying collateral, downgrades of the underlying collateral by the rating agencies or depressed market values of the underlying collateral, all of which may contribute to the triggering of certain structural provisions and/or events of default built into CDOs;

    Our inability, due to market conditions, to launch CDO or other investment vehicles, which provide us with investment management fee revenue;

    Liability relating to our failure to comply with investment guidelines set by our clients or the provisions of the management and other agreements; and

    Changes in laws, regulations or government policies affecting our business, including investment management regulations and accounting standards.

Relating to our Principal Investing Segment:

    Impact of changes in our strategy surrounding the composition and decreased size of our investment portfolio;

    A decrease in the value of our mortgage portfolio resulting in higher counterparty margin calls and decreased liquidity;

    Effects of defaults or terminations under repurchase transactions, interest rate swaps and long term debt obligations;

    The impact on our investments and business strategy resulting from conservatorship of the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the U.S. government;

    Effects of having all of our repurchase transactions concentrated with two counterparties;

    Higher or lower than expected prepayment rates on the mortgages underlying our RMBS portfolio;

    Illiquid nature of certain of the assets in our investment portfolio;

    Increased rates of default on our investment portfolio (which risk rises as the portfolio seasons) and decreased recovery rates on defaulted loans;

    Our inability to obtain the financing needed to leverage our RMBS and other portfolios and our inability to obtain favorable interest rates, margin or other terms on any such financing;

    Flattening or inversion of the yield curve (a decreased differential between long and short term interest rates) reducing our net interest income on our financed mortgage securities positions;

    Our inability to adequately hedge or our decision to not fully hedge our holdings that are sensitive to changes in interest rates;

    Narrowing of credit spreads, thus decreasing our net interest income on future credit investments (such as bank loans);

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    Concentration of investment portfolio in adjustable-rate RMBS;

    Effects of investing in equity and mezzanine securities of CDOs; and

    Effects of investing in the debt of middle market companies.

        These and other factors that could cause the Company's actual results to differ materially from those described in the forward-looking statements are set forth in the Company's annual report on Form 10-K for the year ended December 31, 2009, filed with the SEC on March 23, 2010 (the "2009 Annual Report") and in our other filings with the SEC, which are incorporated by reference herein. Readers of this Proxy Statement are cautioned to consider these risks and uncertainties and not to place undue reliance on any forward-looking statements. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this Proxy Statement except as required by applicable law or regulation.

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RISK FACTORS

        In addition to the other information included or incorporated by reference in this Proxy Statement, you should carefully consider the matters described below relating to the Transactions described in this Proxy Statement in deciding whether to vote for the approval of the proposals presented in this Proxy Statement. Additional risks and uncertainties not presently known to the Company or that are not currently believed to be material, if they occur, also may adversely affect the Transactions described in this Proxy Statement and the results of operations of the Company following the Transactions. For risks related to the Company, please see "Item 1A—Risk Factors" of our 2009 Annual Report, which is incorporated by reference herein.

Bounty may exercise significant influence (or even control) over the Company, including through its ability to designate three of the nine members of the Company's Board.

        If the Transactions are completed, the Common Stock owned by Bounty would represent approximately 40.2% of the Company's Common Stock issued and outstanding as of the Record Date on a fully diluted basis. Assuming Bounty elects to convert the entire $25 million in aggregate principal amount of the Convertible Notes and the Company has not elected to pay PIK Interest, the Common Stock owned by Bounty would represent approximately 56.2% of our Common Stock issued and outstanding as of the Record Date on a fully diluted basis. Assuming Bounty elects to convert the entire principal amount of the Convertible Notes and the Company has elected to pay the maximum permitted amount of PIK Interest, the Common Stock owned by Bounty will represent approximately 59.1% of the outstanding shares of the Company's Common Stock on a fully diluted basis. There are no restrictions on Bounty's ability to vote the Common Stock owned by it. As a result, Bounty may have the ability to significantly influence (or even control) the outcome of any matter submitted for the vote of the Company's stockholders, including the amendment of our organizational documents, acquisitions or other business combinations involving the Company and potentially the ability to prevent extraordinary transactions such as a takeover attempt. As a result of its ownership of the Acquisition Shares and the Conversion Shares, Bounty will therefore have substantial ability (or the absolute power) to block the election of any director nominated by the Nominating Committee as a result of the Majority Voting Bylaw.

        Pursuant to the Stockholders Agreement to be entered into between the Company and Bounty on the Closing Date, the Company has agreed to increase the size of the Board to nine members, and Bounty will have the right to designate three of our directors (one of whom must qualify as an independent director if necessary to ensure that a majority of the members of the Board are independent) so long as Bounty owns at least 25% of the Outstanding Common Stock, two directors so long as Bounty owns at least 15% of the Outstanding Common Stock and one director so long as Bounty owns at least 5% of the Outstanding Common Stock. Bounty will also have the right to appoint one Board observer so long as Bounty owns at least 15% of the Outstanding Common Stock. Upon consummation of the Transactions, the Board will establish a Strategic Committee consisting of two directors designated by Bounty and two directors designated by those independent directors of the Company not designated by Bounty. The Strategic Committee will report and make recommendations to the Board regarding the following and, for matters approved by the Board, will be responsible for effectuating the following: (i) the identification and execution of merger and acquisition opportunities; (ii) setting direction for the Company with our management, including new investment initiatives and investment products; (iii) the hiring, dismissal and scope of responsibility of senior management; and (iv) the integration of the CLO platforms of CNCIM and the Company. As a result, the directors elected to the Board by Bounty may exercise significant influence on matters considered by the Board. Bounty may have interests that diverge from, or even conflict with, those of the Company and its other stockholders.

        Because our Board has passed a resolution exempting the Company from the Maryland Business Combination Act and because our Bylaws exempt the Company from the Maryland Control Share

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Acquisition Act, our stockholders will not enjoy the benefit of certain Maryland stockholder provisions that may restrict the activities of large stockholders under certain circumstances.

The Stock Issuances will have a substantial dilutive effect on the Company's Common Stock, which may adversely affect the market price of the Company's Common Stock.

        When the Transactions are completed, there will be an additional 4,545,455 shares of Common Stock and approximately 4,132,231 shares of Common Stock issuable upon conversion of the Convertible Notes, assuming the Company does not elect to pay any PIK Interest (or approximately 5,208,869 shares assuming the Company elects to pay the maximum permitted amount of PIK Interest), which will be entitled to participate with respect to any dividends or other distributions paid on the Common Stock. When the Transactions are completed, the Common Stock owned by Bounty will represent approximately 40.2% of the issued and outstanding shares of the Company Common Stock as of the Record Date on a fully diluted basis. Assuming Bounty elects to convert the entire $25 million principal amount of the Convertible Notes issued at the Closing and the Company has not elected to pay PIK Interest, the Common Stock owned by Bounty will represent approximately 56.2% of the outstanding Common Stock outstanding as of the Record Date on a fully diluted basis. Assuming Bounty elects to convert the entire principal amount of the Convertible Notes and the Company has elected to pay the maximum permitted amount of PIK Interest, the Common Stock owned by Bounty would represent approximately 59.1% of our Common Stock issued and outstanding as of the Record Date on fully diluted basis.

The market price of the Common Stock may decline as a result of the Stock Issuances.

        We are unable to predict the potential effects of the Stock Issuances on the trading activity and market price of our Common Stock. We have granted registration rights to Bounty for the resale of both the Acquisition Shares and the Conversion Shares. These registration rights would facilitate the resale of such securities into the public market, and any such resale would increase the number of shares of our Common Stock available for public trading. Sales by Bounty of a substantial number of shares of our Common Stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our Common Stock.

If the Transactions are not completed, the price of the Company's Common Stock could decline and our future business and operations could be harmed.

        The Company's and Bounty's obligations to complete the sale of CNCIM to the Company and the Company's and Bounty's obligations to complete the issuance of the Convertible Notes are subject to conditions, many of which are beyond the control of the parties. If the Transactions are not completed for any reason, the Company may be subject to a number of material risks, including the following:

    The Company may be required under certain circumstances to pay Bounty a termination fee of $1.5 million and to reimburse Bounty's legal expenses in connection with the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement;

    The price of our Common Stock may decline;

    The Company may be subject to litigation related to the failure to complete the Transactions, which could require substantial time and resources to resolve;

    Costs related to the Transactions, such as financial advisory, legal, accounting, proxy solicitation and printing fees, must be paid even if the Transactions are not completed;

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    Matters relating to the Transactions (including the negotiation of terms and integration planning) required a substantial commitment of time and resources by the Company management, which could otherwise have been devoted to other opportunities that may have been beneficial to the Company;

    The Company may not be able to realize the expected benefits of the Acquisition of CNCIM.

    If the Transactions are not completed, the Company may be unable to find a partner willing to engage in similar transactions on terms as favorable as those set forth in the Acquisition Agreement and the Convertible Notes Agreement, or at all; and

    If the Company is unable to complete a Credit Enhancing Transaction in a timely fashion, then the Modification Period relating to the New Subordinated Notes will terminate and certain exceptions to the restricted payments covenant contained in the New Indenture relating to the New Subordinated Notes will no longer be available to the Company.

Certain elements of the Transactions may discourage other parties from entering into transactions with the Company.

        While the Acquisition Agreement is in effect, subject to limited exceptions, the Company is prohibited from soliciting, initiating or encouraging any inquiries or proposals from third parties that may lead to a proposal or offer for an acquisition of or other significant transaction with the Company. In addition, if the Board terminates the Acquisition Agreement to accept an alternative transaction proposal or if the Board changes its recommendation of the proposal to approve the Stock Issuances in response to a material event, development or change in circumstance that occurs, arises or becomes known to the Board, then the Company will be obligated to pay a termination fee of $1.5 million to Bounty and reimburse Bounty for its legal expenses in connection with the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement. These provisions, alone or in combination, could discourage other parties from trying to acquire the Company even though those other parties might be willing to offer greater value to the Company than that offered by the Transactions.

        In addition, after the completion of the Transactions, the ownership position and governance rights of Bounty could discourage a third party from proposing a change of control or other strategic transaction concerning the Company.

Some of the Company's directors and executive officers may have interests in the Transactions that may differ from the interests of the Company's stockholders.

        When considering the Board's recommendation to vote in favor of the proposals presented in this Proxy Statement, you should be aware that the Company's directors may have interests in the Transactions that may be different from, or in addition to, your interests. Pursuant to the 2010 Rothschild Compensation Agreement, Peter Rothschild, our Interim Chairman and a member of the Board, may be entitled to receive two discretionary fees, a "Capital Transaction Success Fee" not to exceed $1 million and a "Non-Capital Transaction Success Fee" not to exceed $500,000, which may be paid if certain specified conditions are met. The conditions for payment of the discretionary fees include, but are not limited to, Mr. Rothschild playing an instrumental role in arranging and completing a strategic transaction that substantially increases shareholder value. The Compensation Committee has complete discretion over whether to award the Capital Transaction Success Fee and the Non-Capital Transaction Success Fee and over the amount of the fees and the portion payable as cash or non-cash compensation. The Compensation Committee has not yet finally determined the amount of fees to be paid in connection with consummation of the Transactions. Peter W. May, a member of the Board, is a director of and, indirectly, a significant stockholder in Wendy's/Arby's Group, Inc., which

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owns approximately $48.9 million in principal amount of Series A Notes that are expected to be discharged by the Company for an aggregate amount of approximately $30.8 million plus all unpaid and accrued interest in cash as of the closing date of the Transactions. Jonathan W. Trutter, our Chief Executive Officer and a member of the Board, owns approximately $637,000 in principal amount of Series A Notes that are expected to be discharged by the Company for an aggregate amount of $408,000 plus all unpaid and accrued interest in cash as of the closing date of the Transactions. In consideration of their services rendered as members of the Special Committee, Robert E. Fischer and Stuart I. Oran are each entitled to compensation in an amount equal to $15,000 per month (not to exceed $90,000 total) and Robert B. Machinist, as Chairman of the Special Committee, is entitled to compensation in an amount equal to $45,000 per month (not to exceed $180,000 total). The Compensation Committee has discussed but not finally yet determined to award special bonuses to officers and directors of the Company upon consummation of the Transactions. The Special Committee has advised Bounty that such bonuses, if paid, together with any discretionary fees paid pursuant the 2010 Rothschild Compensation Agreement, would not exceed $1.3 million in the aggregate. See "Proposal No. 1—Approval of the Stock Issuances—Interests of Certain of our Directors and Executive Officers in the Transactions."

The Company may not be able to realize all of the benefits of the Acquisition of CNCIM.

        CNCIM derives its revenues from collateral management agreements with the CNCIM CLOs. Under the collateral management agreements, payment of CNCIM's management fees is generally subject to a "waterfall" structure providing that all or a portion of CNCIM's fees may be deferred if, among other things, the CNCIM CLOs do not generate sufficient cash flows to pay the required interest on the notes they have issued to investors and certain expenses they have incurred. This could occur if the issuers of the collateral underlying the CNCIM CLOs default on or defer payments of principal or interest relating to the collateral. If defaults and delinquencies on the assets underlying the CNCIM CLOs occur, CNCIM could experience declines in and deferrals of its management fees.

        Additionally, all or a portion of CNCIM's management fees from the CNCIM CLOs that it manages may be deferred if the CNCIM CLOs fail to meet their over-collateralization requirements. Pursuant to the "waterfall" structure discussed above, such failures generally require cash flows to be diverted to amortize the most senior class of notes prior to paying a portion of CNCIM's management fees. Defaulted assets, which in some CLOs may include severely-downgraded assets, are generally carried at a reduced value for purposes of the over-collateralization tests. In some CLOs, defaulted assets are required to be carried at their market values for purposes of the over-collateralization tests. In the event of defaults, severe downgrades and depressed market values of the collateral underlying the CNCIM CLOs, the CNCIM CLOs could breach their over-collateralization tests, which would result in declines in and deferrals of CNCIM's management fees.

        The CNCIM CLOs generally contain structural provisions including, but not limited to, over-collateralization requirements and/or market value triggers that are meant to protect investors from deterioration in the credit quality of the underlying collateral pool. In certain cases, breaches of these structural provisions can lead to events of default under the indentures governing the CNCIM CLOs and, ultimately, acceleration of the notes issued by the CNCIM CLO and liquidation of the underlying collateral. In the event of a liquidation of the collateral underlying a CNCIM CLO, CNCIM will lose client AUM and therefore management fees, which could have a material and adverse effect on CNCIM's earnings.

        CNCIM's collateral management agreements allow investors that hold a specified amount of securities issued by the CNCIM CLO to remove CNCIM for "cause," which typically includes CNCIM's violation of the management agreement or the CNCIM CLO's indenture, CNCIM's breach of its representations and warranties under the agreement, CNCIM's bankruptcy or insolvency, fraud or a criminal offense by CNCIM or its employees, and the failure of certain of the CNCIM CLO's

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performance tests. These "cause" provisions may be triggered from time to time with respect to the CNCIM CLOs and as a result CNCIM could be removed as the investment manager of a CNCIM CLO. In the case of certain CNCIM CLOs, CNCIM can also be removed as the investment manager upon its loss of specified key employees.

The Company will incur significant transaction costs in connection with the Transactions.

        The Company expects to incur a number of non-recurring costs associated with combining the operations of two companies. The substantial majority of non-recurring expenses resulting from the Transactions will be comprised of transaction costs, costs of transferring CNCIM's operations, facilities and systems transfer costs, and costs related to formulating integration plans. The Company expects that approximately $3.5 million will be incurred to complete the Transactions (excluding costs relating to (i) the Trust Preferred Exchange, (ii) the transfer of CNCIM's operations, and (iii) facilities and systems transfer costs). Additional unanticipated costs may be incurred in the integration of the two companies' businesses. Although the Company expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow the Company to offset incremental transaction and transaction-related costs over time, this net benefit may not be achieved in the near term, or at all.

The Company must continue to retain, motivate and recruit executive, experts and other key employees, which may be difficult in light of uncertainty regarding the Transactions, and failure to do so could negatively affect the combined company.

        For the Transactions to be successful, during the period before the Transactions are completed, the Company must continue to retain, motivate and recruit executives, experts and other key employees. The Company must be successful at retaining key employees following the completion of the Transactions. Experienced experts and executives are in high demand and competition for their talents can be intense. Employees of the Company may experience uncertainty about their future role with the Company until, or even after, strategies with regard to the combined companies are announced or executed. These potential distractions of the Transactions may adversely affect the ability of the Company to keep executives, experts and other key employees focused on applicable strategies and goals. A failure by the Company to retain and motivate executives, experts and other key employees during the period prior to or after the completion of the Transactions could have a material and adverse impact on our business.

Our existing stockholders will not receive any of the proceeds from the sale of the Convertible Notes.

        The net proceeds from the sale of the Convertible Notes will be paid directly to the Company. The Company intends to use the proceeds of the sale of the Convertible Notes, together with other funds, to finance the Senior Notes Discharge.

The Company's obligation to pay a termination fee under certain circumstances and the restrictions on its ability to solicit or engage in negotiations with respect to other proposals may discourage other transactions which may be more favorable to our stockholders.

        Until the Acquisition is completed or the Acquisition Agreement is terminated, with limited exceptions, the Acquisition Agreement prohibits the Company from soliciting alternative proposals for transactions. If the Board or the Special Committee determines that an unsolicited alternative proposal from a third party is a superior proposal, the Company may terminate the Acquisition Agreement and approve or recommend such superior proposal to the Company's stockholders, or if the Board changes its recommendation of the proposal to approve the Stock Issuances in response to a material change in circumstance, then Bounty may terminate the Acquisition Agreement and in each case the Company will be obligated to pay a termination fee of $1.5 million to Bounty and reimburse Bounty for its

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reasonable and documented out-of-pocket legal fees and expenses in connection with the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement. These provisions could discourage other companies from proposing alternative transactions that may be more favorable to the Company's stockholders than the Transactions.

The Transactions will result in an Ownership Change under Sections 382 and 383 of the Code.

        The issuance of shares of the Company's Common Stock contemplated by the Acquisition Agreement will result in an Ownership Change. As a result of the occurrence of the Ownership Change, our ability to use our NOLs, NCLs and certain recognized built-in losses to reduce our taxable income in a future year will generally be limited, which could adversely affect the Company's liquidity, earnings per share and the trading price of the Company's Common Stock.

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PROPOSAL NO. 1

APPROVAL OF THE STOCK ISSUANCES

The Companies

Deerfield Capital Corp.

        We are a Maryland corporation with an Investment Management segment that manages approximately $9.2 billion of client assets as of January 1, 2010, including bank loans and other corporate debt, RMBS, government securities and ABS. In addition, our Principal Investing segment has an investment portfolio comprised of fixed income investments, including bank loans and other corporate debt and RMBS. On December 21, 2007, we completed our acquisition of D&C pursuant to the Merger. As a result of the Merger, each of D&C and DCM became our indirect, wholly-owned subsidiaries, and we became internally managed. Historically, we had elected to be taxed as a REIT. However, our status as a REIT terminated in 2008 when we converted to a C corporation. We maintain our principal executive offices at 6250 North River Road, 9th Floor, Rosemont, Illinois 60018. Our telephone number is (773) 380-1600.

Bounty Investments, LLC

        Bounty is an investment vehicle managed by Columbus Nova. Founded in 2000, Columbus Nova is a privately-held investment management firm with offices in New York and Charlotte, North Carolina. Bounty is controlled indirectly by Viktor Vekselberg, the Chairman of the Supervisory Committee of the Renova Group. The principal executive offices of Bounty are located at 601 Lexington Avenue, 58th Floor, New York, New York 10022. Bounty's telephone number is (212) 418-9600.

Columbus Nova Credit Investments Management, LLC

        CNCIM, a wholly-owned subsidiary of Bounty, is an investment manager specializing in bank loans. As of December 31, 2009, CNCIM manages approximately $1.8 billion in bank loans and structured product assets in the CNCIM CLOs. Founded in 2006, CNCIM is based in Charlotte, North Carolina. The principal executive offices of CNCIM are located at 200 South Tryon Street, 12th Floor, Charlotte, North Carolina 28202. CNCIM's telephone number is (704) 285-6500.


Principal Reasons for the Transactions

        The Board and the Company's management believe that the Transactions, of which the Stock Issuances are a part, are very compelling as they offer the best opportunity to meet the multiple objectives of the Company's operating strategies and should increase stockholder value. The Acquisition will provide a significant increase in AUM and management fee income, and the related Transactions will result in the elimination of the Company's near-term debt maturities, reduce our total debt and remove a number of restrictive debt covenants. As a result of the transactions with Bounty, we believe the ongoing relationship between the Company and Bounty will result in opportunities for the Company to grow both organically and via acquisitions that may not have otherwise been available to the Company.

        Since March 2008, the Board and the Company's management have been focused on executing operating strategies to increase stockholder value by growing the Company through the acquisition of management contracts for CDOs (including CLOs) and the consolidation of CDO managers. The strategies also included the exploration of strategic transactions that could improve the Company's overall position in the asset management industry. Subsequent to the formulation of the strategies, the Company was able to consolidate two CDO management contracts, Robeco CDO II Limited and Mayfair Euro CDO I B.V., in July 2008 and February 2009, respectively. The Company also engaged in discussions with multiple potential strategic partners in an effort to best position the Company for

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profitable growth. None of these discussions resulted in consummated transactions because we did not believe the opportunities were consistent with the Company's strategic objectives and accordingly were not in the best interests of the Company or its stockholders. However, the Company has successfully negotiated the Acquisition and related Transactions which will add AUM, refinance the Company's capital structure with long-term capital and should allow the Company the flexibility to fund additional acquisitions and support organic growth through raising additional AUM from existing and future clients.

        While the Company successfully returned to profitability for each quarter of 2009, significant challenges face the Company in future years. Prominent among them is the 2012 maturity of the Senior Notes, the increasing interest rate payable on the Senior Notes and the restrictive covenants associated with the Senior Notes. An important aspect of the Transactions is the immediate retirement of the Senior Notes at a significant discount through the issuance of the Convertible Notes with less restrictive covenants and a longer maturity, which significantly increases the Company's financial flexibility going forward. If the holders of the Convertible Notes elect to convert them to Common Stock, the Company's balance sheet will be de-levered significantly and it will have no near term debt maturity or refinancing issues.

        In order to satisfy conditions of the Transactions, the Company was able to negotiate significant economic benefits relating to the exchange of $95 million of the Trust Preferred Securities for the New Subordinated Notes. These benefits include a significant reduction in our interest expenses for five years upon the satisfaction of certain conditions and the elimination of restrictive financial covenants.

        Taken as a whole, the Transactions are transformative for the Company in that we believe they should allow for growth in AUM and revenue, a reduction in interest expense and a significantly stronger balance sheet going forward. We believe these actions create value for the Company's stockholders while providing a firm foundation for future growth and value enhancement.


Principal Terms of the Transactions

The Acquisition and Issuance of the Acquisition Shares

        We announced on March 23, 2010 that we have agreed to acquire all of the outstanding equity interests of CNCIM for the total purchase price of $32.5 million consisting of (i) the issuance of 4,545,455 shares (at an implied price of $5.50 per share) of Common Stock and (ii) $7.5 million in cash payable in five equal installments beginning six months after the Closing Date. The Company has agreed to pay the cost of transferring the operations of CNCIM as estimated on the Closing Date, which are currently estimated to be approximately $1.2 million. Bounty has agreed to pay the costs in excess of such amount. Bounty has also agreed to indemnify the Company for losses relating to CNCIM's operating liabilities arising prior to the Closing Date (other than the employment costs from the signing date for the two CNCIM employees that the Company is hiring, liabilities relating to CNCIM CLO management agreements, liabilities relating to actions taken pursuant to the Transition Services Agreement and the expenses of the transfer of operations described above) for one year from closing and pre-closing tax liabilities for three years from closing subject to a $125,000 deductible and a $5 million cap. The Acquisition Agreement contains representations and warranties made by the Company, Bounty and CNCIM which will not survive the Closing. The Company and Bounty have also agreed to certain limitations on the operation of the Company and CNCIM prior to the Closing and each has agreed not to solicit alternative proposals for transactions. The Closing of the Acquisition is subject to several closing conditions, including, among other things, the approval by the Company's stockholders of the Stock Issuances, the consummation of the Senior Notes Discharge, the absence of certain governmental constraints and the absence of a material adverse effect on the business of CNCIM or the Company. The Acquisition Agreement may be terminated in certain instances, including by the Company to pursue a superior proposal or by Bounty if the Board changes its recommendation. In each case, the Company is required to pay Bounty a termination fee of $1.5 million and reimburse

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Bounty's reasonable and documented out-of-pocket legal fees and expenses in connection with the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement.

        In connection with the Acquisition, the Company and Bounty have agreed to enter into the Stockholders Agreement. Pursuant the Stockholders Agreement, Bounty will have the right to designate three of our nine directors (one of whom must qualify as an independent director if necessary to ensure that a majority of the members of the Board are independent) so long as Bounty owns at least 25% of the Outstanding Common Stock (calculated assuming all Conversion Shares then issuable pursuant to the Convertible Notes are outstanding) arising prior to the Closing Date, two directors so long as Bounty owns at least 15% of the Outstanding Common Stock, and one director so long as Bounty owns at least 5% of the Outstanding Common Stock. Bounty will also have the right to appoint one Board observer so long as Bounty owns at least 15% of the Outstanding Common Stock. See "Information on Our Board of Directors and Its Committees—Bounty Designees."

        In order to give effect to the Board designation rights contained in the Stockholders Agreement, our Board made an election under the Maryland General Corporation Law to provide the Board with the exclusive right to fill vacancies on the board, including vacancies resulting from an increase in the size of the Board and to provide that directors so elected to fill those vacancies serve for the balance of the unexpired term. See "Description of Capital Stock—Subtitle 8."

        Pursuant to the Stockholders Agreement, Bounty has agreed that, until the earlier of the third anniversary of the Closing or the date on which Bounty owns less than 15% of the Outstanding Common Stock, Bounty will not, either alone or together with others, engage in any proxy contest for the election of the Company's directors, or make stockholder proposals with respect to the Company. Bounty has also agreed that as a condition precedent to any sale by it of Common Stock representing 15% or more of the Outstanding Common Stock, Bounty will require the buyer of such Common Stock to agree to abide by these restrictions. Pursuant to the Stockholders Agreement, Bounty has agreed that, until the earlier of the third anniversary of the Closing or the date on which Bounty owns less than 10% of the Outstanding Common Stock, Bounty will not engage in Short Sales (as defined in the Stockholders Agreement) or enter into any swap or other arrangement that transfers to another person any of the economic consequences of ownership of the Common Stock or Subordinated Convertible Notes.

        Pursuant to the Stockholders Agreement, the Company has agreed to adopt (and maintain as long as Bounty owns at least 5% of the Outstanding Common Stock) a Majority Voting Bylaw substantially in the form attached as Annex D to this Proxy Statement providing that any director who does not receive a majority of votes cast in an uncontested election is not elected. Bounty will own approximately 40.2% of the Company's Common Stock issued and outstanding as of the Record Date on a fully diluted basis as a result of the issuance of the Acquisition Shares (and approximately 56.2% of the Company's Common Stock issued and outstanding and of the Record Date on a fully diluted basis if in addition all of the Convertible Notes to be purchased by Bounty at the Closing are converted), and will therefore have substantial ability (or the absolute power) to block the election of any director nominated by the Nominating Committee as a result of the Majority Voting Bylaw.

        The material terms of the Acquisition Agreement are described in the section entitled "Acquisition Agreement" and the material terms of the Stockholders Agreement are described in the section entitled "Stockholders Agreement" below.

The Convertible Notes Agreement and Potential Issuance of the Conversion Shares

        On March 22, 2010, the Company entered into the Convertible Notes Agreement with Bounty pursuant to which Bounty has agreed to purchase for cash $25 million in aggregate principal amount of

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the Convertible Notes, convertible into 4,132,231 Conversion Shares (as such amount may be adjusted in certain events or increased in connection with the payment of PIK Interest) at an initial conversion price of $6.05 per share, subject to adjustment. Together with the Acquisition Shares, the Conversion Shares would represent approximately 56.2% of the issued and outstanding Common Stock on the Record Date on a fully diluted basis after completion of the Transactions. We may issue and sell up to an additional $25 million of Convertible Notes under the Convertible Notes Agreement, subject to Bounty's approval, although we have no agreement with respect to any such additional issuances at this time. The holders of Convertible Notes will have the right, at any time, to convert the principal amount of the Convertible Notes held by such holders into Conversion Shares at the Conversion Rate, which will initially be approximately 165.29 shares per $1,000 principal amount of Convertible Notes (equal to a conversion price of $6.05 per share), and is subject to adjustment from time to time for specified events.

        The total number of shares of Common Stock issuable upon conversion of the Convertible Notes may increase from time to time due to any one or more of the following factors:

    the issuance of up to $25 million in aggregate principal amount of additional Convertible Notes;

    the payment of PIK Interest on Convertible Notes then outstanding (as discussed below); and

    adjustments to the Conversion Rate due to customary anti-dilution adjustments and a price protection provision set forth in the Convertible Notes Agreement.

        Stockholders are being asked to approve the issuance of all Conversion Shares then issuable pursuant to the Conversion Rate as the same may be adjusted throughout the term of the Convertible Notes Agreement pursuant to the foregoing provisions.

        We intend to close the issuance and sale of the Convertible Notes to Bounty simultaneously with the closing of the Acquisition on the Closing Date. All Convertible Notes issued on the Closing Date or thereafter will mature on the date that is seven years and six months following the Closing Date.

        Interest on the Convertible Notes will be payable to the holders of the Convertible Notes quarterly in arrears on each January 1, April 1, July 1 and October 1. The Company will pay interest in cash at a per annum rate starting at 8% and increasing to 11% depending upon the interest period in which interest is due and payable; provided, that the Company may, in its sole discretion and upon notice to the holders of the Convertible Notes, make a PIK Election to pay up to 50% of the interest due in PIK Interest, so long as the payment of PIK Interest would not be prohibited by, or constitute a default under, any other indebtedness or preferred stock (if outstanding) of the Company and its subsidiaries. To the extent that the Company has not made a PIK Election, the Company will pay interest in cash at a per annum rate increasing from 8% to 12% depending upon the interest period in which interest is due and payable. To the extent that the Company has made a PIK Election, then the Company will pay interest at a per annum rate ranging from 10% to 12% depending upon the interest period in which interest is due and payable. Once the Company has made a PIK Election, the PIK Interest Rate will apply to all subsequent periods for which interest is paid.

        On or after the second anniversary of the Closing Date, the Company may redeem all or a part of the Convertible Notes upon not less than 30 nor more than 60 days' notice to the holders of the Convertible Notes at a redemption price equal to 100% of the principal amount of the Convertible Notes plus (i) if the redemption date is on or prior to the third anniversary of the Closing Date, a premium equal to the interest rate then in effect as an additional percentage of principal amount and (ii) if the redemption date is after the third anniversary of the Closing Date but on or prior to the fourth anniversary of the Closing Date, a premium equal to one-half of the interest rate then in effect as an additional percentage of principal amount, in each case, plus accrued and unpaid interest on the Convertible Notes redeemed to the applicable redemption date. The Company is not required to redeem the Convertible Notes.

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        The Convertible Notes Agreement contains customary representations, warranties and covenants by Bounty and the Company, including negative covenants that restrict the Company's ability to effect a consolidation or merger, or sell, transfer, lease or otherwise dispose of all or substantially all of its assets. The consummation of the transactions contemplated by the Convertible Notes Agreement is subject to several closing conditions, including, among other things, the approval of the Stock Issuances by the Company's stockholders, the consummation of the Acquisition, the consummation of the Senior Notes Discharge and the absence of certain governmental constraints.

        The Convertible Notes Agreement contains events of default customary for agreements of its type (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company and its material subsidiaries, all outstanding Convertible Notes will become due and payable immediately without further action or notice. If any other type of event of default occurs and is continuing, then the holders of at least 331/3% in principal amount of the then outstanding Convertible Notes may declare all of the outstanding Convertible Notes to be due and payable immediately.

        The material terms of the Convertible Notes Agreement are described in the section entitled "Convertible Notes Agreement" below.

The Senior Notes Discharge

        In connection with the Merger completed in 2007, Deerfield issued approximately $74 million in principal amount of Senior Notes. The Series A Notes and the Series B Notes bear interest at a variable rate based upon LIBOR and an initial additional margin of 5.0% per year. Commencing January 1, 2010, such additional annual margin of the Senior Notes started to increase by increments of 0.50% per annum in each three-month period for eighteen months and 0.25% per annum for each three-month period thereafter. The Senior Notes also contain various restrictive covenants with respect to the Company and its subsidiaries incurring additional indebtedness or guarantees, creating liens on their assets and certain other matters and in each case subject to those exceptions specified in the note purchase agreements with respect to the Senior Notes.

        On March 22, 2010, the Company and D&C, a wholly-owned subsidiary of the Company, entered into the Senior Notes Discharge Agreement with the holders of the Senior Notes entitling the Company to pay and discharge all of the approximately $48.9 million in aggregate principal amount of Series A Notes outstanding at approximately 64.1% of the principal amount thereof plus accrued interest, and all of the approximately $25.1 million in aggregate principal amount of the Series B Notes outstanding at approximately 94.5% of the principal amount thereof plus accrued interest, or an aggregate discount of approximately 25.6% from the face amount of the Senior Notes plus accrued interest. The purchase price for each of the Series A Notes and Series B Notes is the result of negotiations between the Special Committee and the holders of Series A Notes and the holders of Series B Notes, respectively. The Company is required to consummate the Senior Notes Discharge if the Company completes one or more debt or equity financing transactions or recapitalization transactions (or any combination of debt or equity financing and recapitalization transactions), which result in cash proceeds to the Company or D&C in an aggregate amount of at least $25 million on or prior to July 31, 2010. The issuance of the Convertible Notes, as contemplated by the Convertible Notes Agreement, would trigger this requirement. The Company intends to use the proceeds of the issuance of the Convertible Notes, together with other available funds, to effect the Senior Notes Discharge. Upon consummation of the Senior Notes Discharge all obligations and liabilities of the Company and D&C under the Senior Notes will be released and the intercreditor agreement related to the Senior Notes will be terminated. Certain of our directors and executive officers own or are affiliated with entities that own the Senior Notes. See "Proposal No. 1—Approval of the Stock Issuances—Interests of Certain of our Directors and Executive Officers in the Transactions."

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        Effective upon the date of the Senior Notes Discharge Agreement, the Company released certain of the holders of the Senior Notes from their obligation to indemnify the Company for losses related to certain matters pursuant to the terms of the Merger Agreement (which indemnification obligations would otherwise have remained in effect until June 30, 2010).

        The Senior Notes Discharge Agreement contains customary representations and warranties and certain covenants made solely for the benefit of the parties to the Senior Notes Discharge Agreement. The Senior Notes Discharge will occur simultaneously with the closing of the Acquisition and the issuance of the Convertible Notes.

The Trust Preferred Exchange

        On March 4, 2010, the Company entered into the Exchange Agreement with Taberna, to exchange $95 million of the $120 million aggregate outstanding principal amount of the Trust Preferred Securities previously issued by three wholly-owned indirect subsidiaries of the Company, Deerfield Capital Trust I, Deerfield Capital Trust II and Deerfield Capital Trust III, for $95 million aggregate outstanding principal amount of junior subordinated notes issued by the Company. The Trust Preferred Exchange was completed on March 4, 2010. An aggregate of $25 million in principal amount of Trust Preferred Securities issued by Deerfield Capital Trust I were not exchanged and remain outstanding.

        The New Subordinated Notes issued by the Company in connection with the Trust Preferred Exchange are governed by the New Indenture, dated March 4, 2010, between the Company and The Bank of New York Mellon Trust Company, National Association, as trustee. Pursuant to the New Indenture, the New Subordinated Notes bear a fixed interest rate of 1.00% per annum commencing on April 30, 2010, payable quarterly through the Modification Period, which ends on April 30, 2015 or an earlier date upon which certain specified events occur. Thereafter, the New Subordinated Notes will be subject to a variable interest rate equal to LIBOR plus 2.58% per annum, payable quarterly on the then outstanding principal amount of the New Subordinated Notes until maturity on October 30, 2035. As of December 31, 2009, prior to the Trust Preferred Exchange, the interest rate for the $50 million of Trust I Trust Preferred Securities was 3.78% and the $70 million of Trust II and Trust III Trust Preferred Securities was 2.53%. The $25 million of Trust III Trust Preferred Securities not exchanged in the Trust Preferred Exchange continue to bear interest at a variable rate equal to three-month LIBOR plus 2.25%. The Company may redeem the New Subordinated Notes on or after October 30, 2010 at par for cash or replacement securities acceptable to the holders.

        The New Indenture contains certain restrictive covenants including, among other things, (i) a covenant that requires all asset management activities be conducted by the Company and its subsidiaries, and which permits the Company to sell equity and material assets of DCM, only if all asset management fees and proceeds from equity and asset sales are subject to the limits on restricted payments set forth in the New Indenture, (ii) a debt covenant that permits the Company and DCM to incur indebtedness only if that the proceeds of such indebtedness are subject to the limits on restricted payments set forth in the New Indenture and (iii) a restricted payments covenant that restricts the ability of the Company to pay dividends or make distributions in respect of its equity securities, subject to a number of exceptions and conditions. If the Company fails to complete a Credit Enhancing Transaction within certain time periods, then the Modification Period will terminate and certain exceptions to the restricted payments covenant will no longer be available to the Company. Issuance of the Convertible Notes and consummation of the Senior Notes Discharge will satisfy the requirement that the Company complete a Credit Enhancing Transaction. The New Indenture contains other agreements, covenants, events of default and conditions that are similar to the agreements, covenants, events of default and conditions contained in the indentures for the Trust Preferred Securities. Unlike the indentures for the Trust Preferred Securities, the New Indenture does not contain a covenant requiring the Company to maintain a minimum net worth.

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        In connection with the Trust Preferred Exchange, the Company paid a transaction fee equal to $950,000 and third-party fees and costs incurred in connection with the exchange of approximately $40,000. As a result of the Trust Preferred Exchange with respect to $95 million in aggregate principal amount of the Trust Preferred Securities, the Company's obligation to pay approximately $200,000 in fees associated with a prior amendment was extinguished.


Background of the Acquisition and the Issuance of the Convertible Notes

        The Company's Board and its management periodically review and evaluate potential strategic opportunities to enhance stockholder value. Beginning in early 2008, the Company began to actively pursue potential strategic opportunities in order to maintain and grow its business and increase its liquidity in response to the turmoil in the credit markets and the broader financial markets.

        In March 2008, the Company's Board established a Strategic Relations Committee, a non-standing committee consisting of Peter H. Rothschild, the interim Chairman of the Board, Robert E. Fischer, Robert B. Machinist and Howard Rubin (a director of the Company until May 2009) to explore strategic opportunities to enhance stockholder value and advise the Board on strategic alternatives. In July 2008, the Company engaged UBS Securities LLC ("UBS") to assist in that process. During 2008 and 2009, the Strategic Relations Committee and the Company evaluated a number of strategic opportunities, including consolidation of the Company's business with the businesses of potential strategic partners and a sale of the Company's business to a strategic acquiror. The Strategic Relations Committee and the Company's management engaged in discussions and negotiations with a number of these third parties, but determined that none of the potential strategic opportunities that it had evaluated were in the best interests of the Company or its stockholders. In July 2009, the Company's engagement of UBS expired.

        In November 2008, as part of the Company's ongoing evaluation of potential investment and strategic opportunities, Jonathan Trutter, the Chief Executive Officer of the Company, and Aaron Peck, then a Managing Director of DCM, engaged in preliminary discussions with representatives from Natixis North America, Inc. ("Natixis"), the financial advisor to CNCIM, regarding the possible acquisition of CNCIM's business by the Company. Following receipt of an initial proposal from the Company, representatives of Natixis indicated to Mr. Trutter and Mr. Peck that CNCIM had received other proposals for a possible transaction and that CNCIM's management was not, at that time, interested in proceeding with a transaction with the Company. Subsequently, CNCIM did not enter into any transactions in connection with any proposals received from potential acquirors.

        In mid-September 2009, the Company and CNCIM renewed their discussions regarding a potential transaction involving CNCIM's business. On September 14, 2009, Mr. Trutter met with Glenn Duffy and William Hayes, each a Managing Director of CNCIM, regarding a potential transaction between the Company and CNCIM. On September 15, 2009, the Company executed a confidentiality agreement with CNCIM. On September 16, 2009, Mr. Trutter, on behalf of the Company, delivered to Messrs. Hayes and Duffy a preliminary proposal for the Company to acquire the management agreements of the CNCIM CLOs. At the time, CNCIM was evaluating several other proposals from third parties for the acquisition of its business. The Company's management informed members of the Board that it had been in discussions regarding a potential transaction involving CNCIM and the Board members directed the Company's management to report to the Board regularly regarding any discussions or negotiations with CNCIM.

        On October 6, 2009, Messrs. Hayes and Duffy informed Mr. Trutter that the Company's proposal was one of three proposals that CNCIM was evaluating at that time. Mr. Trutter then had several conversations with Paul Lipari, a partner at Columbus Nova, during which Mr. Lipari indicated that Columbus Nova would be interested in evaluating a strategic transaction with the Company.

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        On October 23, 2009, Mr. Trutter, on behalf of the Company, submitted a final proposal to Mr. Lipari and other representatives of Columbus Nova which contained proposals for three alternative transactions: (i) the acquisition by the Company of the outstanding membership units of CNCIM, a fee sharing arrangement between the Company and Columbus Nova with respect to the CNCIM management fees and an equity investment in the Company by Columbus Nova, (ii) the same transaction but without an equity investment in the Company by Columbus Nova, and (iii) a strategic combination of the Company's business and CNCIM's business. At a meeting on October 23, 2009, Messrs. Trutter, Rothschild and Machinist discussed the Company's proposals with Mr. Lipari and Jason Epstein, a partner at Columbus Nova, and other representatives of Columbus Nova.

        On November 2, 2009 and November 3, 2009, Messrs. Machinist, Rothschild and Trutter, Robert Contreras, the Company's General Counsel, and Frank Straub, the Company's Chief Financial Officer, met with Messrs. Lipari and Epstein and other representatives of Columbus Nova. At that meeting, the Company's management made a presentation to Messrs Lipari and Epstein regarding the Company's business. On November 5, 2009, the Company's management made a presentation to the Board regarding the status of negotiations with CNCIM and Columbus Nova and the Board members directed the Company's management to report to the Board regularly regarding any such negotiations.

        On November 25, 2009, Mr. Lipari and other representatives of Columbus Nova delivered to the Company a preliminary proposal of terms for a strategic transaction involving the Company, Columbus Nova and CNCIM. Columbus Nova's preliminary proposal provided for, among other things, (i) the acquisition by the Company of all of the outstanding membership interests of CNCIM in consideration of $25 million in Common Stock to be issued to Columbus Nova at a price per share based on the average closing stock price over the 30-day period prior to closing, and (ii) an investment in the Company by Columbus Nova of up to $37.5 million in convertible debt or equity (the "Strategic Transaction"). The members of the Board and the Company's management believed that the proposed Strategic Transaction would achieve the Company's goal of acquiring a strategic business and simultaneously strengthen the Company's balance sheet with a significant capital investment by a strategic partner, and on such date, the Board established a Special Committee consisting of Messrs. Machinist and Fischer and Stuart I. Oran, each an independent director of the Company, to consider and evaluate the Strategic Transaction with Columbus Nova. Mr. Machinist was designated to serve as the Chairman of the Special Committee. On December 1, 2009, the Special Committee retained Schulte Roth & Zabel LLP ("SRZ") as its outside legal counsel in connection with the evaluation and potential negotiation of the Strategic Transaction. The Board granted the Special Committee the exclusive power and authority to (1) respond to proposals and consider whether or not to pursue an offer with respect to the potential Strategic Transaction and to review and evaluate the terms and conditions, and determine the advisability, of the potential Strategic Transaction, (2) negotiate the terms and conditions of the potential Strategic Transaction, (3) if the Special Committee deemed it appropriate, determine to reject any proposal or not to pursue an offer, or cease negotiations at any time, with respect to the potential Strategic Transaction or, in the alternative (but subject to applicable law), approve the potential Strategic Transaction, (4) determine whether the potential Strategic Transaction is advisable to, and in the best interests of, the Company and its stockholders, (5) make a recommendation to the full Board of whether or not the Board should approve the potential Strategic Transaction taking into account all appropriate considerations and (6) recommend to the full Board what other action, if any, should be taken by the Company with respect to the potential Strategic Transaction.

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        On December 8, 2009, Latham & Watkins, LLP ("Latham"), outside legal counsel to Columbus Nova, contacted Mr. Contreras to begin preliminary discussions on the proposed Strategic Transaction.

        On December 9, 2009, at a meeting of the Special Committee, SRZ reviewed with the members of the Special Committee their duties under applicable law as directors and members of the Special Committee in connection with the Strategic Transaction and outlined certain policies and procedures for the Special Committee to use in negotiating the Strategic Transaction. The Special Committee authorized the Company's management to provide due diligence information about the Company to Columbus Nova and its representatives and directed management to prepare and present to the Special Committee for review and approval a term sheet in response to Columbus Nova's proposal for the Strategic Transaction reflecting input from the Special Committee. The Special Committee authorized Mr. Rothschild to negotiate the terms of the proposed Strategic Transaction together with a member of the Special Committee at all material negotiations.

        Between December 10, 2009 and December 24, 2009, Messrs. Machinist and Rothschild had several discussions with Columbus Nova regarding the terms of the potential Strategic Transaction. At a meeting of the Special Committee on December 24, 2009, Messrs. Machinist and Rothschild described their discussions with Columbus Nova regarding the terms of the potential Strategic Transaction. At the meeting, the Special Committee reviewed a draft of the proposed term sheet prepared, at the direction of the Special Committee, by the Company's management and SRZ. The term sheet contained the principal terms of the proposed Strategic Transaction, including the structure of the transaction, the consideration for the Common Stock, the terms of the Convertible Notes, board representation and corporate governance, closing conditions, restrictions on the market activity of Columbus Nova in the Company's Common Stock and break-up fees and expenses. Following a discussion of the proposed term sheet, the Special Committee directed SRZ to prepare a revised term sheet based on the discussion to be sent to Columbus Nova. The term sheet sent to Columbus Nova provided for $23 million of Common Stock to be issued to Columbus Nova at a price per share to be agreed, and for Columbus Nova to purchase up to $37.5 million in senior subordinated convertible notes.

        Throughout December 2009 and January 2010, the Company's management and its advisors conducted due diligence of Columbus Nova, its business principals and CNCIM and its management agreements with respect to the CNCIM CLOs, and discussed the status and results of such review with the Special Committee.

        From December 24, 2009 to February 4, 2010, the parties and their respective legal counsel negotiated the term sheet based on the principles outlined in the Columbus Nova's proposal for the Strategic Transaction and the parameters set forth in the December 24, 2010 draft of the term sheet prepared at the direction of the Special Committee. During this time, Messrs. Machinist and Rothschild, the Company's management and SRZ negotiated the term sheet with Messrs. Lipari and Epstein, other members of Columbus Nova's management and Latham, including at three face-to-face negotiating sessions. During this time, Columbus Nova proposed that the parties enter into a letter of intent in connection with the term sheet which, among other things, would provide for an exclusivity period for negotiating the Strategic Transaction and reimbursement of Columbus Nova's transaction fees and expenses. After several discussions among the parties, Columbus Nova withdrew its request that the Company execute a letter of intent in connection with the proposed Strategic Transaction. Mr. Machinist and Mr. Rothschild regularly updated the Special Committee regarding the status of negotiations with Columbus Nova and sought input and direction from the Special Committee on how to proceed with negotiating the term sheet. The term sheet was never executed and no additional drafts were exchanged between the Company and Columbus Nova or their respective advisors after February 4, 2010. The final draft of the term sheet provided for $25 million of Common Stock to be issued to Columbus Nova at a price per share to be agreed, and for Columbus Nova to purchase $25 million in senior subordinated convertible notes.

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        On February 4, 2010 the Special Committee instructed SRZ to prepare drafts of the Acquisition Agreement and the Stockholders Agreement based upon, in part, the provisions contained in the most recent draft of the proposed term sheet.

        On February 22, 2010, the Special Committee met to review drafts of the Acquisition Agreement and the Stockholders Agreement prepared by SRZ. During the meeting, the Special Committee asked questions and received answers from Messrs. Machinist and Rothschild and SRZ regarding the draft of the Acquisition Agreement, including the structure of the Strategic Transaction, the representations and warranties to be made by the Company to Bounty, survival of key representations and warranties made by Bounty and CNCIM, indemnification, the no shop covenant and the provisions for break-up fees and expense reimbursement. The members of the Special Committee also asked questions and received answers regarding the draft of the Stockholders Agreement, including the restrictions on Bounty's ability to transfer Common Stock, Bounty's rights to designate persons to be nominated to the Board, the Company's requirement that the Board maintain a majority of independent directors following the closing of the proposed Strategic Transaction and generally the implication for control of the Company under the proposed terms. Following the discussion, the members of the Special Committee directed SRZ to prepare revised drafts of the Acquisition Agreement and the Stockholders Agreement based upon the discussion to be sent to Columbus Nova and Latham.

        On February 24, 2010, SRZ sent the drafts of the Acquisition Agreement and the Stockholders Agreement to Columbus Nova and Latham. On the same day Latham sent drafts of the Convertible Notes Agreement and the Registration Rights Agreement to the Company and SRZ.

        On March 1, 2010, Latham sent revised drafts of the Acquisition Agreement and the Stockholders Agreement to the Company and SRZ.

        On March 1, 2010 and March 2, 2010, at the direction of the Special Committee, Messrs. Machinist, Rothschild, Trutter, Contreras, Straub and SRZ met with Messrs. Lipari and Epstein, other members of Columbus Nova's management and Latham to negotiate the drafts of the Acquisition Agreement, the Stockholders Agreement, the Convertible Note Agreement, the Registration Rights Agreement and the Transition Services Agreement (the "Principal Documents"). During the meetings, the parties negotiated, among other things, (i) the scope and nature of the representations and warranties to be made by Bounty and CNCIM to the Company and to be made by the Company to Bounty, (ii) the amount of the termination fee payable by the Company to Bounty upon the occurrence of specified events, (iii) the ability of the Company to enter into alternative transactions after the execution of the Acquisition Agreement, (iv) tax issues, (v) the payment of deferred consideration to Bounty, (vi) Bounty's right to designate persons to be nominated as members of the Board, (vii) the payment of PIK Interest by the Company with respect to the Convertible Notes and (viii) anti-dilution protection with respect to the Convertible Notes.

        During the first two weeks of March, the Company, Columbus Nova and their respective legal counsel continued to review and negotiate the Principal Documents. On March 17, 2010, the Special Committee met to review the status of the Strategic Transaction and the process for finalizing the documentation for the Strategic Transaction. Following the meeting of the Special Committee, Messrs. Machinist and Rothschild, at the direction of the Special Committee, discussed with Messrs. Lipari and Epstein the valuation of the Company's Common Stock proposed to be issued to Bounty in connection with the Strategic Transaction. Messrs. Machinist and Rothschild indicated that the then-current valuation of the Common Stock in the Strategic Transaction was viewed by the Special Committee as inadequate. Following the discussion, Columbus Nova and Bounty agreed to increase the consideration for Common Stock to an implied price of $5.50 per share.

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        On March 19, 2010, at a joint meeting of the Board and the Special Committee, the Company's management presented its preliminary financial analysis of the proposed Strategic Transaction, including the assumptions and methodology used in preparation thereof and the rationale for entering into the proposed Strategic Transaction.

        At a meeting on March 21, 2010, the members of the Special Committee received the final written presentation of management's analysis of the financial aspects of the Strategic Transaction and its valuation. Prior to the meeting, the Special Committee had been furnished with written summaries of the principal terms of the Principal Documents and with the then-current drafts of all such documents. After discussion and deliberation based upon the information presented and considered during its evaluation of the proposed Strategic Transaction, the Special Committee, by unanimous vote, determined that each of the Principal Documents and the transactions contemplated thereby were advisable and in the best interests of the Company and its stockholders and recommended that the Board authorize each agreement and the transactions contemplated thereby and further recommended that the Board recommend that the stockholders of the Company approve the Stock Issuances.

        On March 21, 2010, the Board met to review the proposed terms and financial aspects of the Strategic Transaction. Prior to the meeting, the Board had been furnished with written summaries of the principal terms of the Principal Documents and with the then-current drafts of all such documents. After discussion and deliberation based upon the information presented and considered during its evaluation of the proposed Strategic Transaction, the Board, by unanimous vote other than that of Peter W. May, who did not participate in the deliberations or vote in view of his interest in the discharge of the Senior Notes, determined that the Principal Documents and the transactions contemplated thereby are advisable and in the best interests of the Company and its stockholders and recommended that the stockholders of the Company approve the Stock Issuances.

        On March 22, 2010, the Company entered into the Acquisition Agreement with Bounty and CNCIM and the Convertible Notes Agreement with Bounty.


Acquisition Agreement

        The following is a summary of selected provisions of the Acquisition Agreement, pursuant to which the Company will acquire all of the outstanding equity interests of CNCIM in consideration of the issuance of shares of the Company's Common Stock to Bounty. While the Company believes this description covers the material terms of the Acquisition Agreement, it may not contain all of the information that is important to you and is qualified in its entirety by reference to the Acquisition Agreement, which is attached as Annex A to this Proxy Statement. We urge you to read the entire Acquisition Agreement carefully.

Consideration

        Pursuant to the Acquisition Agreement, we have agreed to acquire all of the outstanding equity interests of CNCIM for the total purchase price of $32.5 million consisting of (i) the issuance of 4,545,455 shares (at an implied price of $5.50 per share) of Common Stock and (ii) deferred payments totaling $7.5 million in cash payable in five equal installments beginning six months after the Closing Date.

        Following the consummation of the transactions contemplated by the Acquisition Agreement, the Company and Bounty will adjust the amount of consideration paid by the Company at the Closing for CNCIM to reflect the actual cost of transferring the operations of CNCIM. If the actual cost is less than the estimated cost at the Closing, then the Company will pay to Bounty an amount equal to such

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difference in cash. If the actual cost is greater than the estimated cost at the Closing, then Bounty will pay to the Company an amount equal to such difference in cash.

Representations and Warranties

        The Acquisition Agreement contains representations and warranties made by the Company, CNCIM and Bounty as of specific dates. The representations and warranties contained in the Acquisition Agreement have been negotiated with the principal purpose of establishing the circumstances in which the parties may have the right not to complete the transactions contemplated by the Acquisition Agreement, or a party may have the right to terminate the Acquisition Agreement if the representations and warranties of another party prove to be untrue due to a change in circumstance or otherwise, rather than establishing matters as facts. Some of these representations and warranties are subject to specified exceptions and qualifications, including exceptions and other information contained in confidential disclosure schedules that the parties exchanged in connection with signing the Acquisition Agreement, which are not included in this Proxy Statement. In addition, some of these representations and warranties are qualified as to "materiality" and "material adverse effect." Moreover, information concerning the subject matter of such representations and warranties may change after the date of the Acquisition Agreement, which subsequent information may or may not be fully reflected in the Company's public disclosures. Accordingly, you should not look to such representations and warranties for information about the Company, Bounty or CNCIM.

        The Acquisition Agreement contains customary representations and warranties by CNCIM, limited representations and warranties by Bounty, and customary representations and warranties by the Company.

        The representations and warranties by CNCIM and Bounty, relate to a number of matters, including the following:

    Organization and good standing of Bounty and CNCIM;

    Authority to enter into the Acquisition Agreement and the documents related thereto and the enforceability of the Acquisition Agreement and the documents related thereto against Bounty and CNCIM;

    Bounty's ownership of CNCIM and the capitalization of CNCIM;

    That the Acquisition Agreement and the documents related thereto do not violate the organizational documents of Bounty, CNCIM or the CNCIM CLOs; do not conflict with or violate any laws applicable to Bounty, CNCIM or the CNCIM CLOs; do not require consent under or conflict with any other agreement of Bounty, CNCIM or the CNCIM CLOs; and do not result in the creation of any lien upon the properties or assets of Bounty, CNCIM or the CNCIM CLOs;

    Compliance with laws;

    Financial statements;

    Absence of certain changes and events since December 31, 2009;

    Absence of undisclosed liabilities and no indebtedness for borrowed money;

    Compliance with specific laws applicable to CNCIM regarding the provision of investment management services;

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    The CNCIM CLO management agreements and CNCIM CLOs for which CNCIM is the manager;

    Material contracts;

    Intellectual property owned or used by CNCIM;

    Absence of undisclosed litigation;

    Tax matters;

    Affiliate transactions;

    Employee benefit plans;

    Employment matters;

    Absence of misleading or omissions of material information;

    Independent investigation; and

    Brokers' and finders' fees related to the transactions contemplated by the Acquisition Agreement.

        The representations and warranties by the Company relate to a number of matters, including the following:

    Organization and good standing of the Company;

    Authority to enter into the Acquisition Agreement and the documents related thereto and the enforceability of the Acquisition Agreement and the documents related thereto against the Company;

    The vote of the Company's stockholders necessary to approve the Stock Issuances;

    Subsidiaries of the Company;

    Capitalization of the Company;

    Compliance with laws;

    That the Acquisition Agreement and the documents related thereto do not violate the organizational documents of the Company; do not conflict with or violate any laws applicable to the Company; do not require consent under or conflict with any other agreements of the Company; and do not result in the creation of any lien upon the properties or assets of the Company and its subsidiaries;

    SEC filings and financial statements;

    Absence of certain changes and events since December 31, 2009;

    Absence of undisclosed liabilities;

    Compliance with specific laws applicable to the Company regarding the provision of investment management services;

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    The Company's CLO management agreements and the CLO issuers for which it is the manager;

    Material contracts;

    Absence of undisclosed litigation;

    Tax matters;

    Employee benefit plans;

    Employment matters;

    Absence of misleading or omissions of material information;

    Issuance of shares of our Common Stock in connection with the Acquisition;

    Independent investigation;

    Absence of the granting of voting rights or registration rights;

    Other investment advisory activities;

    Absence of investment adviser relationships regarding private investment funds;

    Brokers' and finders' fees related to the transactions contemplated by the Acquisition Agreement; and

    Affiliate transaction.

Material Adverse Effect

        A number of the representations and warranties by Bounty and CNCIM with respect to CNCIM are qualified by a "Manager Material Adverse Effect" standard. "Manager Material Adverse Effect" is defined to mean any effect, event, circumstance or change that (i) is or would be reasonably likely to be, individually or in the aggregate, materially adverse to the business, financial condition or results of operations of CNCIM, it being agreed that in the event of a cancellation of, notice of cancellation of, termination of, removal for cause of CNCIM as the collateral manager (including pursuant to any "key person" provision) under, or the acceleration, liquidation or optional redemption of securities issued by any CNCIM CLOs with respect to management agreements between CNCIM and such CNCIM CLOs, it shall be deemed to be materially adverse to CNCIM, taken as a whole, only if the loss of the expected future revenue stream would decrease the net present value of the management agreements between CNCIM and the CNCIM CLOs in excess of $3 million and for purposes of this calculation, the net present value of the management fees will be based upon a methodology set forth in a schedule previously delivered to the Company or (ii) would prevent the consummation of the Transactions contemplated by the Acquisition Agreement, other than in the case of events in clause (i) the following:

    (a)
    Changes in general economic, political or financial market conditions (including conditions in the stock markets or other capital markets and changes in interest or exchange rates);

    (b)
    Changes resulting from a change in applicable law or accounting regulation or principle after the date of the Acquisition Agreement;

    (c)
    Changes resulting from the failure of CNCIM to meet any projections, forecasts, revenues or earning predictions, estimates or budgets for any period prior to, on or after the date of the Acquisition Agreement it being understood that the underlying circumstances, events or reasons giving rise to any such change can be taken into account in determining whether a Manager Material Adverse Effect has occurred or would reasonably be expected to occur; or

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    (d)
    An outbreak or escalation of war, armed hostilities, acts of terrorism, political instability, natural catastrophe or other calamity, crisis or emergency.

        In the case of (a), (b), and (d), such changes shall only be excluded to the extent that they do not have a disproportionate adverse effect on the business, financial condition or results of operations of CNCIM as compared to other persons engaged in the investment management business.

        Additionally, a few of the representations and warranties of the Company are qualified by a "Company Material Adverse Effect" standard. The definition of Company Material Adverse Effect is substantially identical to the definition of Manager Material Adverse Effect, except that the quantifiable loss threshold for the Company is $6 million.

Conduct of CNCIM's Business and the Company's Business Pending Consummation of Transactions

        CNCIM and the Company have each agreed that during the period from the signing of the Acquisition Agreement, until the earlier of the closing or the termination of the Acquisition Agreement, CNCIM, on the one hand, and the Company, on the other hand, will, among other things, use commercially reasonable efforts to maintain their businesses and duly comply with all applicable laws.

        CNCIM has also agreed that, during the period from the signing of the Acquisition Agreement until the earlier of the closing or the termination of the Acquisition Agreement, except as specifically allowed under the Acquisition Agreement, any action by the Company or one of its subsidiaries taken on behalf of CNCIM pursuant to the Transition Services Agreement or consented to in writing by the Company (which consent will not be unreasonably withheld or delayed), CNCIM will not:

    Amend CNCIM's governing documents;

    Incur indebtedness or liens (other than permitted liens);

    Issue, sell, authorize, pledge or otherwise encumber any equity interests of CNCIM or any class of securities convertible into equity interests of CNCIM;

    Repurchase, redeem or otherwise acquire equity interests of CNCIM;

    Acquire, purchase, license or lease any corporation or other business organization or any material assets or equity interests thereof;

    Transfer, sell, license, lease, abandon or otherwise dispose of any of CNCIM's material assets other than non-exclusive licenses or intellectual property in the ordinary course of business;

    Change in any material respect any method of accounting principles or accounting practices;

    Terminate, enter into, amend, assign or waive any material rights or claims under any management agreement with a CNCIM CLO or any material contract;

    Waive, reduce or defer any fee payable under any management agreement with a CNCIM CLO or any indenture related to such CNCIM CLOs;

    Consent to any amendment or supplement to any document of any CNCIM CLO;

    Merge or consolidate CNCIM with or into any corporation or business organization or have CNCIM enter into any joint venture or partnership agreement or similar contract;

    Except as required by law or existing benefit plans, (i) adopt, terminate or amend any benefit plan or any other bonus, profit sharing, deferred compensation, incentive or equity plan for the benefit of employees, former employees, consultants, members or directors of CNCIM, (ii) grant any material increase in the compensation of CNCIM employees or any increase in the compensation payable or to become payable to any CNCIM member, officer or director,

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      (iii) enter into, establish, amend, terminate or renew an employment, bonus, severance, termination pay, retirement or other similar agreement or arrangement that would trigger any key man clauses in any agreement with a CNCIM CLO or (iv) accelerate the vesting or payment of compensation or benefits payable to any current or former employees, consultants, members or directors of CNCIM;

    Adopt or enter into a plan of liquidation, dissolution or other restructuring of CNCIM;

    Settle litigation or commit to settle litigation in excess of $50,000 so long as the settlement does not materially restrict the Company's business (including CNCIM's business post-closing);

    Declare or pay dividends or distributions;

    Enter into any new line of business;

    Form any subsidiary; or

    Authorize, agree or commit to do any of the foregoing.

        The Company has also agreed that, during the period from the signing of the Acquisition Agreement until the earlier of the closing or the termination of the Acquisition Agreement, except as specifically allowed under the Acquisition Agreement or consented to in writing by Bounty (which consent will not be unreasonably withheld or delayed), the Company will not, and will cause its subsidiaries not to:

    Amend the Company's governing documents;

    Incur indebtedness or liens (other than permitted liens), except for (i) indebtedness incurred in the ordinary course of business, (ii) indebtedness incurred in connection with the refinancing of the subordinated notes issued by Deerfield Capital Trust I, and (iii) indebtedness incurred in connection with financing of investment positions in financial assets and related hedging activity;

    Issue, sell, authorize, pledge or otherwise encumber Common Stock or any equity interests in the Company's subsidiaries or any class of securities convertible into such interests;

    Repurchase, redeem or otherwise acquire any Common Stock;

    Acquire, purchase, license or lease any corporation or other business organization or any material assets or equity interests thereof for consideration, individually or in the aggregate, in excess of $250,000 (other than non-exclusive licenses or intellectual property in the ordinary course of business);

    Transfer, sell, license, lease, abandon or otherwise dispose of any material assets other than financial assets in the ordinary course of business, assets not being transferred to the Company's new leased premises and non-exclusive licenses of intellectual property in the ordinary course of business;

    Change in any material respect any method of accounting principles or accounting practices;

    Waive, reduce or defer any fee payable under any management agreement with a CLO issuer managed by the Company or one of its affiliates (the "Company CLO Issuers") or any indenture related to the Company CLO Issuers except for a negotiated list of agreements;

    Consent to any amendment or supplement to any document of any Company CLO Issuer;

    Terminate, enter into, amend, assign or waive any material rights or claims under any management agreement with a Company CLO Issuer or material contract;

    Merge or consolidate with or into any corporation or other business organization or enter into any joint venture or partnership agreement or similar contract;

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    Except as required by law or existing benefit plans and special bonuses that may be paid to officers and directors of the Company upon consummation of the Transactions (which bonuses have not yet been finally determined or awarded) in amount not to exceed $1.3 million in the aggregate (including any discretionary fees paid pursuant to the 2010 Rothschild Compensation Agreement), (i) adopt, terminate or amend any benefit plan or any other bonus, profit sharing, deferred compensation, incentive or equity plan for the benefit of employees, former employees, consultants, members or directors of the Company, (ii) grant any material increase in the compensation of employees or any increase in compensation payable or to become payable to any officer or director, (iii) enter into, establish, amend, terminate or renew any employment, bonus, severance, termination pay, retirement or other similar agreement or arrangement or (iv) accelerate the vesting or payment of compensation or benefits payable to any current or former employees, consultants, or directors of the Company;

    Adopt or enter into a plan of liquidation, dissolution or other restructuring of the Company;

    Settle litigation or commit to settle litigation in excess of $50,000 so long as the settlement does not materially restrict the Company's business;

    Declare or pay dividends or distributions other than cash dividends from any wholly-owned subsidiary of the Company to the Company or another wholly-owned subsidiary of the Company;

    Enter into any new line of business; or

    Authorize, agree or commit to do any of the foregoing.

No Solicitation

        Bounty will not, will not permit its directors, officers and employees to, and shall use commercially reasonable efforts to cause its investment bankers, financial advisors, attorneys, accountants and other representatives not to, directly or indirectly:

    Discuss, negotiate, undertake, initiate, authorize, recommend, propose or enter into, any alternative proposal;

    Solicit or knowingly encourage or facilitate, negotiations or submissions of proposals or offers in respect of an alternative proposal;

    Furnish or cause to be furnished, to any person, any confidential information concerning the business, operations, properties or assets of CNCIM or the CNCIM CLOs in connection with an alternative proposal; or

    Execute or enter into any agreement, understanding, letter of intent or arrangement with respect to an alternative proposal.

        The Company will not, will not permit its directors, officers and employees to, and shall use commercially reasonable efforts to cause its investment bankers, advisors, attorneys, accountants and other representatives not to, directly or indirectly:

    Initiate, solicit, facilitate or encourage (including by way of providing information) the submission of any inquiries, proposals or offers or any other efforts or attempts that constitute, or may reasonably be expected to lead to, any alternative proposal or engage in, participate in or continue any discussions or negotiations with respect thereto or otherwise cooperate with or assist or facilitate any such inquiries, proposals, offers, discussions or negotiations;

    Approve or recommend, or publicly propose to approve or recommend, any alternative proposal;

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    Furnish or cause to be furnished, to any person, any non-public information concerning the business, operations, properties or assets of the Company or the Company CLO Issuers in connection with an alternative proposal;

    Withdraw, change, amend, modify or qualify, or propose publicly to withdraw, change, amend, modify or qualify, in a manner adverse to Bounty or CNCIM, or otherwise make any statement or proposal inconsistent with, the Board's recommendation to the Company's stockholders to approve the Stock Issuances;

    Enter into any agreement, understanding, letter of intent, agreement in principle or other agreement or understanding relating to an alternative proposal or arrangement with respect to an alternative proposal or enter into any agreement or agreement in principle requiring the Company to abandon, terminate or fail to complete the transactions contemplated hereby or breach its obligations hereunder; or

    Resolve, propose or agree to do any of the foregoing.

        The Company may furnish information to and negotiate with any person making an unsolicited alternative proposal if:

    The Board or the Special Committee has determined in good faith after consultation without its financial and legal advisors that the alternative proposal constitutes a superior proposal;

    After consultation within its legal advisor, the Board determines in good faith that such action is necessary to comply with its fiduciary duties to the Company's stockholders under applicable law; and

        The Company has informed Bounty promptly (and in no event later than 24 hours after) following the taking of such action, and thereafter the Company must keep Bounty reasonably informed of the status and material terms and conditions of such alternative proposal.

        An "alternative proposal" means any inquiry, proposal or offer from any person or group of persons other than the parties to the Acquisition Agreement relating to any direct or indirect:

    merger, consolidation, other business combination or similar transaction of either CNCIM or the Company;

    sale, lease or other disposition directly or indirectly by merger, consolidation, business combination, share exchange, joint venture, or otherwise, of assets of either CNCIM or the Company;

    issuance or sale or other disposition of equity interests representing 10% or more of the voting power (including equity interests issuable upon conversion or exercise of any other security) of either CNCIM or the Company;

    transaction or series of transactions in which any person will acquire beneficial ownership or the right to acquire beneficial ownership or any group (as defined in Section 13(d) of the Exchange Act) has been formed which beneficially owns or has the right to acquire beneficial ownership of, equity interests representing 10% or more of the voting power of either CNCIM or the Company; or

    any combination of the foregoing.

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        A "superior proposal" means any unsolicited written alternative proposal (except that references to 10% shall be 30% for this purpose) with respect to the Company that:

    The Board determines in good faith (after consultation with its financial and legal advisors) is reasonably likely to be consummated; and

    Is on terms that the Board determines in good faith (after consultation with its financial and legal advisors) is more favorable, from a financial point of view, to the Company's stockholders than the consummation of the transactions contemplated by the Acquisition Agreement after giving effect to all adjustments to the terms thereof which may be offered by Bounty.

        The Board may publicly withdraw, change or modify, in a manner adverse to Bounty, all or any portion of the Board's recommendation to the Company's stockholders to approve the Stock Issuances in response to the Company's receipt of an alternative proposal or a material development other than an alternative proposal or superior proposal that arises or becomes known to the Board or the Special Committee following the date of the Acquisition Agreement and that has not occurred or was unknown to the Board or the Special Committee as of the date of the Acquisition Agreement, if the Board determines in good faith after consultation with its legal and financial advisors that the failure to take such action would be inconsistent with its fiduciary duties to the Company's stockholders and director duties under applicable law. If the Board or the Special Committee determines in good faith, in response to an alternative proposal, that such proposal is a superior proposal, the Company may terminate the Acquisition Agreement and approve or recommend such superior proposal to the Company's stockholders, and enter into an agreement with respect to a superior proposal, or if the Board changes its recommendation of the proposal that the Company's stockholders approve the Stock Issuances in response to a material development that arises or becomes known to the Board or the Special Committee, then Bounty may terminate the Acquisition Agreement and in each case the Company will be obligated to pay a termination fee to Bounty of $1.5 million plus Bounty's reasonable and documented out-of-pocket legal fees and expenses in connection with the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement.

        The Board may not change its recommendation of the proposal to approve the Stock Issuances or terminate the Acquisition Agreement in response to a superior proposal unless (i) the Company has not breached its non-solicitation covenants, (ii) the Company has provided at least five business days prior written notice of its intention to take such action, which notice with respect to termination of the Acquisition Agreement will specify the material terms and conditions of such superior proposal and include a copy of the relevant transaction agreement with the party making such superior proposal, and which notice with respect to a change of recommendation will describe the material development other than an alternative proposal or superior proposal that arises or becomes known to the Board or the Special Committee following the date of the Acquisition Agreement, and that has not occurred or was unknown prior to the date of the Acquisition Agreement, and (iii) prior to changing its recommendation of the proposal to approve the Stock Issuances or terminating the Acquisition Agreement in response to a superior proposal, the Company will during such five business day period negotiate with Bounty in good faith, to the extent Bounty desires to negotiate, to make such adjustments in the terms and conditions of the Acquisition Agreement so that the Board no longer deems it necessary to effect a change of recommendation or such superior proposal ceases to be a superior proposal, as applicable.

Stockholders Meeting

        The Acquisition Agreement requires the Company to take all action necessary to call and hold a meeting of its stockholders to approve the Stock Issuances. The Company is required to hold the meeting even if the Board has changed or withdrawn its recommendation that stockholders approve the

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Stock Issuances. However, the Company is not required to hold the meeting if the Acquisition Agreement is terminated. The Board is required to take all action that is reasonably necessary or advisable to secure stockholder approval of the Stock Issuances and, subject to its fiduciary duties under applicable law, to recommend that the Company's stockholders vote in favor of such issuances. The Company may adjourn or postpone the stockholders meeting to the extent necessary to supplement or amend the Proxy Statement, or if, as of the time for which the stockholders meeting is originally scheduled, there are insufficient shares of Common Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the meeting.

Market Activity

        Bounty agrees that from the date of the Acquisition Agreement until the earlier of the Closing Date or termination of the Acquisition Agreement, Bounty will not, and will not permit any person acting on behalf of Bounty to, engage in short sales, derivatives, participations, swaps or other arrangements that transfer to another person, in whole or in part, any of the economic consequences of ownership of the Common Stock.

CNCIM CLOs

        For so long as an affiliate of the Company is the collateral manager of a CNCIM CLO, Bounty will not, and will cause its affiliates not to, take on any action to:

    Cause the removal of an affiliate of the Company as collateral manager of such CNCIM CLO or terminate the applicable CNCIM CLO management agreement; or

    Vote in favor of an optional redemption of any securities issued by such CNCIM CLO.

Conditions to Closing

    Conditions to the Obligations of the Company

        The Company's obligation to complete the transactions contemplated by the Acquisition Agreement will be subject to the satisfaction of conditions, any one or more of which may be waived by the Company, including:

    The Company's stockholders have approved the Stock Issuances;

    No order, injunction or decree has been issued by any court or agency of competent jurisdiction, and no other legal restraint or prohibition preventing the consummation of the transactions contemplated by the Acquisition Agreement, is in effect;

    No law has been enacted, entered, promulgated or enforced by any governmental authority that prohibits or makes illegal the consummation of the transactions contemplated by the Acquisition Agreement;

    All governmental approvals necessary for the consummation of the transactions contemplated by the Acquisition Agreement have been obtained, except for those that, if not obtained, would not reasonably be expected to have a material adverse effect;

    The representations and warranties of Bounty and CNCIM are true and correct as of the closing of the Acquisition Agreement, without giving effect to "materiality" or "material adverse effect" limitations except to the extent that the failure of the representations and warranties to be so true and correct as of the closing of the Acquisition Agreement would not have, individually or in the aggregate, a material adverse effect on CNCIM, except that the following representations and warranties with respect to the following matters shall be true and correct in all respects, in

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      each case at and as of the date of the Acquisition Agreement and at and as of the Closing Date as if made at and as of such time (or if expressly made as of a specific date, as of that date):

      Organization;
      Authorization; enforceability; and
      Title; capitalization and subsidiaries.

    Bounty and CNCIM have performed and complied in all material respects with all covenants and other agreements required to be performed or complied with by them prior to or on the Closing Date;

    No Manager Material Adverse Effect has occurred from the date of the Acquisition Agreement to the Closing Date;

    CNCIM shall not have received notice from any CNCIM CLO or investor in a CNCIM CLO that it may cause, either individually or collectively with others, a redemption of any securities issued by such CNCIM CLO or termination of any CNCIM CLO management agreement;

    The issuance of the Convertible Notes shall be completed contemporaneously with the Closing except to the extent that the failure to consummate the issuance of the Convertible Notes results from a breach of the Convertible Notes Agreement by the Company or a failure by the Company to satisfy any conditions therein;

    Bounty shall have provided a certificate that it is not a foreign person for purposes of Section 1445 of the Code;

    The Company shall have consummated or caused to be consummated the Senior Notes Discharge in an aggregate amount not greater than $55 million plus accrued interest thereon to the Closing Date;

    The Company shall have received executed copies of the Stockholders Agreement and the Registration Rights Agreement; and

    The employment agreements between CNCIM and each of William Hayes and Glenn Duffy shall be in full force and effect.

    Conditions to the Obligations of Bounty and CNCIM

        The obligation of Bounty and CNCIM to complete the transactions contemplated by the Acquisition Agreement will be subject to the satisfaction of conditions, any one or more of which may be waived by Bounty, including:

    The Company's stockholders have approved the Stock Issuances;

    No order, injunction or decree has been issued by any court or agency of competent jurisdiction, and no other legal restraint or prohibition preventing the consummation of the transactions contemplated by the Acquisition Agreement, is in effect;

    No law has been enacted, entered, promulgated or enforced by any governmental authority that prohibits or makes illegal the consummation of the transactions contemplated by the Acquisition Agreement;

    All governmental approvals necessary for the consummation of the transactions contemplated by the Acquisition Agreement have been obtained, except for those that, if not obtained, would not reasonably be expected to have a material adverse effect;

    The representations and warranties of the Company are true and correct as of the closing of the Acquisition Agreement, without giving effect to "materiality" or "material adverse effect"

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      limitations and except for those representations and warranties that address matters only as of a particular date which must be true and correct as of that date, and except to the extent that the failure of the representations and warranties to be so true and correct as of the closing of the Acquisition Agreement would not have, individually or in the aggregate, a material adverse effect on the Company, except that the following representations and warranties of the Company shall be true and correct in all respects, in each case at and as of the date of the Acquisition Agreement and at and as of the Closing Date as if made at and as of such time (or if expressly made as of a specific date, as of that date):

      Organization;
      Authorization; enforceability;
      Capitalization;
      Federal taxes solely with respect to NOLs; and
      State taxes solely with respect to NOLs will be true and correct in all material respects.

    The Company has performed and complied in all material respects with all covenants and other agreements required to be performed or complied with by it prior to or on the Closing Date;

    No Company Material Adverse Effect has occurred from the date of the Acquisition Agreement to the Closing Date;

    The Company has obtained the consents relating to the Company CLO Issuers representing more than 85% of the net present value of Company CDO management fees in the aggregate (the calculation of which will be based upon the methodology set forth in a schedule delivered by the Company to Bounty);

    The issuance of the Convertible Notes shall have been completed contemporaneously with the Closing except to the extent that the failure to consummate the issuance of the Convertible Notes results from a breach of the Convertible Notes Agreement by Bounty or a failure by Bounty to satisfy any conditions therein;

    The Company shall have consummated or caused to be consummated the Senior Notes Discharge in an aggregate amount not greater than $55 million plus accrued interest thereon to the Closing Date;

    Bounty shall have received executed copies of the Stockholders Agreement and the Registration Rights Agreement;

    The Common Stock and the Conversion Shares shall have been approved for listing on the NASDAQ, subject to official notice of issuance; and

    The Company shall have obtained all necessary permits and qualifications, if any, or secured an exemption therefrom, required by any state securities laws prior to the issuance of shares of the Company's Common Stock, and such authorization, approval, permit or qualification shall be effective at the closing.

Termination of the Acquisition Agreement and Termination Fees

        The Acquisition Agreement may be terminated at any time prior to the consummation of the transactions contemplated by the Acquisition Agreement in any of the following ways:

    By written consent of the Company and Bounty;

    By either the Company or Bounty if one or more of the conditions set forth in the Acquisition Agreement has not been fulfilled on or before July 31, 2010; so long as the party seeking to terminate has not failed to fulfill any obligation under the Acquisition Agreement and such failure causes the closing to not occur on or before July 31, 2010;

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    By either the Company or Bounty if the Company's stockholders do not approve the Stock Issuances;

    By the Company in accordance with and subject to the terms and conditions of its ability to terminate in connection with the Board's exercise of its fiduciary obligations to enter into an agreement with respect to a superior proposal so long as the Company pays Bounty a termination fee of $1.5 million plus Bounty's reasonable and documented out-of-pocket legal fees and expenses in connection with the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement;

    By either the Company or Bounty, if any court of competent jurisdiction or other governmental authority issues a final order permanently prohibiting the consummation of the transactions contemplated by the Acquisition Agreement;

    By either the Company or Bounty, if there has been a breach of any representation or warranty, covenant or agreement, made by the Company, on the one hand, or Bounty or CNCIM, on the other hand, which breach (i) would give rise to a failure of a condition set forth in the Acquisition Agreement and (ii) has not been cured by the party in breach prior to the earlier to occur of (x) 30 business days after such party's receipt of written notice of such breach and (y) July 31, 2010; or

    By Bounty if the Board changes or withdraws its recommendation to the Company's stockholders to approve the Stock Issuances in which case the Company will be obligated to pay Bounty a termination fee of $1.5 million plus Bounty's reasonable and documented out-of-pocket legal fees and expenses in connection with the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement.

        Additionally, if (A) prior to termination of the Acquisition Agreement the Company has received an alternative proposal and (B) within six months of the date of such termination the Company enters into an agreement in respect of, or consummates, any alternative proposal, then the Company will pay Bounty a termination fee in the amount of $1.5 million plus Bounty's reasonable and documented out-of-pocket legal fees and expenses relating to the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement if (i) either party terminates the Acquisition Agreement because one or more of the conditions set forth in the Acquisition Agreement has not been fulfilled on or before July 31, 2010, provided that the terminating party has not breached the Acquisition Agreement, (ii) either party terminates the Acquisition Agreement because the Company's stockholders do not approve the Stock Issuances or (iii) Bounty terminates the Acquisition Agreement for breach of a representation, warranty or covenant which gives rise to a breach of a condition that is not cured within 30 days of notice thereof and provided that Bounty has not materially breached the Acquisition Agreement.

Expenses

        If the Closing occurs, then at the Closing, the Company will pay Bounty's (i) reasonable and documented out-of-pocket legal fees and expenses and (ii) reasonable and documented out-of-pocket financial advisor fees and expenses in an amount not to exceed $500,000 in connection with the Acquisition Agreement, the transactions contemplated by the Acquisition Agreement and the negotiations leading up to the Acquisition Agreement and the transactions contemplated by the Acquisition Agreement.

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        Other than as set forth in the immediately preceding sentence and in the section entitled "Termination of the Acquisition Agreement and Termination Fees" and the estimated costs of the transferring the operations of CNCIM to be paid by the Company (currently estimated to be approximately $1.2 million), whether or not the transactions contemplated by the Acquisition Agreement are completed, all costs and expenses incurred in connection with the Acquisition Agreement and the consummation of the transactions by the Acquisition Agreement will be paid by the party incurring the expense.

Survival

        None of the representations and warranties contained in the Acquisition Agreement survive the closing of the Acquisition Agreement. The covenants and agreements contained in the Agreement will survive the closing of the Acquisition Agreement and continue indefinitely, except for covenants and agreements that by their terms contemplate a shorter survival period.

Indemnification

        Bounty has agreed to indemnify the Company for losses related to operating liabilities of CNCIM arising prior to the Closing Date (other than liabilities under certain employment agreements, liabilities relating to CNCIM's CLO management agreements, liabilities relating to actions taken pursuant to the Transition Services Agreement and the expenses of the transfer of operations described above) for one year from closing and certain pre-closing tax liabilities for three years from closing subject to a $125,000 deductible and a $5 million cap.


Stockholders Agreement

        In connection with the consummation of the Transactions, the Company and Bounty will execute the Stockholders Agreement. The following is a summary of selected provisions of the Stockholders Agreement. The description of the Stockholders Agreement in this Proxy Statement has been included to provide you with information regarding its terms. While the Company believes this description covers the material terms of the Stockholders Agreement, it may not contain all of the information that is important to you and is qualified in its entirety by reference to the Stockholders Agreement, which is attached as Annex B to this Proxy Statement. We urge you to read the entire Stockholders Agreement carefully.

Board Composition

        Our Board has set the current size of our Board at seven directors; the Board currently consists of six directors and one vacancy. Upon the consummation of the Transactions, the size of our Board will be increased by two directors so that our Board will consist of nine directors divided equally among the three existing classes of directors. Our Board will elect to fill the current Board vacancy and the two vacancies created by the expansion of the Board with the following three individuals designated by Bounty: Jason Epstein, as a Class I director; Andrew Intrater, as a Class II director; and                             , as a Class III director. Mr.                              qualifies as an independent director pursuant to our corporate governance guidelines and applicable NASDAQ Listing Rules. Bounty has the right to designate one observer to attend, but not vote at, all meetings of the Board and each committee of the Board for so long as Bounty owns at least 15% of the Outstanding Common Stock. Bounty has designated Paul Lipari as its observer to the Board. The Board will consist of not more than nine directors and will be divided into three equal classes for so long as Bounty owns at least 5% of the Outstanding Common Stock, unless otherwise agreed by the Board (including the directors designated by Bounty).

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        So long as Bounty owns at least 25% of the Outstanding Common Stock, the Company will, at each meeting of stockholders of the Company at which directors are elected, nominate and recommend for election to the Board three individuals designated by Bounty, one of whom will qualify as an independent director pursuant to our corporate governance guidelines and applicable NASDAQ Listing Rules if necessary to ensure that a majority of the members of the Board are independent. If at any time Bounty owns less than 25% of the Outstanding Common Stock, Bounty will no longer have a right to designate, and the Company will have no further obligation to nominate, three individuals designated by Bounty for election to the Board, even if Bounty subsequently owns more than 25% of the Outstanding Common Stock. So long as Bounty owns at least 15% and 5% of the Outstanding Common Stock, respectively, the Company will, at each meeting of stockholders of the Company at which directors are elected, nominate and recommend for election to the Board two individuals and one individual, respectively, designated by Bounty. If at any time Bounty owns less than 15% and 5%, respectively, of the Outstanding Common Stock, Bounty will no longer have a right to designate, and the Company will have no further obligation to nominate, two individuals and any individual, respectively, designated by Bounty for election to the Board, even if Bounty subsequently owns more than 15% and 5%, respectively, of the Outstanding Common Stock. Each individual designated by Bounty for nomination as a director to the Board must be reasonably satisfactory to the Company. None of Bounty's rights to designate individuals to the Board are transferable in connection with any sale by Bounty of its Common Stock or the Convertible Notes.

        In order to give effect to the Board designation rights contained in the Stockholders Agreement, our Board made an election under the Maryland General Corporation Law to provide the Board with the exclusive right to fill vacancies on the Board, including vacancies resulting from an increase in the size of the Board and to provide that directors so elected to fill those vacancies serve for the balance of the unexpired term. See "Description of Capital Stock—Subtitle 8."

Strategic Committee

        In connection with the consummation of the Transactions, the Board will establish the Strategic Committee, which will continue to exist for so long as Bounty owns at least 25% of the Outstanding Common Stock. The Strategic Committee will initially consist of four members: two directors designated by Bounty and two directors designated by those independent directors of the Company not designated by Bounty. The Strategic Committee will report and make recommendations to the Board regarding the following and, for matters approved by the Board, will be responsible for effectuating the following: (i) the identification and execution of merger and acquisition opportunities; (ii) setting direction for the Company with our management, including new investment initiatives and investment products; (iii) the hiring, dismissal and scope of responsibility of senior management; and (iv) the integration of CLO platforms of CNCIM and the Company. None of Bounty's rights with respect to the Strategic Committee are transferable in connection with any sale by Bounty of its Common Stock or Convertible Notes.

Restrictions on Bounty

        Until the earlier of the third anniversary of the Closing or the date on which Bounty owns less than 15% of the Outstanding Common Stock, and unless unanimously approved by the independent directors of the Company not designated by Bounty and its affiliates, Bounty and its affiliates, including their respective directors, officers and employees, will not, directly or indirectly (which will include any action taken on behalf of Bounty or its affiliates):

    Engage in any proxy contests with respect to the election of individuals to the Board; or

    Seek, alone or in concert with others, to (i) obtain additional representation on the Board that is not contained in the Stockholders Agreement, (ii) effect the removal of any director on the

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      Board, except as set forth in the Stockholders Agreement, or (iii) make a stockholder proposal or otherwise seek to amend any provision of the Company's Charter and Bylaws to change the size of the Board, the authority of the Nominating Committee or the manner in which directors are elected.

        Bounty has also agreed that as a condition precedent to any sale by it of Common Stock representing 15% or more of the Outstanding Common Stock, Bounty will require the buyer of such Common Stock to agree to abide by these restrictions.

Market Activity

        Until the earlier of the third anniversary of the Closing or the date Bounty owns less than 10% of the Outstanding Common Stock, Bounty will not, directly or indirectly, nor permit its affiliates or any person acting on behalf of Bounty or its affiliates to, engage in Short Sales (as defined in the Stockholders Agreement), derivatives, participations, swaps or other arrangements that transfer to another person, in whole or in part, any of the economic consequences of ownership of the Company's Common Stock or Convertible Notes without transferring title to or legal ownership of such Common Stock and Convertible Notes.

Majority Voting Bylaw

        So long as Bounty owns at least 5% of the Outstanding Common Stock, the Company will adopt, and continue to maintain, a Majority Voting Bylaw substantially in the form attached as Annex D to this Proxy Statement that requires each nominee for election to the Company's Board to be elected by a majority of the votes cast at a meeting called for the election of directors, provided a quorum is present in person or by proxy (a "Majority Vote"). However, in the event the number of director nominees exceeds the number of vacant positions, directors will be elected by a plurality of the votes cast at such meeting, provided a quorum is present in person or by proxy. In order for any incumbent director to become a nominee of the Board for further service on the Board, such individual will submit an irrevocable resignation, and such resignation will be automatically effective if the incumbent director does not receive a Majority Vote in an election that is not a contested election. Bounty will own approximately 40.2% of the issued and outstanding Common Stock on the Record Date on a fully diluted basis as a result of the issuance of the Acquisition Shares (and approximately 56.2% of the issued and outstanding Common Stock on the Record Date on a fully diluted basis if in addition all of the Convertible Notes to be purchased by Bounty are converted), and will therefore have substantial ability (or the absolute power) to block the election of any director nominated by the Nominating Committee as a result of the Majority Voting Bylaw.

Preemptive Rights

        So long as Bounty owns at least 5% of the Outstanding Common Stock, if the Company proposes to issue any securities, including shares of Common Stock, other capital stock or convertible securities, then Bounty will have the right to purchase up to its pro rata portion of such securities (calculated based solely on the Common Stock issued or issuable to Bounty upon conversion of the Convertible Notes as a percentage of the then-outstanding Common Stock prior to the issuance of such securities) at the same purchase price as the Company's proposed issuance to other purchasers.

        The foregoing rights do not apply to (i) issuances of securities to officers, employees, directors or consultants of the Company pursuant to arrangements approved by the Board or the Compensation Committee; (ii) issuances of securities in connection with a business combination or acquisition involving the Company; (iii) issuances of securities pursuant to any rights or agreements so long as the Company has complied with the preemptive rights provisions contained in the Stockholders Agreement or such rights or agreements existed prior to the consummation of the Transactions; (iv) issuances of

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securities in connection with any stock split, stock dividend, recapitalization, reclassification or similar event by the Company; (v) issuances of securities upon the conversion of the Convertible Notes; (vi) issuances of warrants in connection with debt financings; (vii) securities registered under the Securities Act that are issued in an underwritten public offering and (viii) any right, option or warrant to acquire any security convertible into the securities excluded pursuant to clauses (i) through (vii) above.

Non-Solicit

        So long as Bounty owns at least 5% of the Outstanding Common Stock, and unless unanimously approved by the Board, neither Bounty nor its affiliates will, directly or indirectly, solicit for employment or hire any employee of the Company or any of its affiliates except for employees who are terminated by the Company, who respond to a general solicitation of employment or who were employed by Bounty or its affiliates following consummation of the Transactions prior to being employed by the Company or its affiliates following consummation of the Transactions.


Convertible Notes Agreement

        The following is a summary of selected provisions of the Convertible Notes Agreement, in which Bounty will purchase $25 million in aggregate principal amount of Convertible Notes of the Company for cash on the Closing Date. While the Company believes this description covers the material terms of the Convertible Notes Agreement, it may not contain all of the information that is important to you and is qualified in its entirety to the Convertible Notes Agreement, which is attached as Annex C to this Proxy Statement. We urge you to read the entire Convertible Notes Agreement carefully.

Principal Amount

        The aggregate principal amount of Convertible Notes issuable under the Convertible Notes Agreement is limited to an amount equal to $50 million plus the principal amount of all Convertible Notes issued in the form of PIK Interest in respect of the Convertible Notes. At the Closing, the Company will issue to Bounty $25 million in aggregate principal amount of Convertible Notes for cash. Subject to compliance with the covenants contained in the Convertible Notes Agreement, the Company may from time to time issue an aggregate of up to $25 million in principal amount of additional Convertible Notes, excluding PIK Interest payable on any additional Convertible Notes, subject to Bounty's approval.

Maturity

        The Convertible Notes will mature seven and one-half years from the date of issuance (the "Maturity Date") and will be due and payable in full in cash on the Maturity Date, except to the extent any of the Convertible Notes have been converted into Conversion Shares or redeemed by the Company.

Interest

        Interest on the Convertible Notes will be payable to the holders of the Convertible Notes quarterly in arrears on each January 1, April 1, July 1 and October 1. The Company may, in its sole discretion and upon notice to the holders of the Convertible Notes, pay up to 50% of the interest due in PIK Interest, so long as the payment of PIK Interest would not be prohibited by, or constitute a default under, any other indebtedness or preferred stock of the Company and its subsidiaries.

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        To the extent that the Company has not made a PIK Election, the Company will pay interest in cash at a rate equal to the per annum rate specified below:

Period
  Interest Rate  

Closing Date to and including the day prior to second anniversary of the Closing Date

    8.00 %

Second anniversary of the Closing Date to and including the day prior to third anniversary of the Closing Date

    9.00 %

Third anniversary of the Closing Date to and including the day prior to fourth anniversary of the Closing Date

    10.00 %

Fourth anniversary of the Closing Date and thereafter

    11.00 %

        To the extent that the Company has made a PIK Election, then the Company will pay interest at the PIK Interest Rate equal to the per annum rate specified below:

Period
  Interest Rate  

Closing Date to and including the day prior to second anniversary of the Closing Date

    10.00 %

Second anniversary of the Closing Date to and including the day prior to third anniversary of the Closing Date

    11.00 %

Third anniversary of the Closing Date and thereafter

    12.00 %

        If the Company makes a PIK Election, then the PIK Interest Rate will apply to the calculation of all interest due on the date upon which interest is due and payable to the holders of the Convertible Notes. Once the Company has made a PIK Election, the PIK Interest Rate will apply to all subsequent interest periods for which interest is paid, whether in cash or in-kind. Any PIK Election made will apply in the same percentage with respect to each Convertible Note outstanding.

Conversion

        The holders of Convertible Notes will have the right, at any time, to convert the principal amount of the Convertible Notes held by such holders into the number of Conversion Shares equal to the Conversion Rate, which will initially be approximately 165.29 shares per $1,000 principal amount of Convertible Notes (equal to a conversion price of $6.05 per share), subject to adjustment in certain events. The Conversion Rate is subject to adjustment from time to time for issuances of shares of Common Stock, options, rights, warrants or other equity securities of the Company, cash distributions made by the Company, by dividend or otherwise, tender offers or exchange offers by the Company or any of its subsidiaries for shares of Common Stock, dividends or distributions involving capital stock of the Company's subsidiaries, reclassifications of the Company's Common Stock and any merger or sale of all or substantially all of the property or assets of the Company. The total number of shares of Common Stock issuable upon conversion of the Convertible Notes may increase from time to time due to any one or more of the following factors:

    the issuance of up to $25 million in aggregate principal amount of additional Convertible Notes;

    the payment of PIK Interest on Convertible Notes then outstanding; and

    adjustments to the Conversion Rate due to customary anti-dilution adjustments and a price protection provision set forth in the Convertible Notes Agreement.

        Stockholders are being asked to approve the issuance of all Conversion Shares then issuable pursuant to the Conversion Rate as the same may be adjusted throughout the term of the Convertible Notes Agreement pursuant to the foregoing provisions.

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Redemption

        The Company may not redeem the Convertible Notes prior to the second anniversary of the Closing Date. Thereafter, the Company may redeem all or a part of the Convertible Notes upon not less than 30 nor more than 60 days' notice to the holders of the Convertible Notes at a redemption price equal to 100% of the principal amount of the Convertible Notes plus, if the redemption date is on or prior to the third anniversary of the Closing Date, the interest rate then in effect as an additional percentage of principal amount and (ii) if the redemption date is after the third anniversary of the Closing Date, but on or prior to the fourth anniversary of the Closing Date, one-half of the interest rate then in effect as an additional percentage of principal amount, in each case, plus accrued and unpaid interest on the Convertible Notes redeemed to the applicable redemption date. Holders of Convertible Notes have the right to refuse to surrender their Convertible Notes to the Company if the Company is not in compliance with its obligations under the Registration Rights Agreement (as described below). The Company is not required to make any mandatory redemption or sinking fund payments in respect of the Convertible Notes.

Events of Default

        The Convertible Notes Agreement contains events of default customary for agreements of its type (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default arising from certain events of bankruptcy or insolvency with respect to the Company and its material subsidiaries, all outstanding Convertible Notes will become due and payable immediately without further action or notice. If any other type of event of default occurs and is continuing, then the holders of at least 331/3% in principal amount of the then outstanding Convertible Notes may declare all of the outstanding Convertible Notes to be due and payable immediately.

Covenants of the Company

        The Company is making customary covenants to the holders of Convertible Notes, including the following:

    That the Company will timely pay the principal and interest on the Convertible Notes;

    That, for so long as any Convertible Notes are outstanding, the Company will provide the holders of the Convertible Notes information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K, whether or nor the Company is subject to the reporting requirements of the Exchange Act;

    That the Company will not, and will not permit any of its subsidiaries to incur any indebtedness that is contractually subordinated in right of payment to other indebtedness of the Company unless such indebtedness is also contractually subordinated in right of payment to the Convertible Notes on substantially similar terms;

    That the Company will not consolidate or merge with or into another person or sell, transfer or otherwise dispose of all or substantially all of its assets to another person unless (i) (A) either the Company is the surviving corporation, or (B) the surviving entity is an entity existing under the laws of the United States or any state thereof, and if such entity is not a corporation, a co-obligor of the Convertible Notes is a corporation existing under such laws, (ii) the surviving entity has assumed all obligations of the Company under the Convertible Notes Agreement and the Registration Rights Agreement and (iii) immediately after such transaction, no default or event of default under the Convertible Notes Agreement has taken place;

    That, upon a change of control of the Company, the Company will offer to repurchase all or any part of the Convertible Notes of each holder of Convertible Notes at a purchase price in cash

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      equal to 100% of the aggregate principal amount of the Convertible Notes repurchased, plus accrued and unpaid interest;

    That the Company will not lease all or substantially all of the assets of the Company and its subsidiaries;

    That the Company will use its commercially reasonable efforts to keep the Conversion Shares listed on NASDAQ or another securities exchange on which the Common Stock is listed or quoted; and

    That, for so long as any Convertible Notes remain outstanding, the Company will reserve and keep available out of its authorized but unissued Common Stock, the full number of Conversion Shares.

Representations and Warranties

        The Convertible Notes Agreement contains customary representations and warranties by the Company and Bounty:

        The representations and warranties by the Company relate to a number of matters, including the following:

    Organization and good standing of the Company and its subsidiaries;

    Authority to enter into the Convertible Notes Agreement and the Registration Rights Agreement and the enforceability of the Convertible Notes Agreement and the Registration Rights Agreement against the Company;

    The capitalization of the Company;

    Compliance with laws;

    That the Convertible Notes Agreement and the Registration Rights Agreement do not violate the organizational documents of the Company; do not conflict with or violate any laws applicable to the Company; do not require consent under or conflict with other agreements of the Company; and do not result in the creation of any lien upon the properties or assets of the Company;

    Timely filing of all documents required to be filed with the SEC;

    Absence of certain changes and events;

    No undisclosed liabilities;

    Compliance with specific laws applicable to the Company regarding provision of investment management services;

    Material contracts;

    No litigation;

    Payment of taxes;

    Employee benefits matters;

    Employment matters;

    That the information supplied on or behalf of the Company for inclusion in the Proxy Statement to be sent to the stockholders of the Company in connection with the Meeting will not contain any statement that is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made in the Proxy Statement not false

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      or misleading; or omit to state any material fact necessary to correct any statement in any earlier communication that has become false or misleading;

    Due authorization, issuance and delivery of the Convertible Notes by the Company to the holders, free from all liens;

    Absence of registration rights or voting rights with respect to the equity securities of the Company;

    That the Company does not engage in the business of extending credit for the purpose of carrying margin stock;

    That the Company has not engaged in a general solicitation of investors with respect to offers or sales of the Convertible Notes and that, to the Company's knowledge, the sale of the Convertible Notes will not be integrated with any other security;

    No brokers fees are payable by the Company in connection with the issuance of the Convertible Notes; and

    That the Company and its subsidiaries do not manage or act as an investment adviser to any private investment funds.

        The representations and warranties by Bounty relate to a number of matters, including the following:

    Organization and good standing of Bounty;

    Authority to enter into the Convertible Notes Agreement and the Registration Rights Agreement and the enforceability of the Convertible Notes Agreement and the Registration Rights Agreement against Bounty;

    That the Convertible Notes Agreement and the Registration Rights Agreement do not violate the organizational documents of Bounty; do not conflict with or violate any laws applicable to Bounty; do not require consent under or conflict with any agreement relating to material indebtedness of Bounty; and do not result in the creation of any lien upon the properties or assets of Bounty;

    That Bounty is acquiring the Convertible Notes for investment purposes only and not with a view towards public sale or distribution thereof;

    That Bounty is an "accredited investor" as defined in Rule 501(a) of the Securities Act; and

    That Bounty has completed its own investigation of the Company.

Conditions to Closing

    Conditions to the Obligations of the Company

        The Company's obligation to complete the transactions contemplated by the Convertible Notes Agreement is subject to the satisfaction of conditions, any one or more of which may be waived by the Company, including:

    No order, injunction or decree has been issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the issuance of the Convertible Notes;

    No law has been enacted, entered, promulgated or enforced by any governmental authority that prohibits or makes illegal the consummation of the issuance of the Convertible Notes;

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    The representations and warranties of Bounty are true and correct of the issuance of the Convertible Notes; and

    The transactions contemplated by the Acquisition Agreement shall be consummated contemporaneously with the issuance of the Convertible Notes.

    Conditions to the Obligations of Bounty

        The obligation of Bounty to complete the transactions contemplated by the Convertible Notes Agreement is subject to the satisfaction of conditions, any one or more of which may be waived by Bounty, including:

    The Company will have obtained the approval of the Stock Issuances by the affirmative vote of a majority of the total votes cast by the Company's stockholders at the Meeting;

    The Company will have delivered the principal amount of the Convertible Notes to Bounty;

    The Company has performed and complied in all material respects with all covenants and other agreements required to be performed or complied with by it prior to or on the Closing Date;

    No order, injunction or decree has been issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the issuance of the Convertible Notes;

    No law has been enacted, entered, promulgated or enforced by any governmental authority that prohibits or makes illegal the issuance of the Convertible Notes;

    The representations and warranties of the Company are true and correct as of the issuance of the Convertible Notes;

    The Company shall have obtained, or secured an exemption from, all necessary permits and qualifications, if any, required by any state or county prior to the offer and sale of the Convertible Notes, and such authorization, approval, permit or qualification shall be effective at the Closing;

    The transactions contemplated by the Acquisition Agreement shall be consummated contemporaneously with the issuance of the Convertible Notes;

    Each of the Senior Notes Discharge Agreement and the Termination Agreement will be in full force and effect;

    Bounty will receive copies of the Registration Rights Agreement, duly executed by the Company;

    Bounty will receive true and correct copies of the Company's constituent documents and resolutions of the Board authorizing the execution, delivery and performance of the Convertible Notes Agreement and the Registration Rights Agreement, certified correct and complete as of the Closing Date by the Company's Secretary;

    The shares of Common Stock issuable upon conversion of the Convertible Notes shall have been approved for listing on NASDAQ; and

    Bounty will receive opinions from one or more legal counsels to the Company, reasonably satisfactory to Bounty, dated as of the Closing Date.


Registration Rights

        Concurrently with the closing of the Acquisition and the issuance of the Convertible Notes, the Company will grant registration rights to Bounty with respect to the Common Stock issued in connection with the Acquisition and the Conversion Shares. Bounty and the holders of the Conversion Shares will have a total of four demand rights and unlimited piggyback rights, subject to customary

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underwriter cutbacks and issuer blackout periods. In the event that Company does not comply with the demand rights under the Registration Rights Agreement, the Company will pay special interest to Bounty in an amount equal to 1.0% per annum of the principal amount of Convertible Notes held by Bounty that are affected by such default. The Company will pay all fees and expenses relating to the registration of the Common Stock and the Conversion Shares.


Transition Services Agreement

        In connection with the Acquisition Agreement, the Company entered into the Transition Services Agreement, pursuant to which the Company is providing services to CNCIM in connection with its management of the CNCIM CLOs. The Company will not receive a fee for providing such transition services through the Closing, but may, under certain circumstances, receive a negotiated fee for a period of up to six months after the date of termination of the Acquisition Agreement.


Regulatory Approvals To Be Obtained in Connection with the Transactions

        We do not believe that the Company, Bounty or CNCIM are required to obtain any U.S. federal or state regulatory approvals to complete the Transactions described herein. In the United States, we must comply with applicable federal and state securities laws and the NASDAQ Listing Rules in connection with the Stock Issuances. The Company has applied to have the Acquisition Shares and the Conversion Shares listed on NASDAQ.


Interests of Certain of our Directors and Executive Officers in the Transactions

        Peter W. May, a director of the Company since December 2007, is also a director and the vice-chairman of the board of Wendy's/Arby's Group, Inc., a holder of approximately $48.9 million principal amount of the Company's Series A Notes that are expected to be paid and discharged by the Company pursuant to the Senior Notes Discharge Agreement for an aggregate amount of approximately $30.8 million plus all unpaid and accrued interest in cash as of the Closing Date. Mr. May has indicated that he intends to resign from the Board following the consummation of the Transactions and the Board intends to fill the vacancy created thereby with an individual who qualifies as an independent director. Mr. May took no part in the consideration of the Acquisition or the Stock Issuances.

        Jonathan W. Trutter, our Chief Executive Officer and a member of the Board, owns approximately $637,000 in principal amount of Series A Notes that are expected to be paid and discharged by the Company for an aggregate amount of approximately $408,000 plus all unpaid and accrued interest in cash as of the Closing Date.

        Pursuant to the 2010 Rothschild Compensation Agreement, Peter Rothschild, our Interim Chairman and a member of the Board, is entitled to two discretionary fees, a "Capital Transaction Success Fee" not to exceed $1 million and a "Non-Capital Transaction Success Fee" not to exceed $500,000, which may be paid if certain specified conditions are met. The conditions for payment of the discretionary fees include, but are not limited to, Mr. Rothschild playing an instrumental role in arranging and completing a strategic transaction that substantially increases shareholder value. The Compensation Committee has complete discretion over whether to award the Capital Transaction Success Fee and the Non-Capital Transaction Success Fee and over the amount of the fees and the portion payable as cash or non-cash compensation, and has not yet finally determined the amount of such fees to be paid in connection with consummation of the Transactions.

        In consideration of their services rendered as members of the Special Committee, Robert E. Fischer and Stuart I. Oran are each entitled to compensation in an amount equal to $15,000 per month (not to exceed $90,000 total) and Robert B. Machinist, as Chairman of the Special Committee, is entitled to compensation in an amount equal to $45,000 per month (not to exceed $180,000 total).

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        The Compensation Committee has discussed but not yet finally determined to award special bonuses to officers and directors of the Company upon consummation of the Transactions. The Special Committee has advised Bounty that such bonuses, if paid, together with any discretionary fees paid pursuant to the 2010 Rothschild Compensation Agreement, would not exceed $1.3 million in the aggregate.

        None of the Company or, to the best of our knowledge, any of our directors, or executive officers, or any of their respective associates, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of CNCIM at any time since the beginning of the last fiscal year, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Other than the negotiations that have taken place with respect to the Transactions, there have been no contacts, negotiations or transactions since the beginning of the last fiscal year between the Company, any of our subsidiaries or, to the best of our knowledge, any of our directors, or executive officers, or any of their respective associates, on the one hand, and CNCIM or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, an exchange offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets.

        We have not effected any transaction in securities of CNCIM in the past 60 days. Except as set forth in this Proxy Statement, to our knowledge, after reasonable inquiry, none of our directors, director nominees, executive officers nor any of their respective associates or majority owned subsidiaries, beneficially owns or has the right to acquire any securities of CNCIM or has effected any transaction in securities of CNCIM during the past 60 days.


Impact of the Stock Issuances on Existing Stockholders

        The issuance of the Acquisition Shares and the Conversion Shares will significantly dilute the Common Stock ownership percentages of our existing stockholders.

    Assuming the issuance of the 4,545,455 Acquisition Shares and no other issuances of shares as of the date of approval by our stockholders, Bounty would own approximately 40.2% of the Common Stock issued and outstanding as of the Record Date on a fully diluted basis.

    Assuming the issuance of the Acquisition Shares, if in addition Bounty elects to convert the entire $25 million in aggregate principal amount of the Convertible Notes and we have not elected to pay PIK Interest, we expect to issue approximately 4,132,231 Conversion Shares. In such event Bounty would own approximately 56.2% of the Common Stock issued and outstanding as of the Record Date on a fully diluted basis.

    Assuming the issuance of the Acquisition Shares, if in addition Bounty elects to convert the entire $25 million in aggregate principal amount of the Convertible Notes and we have elected to pay the maximum permitted amount of PIK Interest, we would expect the maximum amount of Conversion Shares to be issued to be approximately 5,208,869. In such event Bounty would own approximately 59.1% of the Common Stock issued and outstanding as of the Record Date on a fully diluted basis.

        As of December 31, 2009, the Company had NOLs of approximately $209.0 million, which will begin to expire in 2028 if not used, and NCLs of approximately $422.8 million, which will begin to expire in 2012 if not used. The issuance of the Acquisition Shares will result in an Ownership Change for purposes of Sections 382 and 383 of the Code. As a result of the occurrence of the Ownership Change, our ability to use our NOLs, NCLs and certain recognized built-in losses to reduce our taxable income in a future year would generally be limited to the Section 382 Limitation.

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        Our Charter currently contains transfer restrictions to prevent investors from aggregating ownership of our Common Stock and triggering an Ownership Change. Since the issuance of the Acquisition Shares will result in an Ownership Change, our Board has exempted the issuance of the Acquisition Shares and the issuance of the Convertible Notes to be purchased by Bounty from the restrictions set forth in Article IX of the Charter. If the Transactions are consummated and the Acquisition Shares are issued to Bounty, our Board has agreed to terminate the restrictions on ownership and transfer contained in Article IX of the Charter.

        The actual number of Conversion Shares issuable may vary due to the adjustment provisions in the Convertible Notes, including in respect of issuances of shares of Common Stock, options, rights, warrants or other equity securities of the Company, cash distributions made by the Company, tender offers or exchange offers by the Company or any of its subsidiaries for shares of Common Stock, dividends or distributions involving capital stock of the Company's subsidiaries, reclassifications of the Company's Common Stock and any merger or sale of all or substantially all of the property or assets of the Company. As a result of the Stock Issuances, Bounty will become a significant stockholder of the Company with substantial influence (or even control) over matters submitted to a vote of our stockholders, including the election of directors, amendment of our organizational documents, acquisitions or other business combinations involving the Company and potentially the ability to prevent extraordinary transactions such as a takeover attempt.

        The Stockholders Agreement provides that if Bounty holds at least 25% of the Outstanding Common Stock (including shares issuable upon conversion of the Convertible Notes), then Bounty will have the right to designate three out of nine directors to the Board (one of whom must qualify as an independent director if necessary to ensure that a majority of the members of the Board are independent). If Bounty holds less than 25% but more than 15% of the Outstanding Common Stock, then Bounty will have the right to designate two out of nine directors to the Board and if Bounty holds less than 15% but more than 5% of the Outstanding Common Stock, then Bounty will have the right to designate one director out of nine directors to the Board. Upon consummation of the Transactions, the Board will establish the Strategic Committee consisting of two directors designated by Bounty and two directors designated by those independent directors of the Company not designated by Bounty. The Strategic Committee will report and make recommendations to the Board regarding implementing certain strategic initiatives. None of Bounty's rights with respect to the Board or the Strategic Committee are transferable in connection with any sale by Bounty of its Common Stock or Convertible Notes. As a result, the directors elected to the Board by Bounty may exercise significant influence on matters considered by the Board. Bounty may have interests that diverge from, or even conflict with, those of the Company and its other stockholders.


Dissenters' or Appraisal Rights of Existing Stockholders

        Under applicable Maryland law, the Company's stockholders do not have dissenters' or appraisal rights in connection with the issuance of the Acquisition Shares or the issuance of the Conversion Shares, and we do not plan to independently provide stockholders with any such rights.


Vote Required and Recommendation of the Special Committee and the Board

        For the approval of the Stock Issuances, you may vote in favor of the proposal, against the proposal or abstain from voting. If a quorum is present, approval of the proposal requires the affirmative vote of a majority of all votes cast on the proposal.

        The Board established the Special Committee, consisting of Robert B. Machinist (Chairman), Robert E. Fischer and Stuart I. Oran, to evaluate and negotiate the Transactions in consultation with

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management of the Company and the Special Committee's financial advisors and legal counsel. The Special Committee:

    determined that the Transactions, including the Stock Issuances, are advisable and in the best interests of the Company and its stockholders and unanimously approved the Acquisition Agreement, Convertible Notes Agreement, Senior Notes Discharge Agreement, Termination Agreement and the Stock Issuances;

    unanimously recommended that the Board approve the Acquisition Agreement, Convertible Notes Agreement, Senior Notes Discharge Agreement, Termination Agreement and the Stock Issuances; and

    unanimously recommended that the Board recommend that our stockholders approve the Stock Issuances.

        In reaching these decisions, the Special Committee consulted with its financial advisors and legal counsel and with management, and considered many factors, including without limitation the following, each of which they believed supported their decision:

    The issuance of the Acquisition Shares is required to complete the Acquisition;

    The issuance of the Convertible Notes and the mutual conditioning of the issuance of the Convertible Notes and the Acquisition upon each other;

    The use of proceeds of the issuance of the Convertible Notes, together with other funds, to complete the Senior Notes Discharge for $55 million plus accrued interest or an aggregate 25.6% discount from the face amount of such Senior Notes, which will eliminate approximately $74 million of debt that matures on December 21, 2012, reducing our indebtedness and the amount of interest we will be required to pay going forward and eliminating the covenants in the Senior Notes that significantly restrict the Company's flexibility;

    The Senior Notes Discharge will satisfy the requirement of the Trust Preferred Exchange that we complete a Credit Enhancing Transaction, thereby allowing us to pay a significantly lower interest rate on the New Subordinated Notes that the Company issued in exchange for the Trust Preferred Securities previously issued by subsidiaries of the Company for approximately the next five years;

    The fact that the Company has been exploring value-creating transactions for over a year, including engaging an investment banker to explore other strategic alternatives, without success;

    Management's view that the Acquisition of CNCIM, the issuance of the Convertible Notes and the Senior Notes Discharge would enhance our capital structure;

    The Company's stockholders will benefit from an improved capital structure that commits fewer long-term resources to the payment of interest on debt obligations of the Company and improves the Company's debt to equity ratio;

    Our ability to use the Common Stock as currency, compared to the cost of capital that would be required for us to achieve the same expansion of our business through internal growth;

    The management fee streams from the CNCIM CLOs will improve the profitability of the Company and spread costs of our operations over a larger portfolio of assets under management;

    The potential issuance of the Conversion Shares upon the conversion of the Convertible Notes would reduce our costs, including legal and accounting costs related to the maintenance of the Convertible Notes;

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    Historical and current information concerning the Company's and CNCIM's respective businesses, including trends in financial performance, financial condition, operations and competitive position;

    The opportunity for the Company's stockholders to participate in the potential future value of the Company, which includes CNCIM, and as a result of such inclusion the belief of the Special Committee that the Company is positioned to grow faster than without the Acquisition;

    The terms and conditions of the Acquisition Agreement, including: (a) the conditions to the closing of the Acquisition, including the receipt of stockholder approval, and the simultaneous closing of the issuance of the Convertible Notes, and the likelihood of those conditions being satisfied; and (b) the belief of the Special Committee that the termination fees payable in the circumstances set forth in the Acquisition Agreement are reasonable in the context of termination fees that were payable in other comparable transactions and would not be likely to preclude another party from making a superior proposal with respect to the Company;

    Our prospects if the Transactions are not completed;

    The Company's historical stock price and the price at which the Common Stock is being issued to Bounty in connection with the Acquisition and the Conversion Rate of the Conversion Shares;

    The addition of two key employees of CNCIM and three directors and one Board observer designated by Bounty who we expect to bring additional knowledge and expertise to the Company; and

    The timing and amount of the cash deferred purchase price payments.

        In the course of their deliberations, the Special Committee also considered a variety of risks and other potentially negative factors concerning the Transactions, including the following:

    The fact that Bounty would hold approximately 40.2% of the issued and outstanding of our Common Stock as of the Record Date on a fully diluted basis upon consummation of the Acquisition (and approximately (i) 56.2% and (ii) 59.1% (assuming the Company elects not to pay the maximum permitted amount of PIK Interest) of the issued and outstanding shares of our Common Stock as of the Record Date on a fully diluted basis upon issuance of the Conversion Shares upon the conversion of the Convertible Notes) and, accordingly, the substantial influence Bounty would have over corporate governance;

    The substantial dilution to the Company's stockholders as a result of the Stock Issuances;

    The risk that the Acquisition and the issuance of the Convertible Notes might not be completed in a timely manner or at all due to failure to satisfy the closing conditions, a number of which are outside of the Company's control;

    If the Acquisition is not completed, the potential adverse effect of the public announcement of the termination of the Acquisition on our business;

    The risk that the Company may need additional financing, and be unable to raise such additional capital and that such additional capital, even if available, will be further dilutive to our stockholders and may be at a lower valuation than reflected in the issuance of the Acquisition Shares and the issuance of the Conversion Shares upon conversion of the Convertible Notes;

    The restrictions that the Acquisition Agreement imposes on soliciting competing acquisition proposals;

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    The fact that the Company would be obligated to pay significant termination fees under certain specified circumstances;

    The possible volatility, at least in the short term, of the trading price of the Common Stock resulting from the announcement and pendency of the Acquisition and the issuance of the Convertible Notes;

    The consents required by the Company and the fact that if the required level of consents are not obtained a condition to the consummation of the Acquisition and the issuance of the Convertible Notes will not be satisfied;

    The fact that under the Stockholder Agreement, Bounty is granted the right to appoint up to three directors and one observer to the Board depending on the amount of Common Stock owned by Bounty;

    The fact that Bounty's large ownership stake, together with the contractual rights that we have agreed to grant Bounty, may make it more difficult and expensive, or impossible, for a third party to pursue a strategic transaction with the Company in the future, including a change of control of the Company, even if such a transaction would generally benefit the Company's stockholders;

    The limitation on our ability to use our NOLs, NCLs and certain recognized built-in losses in the future as a result of the issuance of the Acquisition Shares;

    The possibility that the financial and strategic benefits expected to be achieved by the Transactions might not be obtained on a timely basis or at all, which would have a detrimental impact on our ability to become more profitable and to fund our debt obligations;

    The fact that the restrictions imposed on Bounty with respect to engaging in proxy contests and short sales of the Common Stock and Convertible Notes terminate on the earlier of three years from closing and when Bounty's ownership of Common Stock and Conversion Shares is less than 15% of the outstanding Common Stock (calculated assuming that all of the Convertible Notes have been converted);

    The interests that certain members of our Board and management have in the consummation of the Transactions; and

    The risks and costs that could be borne by us if the Transactions are not completed, including the diversion of management and employee attention prior to completion of the Transactions, and the potential adverse effect on our business. Also, under the Acquisition Agreement, we must conduct our business in the ordinary course, subject to a variety of other restrictions on the conduct of our business prior to closing of the transactions contemplated by the Acquisition Agreement or termination of the Acquisition Agreement, which may delay or prevent us from undertaking business opportunities that may arise.

        The Special Committee also considered a number of risks involved with the Transactions which are described under the section entitled "Risk Factors" in this Proxy Statement.

        The Board, other than Peter W. May, who because of a conflict of interest took no part in the consideration of the Acquisition or the Stock Issuances, based its determination to approve the Transactions and recommend that our stockholders approve the Stock Issuances primarily on the factors that were considered by the Special Committee described above, the unanimous recommendation of the Special Committee and the extensive arm's length negotiations of the Special Committee with representatives of Bounty, the holders of Senior Notes and the Pegasus Parties.

        The foregoing discussion of the information considered by the Special Committee and the Board is not exhaustive, but includes the material factors that the Special Committee and the Board considered

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in approving the Acquisition Agreement, Convertible Notes Agreement, Senior Notes Discharge Agreement and Termination Agreement and recommending approval of the Stock Issuances by the Company's stockholders. In view of the wide variety of factors considered by the Special Committee and the Board in connection with their evaluation of the Transactions and the complexity of these factors, the Special Committee and the Board did not consider it practical to, nor did they attempt to, quantify, rank or otherwise assign any specific or relative weights to the specific factors that it considered in reaching its decision. In considering the factors described above, individual directors may have assigned different weights to different factors. The Special Committee and the Board did not reach any specific conclusion on each factor considered, but instead conducted an overall analysis of the totality of the benefits and risks relating to the Transactions. The Special Committee and the Board discussed the factors described above, including asking questions of senior management and legal and financial advisors, and determined that the Transactions were advisable and in the best interests of the Company and its stockholders.

AFTER CAREFUL CONSIDERATION, INCLUDING CONSIDERATION OF THE UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE, OUR BOARD, OTHER THAN PETER W. MAY, WHO BECAUSE OF A CONFLICT OF INTEREST TOOK NO PART IN THE CONSIDERATION OF THE ACQUISITION OR THE STOCK ISSUANCES, RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR" PROPOSAL NO. 1 TO APPROVE THE STOCK ISSUANCES.

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PROPOSAL NO. 2

ELECTION OF DIRECTORS

Our Board of Directors

        Our Bylaws provide that a majority of our Board may establish, increase or decrease the number of directors at a regular or special meeting called for that purpose, provided that the number of directors may not be less than five nor more than 15. At each annual stockholders meeting, one class of directors is elected by our stockholders to hold office for a term of three years and until their successors have been duly elected or appointed and qualified. Our Board has set the current size of our Board at seven directors; however, the Board has voted to increase the size of the Board to nine directors pursuant to the Stockholders Agreement if the Acquisition is consummated. For more information, see "Proposal No. 1—Approval of the Stock Issuances—Stockholders Agreement—Board Composition." Our Board currently consists of six directors and one vacancy.


Information Concerning Director Nominees

        Our Charter divides our Board into three classes, designated as Class I, Class II and Class III. The current Board consists of two Class I members, two Class II members and two Class III members. In addition, there is one existing vacancy in Class I. The terms of the Class III directors, Jonathan W. Trutter and Robert B. Machinist, expire at the Meeting. Those directors have been nominated for re-election to serve as directors for a term expiring at our annual meeting in 2013 and until their successors are duly elected or appointed and qualified. Our Class I directors will be up for election at our next annual meeting, expected to be held in 2011, and our Class II directors will be up for election at our annual meeting expected to be held in 2012.

        If Proposal No. 1 is approved and the Acquisition and the issuance of the Convertible Notes are completed, we have agreed to expand the size of the Board by two directors so that the Board will consist of nine directors divided equally among the three existing classes. As a result of the existing vacancy on the Board, there will be three open directorships following the expansion of the Board to nine directors. Upon consummation of the Acquisition, three designees of Bounty, Jason Epstein, Andrew Intrater and                             will be added to the Board as Class I, II, and III directors, respectively, and Paul Lipari will become an observer of the Board. In addition, one of our current directors, Peter W. May, has indicated that he will resign as a Class I director following the consummation of the Transactions, and the Board intends to fill the vacancy created thereby with an individual who qualifies as an independent director.

        If any nominee becomes unavailable or unwilling to serve as a director for any reason, the persons named as proxies in the proxy card are expected to consult with our Board, which would solicit a recommendation from our Nominating Committee, in voting the shares represented by them. Our Board has no reason to doubt the availability of any nominee, and each nominee has indicated his willingness to serve as a director if elected by the stockholders at the Meeting.

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        The name, age, term of office, business background and specific individual qualifications and skills of each of the nominees, is as follows:

Name
  Age   Biography

Jonathan W. Trutter

    52   Mr. Trutter is our Chief Executive Officer and a member of our Board. Mr. Trutter has been a member of our Board since November 2004 and our Chief Executive Officer since December 2004. Mr. Trutter is also the Chief Executive Officer and Chief Investment Officer of DCM and Co-Head of DCM's bank loan investment team. Mr. Trutter joined DCM in 2000. From 1989 to 2000, he was a Managing Director of Scudder Kemper Investments, an investment manager, where he directed the Bank Loan / Private Placement Department. Over the last ten years Mr. Trutter has held leadership roles within the Company through which he has obtained a detailed knowledge and valuable perspective and insight into our business and strategy.

Robert B. Machinist

   
57
 

Mr. Machinist has been a member of our Board since December 2004. He is currently Chairman of the Board of Advisors of MESA, a leading merchant bank specializing in media and entertainment industry transactions. Mr. Machinist also runs a private family investment company. In addition, he is a member of the boards of directors of United Pacific Industries, a publicly-listed Hong Kong company, and Maimonides Medical Center. He was the Chairman of Atrinsic, a publicly-listed interactive media company, through 2008. From 1998 to December 2001, Mr. Machinist was managing director and head of investment banking for the Bank of New York and its Capital Markets division. From January 1986 to November 1998, he was president and one of the principal founders of Patricof & Co. Capital Corp. (and its successor companies), a multinational investment banking business, until its acquisition by the Bank of New York. Mr. Machinist has extensive capital markets and investment banking expertise and financial skills obtained through leadership positions with investment and merchant banking firms and service on the board of directors of other public companies.

        Our Board has determined that Robert B. Machinist is independent, as that term is defined in our Corporate Governance Guidelines and the general independence standards of the NASDAQ Listing Rules.


Vote Required and Board Recommendation

        For the election of directors, you may vote in favor of one or both of the nominees or withhold your vote as to one or both of the nominees. You will be voting with respect to the nominees that were nominated by our Board based on a recommendation from the Nominating Committee, and you will not be able to vote for more than two persons. There is no cumulative voting in the election of directors. If a quorum is present, then the nominees receiving a plurality of all of the votes cast at the Meeting will be elected.

OUR BOARD RECOMMENDS A VOTE "FOR" THE ELECTION AS DIRECTORS OF EACH OF THE NOMINEES LISTED ABOVE.

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PROPOSAL NO. 3

RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTING FIRM

        The Audit Committee has appointed Deloitte to audit the financial statements of the Company for the fiscal year ending December 31, 2010. Deloitte was our independent registered public accounting firm for our 2008 and 2009 fiscal years. Deloitte representatives are expected to attend the Meeting and, therefore, will have the opportunity to make a statement and be available to respond to questions. In the event of a negative vote on such ratification, the Audit Committee will reconsider its selection.


Principal Accounting Firm Fees

        For the fiscal years ended December 31, 2009 and 2008, all of the services performed by Deloitte were approved by the Audit Committee. The following table sets forth the services provided by, and aggregate fees paid to, Deloitte for each of the last two fiscal years:

Fee
  Year   Amount   Description of Services

Audit Fees

    2009   $ 771,724   Audit of our 2009 financial statements and review of our financial statements in our Quarterly Reports on Form 10-Q, including an assessment of the effectiveness of our internal controls over financial reporting.

   
2008
 
$

1,208,560
 

Audit of our 2008 financial statements and review of our financial statements in our Quarterly Reports on Form 10-Q, including an assessment of the effectiveness of our internal controls over financial reporting.

Audit-Related Fees

   
2009
 
$

87,600
 

Services relating to certain agreed upon procedures, prospective consulting and consulting on potential strategic transactions.

   
2008
 
$

46,314
 

Services relating to certain agreed upon procedures in connection with a revolving warehouse facility.

Tax Fees

   
2009
 
$

154,424
 

Preparation of our federal and state income tax returns, other compliance reporting and consultation and discussion on tax-related issues.

   
2008
 
$

201,534
 

Preparation of our federal and state income tax returns, other compliance reporting, consultation and discussion on tax-related issues, calculation of taxable income on certain of our investments and review of our 2008 taxable income and REIT qualification test calculations.

All Other Fees

   
2009
 
$

 

N/A

   
2008
 
$

 

N/A

Total Fees

   
2009
 
$

1,013,748
   

   
2008
 
$

1,456,408
   


Pre-Approval of the Independent Registered Public Accounting Firm's Services

        The Audit Committee has adopted policies and procedures for pre-approving all audit and non-audit services provided by our independent registered public accounting firm and its affiliates. These policies require the specific pre-approval of any such services that have not received the Audit

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Committee's general pre-approval or have exceeded the Audit Committee's pre-approved fee levels. These procedures include monitoring the independent registered public accounting firm's services to determine whether they comply with the pre-approval policies and the independent registered public accounting firm's submission of a statement to the Audit Committee that any services it performs that require separate pre-approval comply with the rules of the SEC on auditor independence.

        The Audit Committee pre-approved 100% of the audit-related, tax and other fees described in the table above for 2008 and 2009.

Vote Required and Board Recommendation

        For the proposal to ratify the appointment of Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2010, you may vote in favor of the proposal, vote against the proposal or abstain from voting. If a quorum is present, approval of the proposal requires the affirmative vote of a majority of all votes cast on the proposal. The Audit Committee will reconsider Deloitte's appointment if it is not ratified by our stockholders.

OUR BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF DELOITTE AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2010.

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PROPOSAL NO. 4

APPROVAL OF THE ADJOURNMENT OR POSTPONEMENT OF THE MEETING

Adjournment or Postponement

        If it becomes necessary to solicit additional proxies to approve Proposal Nos. 1 or 2, a motion may be made to adjourn or postpone the Meeting to a later time to permit further solicitation of proxies. If such a motion to adjourn or postpone is made, it will require the affirmative vote of the holders of a majority of all votes cast on the proposal, provided that a quorum is present. The Board believes this proposal to be advisable and in the best interests of the Company's stockholders because it gives the Company the flexibility to solicit the vote of additional holders of the Company's voting securities to vote on matters the Board deems important to the Company.


Vote Required and Board Recommendation

        For the proposal to approve the adjournment or postponement of the Meeting, you may vote in favor of the proposal, vote against the proposal or abstain from voting. If a quorum is present, approval of the proposal requires the affirmative vote of a majority of all votes cast on the proposal.

THE BOARD RECOMMENDS A VOTE "FOR" PROPOSAL NO. 4.

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DESCRIPTION OF CAPITAL STOCK

        The following summary description of our capital stock does not purport to be complete and is subject to and qualified in its entirety by reference to the Maryland General Corporation Law and our Charter and Bylaws, copies of which have been filed as exhibits to our Form 10-K for the fiscal year ended December 31, 2008, filed with the SEC on March 16, 2009, our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008, filed with the SEC on August 11, 2008, and our Current Report on Form 8-K, filed with the SEC on March 25, 2010, and are incorporated by reference in this Proxy Statement. To obtain copies of these and other filings, please see the section entitled "Where You Can Find More Information" in this Proxy Statement.


General

        Our Charter provides that we may issue up to 600,000,000 shares of stock, consisting of 500,000,000 shares of Common Stock, par value $0.001 per share, and 100,000,000 shares of Preferred Stock, $0.001 par value per share (the "Preferred Stock"). As of the Record Date, 6,455,357 shares of Common Stock were issued and outstanding, and no shares of Preferred Stock were issued and outstanding. Our Board, with the approval of a majority of the entire Board and without any action on the part of our stockholders, may amend our Charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue. Under Maryland law, our stockholders generally are not personally liable for our debts and obligations solely as a result of their status as stockholders.


Common Stock

        All shares of our Common Stock have equal rights as to earnings, assets, dividends and voting and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable. Distributions may be paid to the holders of our Common Stock if, as and when authorized by our Board and declared by us out of funds legally available therefor. Shares of our Common Stock have no preemptive, appraisal, preferential exchange, conversion, sinking fund or redemption rights and are freely transferable, except where their transfer is restricted by federal and state securities laws, by contract or by restrictions set forth in our Charter. Each share of our Common Stock entitles its holder to one vote. In the event of our liquidation, dissolution or winding up, each share of our Common Stock would be entitled to share ratably in all of our assets that are legally available for distribution after payment of or adequate provision for all of our known debts and other liabilities and subject to any preferential rights of holders of our Preferred Stock, if any Preferred Stock is outstanding at such time.

        Subject to any restrictions on the transfer and ownership of our capital stock that may be set forth in our Charter, from time to time and except as may otherwise be specified in the terms of any class or series of Common Stock, each share of our Common Stock entitles the holder thereof to one vote on all matters submitted to a vote of stockholders, including the election of directors. Except as provided with respect to any other class or series of stock, the holders of our Common Stock will possess exclusive voting power. Our Board is classified, and there is no cumulative voting in the election of directors, which means that holders of a majority of the outstanding shares of Common Stock can elect all of our directors, and holders of less than a majority of such shares will be unable to elect any director. However, upon consummation of the Transactions, pursuant to the Stockholders Agreement, for so long as Bounty owns at least 5% of the Outstanding Common Stock, the Company will maintain a Majority Voting Bylaw. See "Proposal No. 1—Approval of the Stock Issuances—Majority Voting Bylaw."

        Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions

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outside the ordinary course of business, unless recommended by the Board and approved by the affirmative vote of stockholders holding at least two-thirds of the shares entitled to vote on the matter. However, a Maryland corporation may provide in its charter for stockholder approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Our Charter generally provides for approval of Charter amendments and extraordinary transactions, which first have been declared advisable by our Board, by the stockholders entitled to cast at least a majority of the votes entitled to be cast on the matter. An affirmative vote of two-thirds of all votes entitled to be cast on the matter is required for approval of amendments to our Charter related to (i) removal of directors from our Board, (ii) the authority of our Board to classify and reclassify certain unissued shares of capital stock and (iii) restrictions on ownership and transfer relating to our prior status as a REIT that are no longer effective.


Preferred Stock

        Our Board may authorize the issuance of shares of any class or series of Preferred Stock, with such terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series as it may determine. Prior to issuance of shares of each class or series of Preferred Stock, our Board will be required by Maryland law and our Charter to fix the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, our Board could authorize the issuance of shares of Preferred Stock with terms and conditions that could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our Common Stock or otherwise be advisable and in their best interests. As of April 19, 2010, no shares of Preferred Stock were outstanding. While we have no present plans to issue any Preferred Stock, we may determine to issue Preferred Stock at any time in the future.


Power to Reclassify Shares of Our Capital Stock

        Our Charter authorizes our Board to classify and reclassify any unissued shares of stock into other classes or series of stock, including Preferred Stock. Prior to issuance of shares of each class or series, our Board is required by Maryland law and by our Charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, our Board could authorize the issuance of shares of Common Stock or Preferred Stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our Common Stock or otherwise be advisable and in their best interests.


Power to Issue Preferred Stock and Additional Shares of Common Stock

        We believe that the power of our Board to amend our Charter without stockholder approval to increase the total number of authorized shares of our capital stock or any class or series of our capital stock, to issue additional authorized but unissued shares of our Common Stock or Preferred Stock and to classify or reclassify unissued shares of our Common Stock or Preferred Stock and thereafter to cause us to issue such classified or reclassified shares of stock provides us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs which might arise. The additional classes or series, as well as our Common Stock, will be available for issuance without further action by our stockholders, unless stockholder action is required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. Our Board could authorize us to issue a class or series that could, depending upon the terms of such class or series, delay, defer or prevent a transaction or a change in control of us that might involve a premium price for holders of our Common Stock or otherwise be advisable and in their best interests.

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Restrictions on Ownership and Transfer

        We were formed as a REIT in 2004 and completed our initial public offering in June 2005. Effective January 1, 2008, we elected to terminate our status as a REIT when we converted to a C corporation for federal income tax purposes, at which point the restrictions on ownership and transfer of our capital stock set forth in Article VI of our Charter ceased to have any effect.

        We have available NOLs, NCLs and certain other tax attributes to offset our future taxable income. NOLs and NCLs benefit us by offsetting future taxable income, if any, dollar-for-dollar and thereby eliminating (subject to an alternative minimum tax) the U.S. federal corporate income tax to the extent such income is offset. The benefit of the NOLs, NCLs and certain other tax attributes can be reduced or eliminated if we undergo an Ownership Change, as defined in the Code. Generally, there is an Ownership Change if, at any time, one or more 5% stockholders (as defined in the Code) have aggregate increases in their ownership in the corporation of more than 50 percentage points looking back over the relevant testing period, which can occur as a result of acquisitions and certain dispositions of common stock by 5% stockholders. As a result of an Ownership Change, our ability to use our NOLs, NCLs and certain recognized built-in losses to reduce our taxable income in the future will generally be limited to the Section 382 Limitation.

        On May 20, 2009, we amended our Charter to restrict certain acquisitions and dispositions of our securities with the intention of reducing the likelihood of an Ownership Change and preserving the benefit of our NOLs, NCLs and certain other tax attributes for tax purposes. Article IX of the Charter generally prohibits any direct or indirect sale, transfer, assignment, exchange, issuance, grant, redemption, repurchase, conveyance, pledge or other disposition of shares of our Common Stock or rights or options to purchase our Common Stock or any other interests that would be treated as our capital stock under the income tax regulations promulgated under the Code, if as a result of such sale, transfer, assignment, exchange, issuance, grant, redemption, repurchase, conveyance, pledge or other disposition, any person or group becomes a 5% stockholder (as defined in the Code) or the percentage of our Common Stock already owned by an existing 5% stockholder (as defined in the Code) increases. The Board has the ability to grant waivers from the restrictions contained in Article IX of the Charter. Since the issuance of the Acquisition Shares will result in an Ownership Change, our Board has exempted the issuance of the Acquisition Shares and the issuance of the Convertible Notes to be purchased by Bounty from the restrictions set forth in Article IX of the Charter. If the Transactions are consummated and the Acquisition Shares are issued to Bounty, our Board has agreed to terminate the ownership and transfer provisions contained in Article IX of the Charter.

        Our Board has by resolution exempted the Company from the provisions of the Maryland Business Combination Act, and our Bylaws exempt the Company from the Maryland Control Share Acquisition Act. These statutory provisions, if applicable, could also dissuade stockholders from acquiring a significant amount of our Common Stock.

        Subject to stockholder approval, we could amend our Charter to implement new restrictions on ownership and transfer of our capital stock in the future. Any such ownership limitations that may be contained in our Charter could delay, defer or prevent a transaction or a change in control that might involve a premium price for the common stock or might otherwise be in the best interests of our stockholders.


Warrants

        Pursuant to the Termination Agreement, the Company has agreed to grant the Pegasus Investor warrants to purchase an aggregate of 200,000 shares of Common Stock and has agreed to grant to certain associates of the Pegasus Investor warrants to purchase an aggregate of 50,000 shares of Common Stock, in each case at an exercise price of $4.25 per share, expiring on April 9, 2014. Each warrant may be exercised, in whole or in part, at the applicable exercise price at any time prior to

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April 9, 2014. The warrants provide for the adjustment of the exercise price and the number of shares of Common Stock issuable upon exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of Common Stock or options to purchase Common Stock to the Company's stockholders. The warrants do not entitle the holders to any voting or other rights as are accorded to the Company's stockholders. The warrants will be granted to accredited investors in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act. Neither the warrants nor any shares of Common Stock issuable upon exercise of the warrants are subject to any contractual restrictions on transfer. No registration rights have been granted by the Company with respect to the warrants or the shares of Common Stock issuable upon exercise of the warrants.


Transfer Agent and Registrar

        The transfer agent and registrar for our Common Stock is AST.

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IMPORTANT PROVISIONS OF MARYLAND LAW AND OUR CHARTER AND BYLAWS

Removal of Directors

        Our Charter provides that a director may be removed only for cause by the affirmative vote of at least two-thirds of the votes entitled to be cast in the election of directors. For purposes of removal of a director, "cause" means conviction of a felony or entry of a final court judgment holding that the director caused demonstrable, material harm to our company through bad faith or active and deliberate dishonesty. This provision, when coupled with the provisions in our Charter and Bylaws giving our Board the exclusive power to fill vacant directorships, precludes stockholders from removing incumbent directors except for cause by a substantial affirmative vote and filling the vacancies created by the removal with their own nominees.


Business Combinations

        Under Maryland law, "business combinations" between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

    any person who beneficially owns 10% or more of the voting power of the corporation's shares; or

    an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

        A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board of directors.

        After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

    80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

    two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

        These super-majority vote requirements do not apply if the corporation's common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.

        The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Our Board has adopted a resolution providing that any business combination between us and any other person is exempted from the provisions of the Maryland Business Combination Act, provided that the business combination is first approved by the Board. As a result, such parties may be able to enter into business combinations with us that may not be in the best

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interest of our stockholders, without compliance with the super-majority vote requirements and the other provisions of the statute. This resolution, however, may be altered or repealed in whole or in part at any time. If this resolution is repealed, or our Board does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.


Control Share Acquisitions

        Maryland law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:

    one-tenth or more but less than one-third,

    one-third or more but less than a majority or

    a majority or more of all voting power.

        Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.

        A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.

        If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition.

        The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Accordingly, the control share acquisition statute does not apply to the Stock Issuances.

        Our Bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. This provision may be amended or eliminated at any time in the future. However, we will amend our Bylaws to be subject to the control share acquisition statute only if our Board determines that it would be in our best interests.

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Subtitle 8

        Subtitle 8 of Title 3 of the Maryland General Corporation Law permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions:

    a classified board of directors;

    a two-thirds stockholder vote requirement for removing a director;

    a requirement that the number of directors be fixed only by vote of the directors;

    a requirement that a vacancy on the board of directors be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred; and

    a majority requirement for the calling of a special meeting of stockholders.

        Through provisions in our Charter and Bylaws unrelated to Subtitle 8, we already (a) have a classified Board, (b) require a two-thirds stockholder vote for the removal of any director from the Board, as well as require such removal to be for cause, (c) vest in the Board the exclusive power to fix the number of directorships and (d) require, unless called by our chairman of the Board, our president, our chief executive officer or the Board, the request of holders of a majority of outstanding shares to call a special meeting. On March 25, 2010, the Company filed Articles Supplementary in the State of Maryland reflecting our Board's election that the Board will have the exclusive power to fill vacancies on the Board, by a vote of the remaining directors, and such vacancies will be filled until the end of the term of the class of directors in which the vacancy occurred.


Advance Notice of Director Nominations and New Business

        Our Bylaws provide that, with respect to an annual meeting of stockholders, nominations of persons for election to the Board and the proposal of business to be considered by stockholders may be made only (a) pursuant to our notice of the meeting, (b) by or at the direction of the Board or (c) by a stockholder who was a stockholder of record both at the time of giving of notice by such stockholder as provided for in our Bylaws and at the time of the annual meeting and who is entitled to vote at the meeting and who has complied with the advance notice procedures of the Bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of persons for election to the Board at a special meeting may be made only (a) pursuant to our notice of the meeting, (b) by or at the direction of the Board or (c) provided that the Board has determined that directors will be elected at the meeting, by a stockholder who was a stockholder of record both at the time of giving of notice by such stockholder as provided for in our Bylaws and at the time of the annual meeting and who is entitled to vote at the meeting and who has complied with the advance notice provisions of the Bylaws.


Anti-Takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws

        The business combination provisions and, if the applicable provision in our Bylaws is rescinded, the control share acquisition provisions of Maryland law, the provisions of our Charter relating to removal of directors and filling vacancies on our Board and the advance notice provisions of our Bylaws could delay, defer or prevent a transaction or a change in the control of us that might involve a premium price for holders of our Common Stock or otherwise be in their best interest.

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SELECTED FINANCIAL DATA OF THE COMPANY

        The selected historical consolidated financial information of the Company for the years ended December 31, 2009, 2008, 2007, 2006 and 2005 is set forth in the Company's 2009 Annual Report, which is incorporated by reference herein. The financial information incorporated herein by reference should be read in conjunction with, and is qualified in its entirety by reference to the Part II—Item 8. Financial Statements and Supplementary Data" and "Part II—Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's 2009 Annual Report.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CNCIM

        CNCIM is a wholly-owned subsidiary of Bounty. Both CNCIM and Bounty are managed by RUSM. Unless otherwise noted or the context otherwise requires, we refer to CNCIM, Bounty and RUSM as "we," "us," "our" or "our company."

        We consider all statements regarding industry outlook, the future performance of our business, and other non-historical statements, forward-looking statements as permitted by the Private Securities Litigation Reform Act of 1995. These include statements regarding future results or expectations. Forward-looking statements can be identified by forward-looking language, including words such as "believes," "anticipates," "expects," "estimates," "intends," "may," "plans," "projects," "will" and similar expressions, or the negative of these words. Such forward-looking statements are based on facts and conditions as they exist at the time such statements are made. Forward-looking statements are also based on predictions as to future facts and conditions, the accurate prediction of which may be difficult and involve the assessment of events beyond our control. Forward-looking statements are further based on various operating assumptions. Caution must be exercised in relying on forward-looking statements. Due to known and unknown risks, actual results may differ materially from expectations or projections. We do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to matters discussed in this Proxy, except as may be required by applicable securities laws. All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referenced above. Forward looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Forward-Looking Statements" beginning on page 21 and "Risk Factors" beginning on page 25.You should read the following discussion together with our consolidated financial statements and notes thereto beginning on page F-1.

        CNCIM is not a publicly traded company, is not registering any securities and had annual revenues of less than $50 million for the year ended December 31, 2009. Accordingly, CNCIM is a "smaller reporting company" as defined in Rule 405 under the Securities Act.


Overview

        CNCIM is a Delaware limited liability company formed in January 2006 and based in Charlotte, NC. CNCIM holds collateral management agreements to provide collateral management services ("Services") to four CLO Issuers with combined AUM of $1.8 billion as of December 31, 2009: ColumbusNova CLO Ltd. 2006-I ("2006-I"); ColumbusNova CLO Ltd. 2006-II ("2006-II"); ColumbusNova CLO Ltd. 2007-I ("2007-I"); and ColumbusNova CLO Ltd. 2007-II ("2007-II"). Reported AUM generally reflects the aggregate principal or notional balance of the collateral of the CLO and, in some cases, the cash balance held by the CLOs and is as of the date of the last trustee report received for each CLO prior to January 1, 2010.

        Upon completion of the Transactions, our operations will be merged into DFR's operations. Concurrent with the Transactions, DFR has negotiated employment agreements with certain key personnel of CNCIM, including our portfolio managers, William Hayes and Glenn Duffy (the "Portfolio Managers").


History of Operations

        In January 2006, RUSM helped Bounty create CNCIM, a CLO asset-management company with three senior asset managers, William Hayes, Glenn Duffy and Nicholas Combs (the "Partners"). The Partners collectively owned 50% of CNCIM, with Bounty holding the other 50%, until October 31, 2007 when they sold their interest to Bounty. Upon completion of that transaction, William Hayes and Glenn Duffy remained as Portfolio Managers of the business, while Nicholas Comb left the business.

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        In 2006, CNCIM contracted with Morgan Stanley to assist in the securitization of up to three CLOs. For a fee, Morgan Stanley provided short-term warehouse financing and assisted in the marketing, underwriting and securitizations of three CLOs totaling $1.4 billion AUM, as follows:

CLO
  Initial AUM
(in millions)
  Closing Date

2006-I

  $ 400.5   August 2006

2006-II

  $ 500.0   December 2006

2007-I

  $ 500.0   March 2007

        In 2007, CNCIM contracted with UBS to assist in the securitization of up to three CLOs. For a fee, UBS provided short-term warehouse financing and assisted in the marketing, underwriting and securitization of one CLO with $450 million of AUM in November 2007. Subsequently, CNCIM and UBS terminated the agreement and any requirement to pursue the securitization of the remaining two CLOs.

        As of December 31, 2009, CNCIM managed four CLOs with $1.8 billion of AUM, as follows:

CLO
  Closing Date   Underwriter   Initial AUM
(in millions)
  AUM
December 31, 2009
(in millions)
 

2006-I

  August 2006   Morgan Stanley   $ 400.5   $ 387.1  

2006-II

  December 2006   Morgan Stanley     500.0     486.5  

2007-I

  March 2007   Morgan Stanley     500.0     478.9  

2007-II

  November 2007   UBS     450.0     426.9  
                   

Total

  $ 1,850.5   $ 1,779.4  
                   

The Deerfield Transaction

        On March 22, 2010, Bounty entered into the Acquisition Agreement with DFR, pursuant to which DFR agreed to acquire 100% of Bounty's interest in CNCIM. In connection with the Acquisition, DFR entered into the Transition Services Agreement with Bounty and CNCIM, where DFR will provide Services to the four CLOs without charge, until the Acquisition is completed. In the event the transaction is terminated by DFR (under certain defined circumstances), DFR will continue to provide the Services, without charge for up to six months. In the event the transaction is terminated by Bounty (under certain defined circumstances), DFR is obligated to provide Services for a fee equal to 50% of the senior management fees (or 10 basis points) (the "TSA Rate") for up to six months. In either case, CNCIM will then be required to hire a third party to provide Services for the four CLOs. For further discussions please see page 41 under the heading "Acquisition Agreement" and page 63 under the heading "Transition Services Agreement."

        We anticipate the termination of all our employees on or around April 30, 2010 other than certain key employees, including William Hayes and Glenn Duffy, who have executed employment agreements with DFR and will assist in the management of our business under the terms of the Transition Services Agreement. In addition, other operating expenses will be discontinued and in the case of subscribed services, those services will not be renewed. As part of the Acquisition, operating expenses after April 30, 2010 up to $1.1 million during the remainder of 2010 and $0.1 million for 2011 will be paid by CNCIM. Expenses incurred above those limits will be paid directly by Bounty.

Our Business

        Our business involves earning contractual investment advisory fees for managing each CLO. The CLO investments include bank loans and other corporate debt, consisting of senior secured loans (first

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lien and second lien term loans), senior subordinated debt facilities and other junior securities, typically in middle market companies across a range of industries (collectively referred to as "Corporate Loans").

Collateralized Loan Obligations

        The term CLO generally refers to a special purpose vehicle that owns a portfolio of investments and issues various tranches of debt and equity securities to fund the purchase of those investments. The debt tranches issued by the CLO are typically rated by one or more of the principal rating agencies based on portfolio quality, diversification and structural subordination. The equity securities issued by the CLO represent the first loss piece of the capital structure and are generally entitled to all residual amounts available for distribution after the CLO's obligations to the debt holders and certain other parties have been satisfied. As of December 31, 2009, 2008 and 2007, we managed four CLOs that invest mainly in Corporate Loans and did not hold any investment in CLO debt or equity securities.

Investment Advisory Fees

        For the Services provided, we receive senior and subordinate management fees ("Fees"), generated and paid quarterly, calculated as a percentage of AUM for the respective CLO. In addition to the Fees, we are entitled to receive a performance incentive fee equal to 20% of the income above the performance goal. The performance goal for this calculation is determined as CLO income required to provide the CLO equity investor an internal rate of return ("IRR") of 12% on their net invested capital.

        A summary of contractual investment advisory fees is as follows:

CLO
  Senior
Management
Fees
  Subordinate
Management
Fees
  Performance
Incentive
Fees
 

2006-I

    0.2 %   0.3 %   20 %

2006-II

    0.2 %   0.3 %   20 %

2007-I

    0.2 %   0.3 %   20 %

2007-II

    0.2 %   0.2 %   20 %

        For 2007-II, we agreed to temporarily waive our right to the subordinate management fee to increase the overall profitability and cash flow of this CLO during a period of unstable market conditions following the global credit crisis which began in July of 2007. For the years ended December 31, 2009, 2008 and 2007, we waived $0.9 million, $0.9 million and $0.1 million respectively. As the markets have begun to stabilize we do not anticipate the need to continue waiving these fees, and there is no provision requiring DFR to waive this fee upon the successful consummation of the Acquisition.

Services Contracts

        Our results of operations depend largely on revenue earned under our investment management contracts with CLOs, and we had four contracts outstanding as of December 31, 2009. Those contracts currently expire between 2018 and 2021, and may be terminated early under certain circumstances. Each CLO generally has the right to remove CNCIM as the investment advisor of that CLO under certain conditions. Currently, we have not received any indication leading us to believe we may be removed as investment advisor under any contract, including as a result of the Acquisition. In the event of any such removal or termination, it would have a material impact on our results of operations.

Employees

        As of December 31, 2009 and 2008, we had 10 and 13 employees, respectively.

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Trends

        We have identified the following trends that may affect our business:

        Credit market dislocation.    The well-publicized disruptions in the financial markets that began in 2007 and escalated throughout 2008 significantly diminished through the second half of 2009. The numerous programs implemented by the U.S. government aimed at stabilizing credit markets and improving overall financial system liquidity show signs of having the desired effect. Among the signs of returning stability and confidence in financial markets was a strong increase in equity markets with the Dow Jones Industrial Average and the S&P 500 advancing by 23% and 21%, respectively, during the second half of 2009. Another sign that markets may be resuming more normal operations was an increased pace of mergers and acquisitions. Further contributing to a sense of returning normalcy was the relative stability of treasury yields. On balance, rates along the yield curve moved by 31 basis points or less from June 30, 2009 to December 31, 2009, with the shorter end of the curve (3 years or less) moving less than 16 basis points. The trailing 100 day volatility on the 10 year Treasury bond declined from 52.5% at June 30, 2009 to 27.2% by the end of the year. While we certainly cannot predict the long-term effect that these programs will have on financial markets or our business, we have observed that the massive liquidity provided by the government via the numerous programs it implemented had the effect of raising prices and lowering risk premiums.

        Corporate credit performance.    Corporate default rates have increased over the past year as the U.S. economy weakened and financial markets deteriorated. As noted above, stock prices have recently risen, and corporate earnings reports for many companies point to improving economic conditions. Although there may be some further cyclical increase in corporate defaults over the coming months, we expect government stimulus programs and improving economic conditions to begin moderating the pace of such defaults. If the stimulus packages are not effective in promoting growth, it is possible that recent signs of improvement will give way to renewed economic weakness. A further weakening of the U.S. economy would likely result in further increases in corporate default rates. Such increases would likely further reduce the returns associated with the Corporate Loans held in our CLOs. Increases in defaults could also cause us to trigger or prolong the effects of certain structural provisions in our CLOs that we manage. These structural provisions include, but are not limited to, overcollateralization requirements that are meant to protect investors from deterioration in the credit quality of the underlying collateral pool.

        CLO financing and management.    The reduction in liquidity and widening of credit spreads have resulted in significant downward pressure on the market values of assets typically held in and financed by CLOs. These decreased market values, along with increased default rates on assets held in CLOs and significant rating agency downgrades of the collateral underlying certain of our CLOs, have caused our CLOs to trigger certain of their structural provisions and potentially events of default, either of which reduce our management fees and AUM.

        There was a substantial increase in prices of Corporate Loans throughout 2009. This price increase, coupled with moderating loan defaults, has helped to repair some of the structural provisions in our four CLOs, which has increased the cash distribution of management fees we earn on our CLOs. We expect these structural provisions to continue to repair, which would be expected to result in higher cash distribution of management fees in 2010 when compared to the trend we were experiencing during 2009.

        The improving economic environment raises the possibility that new CLO issuances may resume during 2010. For newly formed CLOs we would also expect the relative size of the equity portion of the capital structure to be a larger percentage of the overall deal when compared to the CLOs we currently manage. While we do expect new CLOs to be launched in 2010, it is very difficult to determine when or how these new CLOs will be structured. While overall conditions in the credit markets appear to be

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improving, there has been a significant reduction in the number of banks willing to provide warehouse financing for collateral and, in those cases where financing is available, the banks are charging significantly higher fees and interest rates in addition to requiring more capital from borrowers. Similarly, potential investors are demanding significantly higher interest rates on CLO liabilities. To the extent that we are successful in creating new CLOs, the management fees we earn from managing these new CLOs may be significantly lower and we may be required to invest our capital into a new CLO, which may negatively affect our ability to grow our AUM and revenue.

        During 2008 and 2009, the CLO management market experienced some consolidation, evidenced by CLO management contracts being transferred to or acquired by other investment managers. We expect this consolidation trend to continue in the near term, and we will continue to evaluate our options in regards to the acquisition and assumption of management contracts.


Critical Accounting Policies

        Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These accounting principles require us to make some complex and subjective decisions and assessments. Our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all of the decisions and assessments inherent in our financial statements were reasonable, based upon information available to us. We rely on management's experience and analysis of historical and current market data in order to arrive at what we believe to be reasonable estimates. Under varying conditions, we could report materially different amounts arising under these critical accounting policies. We have identified our most critical accounting policies to be the following:

    Revenue Recognition

        Revenues, which include various forms of management and incentive fees, are received from the CLOs managed by CNCIM. These fees, paid quarterly in accordance with the individual management agreements between CNCIM and the CLO, are generally based upon the aggregate collateral amount of the CLOs as defined in the individual management agreements. Management fees are recognized as revenue when earned. In accordance with Accounting Standards Codification ("ASC") 605—Revenue Recognition, CNCIM does not recognize these fees as revenue until all contingencies have been removed, including the generation of sufficient cash flows by the CDOs to pay the fees under the terms of the related management agreements.

        Incentive fees may be earned from the CLOs managed by CNCIM. These fees are paid periodically in accordance with the individual management agreements between CNCIM and the CLOs and are based upon the performance of the underlying investment vehicles. Incentive fees are recognized as revenue when the amounts are fixed and determinable upon the close of a performance period for the achievement of performance targets for the CLOs.

        Structuring fees are earned for services we provided to CLOs or placement agents for the CLOs. CNCIM recognizes these fees as income upon the rendering of such services.

    Income Taxes

        The Company is a limited liability company and is treated as a partnership for income tax purposes. Because its income or loss is allocated to the individual members for tax reporting purposes no provision for income taxes was recorded.

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Recent Accounting Updates

        In May 2009, the FASB issued amendments to ASC Topic 855—Subsequent Events, or ASC Topic 855. The amendments to ASC Topic 855 establish general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, the amendments set forth: (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. We adopted the amendments to ASC Topic 855 and included the required disclosures in our notes to the consolidated financial statements.

        In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), or SFAS No. 167. In December 2009, the FASB issued ASU 2009-17 to revise the Codification to include SFAS No. 167 within ASC Topic 810. In February 2010, the FASB issued ASU 2010-10, Amendments for Certain Investment Funds, to defer the effective date of the amendments to the consolidation requirements of Topic 810 resulting from the issuance of SFAS No. 167 for reporting entities with interests in entities with all the attributes of an investment company but specifically excluding interests in securitization entities. This statement was issued to address concerns about financial statement preparers' ability to structure transactions to avoid consolidation, balanced with the need for more relevant, timely and reliable information about an entity's involvement in a VIE. This statement requires an enterprise to perform an analysis to determine whether the enterprise's variable interest or interests give it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise that has both the power to direct the activities of a VIE that most significantly impact the entity's economic performance and the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has the power to direct the activities of the VIE that most significantly impacts the entity's economic performance. SFAS No. 167 also amends FIN 46(R) to eliminate the quantitative approach to determining the primary beneficiary of a VIE and requires ongoing reassessments of VIE status. SFAS No. 167 is effective for our interim and annual reporting periods that begin after November 15, 2009. We are currently evaluating the effects that ASU 2009-17 will have on our consolidated statements and disclosures included in those consolidated financial statements.


Results of Operations

        The following section provides a comparative discussion of our consolidated results of operations as of and for the years ended December 31, 2009, or 2009, December 31, 2008, or 2008, and December 31, 2007, or 2007.

        The following table summarizes selected historical consolidated financial information:

(in $US Millions)
  2009   2008   2007  

Revenues

  $ 7.7   $ 7.9   $ 8.0  

Operating expenses

    6.6     5.4     5.2  
               

Income from operations

  $ 1.1   $ 2.5   $ 2.8  
               

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2009 Results of Operations vs. 2008 Results of Operations

        Revenue decreased by $0.2 million, or 3%, to $7.7 million for the year ended December 31, 2009 from $7.9 million for the year ended December 31, 2008 caused by a slight decrease in the amount of AUM.

        As a general rule, Fees are payable quarterly, provided certain financial and collateral covenant tests (the "Tests") on each CLO are sufficient to permit the distribution of Fees. During 2009, from time to time, certain of the Tests were not met, causing the deferral of CLO cash flow from junior debt investors and equity holders to pay CLO senior debt investors, limiting the free CLO cash available to pay our Fees in a timely manner. During 2009, those conditions existing with sufficient frequency leading to an increase in unpaid Fees. As of December 31, 2009, deferred fees amounted to $2.8 million, an increase of $1.4 million from December 31, 2008.

        Operating expenses increased by approximately $1.2 million or 22%, to $6.6 million for the year ended December 31, 2009 from $5.4 million for the same period ended December 31, 2008. The primary reason for the increase in operating expenses was the increase in management fees paid to RUSM. Management fees increased $0.9 million to $2.0 million for the year ended December 31, 2009 as compared to the same period ended December 31, 2008, primarily as a result of the work performed by RUSM in connection with the Acquisition. In addition, staff costs increased $0.6 million due to one-time bonuses paid to our key portfolio managers of $1.0 million, partially offset by $0.4 million in savings from the reduction in the number of full time employees from 13 at December 31, 2008 to 10 at December 31, 2009. The remaining decrease of $0.3 million was a result of a net reduction in other operating expenses.

2008 Results of Operations vs. 2007 Results of Operations

        Revenue for the year ended December 31, 2008 decreased $0.1 million or 1%, to $7.9 million, from $8.0 million for the year ended December 31, 2007. This decrease was the result of a $1.0 million decrease in securitization placement and structuring fees earned during the year ended December 31, 2007 compared to zero earned during the year ended December 31, 2008; partially offset by a $0.9 million increase in CLO Fees to $7.9 million during the year ended December 31, 2008 compared to $7.0 million during the year ended December 31, 2007 as a result of higher AUM.

        Operating expenses for the year ended December 31, 2008 increased $0.2 million or 4%, to $5.4 million, from $5.2 million for the same period ended December 31, 2007. This increase is primarily attributed to the increase of $1.1 million in management fees paid to RUSM as a result of increased monitoring and management services performed. This increase was partially offset by a decrease in staff costs of $1.0 million incurred during the year ended December 31, 2008 as compared to the same period ended December 31, 2007 due to lower employee bonuses.

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Contractual Obligations and Commitments

        The table below details our significant contractual obligations and the timing of payments (in thousands):

 
  Payment due by period  
Contractual Obligations
  Less than
one year
  One to three
years
  Three to five
years
  More than
five years
 

Severance and other employee related costs

  $ 888   $   $   $  

Operating leases

    199     170          

Service and outsource contracts

    137     10          
                   

Totals

  $ 1,224   $ 180   $   $  
                   

        CNCIM rents its office pursuant to an operating lease that requires fixed monthly rental payments, plus other common charges including a share of real estate taxes. In addition, we have sublet a portion of our office to Columbus Nova Real Estate Acquisition Group, LLC ("CRAG"), a related party. The lease and the sublease expire on October 31, 2011. Rent expense and rental income are recognized on a straight-line basis over the terms of the respective leases. Minimum future rental commitments under the non-cancelable lease, net of sublease rental income in each subsequent year are as follows (in thousands):

Year Ended December 31,
  Lease   Lease   Lease  

2010

  $ 199   $ (43 ) $ 156  

2011

    170     (37 )   133  
               

Totals

  $ 369   $ (80 ) $ 289  
               


Off-Balance Sheet Arrangements

        There were no off-balance sheet arrangements as of December 31, 2009, 2008 and 2007.


Liquidity and Capital Resources

        As of December 31, 2009, CNCIM had cash and cash equivalents of $0.3 million. We believe that our current cash and cash equivalents together with cash flows from operations are adequate to meet anticipated liquidity requirements over the next twelve months. The consolidated statements of cash flows for the year ended December 31, 2009 is summarized below:

 
  (In Thousands)  

Cash and cash equivalents at December 31, 2008

  $ 51  

Net change in cash due to:

       
 

Operating activities

    12  
 

Investing activities

     
 

Financing activities

    254  

Net change in cash and cash equivalents

    256  
       

Cash and cash equivalents at December 31, 2009

  $ 317  
       

        Cash and cash equivalents increased to $317 as of December 31, 2009, compared with $51 as of December 31, 2008. The increase in cash during the year ended December 31, 2009 is attributed to net contributions received from Bounty.

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        Cash flows from operations declined $987 to $12 as of December 31, 2009, compared with $999 for the year ended December 31, 2008. This decrease was the result of lower net income and reduced cash flows from management fees receivable, partially offset by increased cash flows from due from related party and accounts payable and accrued expenses.

        Cash flows provided by (used in) investing activities increased $20 to zero as of December 31, 2009, compared with $(20) for the year ended December 31, 2008. Fixed asset additions amounted to zero during the year ended December 31, 2009, in comparison to $(20) during the year ended December 31, 2008.

        Cash flows provided by (used in) financing activities increased $1,277 to $254 for the year ended December 31, 2009, as compared to $(1,023) for the same period ended December 31, 2008. This increase was primarily related to lower distributions of $922 and less loan repayments of $105, partially offset by an increase in contributions of $250.

        CNCIM's sources of cash are from Fees collected for Services provided to CLOs, and contributions from Bounty. Throughout the years ended December 31, 2009, 2008 and 2007, CNCIM had no loans or advances outstanding except as follows. The Company has entered into a loan with Bounty which provides the Company with up to $5.5 million to be used for its working capital needs. The loan bears interest at LIBOR plus 1,000 basis points, is due in January 2013 and can be pre-paid at any time without penalty. There was no balance outstanding as of December 31, 2009 and 2008. As of December 31, 2007, the balance outstanding was $105,000. CNCIM's principal uses of cash has been for operating expenses, distributions to Bounty, and capital expenditures (including expenditures for software development, fixed asset purchases and other items). For the years ended December 31, 2009, 2008 and 2007 CNCIM has generated sufficient cash flows from operations to fund all of its operating and financing needs, including distributions to Bounty.

        Net distributions to Bounty for the years ended December 31, 2009, 2008 and 2007 were as follows (in thousands):

Year Ended December 31,
  Distributions   Contributions   Net Distributions  

2009

  $ 936   $ (500 ) $ 436  

2008

    1,168     (250 )   918  

2007

             
               

Totals

  $ 2,104   $ (750 ) $ 1,354  
               

        As provided in the Acquisition, CNCIM is no longer permitted to make any further distributions to Bounty subsequent to the execution of the Acquisition Agreement, and the working capital loan described above will be terminated upon closing of the Acquisition. See "The Deerfield Transaction" on page 84 for a discussion of additional significant changes to our operations that will affect our liquidity and capital resources.

        We estimate the effect of inflation on our operations will not be material. However, changes in interest rates, including those changes that may be attributable to increases and decreases in inflation, can indirectly influence our financial performance by altering Fees which are derived as a percentage of our AUM.

        Our results of operations are not subject to seasonal effects, although the timing of receipt of revenue and payments of operating expenses may affect our financial condition and results of operations on an interim-period basis.

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UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION

        The Company, Bounty and CNCIM have entered into the Acquisition Agreement pursuant to which the Company will acquire CNCIM from Bounty. In addition, the Company entered into (1) the Convertible Notes Agreement with Bounty; (2) the Senior Notes Discharge Agreement with the holders of the Series A Notes and Series B Notes; (3) the Exchange Agreement with the holders of the Trust Preferred Securities; and (4) the Termination Agreement with respect to the DPLC Restructuring.

        The following unaudited pro forma condensed combined financial information reflects all pro forma adjustments related to the aforementioned agreements and is based upon the audited financial statements of the Company and the audited financial statements of CNCIM and the related notes thereto. The unaudited pro forma amounts have been developed from and should be read in conjunction with (1) the audited consolidated financial statements for the year ended December 31, 2009 and notes thereto of the Company included in the Company's 2009 Annual Report and (2) the audited consolidated financial statements for the year ended December 31, 2009 and notes thereto of CNCIM beginning on page F-1 of this Proxy Statement.

        The unaudited pro forma condensed combined financial statements are prepared using the purchase method of accounting, with the Company treated as the acquirer. The Company was determined to be the acquirer for accounting purposes as it is gaining control of CNCIM, as well as other qualitative factors. For a summary of the Acquisition, see "Proposal No. 1—Approval of the Stock Issuances."

        The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2009, give effect to the Transactions as if they had occurred on January 1, 2009. The unaudited pro forma condensed combined balance sheet at December 31, 2009 gives effect to the Transactions as if they had occurred on December 31, 2009.

        The Company has not completed all of the detailed valuation studies necessary to arrive at the required estimates of the fair market value of the CNCIM assets to be acquired and the CNCIM liabilities to be assumed and the related allocations of purchase price. As indicated in the notes to the unaudited pro forma condensed combined financial information, the Company has made certain estimates of the fair values necessary to prepare these unaudited pro forma condensed combined financial statements. The excess of the purchase price over the historical net assets of CNCIM, as adjusted to reflect estimated fair values, will be allocated among goodwill and definite- and indefinite-lived intangibles.

        The unaudited pro forma condensed combined financial information is provided for illustration purposes only and does not purport to represent what the actual combined results of operations or financial position of the Company would have been had the Transactions occurred at the beginning of the period presented or on the date indicated, nor is it necessarily indicative of future operating results or financial position.

        The unaudited pro forma condensed combined financial statements include estimates for potential adjustments for events that are (1) directly attributable to the Transactions; (2) factually supportable and (3) with respect to the statement of operations, expected to have a continuing impact on the combined company's results.

        The pro forma adjustments are described in the accompanying notes. Actual results may differ from the unaudited pro forma condensed combined financial statements as the Company undergoes additional studies necessary to evaluate, among other things, the purchase price allocation, the impact of the Ownership Change, as defined in Section 382 of the Code, and the Company's and CNCIM's conformance to critical accounting policies. There can be no assurance that such evaluation will not result in a material change.

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DEERFIELD CAPITAL CORP.

UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET

DECEMBER 31, 2009

(DOLLARS IN THOUSANDS)

 
  Historical   Pro Forma  
 
  DFR   CNCIM   Recapitalization   Note   Acquisition   Note   DFR
Combined
 

ASSETS

                                           
 

Cash and cash equivalents

  $ 48,711   $ 317   $ 3,160     3.1   $         $ 20,706  

                24,468     3.2                    

                (55,000 )   3.3                    

                (950 )   3.4                    
 

Due from broker

    14,606                                 14,606  
 

Restricted cash and cash equivalents

    19,296         (4,555 )   3.1                 14,741  
 

Investments at fair value

    326,810         (17,139 )   3.1                 309,671  
 

Other investments

    4,287         (2,942 )   3.4                 1,345  
 

Derivative assets

    74                                 74  
 

Loans held for sale

    536                                 536  
 

Loans

    278,585                                 278,585  
 

Allowance for loan losses

    (15,889 )                               (15,889 )
                                   
 

Loans, net of Allowance for loan losses

    262,696                             262,696  
 

Interest receivable

    3,420                                 3,420  
 

Investment advisory receivable

    2,117     2,864     (58 )   3.1                 4,923  
 

Other receivable

    2,890                                 2,890  
 

Prepaid and other assets

    7,043     223     (5 )   3.1     (223 )   3.8     8,164  

                532     3.2                    

                (161 )   3.3                    

                755     3.4                    
 

Fixed assets

    6,505     202                 (202 )   3.8     6,505  
 

Intangible assets

    21,231                     12,665     3.6     33,896  
 

Goodwill

                        18,010     3.7     18,010  
                                   
   

TOTAL ASSETS

  $ 720,222   $ 3,606   $ (51,895 )       $ 30,250         $ 702,183  
                                   

LIABILITIES

                                           
 

Repurchase agreements

  $ 291,463   $   $         $         $ 291,463  
 

Due to broker

    803         (803 )   3.1                  
 

Derivative liabilities

    450                                 450  
 

Interest payable

    1,103                                 1,103  
 

Accrued and other liabilities

    6,214     531     (91 )   3.1     2,836     3.9     17,534  

                (198 )   3.4     7,125     3.5        

                            1,117     3.11        
 

Long term debt

    413,329         (2,942 )   3.4                 363,072  

                25,000     3.2                    

                (72,315 )   3.3                    
                                   
   

TOTAL LIABILITIES

    713,362     531     (51,349 )         11,078           673,622  
                                   

STOCKHOLDERS' EQUITY

                                           
 

Preferred stock

                                     
 

Common stock

    6                     5     3.5     11  
 

Additional paid-in capital

    866,557         1,059     3.1     27,045     3.5     894,661  
 

Accumulated other comprehensive loss

    (87 )                               (87 )
 

(Accumulated deficit) Retained earnings

    (877,155 )   2,325     (1,223 )   3.1     (3,175 )   3.8     (866,024 )

                17,154     3.3     (2,836 )   3.9        

                3     3.4     (1,117 )   3.11        

Members' equity

        750                 (750 )   3.8      
                                   
   

TOTAL STOCKHOLDERS' EQUITY

    (10,679 )   3,075     16,993           19,172           28,561  
                                   

Noncontrolling interest in consolidated entity

    17,539           (17,539 )   3.1                  
                                   

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 720,222   $ 3,606   $ (51,895 )       $ 30,250         $ 702,183  
                                   

See notes to the unaudited pro forma condensed combined financial statements.

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DEERFIELD CAPITAL CORP.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

 
  Historical   Pro Forma  
 
  DFR   CNCIM   Recapitalization   Note   Acquisition   Note   DFR
Combined
 

REVENUES

                                           
 

Net interest income:

                                           
   

Interest income

  $ 48,849   $ 65   $ (492 )   3.1   $         $ 48,422  
   

Interest expense

    19,959         2,521     3.2                 14,647  

                (5,009 )   3.3                    

                (2,824 )   3.4                    
                                   
     

Net interest income

    28,890     65     4,820                     33,775  
 

Provision for loan losses

    20,114                                 20,114  
                                   
     

Net interest income after provision for loan losses

    8,776     65     4,820                     13,661  
 

Investment advisory fees

    17,880     7,741     (426 )   3.1     905     3.13     26,100  
                               

Total net revenues

    26,656     7,806     4,394           905           39,761  
                                   

EXPENSES

                                           
 

Compensation and benefits

    12,144     3,830                 (2,394 )   3.8     13,580  
 

Professional services

    3,018     19     (143 )   3.1     (19 )   3.8     2,875  
 

Insurance expense

    3,089                                   3,089  
 

Other general and administrative expenses

    7,627     487     (3,418 )   3.1     97     3.10     4,306  

                            (487 )   3.8        
 

Depreciation and amortization

    7,904     151                 (151 )   3.8     9,394  

                            1,490     3.6        
 

Occupancy

    2,402     186                 (186 )   3.8     2,402  
 

Management fee

    972     1,990     (972 )   3.1     (1,990 )   3.8      
 

Cost savings initiative

    236                                 236  
 

Impairment of intangible assets

    1,828                                 1,828  
                                   
     

Total expenses

    39,220     6,663     (4,533 )         (3,640 )         37,710  
                                   

OTHER INCOME AND GAIN (LOSS)

                                           
 

Net loss on available-for-sale securities

    (14 )                               (14 )
 

Net gain on investments at fair value

    9,798         (1,347 )   3.1                 8,451  
 

Net gain on loans

    35,302                                 35,302  
 

Net gain on derivatives

    2,547                                 2,547  
 

Dividend income and other net loss

    (287 )       (82 )   3.1                 (499 )

                (130 )   3.4                    
 

Net loss on the deconsolidation of Deerfield Loan Manager

            (409 )   3.1                 (409 )
 

Net gain on the deconsolidation of Market Square CLO

    29,551                                 29,551  
                                   
     

Net other income and gain (loss)

    76,897         (1,968 )                     74,929  
                                   

Income before income tax expense

    64,333     1,143     6,959           4,545           76,980  

Income tax expense

    29         1,137     3.12     1,248     3.12     2,414  
                                   

NET INCOME

    64,304     1,143     5,822           3,297           74,566  
 

Net loss attributable to noncontrolling interest

    2,594           (2,594 )   3.1                  
                                   

Net income attributable to Deerfield Capital Corp

  $ 66,898   $ 1,143   $ 3,228         $ 3,297         $ 74,566  
                                   

Net income per share—basic:

                                           

Common stock

  $ 9.89                                 $ 6.59  

Net income per share—diluted:

                                           

Common stock

  $ 9.89                                 $ 4.99  

Weighted—average number of shares outstanding—basic

    6,763,088                       4,545,455     3.14     11,308,543  

Weighted—average number of shares outstanding—diluted

    6,763,088                       8,684,939     3.14     15,448,027  

See notes to the unaudited pro forma condensed combined financial statements.

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DEERFIELD CAPITAL CORP.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1—Basis of Presentation

        The unaudited pro forma condensed combined financial statements give effect to the Transactions as if they had been completed on January 1, 2009 for statement of operations purposes and on December 31, 2009 for balance sheet purposes. The Acquisition is accounted for as a purchase business combination, with the Company treated as the legal and accounting acquirer. In addition, the Company entered into (1) the Convertible Notes Agreement with Bounty; (2) the Senior Notes Discharge Agreement with the holders of the Series A Notes and Series B Notes; (3) the Exchange Agreement with the holders of the Trust Preferred Securities; and (4) a Termination Agreement with respect to the DPLC Restructuring collectively referred to as the "Recapitalization".

        The unaudited pro forma combined financial data is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the Transactions had been consummated as of the beginning of the period or as of the dates for which the pro forma data is presented, nor is it necessarily indicative of future operating results or financial position of the Company.

        The Company's purchase price for CNCIM has been allocated to the assets acquired and the liabilities assumed based upon management's preliminary estimate of their respective fair values as of the date of acquisition. Definitive allocations will be performed and finalized after the completion of the Acquisition. Accordingly, the purchase price allocation pro forma adjustments are preliminary, have been made solely for the purpose of providing unaudited pro forma condensed combined financial data and are subject to revision based on a final determination of fair value.

        As of December 31, 2009, the Company had NOLs of approximately $209.0 million, which will begin to expire in 2028 if not used, and NCLs of approximately $422.8 million, which will begin to expire in 2012 if not used. The Transactions will result in an Ownership Change as defined in Sections 382 and 383 of the Code. As a result of the occurrence of the Ownership Change, the Company's ability to use its NOLs, NCLs and certain other built-in losses to reduce our taxable income in a future year would generally be limited to an annual amount equal to, among other possible limits, the fair market value of our Common Stock immediately prior to the Ownership Change multiplied by the long term tax-exempt interest rate in effect for the month of the Ownership Change, which for the month of April 2010 is 4.03%.

        In preparation of these unaudited pro forma condensed combined financial statements, management evaluated whether there are any differences in the accounting principles of the Company and CNCIM. As a result of this evaluation, management has concluded that there are no significant differences in the accounting policies of the Company and CNCIM.

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DEERFIELD CAPITAL CORP.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)


Note 2—Purchase Price of CNCIM

        For the purpose of preparing the accompanying unaudited pro forma condensed combined balance sheet as of December 31, 2009, the purchase price was calculated as follows:

(In thousands, except share information)
   
 

Shares issued

    4,545,455  

Multiplied by

  $ 5.99 (a)
       

Value of shares

  $ 27,227  

Less estimated cost to issue and register shares

    177 (b)
       

Total estimated equity component

    27,050  

Fair value of deferred purchase price payments to the seller

    6,948 (c)
       

Total estimated purchase consideration

  $ 33,998  
       

(a)
Represents the closing price of the Company's Common Stock on April 15, 2010. The stock price to be used for the purchase consideration will be determined on the Closing Date. Therefore, to provide some sensitivity to changes in the overall purchase price, a 20% change in the stock price upward or downward from $5.99 per share would result in a change of $1.20 per share, which equates to an approximate $5.5 million change to the purchase consideration. This upward or downward change in purchase consideration would result in an increase or decrease to goodwill by that amount.

(b)
Represents estimated legal costs directly associated with the Company's issuance and registration of 4,545,455 shares of Common Stock in connection with the Stock Issuances.

(c)
Represents the fair value of deferred payments to Bounty per the Acquisition Agreement. The payments are to be paid in five equal annual installments of $1.5 million, with the first payment being made six months after the Closing Date. These payments are not contingent on any performance, but rather are due as a result of the passage of time and were discounted to arrive at an estimated fair value.

        The Company has preliminarily evaluated the terms and conditions of the conversion feature contained in the Convertible Notes and believes that certain of the antidilution provisions of the conversion feature cause it to be deemed an embedded derivative instrument under the provision of ASC Topic 815, Derivatives and Hedging. Such provisions prevent the conversion feature from qualifying as being indexed to the Company's own stock. As a result, the fair value of the embedded derivative will need to be recorded as a liability on the balance sheet with an off-setting increase to the purchase price consideration. This increase in purchase price will result in an increase to goodwill. At each subsequent balance sheet date, the embedded derivative will be marked to fair value with the change in fair value being recorded in the statement of operations as net gain (loss) on derivatives. The Convertible Notes will be initially recorded as the fair value of the Convertible Notes less the fair value of the embedded derivative. Any difference between the recorded amount of the Convertible Notes and the $25 million principal amount of the Convertible Notes will be accreted to earnings using the effective yield method of recognizing interest expense. The embedded derivative financial instrument discussed in this paragraph is currently not reflected in the unaudited pro forma condensed combined financial statements. The Convertible Notes are reflected in the unaudited pro forma condensed combined balance sheet at $25 million. The Company is continuing to review the application of the

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DEERFIELD CAPITAL CORP.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)


accounting rules and the determination of an appropriate fair value for the embedded derivative financial instrument and resultant recorded value of the Convertible Notes.

        The following is a summary of the preliminary allocation of the above purchase price as reflected in the unaudited pro forma condensed combined balance sheet as of December 31, 2009:

 
  (In thousands)  

Historical equity of CNCIM

  $ 3,075  

Estimated costs incurred to issue and register the Common Stock

   
(177

)

Adjustments to reflect the fair value of CNCIM's prepaids and fixed assets

   
425
 

Estimated fair value of identifiable intangibles assets

   
12,665
 

Excess of purchase price over adjusted net assets acquired—goodwill

   
18,010
 
       

 
$

33,998
 
       

        See Note 3.6 for a discussion of the methods used to determine the fair value of CNCIM's identifiable intangible assets.


Note 3—Pro Forma Adjustments

3.1
-     To reflect the Termination Agreement with respect to the DPLC Restructuring, which was negotiated in contemplation of the Acquisition and is part of the Recapitalization. Pursuant to the Termination Agreement, the Company expects to receive an amount equal to its entire capital account balance, after certain adjustments for unamortized organizational costs, as outlined in the Termination Agreement, and cancelled warrants to purchase three million shares of Common Stock, which is all of the warrants previously issued to the Pegasus Parties. In connection with the DPLC Restructuring, the Company will grant fully vested warrants to purchase an aggregate of 250,000 shares of its Common Stock at an exercise price of $4.25 per share resulting in a $1.1 million charge to accumulated deficit and an offsetting adjustment to additional paid-in capital in the unaudited pro forma condensed combined balance sheet. This charge is not included in the unaudited pro forma condensed combined statements of operations because it is non-recurring. Additionally, this adjustment reflects the expected distributions of all capital balances to the respective members and partners of DPLC and DLC GP and the termination of these entities and resulting deconsolidation from the Company's unaudited pro forma condensed combined financial statements.

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DEERFIELD CAPITAL CORP.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)

      The following summarizes the impact of the elimination and deconsolidation of the DPLC Restructuring on the unaudited pro forma condensed combined balance sheet:

   
  (In thousands)  
   
  Debit   Credit  
 

Cash and cash equivalents

  $ 3,160   $  
 

Restricted cash and cash equivalents

        4,555  
 

Investments at fair value

        17,139  
 

Interest receivable

        58  
 

Prepaid and other assets

        5  
 

Due to broker

    803      
 

Accrued and other liabilities

    91      
 

(Accumulated deficit) Retained earnings

    164      
 

Noncontrolling interest in consolidated entity

    17,539   $  
             
 

  $ 21,757   $ 21,757  
             

      The following summarizes the impact of the elimination and deconsolidation of the DPLC Restructuring on the unaudited pro forma condensed combined statement of operations:

   
  (In thousands)  
   
  Debit   Credit  
 

Interest income

  $ 492   $  
 

Investment advisory fees

    426      
 

Professional services

        143  
 

Other general and administrative expenses

        3,418  
 

Management fee

        972  
 

Net gain on investments at fair value

    1,347      
 

Dividend income and other net loss

    82      
 

Net loss attributable to noncontrolling interest

    2,594      
 

Net loss on the deconsolidation of Deerfield Loan Manager

    409   $  
             
 

  $ 5,350   $ 4,533  
             
3.2
-     To reflect the issuance of Convertible Notes with a seven and one-half year maturity, which are convertible into shares of Common Stock of the Company at an initial conversion price of $6.05. The interest expense was calculated on a straight line basis taking into account the increasing stated annual interest rates. Debt issuance costs, estimated at $0.5 million, are amortized based on the effective yield method over the life of the debt resulting in additional interest expense of $71,000 for the year ended December 31, 2009.

3.3
-     To reflect the extinguishment of the Company's Senior Notes pursuant to the Senior Notes Discharge Agreement. The Company will discharge all of the $73.9 million aggregate face amount of the outstanding Senior Notes for $55.0 million or at an aggregate discount of approximately 25.6%. This will result in a net gain of $17.2 million, after eliminating the unamortized discount on the notes and prepaid debt issuance costs. This net gain is not included in the unaudited pro forma condensed combined statement of operations because it is non-recurring.

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DEERFIELD CAPITAL CORP.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)

3.4
-     To reflect the exchange of $95.0 million of Trust Preferred Securities for $95.0 million of junior subordinated notes. As a result of the exchange, $2.9 million of the $3.7 million of common securities, and a corresponding $2.9 million of debt issued to the Company under the applicable trust agreements were cancelled. An aggregate of $25.0 million in principal amount of Trust Preferred Securities was not exchanged and remains outstanding. The related interest expense was calculated using the 1% per annum fixed rate pursuant to the New Indenture. Debt issuance costs of $1.0 million are amortized on a straight line basis over the life of the debt resulting in additional interest expense of $35,000 for the year ended December 31, 2009. The Company's obligation to pay $0.2 million in fees associated with a prior amendment was extinguished as a result of the $95.0 million redemption of Trust Preferred Securities. As a result of the debt issuance costs related to the exchange and the extinguishment of fees, a pro forma adjustment of $0.8 million was made to unamortized debt issue costs.

The pro forma adjustments were calculated as follows:

   
  Trust
Preferred
Securities
  Junior
Subordinated
Notes
  Remaining
Trust
Preferred
Securities
  Pro Forma
Adjustments
 
   
  (Dollars in thousands)  
 

Long term debt

  $ (123,717 ) $ 95,000   $ 25,775   $ (2,942 )
 

Interest rate

    3.51 %   1.00 %   4.24 %      
 

Days outstanding

    365/360     365/360     365/360        
 

Interest expense

  $ (4,408 ) $ 963   $ 1,109   $ (2,336 )
 

Amortization expense(1)

  $ (660 ) $ 35   $ 137   $ (488 )
 

Dividend income(2)

  $ (163 ) $   $ 33   $ (130 )
 

Unamortized debt issue costs

  $ (195 ) $ 950   $   $ 755  

    (1)
    Amortization expense is included in interest expense in the unaudited pro forma condensed combined statement of operations

    (2)
    Represents the elimination of interest expense on the Company's ownership of the Trust Preferred Securities
3.5
-     To reflect the acquisition of CNCIM through the issuance of 4,545,455 shares of Common Stock and the $6.9 million fair value of the deferred payments totaling $7.5 million of cash to be paid in five equal annual installments of $1.5 million, with the first payment being made six months after the Closing Date. The issuance and registration costs of the Common Stock are reflected as a reduction to additional paid-in capital.

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DEERFIELD CAPITAL CORP.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)

3.6
-     To reflect the estimated value of CNCIM's intangible assets at the acquisition date. The preliminary allocations are as follows:

   
  Value   Estimated Average
Remaining
Useful Life
  Estimated Annual
Amortization Expense
 
   
  (In thousands)
  (In years)
  (In thousands)
 
 

Intangible asset class:

                   
   

Investment management contracts—CLOs

  $ 12,500     9   $ 1,457  
   

Employment contracts

    165     5     33  
                   
   

Total

  $ 12,665         $ 1,490  
                   

      The investment management contracts were valued using the income approach. This approach requires a projection of revenues and expenses specifically attributable to the asset being valued so that an estimated cash flow stream can be derived. The income approach indicates fair value based on the present value of the cash flows that the asset can be expected to generate in the future.

      The $1.5 million pro forma adjustment to depreciation and amortization expense for the year ended December 31, 2009 corresponds to the estimated annual expense outlined in the above table.

3.7
-     To reflect the difference between purchase price consideration paid in excess of fair value of tangible and identified intangible net assets acquired (goodwill). See Note 2 for further information.

3.8
-     To reflect the estimated fair value of CNCIM's reported assets, liabilities and equity. Additionally, this adjustment reflects the termination of nearly all CNCIM employees on or around April 30, 2010 as a result of entering into termination agreements with all employees except two that are being retained at CNCIM as part of the Acquisition, as well as the services agreement entered into between the Company and CNCIM, effective March 22, 2010.

3.9
-     To reflect the Company's estimated transaction related expenses that have not been paid. These costs are not included in the unaudited pro forma condensed combined statement of operations because they are non-recurring. Additionally, although not reflected in the adjustments because it is at the discretion of the Compensation Committee, a payment of special bonuses to the Company's officers and directors in connection with the Transactions of up to $1.3 million in the aggregate is permitted under the Acquisition Agreement.

3.10
-   To reflect the expense associated with a net increase of two directors to DFR's Board, resulting from Bounty's right to appoint three new directors, one of which will be independent, if necessary, and the expected resignation of one existing DFR director. Additionally, in connection with the Termination Agreement, two directors have resigned from the board of DCM. The net expense of the above actions is reflected in this adjustment.

3.11
-   To reflect the costs of transferring the operations of CNCIM estimated to be $1.1 million by CNCIM that will be borne by the Company. These costs are not included in the unaudited pro forma condensed combined statement of operations because they are non-recurring.

3.12
-   To reflect the estimated resulting income tax provision as a result of an Ownership Change as defined in Sections 382 and 383 of the Code. The Company previously had significant NOLs and

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DEERFIELD CAPITAL CORP.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (Continued)

    NCLs that were available to offset taxable income. The pro forma income tax provision is based on the estimated income tax expense of DFR combined (which takes into account all pro forma adjustments), which is based on an estimated tax rate of 40% for the year ended December 31, 2009. In addition, the adjustments take into account various assumptions with regard to built-in loss values and substantially limit the amount of available NOLs and NCLs pursuant to the Section 382 Limitation resulting from the occurrence of the Ownership Change.

3.13
-   To reflect the impact of reinstating the subordinated management fee of $0.9 million for Columbus Nova CLO 2007-II, which was temporarily waived during 2009 by CNCIM. There is no provision requiring DFR to waive this fee upon the successful consummation of the Acquisition.

3.14
-   The below table summarizes both the adjustments to the weighted-average number of shares outstanding and the effect on our earnings per share calculation as a result of issuing the Common Stock and the dilutive impact of the grant of warrants and issuance of Convertible Notes:

 
(In thousands, except share information)
  Year ended
December 31, 2009
 
 

Computation of DFR combined common stock net income per share—basic:

       
 

DFR combined net income attributable to common stockholders

  $ 74,566  
         
 

Calculation of DFR combined common stock shares outstanding:

       
 

DFR historical common stock shares outstanding—basic

    6,763,088  
 

Issuance of common stock

    4,545,455  
         
 

Weighted average common stock shares used in basic computation

    11,308,543  
         
 

Net income per common share—basic

  $ 6.59  
         
 

Computation of DFR combined common stock net income per share—diluted:

       
 

DFR combined net income attributable to common stockholders

  $ 74,566  
 

Add back of interest expense on Convertible Notes

    2,521  
         
 

DFR combined net income attributable to common stockholders after add backs

  $ 77,087  
         
 

Calculation of DFR combined common stock shares outstanding:

       
 

DFR historical common stock shares outstanding—diluted

    6,763,088  
 

Issuance of common stock

    4,545,455  
 

Dilutive impact from issuance of new warrants

    7,253  
 

Dilutive impact of Conversion Shares

    4,132,231  
         
 

Weighted average common stock shares used in diluted computation

    15,448,027  
         
 

Net income per common share—diluted

  $ 4.99  
         

      In addition, in connection with the Termination Agreement, the Company agreed to cancel three million unvested warrants that had not been included in diluted net income per share because the issuance of the warrants was contingent and the contingency had not yet been resolved.

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INFORMATION ON OUR BOARD OF DIRECTORS AND ITS COMMITTEES

Our Process for Nominating Director Candidates

        The charter of the Nominating Committee provides that the Nominating Committee shall consider director nominations from our stockholders. Generally, the nominating stockholder must deliver the nomination to our Corporate Secretary at least 120 days before we mail the proxy materials for the annual stockholders meeting for which the nomination is proposed, and the stockholder must provide a detailed statement of the nominee's qualifications and the nominee's written consent as required by our Bylaws and the Exchange Act. However, if the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the preceding year's annual meeting, as is the case this year, then the nomination must be delivered not earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Eastern time, on the later of (i) the 120th day prior to the date of such annual meeting or (ii) the 10th day following the day on which public announcement of the date of such meeting is first made. We first announced the date of the Meeting on April             , 2010; therefore, in order to be eligible to be considered for the Meeting, nominations must have been delivered by             .

        The Nominating Committee has not established specific minimum qualifications, or specific qualities or skills, for directors. The Nominating Committee recommends candidates based on its overall assessment of their skills and characteristics and the composition of our Board as a whole, including the nominee's independence under our categorical independence standards and director diversity, skills and experience in the context of our Board's needs. The Nominating Committee's process for identifying and evaluating director nominees is based on various factors, including recommendations from our directors and officers and participants in the industry in which we operate. The nominees for director listed in Proposal 2 above were recommended by the Nominating Committee, which is composed entirely of independent directors.


Directors Not Standing For Election

        The following table lists the name, age, term of office, business background and specific individual qualifications and skills of each of our incumbent directors:

Name
  Age   Biography
Class I Directors          

Peter W. May

 

 

67

 

Mr. May has been a member of our Board since December 2007. Mr. May has also been a director of Tiffany & Co. since May 2008 and of Wendy's / Arby's Group, Inc. (formerly known as Triarc Companies, Inc.) since April 1993. Since that time, he has also been a director or manager and officer of certain of Triarc's subsidiaries. Additionally, Mr. May has been President and a founding partner of Trian Fund Management, L.P. since November 2005. From its formation in January 1989 to April 1993, Mr. May was President and Chief Operating Officer of Trian Group. He was President and Chief Operating Officer and a director of Triangle Industries, Inc. from 1983 to December 1988. Mr. May has also served as a director of Encore Capital Group, Inc. since February 1998. Mr. May has extensive business and investment experience obtained from leadership positions at Trian and service on the boards of directors of other public companies.

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Name
  Age   Biography
Peter H. Rothschild     54   Mr. Rothschild has been a member of our Board since December 2004 and the interim Chairman of our Board since April 2007. Mr. Rothschild has been the Managing Member of Daroth Capital LLC, a financial services company, since its founding in 2001 and the President and CEO of its wholly-owned subsidiary, Daroth Capital Advisors LLC, a securities broker-dealer, since 2002. Prior to founding Daroth Capital, Mr. Rothschild was a Managing Director and Co-Head of the Leveraged Finance and Industrial Finance groups at Wasserstein, Perella, the predecessor company to Dresdner Kleinwort Wasserstein and was with the organization from 1996 to 2001. From 1990 to 1996, Mr. Rothschild was a Senior Managing Director and Head of the Natural Resources Group at Bear, Stearns & Co. Inc. and was one of the founders of the firm's Leveraged Finance and Financial Buyer Coverage groups. From 1984 to 1990, Mr. Rothschild was a Managing Director and Head of the Industrial Group at Drexel Burnham Lambert. Mr. Rothschild previously served on the board of directors of Wendy's International, Inc. from March 2006 to September 2008. Mr. Rothschild has extensive investment banking and financial experience obtained from leadership roles at investment banking firms and service on the boards of directors of other public companies.

Class II Directors

 

 

 

 

 

Robert E. Fischer

 

 

80

 

Mr. Fischer has been a member of our Board since December 2004. Since May 2009, he has served as Of Counsel to the law firm of Cozen O'Connor. From 1998 to 2009, he served as Of Counsel to WolfBlock LLP (whose New York office was acquired by Cozen O'Connor) where he served as a senior member in the Corporate Practice Group. From 1961 to 1998, Mr. Fischer was managing partner of the law firm of Lowenthal, Landau, Fischer & Bring P.C., which merged with WolfBlock LLP in 1998. Until October 2008, Mr. Fischer served as a board member of a trust established to oversee the liquidation of assets of Allegiance Telecom Inc. and its subsidiaries. He has also previously served on the board and audit committee of the DLJ International Fund (from June 1995 to November 2000), the DLJ Emerging Markets Fund (from June 1995 to November 2000) and the DLJ High Yield Bond Fund (from July 1998 to November 2000). Mr. Fischer has extensive legal and financial experience obtained from leadership positions at law firms and service on the audit committees of investment funds.

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Name
  Age   Biography
Stuart I. Oran     59   Mr. Oran has been a member of our Board since May 2009. He is the Managing Member of Roxbury Capital Group LLC, a New York based merchant banking firm that he founded in April 2002. Mr. Oran is also a co-founder of Bond Street Holdings LLC, a bank holding company formed to acquire failed banks in FDIC-assisted transactions. Mr. Oran currently serves as the Chief Administrative Officer of Premier American Bank, NA, a subsidiary of Bond Street. From 1994 to 2002, Mr. Oran held a number of senior executive positions at UAL Corporation and its operating subsidiary, United Airlines. During that period, Mr. Oran also served as a director of United Airlines (the operating subsidiary) and several of its subsidiaries and on the Management Committee, Risk Management Committee and Alternative Asset Investment Committee of UAL. Prior to joining UAL and United, Mr. Oran was a corporate partner at the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP, with a corporate finance, M&A and restructuring practice representing major corporations, private equity firms and global financial institutions. Mr. Oran is currently a director of Red Robin Gourmet Burgers, Inc. During the past five years, Mr. Oran has also served on the boards of directors of Wendy's International, Inc. (from March 2006 to September 2008), Spirit Airlines (from March 2004 to present), Polaris Acquisition Corp. (now Hughes Telematics) (from July 2007 to May 2009), Premier American Bank, N.A. (from January 2009 to present) and the board of managers of Fontainebleau Resorts LLC (from January 2009 to present). Mr. Oran has extensive business, legal, financial and transaction experience obtained from leadership roles at merchant banking firms, law firms and service on the boards of directors of other public companies.

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Bounty Designees

        The following table lists the name, age, term of office, business background and specific individual qualifications and skills of each of the directors to be designated by Bounty and appointed by the Board upon consummation of the Transactions:

Name
  Age   Biography
Class I Director          

Jason Epstein

 

 

36

 

Mr. Epstein has been a partner of Columbus Nova, primarily responsible for private investment activities, since February 2002. Columbus Nova manages over $2.0 billion of assets under management. In 1998, Mr. Epstein founded eLink Communications, a provider of broadband, networking and application services, and served as its Chief Executive Officer for three years, until September 2001. Before founding eLink Mr. Epstein was also an initial employee of Catalyst Health Solutions, Inc., a full-service pharmacy management company listed on the NASDAQ under the symbol "CHSI". Mr. Epstein has twice been a finalist for the Ernst & Young Entrepreneur of the Year Award and was named one of forty "Rising Stars" in the Washington Business Forward's "The Next Network." Mr. Epstein has extensive business and transaction experience obtained from leadership roles in the telecommunications, healthcare and asset management sectors, as well as service on various board of directors of portfolio companies. Mr. Epstein received a B.A. from Tufts University and currently serves on the University's Board of Overseers of the School of Liberal Arts.

Class II Director

 

 

 

 

 

Andrew Intrater

 

 

48

 

Mr. Intrater has been the Chief Executive Officer of Columbus Nova, a private investment firm with offices in New York and Charlotte since January 2000. Columbus Nova manages over $2.0 billion of assets under management. Mr. Intrater is also a former director of Renova Management, a global leader in energy, base metals and mining industries, and also currently a member of the Executive Board of Renova Management. Columbus Nova is the U.S.-based affiliate of the Renova Group of companies, one of the largest Russian strategic investors in the metallurgical, oil, machine engineering, mining, chemical, construction, housing & utilities and financial sectors, with net assets of over $14 billion. Renova Group of companies is a shareholder of leading mining and industrial entities in the Russian and global business communities, such as TNK-BP and US RUSAL. From March 1993 until the end of 1999, Mr. Intrater served as President and Chief Operating Officer of Oryx Technology Corp., and its predecessor, ATI, a leading manufacturer of semi-conductor testing equipment, based in Silicon Valley. Mr. Intrater also served as Chairman of the Board of Directors of Moscow Cablecom Corp. from 2005 to 2007. Mr. Intrater is also a member of the Board of Directors of Oryx Technology Corp., and Ethertouch, Ltd. Mr. Intrater has over 25 years of experience in general management, including business and transaction experience obtained from leadership roles in the technology and asset management sectors, as well as over 16 years of service on the boards of directors of other public companies. Mr. Intrater received a B.S. from Rutgers University.

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Name
  Age   Biography
Class III Director          

 

 

 

 

 

 


Board Leadership Structure and Risk Oversight

        The Board has separated the roles of Chief Executive Officer and Chairman of the Board; however, the Board has not created the role of a lead independent director. Peter H. Rothschild has served as the interim Chairman of our Board since April 2007. The Board believes Mr. Rothschild is best suited to serve as Chairman of the Board because of the extensive knowledge of the Company he has developed serving on the Board since December 2004. The Board also believes that Mr. Rothschild's extensive investment banking and financial experience obtained from leadership roles at investment banking firms and service on the board of directors of other public companies allows him a unique insight into both segments of Company's business.

        The Board is responsible for consideration and oversight of risks facing the Company, and is responsible for ensuring that material risks are identified and managed appropriately. As set forth in the Audit Committee charter, the Audit Committee is charged with the evaluation of risk assessment and the Company's risk management policies. In fulfilling this role, the Audit Committee receives reports directly from our internal audit function. In addition, the Audit Committee reviews and approves the internal audit plan once a year and receives periodic reports from members of senior management and internal audit on areas of material risk to the Company, including operational, financial, legal, regulatory and strategic risks.


Majority Voting Bylaw

        Under the laws of the State of Maryland, the State in which we are incorporated, a plurality of the votes cast at a stockholders' meeting at which a quorum is present is sufficient to elect a director unless the charter or bylaws of a corporation provide otherwise.

        Section 7 of Article II of our Bylaws provides for the election of directors by a plurality of votes cast at a stockholders' meeting at which a quorum is present in person or by proxy. Under Article XIV of our Bylaws, our Board has the exclusive power to adopt, alter or repeal any provision of the Bylaws and to make new Bylaws.

        Pursuant to the Stockholders Agreement and Article XIV of our Bylaws, upon the consummation of the Acquisition, the Board will adopt a Majority Voting Bylaw to replace Sections 3 and 7 of Article II of our Bylaws in their entirety, substantially in the form attached as Annex D to this Proxy Statement. The Majority Voting Bylaw shall be maintained for so long as Bounty owns at least 5% of the Outstanding Common Stock. Following its adoption:

    Our directors will be elected by a majority of the votes cast in an uncontested election (i.e. if the votes cast for such nominee's election exceed the votes cast against or withheld for such nominee's election); and

    Our directors will be elected by a plurality of the votes cast in a contested election, where the number of nominees exceeds the number of directors to be elected.

        In the case of uncontested elections, broker non-votes will have no effect on a director's election and "withheld" votes will have the same effect as a vote "AGAINST" the election of such directors. In the case of contested elections, "withheld" votes and broker non-votes will have no effect on a director's election.

        In order for any incumbent director to become a nominee for election to the Board, such individual must submit an irrevocable resignation prior to the stockholders' meeting at which directors

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are to be elected. Such resignation will be automatically effective if the incumbent director does not receive a Majority Vote in an uncontested election or a plurality of the votes in a contested election.


Number of Board Meetings in 2009

        Our Board held 12 meetings in 2009. All directors attended at least 75% of the total meetings of our Board and the committees of our Board on which they served.


Director Attendance at Annual Meetings

        Our Board has not adopted a formal policy regarding director attendance at our annual stockholders meetings, but encourages such attendance. All of our then-current directors attended our most recent annual meeting held on December 15, 2009.


Committees of our Board

        Our Board has established three standing committees: (i) the Audit Committee, (ii) the Compensation Committee and (iii) the Nominating Committee. Our Board may form other committees as circumstances warrant. Pursuant to the Stockholders Agreement, at the Closing our Board will establish the Strategic Committee. See "Proposal No. 1—Approval of the Stock Issuances—Stockholders Agreement—Strategic Committee." The committees have such authority and responsibility as our Board delegates. Each standing committee has a written charter, a current copy of which is available for review on our website at www.deerfieldcapital.com, under the section entitled "DFR Stockholder Info—Corporate Governance." The information on our website is not incorporated into this Proxy Statement.

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        The following table sets forth certain information for each standing committee of our Board:

Committee
Name
  Committee
Members
  Committee
Chair
  Number of
Committee
Meetings in
2009
  Summary of
Committee Functions
(see committee
charters for
full descriptions)
Audit Committee   Robert B. Machinist
Stuart I. Oran
Robert E. Fischer
  Robert B. Machinist   5   Assists the Board in overseeing our accounting and financial reporting processes, the integrity and audits of our consolidated financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our accountants and the performance of those accountants and our internal auditors; appoints our independent accountants and reviews with the accountants the plans and results of the audit engagement; approves professional services provided by the accountants; determines the independence of the accountants; reviews the adequacy of our internal accounting controls; establishes procedures for the submission and treatment of concerns and complaints relating to accounting matters, internal controls and questionable accounting or auditing matters.

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Committee
Name
  Committee
Members
  Committee
Chair
  Number of
Committee
Meetings in
2009
  Summary of
Committee Functions
(see committee
charters for
full descriptions)
Compensation Committee   Peter W. May
Robert E. Fischer
Robert B. Machinist
  Peter W. May   5   Evaluates performance of and determines and approves compensation for CEO, executive officers, senior management and other employees; produces compensation committee report required by the SEC; makes recommendations to the Board regarding our First Amended and Restated Stock Incentive Plan and administers and approves grants under such plan; reviews director compensation and makes related recommendations to the Board.

Nominating & Corporate Governance Committee

 

Robert E. Fischer
Robert B. Machinist
Stuart I. Oran

 

Robert E. Fischer

 

5

 

Recommends to the Board qualified candidates for election as directors and recommends to the Board a slate of nominees for election as directors at the annual meeting of stockholders; submits to the Board selection criteria for director nominees; advises the Board on matters involving general operation of the Board and our corporate governance; annually recommends to the Board nominees for each Board committee; facilitates the assessment of the Board's performance and of the individual directors and reports thereon to the Board.

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        In November 2009, our Board established the Special Committee, a non-standing committee consisting of Messrs. Machinist, Fisher and Oran, to consider and evaluate the potential transaction with Columbus Nova and Bounty.


Director Independence

        Our Board has determined that the following members of the Board are "independent," as that term is defined in our Corporate Governance Guidelines and the general independence standards of the NASDAQ:

Name
  Class
Peter W. May   I (term expires at the 2011 annual meeting)
Stuart I. Oran   II (term expires at the 2012 annual meeting)
Robert E. Fischer   II (term expires at the 2012 annual meeting)
Robert B. Machinist   III (term expires at the Meeting)

        These four independent directors constitute a majority of our Board and are the only members of our three standing Board committees (the Audit, Compensation and Nominating & Corporate Governance committees). Our Board has also determined that those four independent directors have no material relationships with us that would prevent them from qualifying as independent under the NASDAQ Listing Rules. Mr. May has indicated that he intends to resign from the Board following the consummation of the Transactions and the Board intends to fill the vacancy created thereby with an individual who qualifies as an independent director.

        Our Corporate Governance Guidelines also set forth our policies regarding the qualifications of directors, the identification of candidates for Board pos