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Futuronics Corporation
MERGER FAIRNESS REVIEW
October 31, 2000
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PRIVATE AND CONFIDENTIAL
The attached materials have been compiled and prepared by Ryan, Beck & Co., Inc.
solely for the use and information of the Board of Directors and management of
Futuronics Corporation. Such materials are not intended for viewing by any other
person or party for any purpose, and no such review should be undertaken without
the prior written consent of Ryan, Beck & Co., Inc. through one or more of its
authorized officers.
Portions of the information contained herein are not publicly available and are
not intended for public dissemination. The public disclosure or personal use of
such information may be actionable under applicable federal and/or state
securities laws.
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TABLE OF CONTENTS
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1) TERM SHEET AND STRUCTURE
2) ALLIED CAPITAL CORPORATION
A) Description
B) Selected Historical Financial Data
3) OWNERSHIP OF FUTURONICS CORPORATION
4) FUTURONICS CORPORATION
A) Description of Futuronics Corporation
5) VALUATION OF FUTURONICS CORPORATION
A) Balance Sheet Analysis
6) VALUATION OF BLC FINANCIAL SERVICES, INC.
A) Discounted Dividend Analysis
B) Imputed Value Analysis
C) Break Even Analysis
7) ADVANTAGE OF THE TRANSACTION TO FUTURONICS CORPORATION STOCKHOLDERS
8) RELATIONSHIP OF RYAN, BECK & CO., INC. WITH FUTURONICS, BLC AND ALLIED
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TERM SHEET AND STRUCTURE
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TERM SHEET
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BACKGROUND: Allied Capital Corporation ("Allied") is seeking to acquire
BLC Financial Services, Inc. ("BLC"). Allied has offered to exchange 0.180
shares of Allied common stock for each share of BLC common stock, except
for the shares held by Futuronics. In order to reduce the tax burden to
its shareholders, Futuronics Corporation ("Futuronics"), an owner of
approximately 12.0% of the outstanding shares of BLC, has negotiated a
sale of Futuronics for cash to Allied. This transaction enables Allied to
acquire BLC while providing a premium price to Futuronics shareholders as
well as potential tax advantages.
CONSIDERATION TYPE: Cash
CONSIDERATION AMOUNT: Futuronics shareholders will receive aggregate
consideration of $9,083,284.
TAX TREATMENT: The transaction will be taxable to Futuronics shareholders.
VOTING AGREEMENT: Carol Tannenhauser, Peter D. Blanck, Richard Blanck and
Wendy Blanck are required to enter into a voting agreement.
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[DIAGRAM DEPICTING TRANSACTION]
[1] ALLC contributes ACE assets to SBLC. SBLC establishes separate BOD, Mgt, &
Op Systems.
[2] ALLC exchanges cash for F stock in merger of F with FACQ.
[3] BLC recapitalizes & establishes class A & B stock with identical rights
Class A (shares to exchange with ALLC) Class B (5.1% + F's BLC shares)
[4] ALLC merges with BLC into portfolio company / BLC is survivor
[5] BLC recapitalizes again Class B exchange for Class A common
[6] SBLC merges with BLC on 1/1/01 / BLC is survivor
NOTE: STEPS 3, 4 AND 5 ARE SIMULTANEOUS.
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ALLIED CAPITAL CORPORATION
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ALLIED CAPITAL CORPORATION
Description
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COMPANY OVERVIEW
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Allied Capital Corporation provides private investment capital to private
companies and undervalued public companies in a variety of different
industries and in diverse geographic locations throughout the United
States. The Company has been investing in growing businesses for over 41
years and has financed thousands of private companies nationwide. The
Company is a publicly traded business development company ("BDC") as
defined in the Investment Company Act of 1940 ("the 1940 Act"). The
Company is the largest BDC in the nation. Allied is a Regulated
Investment Company for tax purposes and as such must distribute 90% of
its "investment taxable income" to shareholders.
The Company's principal lines of business include private finance and
small business finance, operating under the name "Allied Capital
Express". The Company is also an investor in commercial mortgage-backed
securities. At September 30, 2000, the investment portfolio totaled $1.6
billion. The Company's portfolio by line of business at September 30,
2000 was 59% private finance, 37% real estate finance, and 4% small
business finance.
Allied Capital is a full-service investor that sources, originates and
services its investments. The Company sources investments through various
industry contacts such as investment banks, private equity firms, private
mezzanine lenders and other financial intermediaries. Allied Capital's
credit approval and servicing functions are centralized in its
Washington, DC headquarters. The Company maintains regional offices in
Chicago, San Francisco and New York. In addition, Allied Capital Express
has eight regional offices. Allied Capital is led by a highly talented
and experienced management team.
Allied Capital's eight senior managers possess over 150 years of combined
experience in the investment industry, while principal investment
professionals have an average of 14 years of industry experience. At
September 30, 2000, Allied Capital had total assets and book equity of
$1.7 billion and $933.3 million, respectively. Allied Capital is a
publicly traded company, with its common shares trading on NASDAQ under
the symbol "ALLC." At October 27, 2000, the Company had a market
capitalization of approximately $1.6 billion. The Company's management
has been able to maintain strong asset quality, as evidenced by average
annual realized investment losses of less than 1% of its total assets
over the last 20 years.
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COMPANY OVERVIEW
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The Company is conservatively capitalized, and as a BDC is required by
law to maintain an asset coverage ratio (broadly defined to be assets to
indebtedness) of at least 200% of its indebtedness. Historically,
management has managed the Company's leverage ratio on an even more
conservative basis, and at June 30, 2000, the Company's asset coverage
ratio was 225% (which approximates a debt to equity ratio of 0.9 to 1.0).
The Company has no public debt outstanding.
The Company has successfully accessed the private long-term debt markets
on three separate occasions, raising $180 million in April 1998, $137
million in May 1999, and $102 million in November 1999. Each of the note
issues were designated "NAIC-2" by the Securities Valuation Office of the
National Association of Insurance Commissioners ("NAIC"). The November
1999 Notes also received a "BBB" rating from Fitch IBCA, Inc.
The Company has historically been successful in growing its operating
income through its investing and lending activities as illustrated in the
chart below.
PRIVATE FINANCE
Allied Capital is a leading provider of private long-term investment
capital to growing private and undervalued public companies nationwide.
Its private finance activities focus on mezzanine financing that provides
long-term debt capital with an equity participation. The Company's debt
is typically junior in priority to the senior debt financing provided by
traditional lenders, such as banks, commercial finance companies and
insurance companies, but is senior in priority to the equity capital
provided by private equity investors.
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COMPANY OVERVIEW
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The Company has maintained its successful track record as a private
finance lender by following a well-established set of underwriting
criteria in originating these loans. In addition to maintaining portfolio
diversity with respect to investment size, industry and geographic
location, the Company typically seeks companies with sufficient critical
mass and sustainable cash flow margins to assure repayment of the debt
financing. The Company seeks companies that are in non-cyclical
industries and have excellent management teams with proven track records.
Portfolio companies have generally been in business in excess of 10
years.
In general, Allied Capital's mezzanine investments range in size from $5
million to $30 million, with an average size of $13.9 million for new
investments originated during the first six months of 2000. These
investments bear current interest at fixed rates ranging between 12% and
18%. In many transactions, Allied Capital receives warrants to purchase
equity of the growing business at a nominal cost. When equity is later
sold, the resulting gain adds to Allied Capital's investment return.
SMALL BUSINESS FINANCE - ALLIED CAPITAL EXPRESS
Through Allied Capital Express, the Company's small business lending
program, Allied Capital originates small business and small commercial
real estate loans up to $3 million for sale. Once originated, these loans
are sold to banks and other institutional investors. The Company is
licensed by the Small Business Administration ("SBA") as a non-bank
lender to participate in the SBA Section 7(a) Guaranteed Loan Program,
and is one of the oldest non-bank lenders in the country. Under the 7(a)
Guaranteed Loan Program, loans of up to $1 million have a 75% "full faith
and credit" government guarantee. As a result, the majority of the Allied
Capital Express loans are readily saleable at significant premiums to
face value. Premiums, net of origination costs, generally range between
4.0% to 7.5% of the loan balance sold.
Allied Capital Express provides a steady stream of premium income of the
Company, yet uses minimal investment capital. As a result, Allied Capital
Express enhances the Company's overall return on assets and equity
capital.
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COMPANY OVERVIEW
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COMMERCIAL REAL ESTATE FINANCE
Allied Capital has been a commercial real estate lender throughout its
history. The Company's management has always recognized that commercial
real estate finance is a cyclical sector of the capital markets, and that
a commercial real estate lender must follow the markets closely and react
quickly to changes in the market to seize opportunities as they arise.
During the early 1990s, Allied Capital was an active purchaser of
performing commercial mortgage loans that were being sold in pools by the
RTC, FDIC and various financial institutions. Allied Capital was uniquely
positioned to re-underwrite these pools, understand their value and bid
for the loans. The majority of the loans purchased were purchased at
significant discounts, and Allied Capital realized investment returns in
the mid-teens, with negligible losses. In the mid 1990s, the Company took
advantage of a shortage of real estate capital for middle-market
businesses, and began originating commercial mortgages, again at very
attractive investment yields generally of 10% to 12%. In early 1998,
management believed that the market was beginning to under price real
estate loans, and the Company curtailed its mortgage loan origination
business. Management's foresight enabled the Company to be unaffected by
the turmoil that resulted in the real estate capital markets in the fall
of 1998. Instead, Allied Capital was able to use its ample liquidity to
seize an investment opportunity in the new issuance CMBS market. Allied
Capital was able to use its loan underwriting and loan purchasing skills
to become a purchaser of non-investment grade CMBS ("Purchased CMBS")
with very attractive risk / return dynamics. As of September 31, 2000,
the commercial real estate portfolio aggregated $600 million.
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ALLIED CAPITAL CORPORATION - MARKET STATISTICS
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MARKET STATISTICS
<TABLE>
<S> <C> <C> <C> <C>
Recent Price (10/27/00) $19.88 Market Capitalization $1.6 Billion
52-Week High $21.88 Shares Outstanding 80.754 Million
52-Week Low $15.50 Shares Outstanding Date 9/30/2000
YTD High $21.13 Institutional Ownership 33.80%
YTD Low $16.06 Top 5 Institutional Owners (as of 6/30/00)
YTD Change 12.83% 1. Goldman Sachs Asset Management 2.5mm 3.3%
Volume (6-Month Average) 434,330 2. Wallace R. Weitz & Co. 2.4mm 3.2%
Price to Earnings* 10.2x 3. Franklin Advisors, Inc. 1.8mm 2.4%
Dividend Yield 9.13% 4. T. Rowe Price associates, Inc. 1.8mm 2.4%
5. Fenimore Asset Management, Inc. 1.2mm 1.6%
</TABLE>
* Source: Bloomberg - 2000E EPS $1.95
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ANALYST COVERAGE
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ANALYST COVERAGE*
<TABLE>
<CAPTION>
COMPANY RATING EPS 2000 EPS 2001
<S> <C> <C> <C>
A.G. Edwards & Sons, Inc. Buy $1.95 $2.25
BB&T Capital Markets Strong Buy $1.93 $2.25
Bluestone Capital Partners, LP Outperform $1.89 $2.12
B of A Montgomery Buy $1.94 $2.26
Davenport & Company,LLC Accumulate $1.95 $2.20
Ferris, Baker Watts, Inc. Outperform $1.94 $2.24
First Union Securities, Inc. Strong Buy $1.96 $2.30
Friedman, Billings, Ramsey & Co. Accumulate $1.95 $2.25
Hilliard Lyons, Inc. Buy $1.90 $2.10
Jolson Merchant Partners Strong Buy N/A N/A
Merrill Lynch & Co. Near Term Buy N/A N/A
U.S. Bancorp Piper Jaffray Strong Buy $1.94 $2.25
First Security Van Kasper Strong Buy $1.94 N/A
William Blair & Co. Long-term Buy $1.95 $2.28
CONSENSUS $1.94 $2.23
</TABLE>
*Source: Bloomberg
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ALLIED CAPITAL CORPORATION
Selected Historical Financial Data
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ALLIED CAPITAL CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
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9 Months Ended
September 30, As of and for the Years Ended December 31,
------------------------ --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Total interest and related portfolio income $ 149,854 $ 98,862 $ 141,140 $ 106,738 $ 97,405 $ 84,937 $ 68,817
Total operating expenses excluding merger
expenses $ 67,065 $ 43,952 $ 63,346 $ 44,444 $ 46,180 $ 37,361 $ 27,274
Portfolio income before realized and
unrealized gains $ 77,992 $ 49,772 $ 71,041 $ 55,245 $ 46,066 $ 47,576 $ 41,543
Net realized gains $ 23,085 $ 16,448 $ 25,391 $ 22,541 $ 10,704 $ 19,155 $ 12,000
Net unrealized gains (losses) $ (267) $ 1,475 $ 2,138 $ 1,079 $ 7,209 $ (7,412) $ 9,266
Net Increase in net assets resulting from
operations $ 100,820 $ 67,645 $ 98,570 $ 78,078 $ 61,304 $ 54,947 $ 60,479
Diluted earnings per common share $ 1.42 $ 1.14 $ 1.64 $ 1.50 $ 1.24 $ 1.17 $ 1.37
Dividends per common share(1) $ 1.36 $ 1.20 $ 1.60 $ 1.43 $ 1.20 $ 1.23 $ 1.09
Weighted average common shares outstanding
- diluted 70,777 59,239 60,044 51,974 49,251 46,733 44,010
BALANCE SHEET DATA
Portfolio at value $1,638,207 $1,228,497 $1,228,497 $ 807,119 $703,331 $612,411 $532,311
Portfolio at cost -- $1,098,111 $1,222,901 $ 803,479 $697,030 $618,319 $530,807
Total assets $1,731,773 $1,290,038 $1,290,038 $ 856,079 $807,775 $713,360 $605,434
Total debt outstanding $ 762,150 $ 592,850 $ 592,850 $ 334,350 $347,663 $274,997 $200,339
Shareholders' equity $ 933,329 $ 667,513 $ 667,513 $ 491,358 $420,060 $402,134 $367,192
Shareholders' equity per common share (NAV) $ 11.56 $ 10.20 $ 10.20 $ 8.79 $ 8.07 $ 8.34 $ 8.26
Common shares outstanding at the end of the
period 80,754 65,414 65,414 55,919 52,047 48,238 44,479
OTHER DATA
New portfolio investments -- -- $ 751,871 $ 524,530 $364,942 $283,295 $216,175
Loan repayments -- -- $ 145,706 $ 138,081 $233,005 $179,292 $111,731
Loan sales(2) -- -- $ 198,368 $ 81,013 $ 53,912 $ 27,715 $ 29,726
Total assets managed at period end -- -- $1,577,296 $1,143,548 $935,720 $822,450 $702,567
Realized gains -- -- $ 31,536 $ 25,757 $ 15,804 $ 30,417 $ 16,679
Realized losses -- -- $ (6,145) $ (3,216) $ (5,100) $(11,262) $ (4,679)
</TABLE>
(1) Dividends for 1997 exclude certain Merger-related dividends. Allied 1
distributed $0.34 per common share representing the 844,914 shares of
Allied Lending distributed in conjunction with the Merger. This
distribution resulted in a partial return of capital. Also in conjunction
with the Merger, the company distributed $0.17 per share representing the
undistributed earnings of the merged companies at December 31, 1997.
(2) Loan sales for 1998 exclude loans sold through securitization in January
1998.
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FUTURONICS CORPORATION
Ownership
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OWNERSHIP
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- Futuronics is majority controlled by members of the Blanck family
- Richard Blanck, Peter Blanck, Carol Tannenhauser (nee: Blanck)
and other family members.
- Richard Blanck, Peter D. Blanck and Carol Tannenhauser are also
officers and directors of Futuronics.
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FUTURONICS CORPORATION
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FUTURONICS CORPORATION
Description
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DESCRIPTION
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- Futuronics Corporation was organized under the corporate laws of the state
of New York on December 19, 1961.
- For the past several years, Futuronics has had limited activities. In its
earlier history, Futuronics was involved in the electronics industry,
however, these activities ceased several years ago.
- The primary asset of Futuronics is its investment in BLC Financial
Services, Inc.
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VALUATION FUTURONICS CORPORATION
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FUTURONICS CORPORATION
Balance Sheet
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FUTURONICS CORPORATION - BALANCE SHEET
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<TABLE>
<CAPTION>
GAAP Basis(1) Estimated Fair Value as Estimated
(October 30, 2000) of October 30, 2000 Acquisition Value
<S> <C> <C> <C>
ASSETS
Cash & Cash Equivalents $418,390 $418,390 $18,390(3)
Investment in BLC Stock (2,595,224 shares) 821,654 6,001,456(2) 9,083,284(4)
Mortgage Receivable 106,000 106,000 106,000
0ther Assets 9,985 9,985 9,985
TOTAL ASSETS $1,356,029 $6,535,831 $9,217,659
LIABILITIES & EQUITY
Shareholders' Equity $1,356,029 $6,535,831 $9,217,659
</TABLE>
(1) Unaudited
(2) BLC shares valued at $2.3125 per share as of October 30, 2000.
(3) Assumes estimated after-tax transaction related expenses of $400,000
including $225,000 for investment banking fees, $125,000 for legal expenses
and $50,000 for accounting and other.
(4) BLC shares valued at $3.50 per share.
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VALUATION BLC FINANCIAL SERVICES, INC.
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BLC FINANCIAL SERVICES, INC.
Discounted Dividend Analysis
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DISCOUNTED DIVIDEND ANALYSIS
ANSWERS THE QUESTION:
"At what price would an acquisition of Target bring economic value to an
acquiror?"
METHODOLOGY:
Values the cash that can be dividended from the company given its financial
performance and capital requirements.
INPUT ASSUMPTIONS:
- Projected Earnings
- Annual Growth in Earnings and Assets
- Merger Savings/Synergies
- Earnings Multiple in Assumed Terminal Year
- Discount Rate
- Restructuring Charges
- Capital Required
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DISCOUNTED DIVIDEND ANALYSIS FOR BLC FINANCIAL SERVICES, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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NO SYNERGIES
0.00% SYNERGIES IN YEAR 2
MAINTAIN TANGIBLE EQUITY RATIO OF 30.00%.
BLC FINANCIAL SERVICES, INC. EARNINGS AS ESTIMATES
YEAR 1 AFTER TAX RESTRUCTURING CHARGE OF $2,711
INITIAL DIVIDEND ADJUSTMENT TO ACQUIROR OF $352
<TABLE>
<CAPTION>
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FIVE YEAR PROJECTIONS
-------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Beginning Equity (a) $26,059 $36,778 $44,133 $50,753 $58,366
Unadjusted Net Income (a,b) 6,999 8,398 9,658 11,107 12,773
After Tax Income Impact (c) (16) 273 214 68 (91)
Synergies/Restructuring Charge (d) (2,711) 0 0 0 0
------------- ------------- ------------- ------------- -------------
Adjusted Net Income (e) $4,272 $8,671 $9,872 $11,175 $12,682
Dividends (f) 6,446 (1,316) (3,252) (3,562) (3,927)
Ending Equity 36,778 44,133 50,753 58,366 67,121
Intangibles (g) 0 0 0 0 0
------------- ------------- ------------- ------------- -------------
Ending Tangible Equity $36,778 $44,133 $50,753 $58,366 $67,121
Net Change in Equity (h) 6,446 (1,316) (3,252) (3,562) (3,927)
Cumulative Change in Equity 6,094 4,778 1,526 (2,036) (5,963)
Total Assets (a,b) $122,593 $147,111 $169,178 $194,555 $223,738
Asset Growth Rate 42.72% 20.00% 15.00% 15.00% 15.00%
Net Income Growth Rate (i) NM 102.98% 13.85% 13.20% 13.48%
Return on Average Assets 5.71% 6.23% 6.11% 6.11% 6.11%
Adjusted ROAA 3.48% 6.43% 6.24% 6.14% 6.06%
Adjusted ROAE 13.60% 21.43% 20.81% 20.48% 20.21%
Equity / Assets 30.00% 30.00% 30.00% 30.00% 30.00%
Tangible Equity/ Tangible Assets 30.00% 30.00% 30.00% 30.00% 30.00%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------- ----------------------------------------------------------
AGGREGATE NET PRESENT VALUE AGGREGATE NET PRESENT VALUE - PER SHARE (j)
--------------------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISCOUNT RATE: 12.00% 14.00% 16.00% DISCOUNT RATE: 12.00% 14.00% 16.00%
-------------- ---------------------------------- -------------- ----------------------------------
Terminal Year 12.00 $86,217 $78,349 $71,296 Terminal Year 12.00 $3.29 $3.02 $2.77
Multiple of Multiple of
Earnings 13.00 $93,203 $84,713 $77,102 Earnings 13.00 $3.54 $3.24 $2.97
Adj. for Goodwill Adj. for Goodwill
Amortization 14.00 $100,189 $91,076 $82,908 Amortization (k) 14.00 $3.78 $3.46 $3.18
---------------------------------- ----------------------------------
</TABLE>
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FOOTNOTES
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Methodology: The Discounted Dividend Analysis produces values given earnings
estimates and projections of achievable synergies, over a range of discount
rates and terminal year earnings multiples. An initial dividend for tangible
capital in excess of a specified target is assumed; earnings in subsequent
years are adjusted to reflect the opportunity cost of this distribution.
Earnings in excess of those required to maintain BLC Financial Services,
Inc.'s tangible equity ratio at the specified targets are dividendable.
It should be noted that "Synergies" is defined as cost savings and revenue
enhancements which are assumed to approximate 0.00% of BLC Financial
Services, Inc.'s non-interest expenses in 2002.
* Present value=NPV of dividend stream plus terminal year multiple applied to
net income less intangible amortization.
(a) Beginning equity for BLC Financial Services, Inc. represents total equity
for the period ended 06/30/00, after an initial dividend to reduce BLC
Financial Services, Inc.'s tangible equity to assets to specified target
tangible capital levels.
(b) Earnings assumption based on BLC Financial Services, Inc. projections for
2001 and certain assumed growth rates for subsequent years.
(c) Assumes a pre-tax rate of 7.00% is earned/(lost) on any capital
retained/(dividended) in excess of assumed regular dividend payout. Assumes
a tax rate of 36.00%
(d) No synergies/revenue enhancements are assumed.
(e) Adjusted for income impact of paying dividends in excess of assumed regular
dividend payout ratio.
(f) Assumed to pay the maximum dividend possible while maintaining a tangible
equity/asset ratio of 30.00%.
(g) Intangibles assumed to be amortized at a rate of $000 per year.
(h) Represents dividends paid in excess of estimated payout ratio of 0.00%.
(i) Includes income impact of cumulative increase (decrease) in equity.
(j) Per share data is based on 26,153,578 diluted shares outstanding, assuming
options are cashed out at $3.24 per share.
(k) The terminal year multiple, when applied to terminal year adjusted earnings
produces a value which approximates the net present value of the earnings in
perpetuity, given certain assumptions regarding growth rates and discount
rates.
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<TABLE>
<CAPTION>
Company Name BLC Financial Services, Inc.
Ticker BCL
Date 06/30/00
First Year of Earnings Forecast 2001
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<S> <C> <C> <C>
Beginning Assets...................................................... $85,896
Beginning Equity...................................................... $25,091
Beginning Intangibles................................................. $0
2001 Tangible Equity/ Tangible Asset Ratio............................ 30.0%
2002 Tangible Equity/ Tangible Asset Ratio............................ 30.0%
2003 Tangible Equity/ Tangible Asset Ratio............................ 30.0%
2004 Tangible Equity/ Tangible Asset Ratio............................ 30.0%
2005 Tangible Equity/ Tangible Asset Ratio............................ 30.0%
Basic Shares Outstanding (w/ SOP 93-6)................................ 20,467,875
Options Outstanding................................................... 5,270,974
Options Strike Price.................................................. $1.47
Options Cash Out Price................................................ $3.24
Current Stock Price................................................... $2.13
Common Stock Equivalents (treasury method of options)................. 1,624,700
Convertible Shares.................................................... 2,806,893
Diluted Shares Outstanding............................................ 24,899,468
Unallocated ESOP Shares (due to SOP 93-6)............................. 0
Merger Shares (includes all ESOP shares).............................. 26,153,578
Net Income Current Year............................................... 5,282
Quarters of Income to Close........................................... 1
Retained Earnings to Close............................................ $1,321
2001 Earnings per Share............................................... 0.27
2002 Earnings per Share............................................... 0.36
Net Income Growth Rate................................................ 32.50%
Net Income Growth Rate - Year 2....................................... 20.00%
Net Income Growth Rate - Years 3-5.................................... 15 00% ---------------
Company (C), RBCO (R), ZACHS (Z) or IBES(I)........................... C Company
Are The Earnings Estimates Basic or Diluted (B or D).................. D Estimates
Asset Growth Rate..................................................... 32.50% ---------------
Asset Growth Rate..- Year 2........................................... 20.00%
Asset Growth Rate..- Years 3-5........................................ 15.00%
Dividend Payout Ratio................................................. 0.00% 2001 6,999
LTM Operating Expenses (Excluding Goodwill Amortization).............. 14,363 2002 8,398
Synergies (Y or N).................................................... N 2003 9,658
2001 Synergies estimate............................................... 0.0000% 2004 11,107
2002 Synergies estimate............................................... 0.0000% 2005 12,773
2003 Synergies estimate............................................... 0.0000% ---------------
Synergies Growth Rate................................................. 0.00%
Credit for synergies.................................................. 0.00%
Bad Debt Recapture? (Y or N).......................................... n
Bad Debt Recapture ($)................................................ 0
2001 Restructuring Charge (after tax)................................. 2,711
Initial Dividend (Y or N)............................................. Y
Intangible Amortization............................................... $0
Tax Rate.............................................................. 36.00%
Pre-Tax Earnings Yield................................................ 7.00%
After Tax Earnings Yield.............................................. 4.48%
How many extra months discounted do you want?......................... 3
----------------------------------------------------------------------------------------
</TABLE>
<PAGE> 31
Ryan, Beck & Co.
================================================================================
--------------------------------------------------------------------------------
BLC FINANCIAL SERVICES, INC.
Imputed Value Analysis
================================================================================
[RYAN, BECK LOGO]
<PAGE> 32
Ryan, Beck & Co.
IMPUTED VALUE ANALYSIS
ANSWERS THE QUESTION:
"What would Target's value be if it was sold at a price comparable to recent
similar transactions?"
METHODOLOGY:
Values the acquisition based on comparable transactions.
In a rational market, buyers and sellers will be similarly influenced by
comparable factors.
VALUATION CONSIDERATIONS:
- Industry
- Capital Levels
- Earnings Growth
- Asset Mix (i.e., loans vs. securities)
- Region
- Asset Quality
<PAGE> 33
Ryan, Beck & Co.
BLC FINANCIAL SERVICES, INC.
IMPUTED VALUATION SUMMARY
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
PRICE/ PRICE/ PRICE/ PRICE/
EARNINGS BOOK REVENUE ASSETS MEAN
-------- ------ ------- ------ ----
<S> <C> <C> <C> <C> <C>
HIGH 26.97 274.34 6.46 279
LOW 5.39 77.41 0.73 16.78
SPECIALITY LENDER ACQUISITION
PEER GROUP
MEAN 15.38 186.45 2.50 83.34
MEDIAN 14.59 193.74 1.41 62.28
HIGH $5.93 $3.37 $8.32 $11.71 $7.33
LOW $1.19 $0.95 $0.94 $0.70 $0.95
BLC'S VALUATION
USING ABOVE BENCHMARKS
MEAN $3.38 $2.29 $3.22 $3.50 $3.10
MEDIAN $3.21 $2.38 $1.82 $2.61 $2.51
----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 34
Ryan, Beck & Co.
Selected Transactions Announced since 01/01/98
with Deal Values Between $50 Million $250 Million,
Where seller is a Speciality Lender Located in the United States
<TABLE>
<CAPTION>
DESCRIPTION OF TRANSACTION
-------------------------------------------------------------------------------------------------------
BUYER BUYER
BUYER NAME STATE TICKER TARGET NAME
<S> <C> <C> <C>
AMRESCO, Inc. TX AMMB Independence Funding Co.
AMERSCO, Inc. TX AMMB Mortgage Investors Corp.
Associates First Capital Corporation TX AFS Arcadia Financial Ltd.
Bank of America Corporation NC BAC Fleetwood Credit Corp.
Capital One Financial Corporation VA COF Summit Acceptance Corp.
E-LOAN, Inc. CA EELN CarFinance.com
FINOVA Group Inc. AZ FNV Fremont Financial Corp.
First Investors Financial Services Group, Inc. TX FIFS Auto Lenders Acceptance Corp.
GS Capital Partners II LP NY - Media Communications Group
Household International, Inc. IL HI Decision One Mortgage Co.
Lahaina Acquisitions Inc. FL LAHA Accent Group Inc.
Norwest Corporation MN NOB Century Business Credit Corp.
Prudential Insurance Company of America NJ - WMF Group Ltd.
Republic Security Financial Corporation FL RSFC First New England Financial
Royal Bank of Canada - RY Prism Financial Corp.
SLM Holding Corporation VA SLM Student Loan Funding Resources Inc.
Textron Inc. RI TXT Litchfield Financial Corp.
Transamerica Corporation CA TA SBA lending division-4 entities
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION OF TRANSACTION
--------------------------------------------------------------------------------------------------------------
BUYER NAME SELLER NAME SELLER TICKER
<S> <C> <C>
AMRESCO, Inc. Independence Funding Company
AMERSCO, Inc. Mortgage Investors Corp.
Associates First Capital Corporation Arcadia Financial Ltd. AAC
Bank of America Corporation Associates First Capital Corporation AFS
Capital One Financial Corporation Summit Acceptance Corporation
E-LOAN, Inc. Bank of America Corporation BAC
FINOVA Group Inc. Fremont General Corporation FMT
First Investors Financial Services Group, Inc. Fortis, Inc.
GS Capital Partners II LP First Union Corporation FTU
Household International, Inc. Decision One Mortgage Co., LLC
Lahaina Acquisitions Inc. Accent Group Incorporated
Norwest Corporation Century Business Credit Corporation
Prudential Insurance Company of America WMF Group, Ltd. WMFG
Republic Security Financial Corporation Deere & Company DE
Royal Bank of Canada Prism Financial Corporation PRFN
SLM Holding Corporation Thomas L. Conlan Education Foundation
Textron Inc. Litchfield Financial Corporation LTCH
Transamerica Corporation HomeGold Financial, Inc. HGFN
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION OF TRANSACTION
-----------------------------------------------------------------------------------------------------------------------------------
CONSIDERATION ACCOUNTING
BUYER NAME ANNOUNCE DATE DEAL STATUS DEAL VALUE($M) TYPE METHOD
<S> <C> <C> <C> <C>
AMRESCO, Inc. 06/02/1998 Completed 62.9 Mixed Purchase
AMERSCO, Inc. 07/14/1998 Completed 167.4 Mixed Purchase
Associates First Capital Corporation 11/12/1999 Completed 217.5 Mixed Purchase
Bank of America Corporation 01/28/1999 Completed 227.0 Cash Purchase
Capital One Financial Corporation 07/16/1998 Completed 55.0 Common Stock Purchase
E-LOAN, Inc. 08/23/1999 Completed 64.1 Common Stock Purchase
FINOVA Group Inc. 12/07/1999 Completed 130.4 Cash Purchase
First Investors Financial Services Group, Inc. 09/09/1998 Completed 74.8 Cash Purchase
GS Capital Partners II LP 06/25/1998 Completed 220.0 - -
Household International, Inc. 07/23/1999 Completed 62.2 Mixed Purchase
Lahaina Acquisitions Inc. 07/21/1999 Completed 66.3 Mixed -
Norwest Corporation 10/28/1998 Completed 213.0 Cash Purchase
Prudential Insurance Company of America 05/10/2000 Completed 106.9 Cash Purchase
Republic Security Financial Corporation 07/14/1999 Completed 108.8 Cash Purchase
Royal Bank of Canada 03/10/2000 Completed 109.7 Cash Purchase
SLM Holding Corporation 05/25/2000 Completed 117.3 Cash Purchase
Textron Inc. 09/22/1999 Completed 182.7 Cash Purchase
Transamerica Corporation 10/02/1998 Completed 96.0 Cash Purchase
</TABLE>
BLC FINANCIAL SERVICES, INC. NY BCL
<PAGE> 35
Ryan, Beck & Co.
SELECTED TRANSACTIONS ANNOUNCED SINCE 01/01/98
WITH DEAL VALUES BETWEEN $50 MILLION $250 MILLION,
WHERE SELLER IS A SPECIALITY LENDER LOCATED IN THE UNITED STATES
<TABLE>
<CAPTION>
FINANCIALS
---------------------------------------------------------------------------------------------------------------------------
TARGET NAME TA: ASSETS TA: GROSS LOANS TA: EQUITY TA: MANAGED RECEIVABLES
($000) ($000) ($000) ($000)
<S> <C> <C> <C> <C> <C>
Independence Funding Co. 104,277 50,398 NA NA
Mortgage Investors Corp. 60,386 NA NA 0
Arcadia Financial Ltd. 855,376 NA 249,591 5,260,794
Fleetwood Credit Corp. NA NA NA 2,000,000
Summit Acceptance Corp. NA NA NA 263,000
CarFinance.com 6,278 NA NA NA
Fremont Financial Corp. 777,986 755,284 110,000 NA
Auto Lenders Acceptance Corp. 96,247 59,559 37,394 150,000
Media Communications Group NA NA NA NA
Decision One Mortgage Co. 58,000 NA NA NA
Accent Group Inc. 3,790 NA N/M NA
Century Business Credit Corp. 342,000 NA NA NA
WMF Group Ltd. 153,426 NA 38,982 13,937,812
First New England Financial NA NA NA NA
Prism Financial Corp. 332,910 NA 42,035 198,294
Student Loan Funding Resources Inc. NA NA NA 3,000,000
Litchfield Financial Corp. 340,589 NA 91,288 529,198
SBA lending division-4 entities 73,000 NA NA NA
MAX 855,376 755,284 249,591 13,937,812
MIN 3,790 50,398 37,394 0
MEAN 246,482 288,414 94,882 2,815,455
MEDIAN 104,277 59,559 66,662 529,198
85,896 31,486 25,091 376,007
</TABLE>
<TABLE>
<CAPTION>
VALUATION
---------------------------------------------------------------------------------------------- ------------------------
PRICE/LTM
TARGET NAME TA: REVENUE TA: NET INCOME TA: TOTAL ORIGINATIONS EARNINGS PRICE/BOOK
($000) ($000) ($000) (x) (%)
<S> <C> <C> <C> <C> <C>
Independence Funding Co. NA NA NA NA NA
Mortgage Investors Corp. NA NA 1,250,000 NA NA
Arcadia Financial Ltd. 214,641 36,009 2,273,533 5.39 77.41
Fleetwood Credit Corp. NA NA NA NA NA
Summit Acceptance Corp. NA NA NA NA NA
CarFinance.com NA NA NA NA NA
Fremont Financial Corp. NA NA NA NA 118.54
Auto Lenders Acceptance Corp. NA NA NA NA 200.03
Media Communications Group NA NA NA NA NA
Decision One Mortgage Co. NA NA NA NA NA
Accent Group Inc. NA NA NA NA NM
Century Business Credit Corp. NA NA NA NA NA
WMF Group Ltd. 59,265 3,597 2,351,317 26.97 274.34
First New England Financial NA NA NA NA NA
Prism Financial Corp. 150,658 8,853 7,669,000 12.39 260.95
Student Loan Funding Resources Inc. NA NA NA NA NA
Litchfield Financial Corp. 28,302 10,381 429,179 16.78 187.45
SBA lending division-4 entities NA NA NA NA NA
214,641 36,009 7,669,000 26.97 274.34
28,302 3,597 429,179 5.39 77.41
113,217 14,710 2,794,606 15.38 186.45
104,962 9,617 2,273,533 14.59 193.74
26,366 5,282 163,568
</TABLE>
<TABLE>
<CAPTION>
VALUATION
-------------------------------------------------------------
PRICE/
TARGET NAME REVENUE PRICE/ ASSETS
(x) (%)
<S> <C> <C>
Independence Funding Co. NA 60.48
Mortgage Investors Corp. NA 279
Arcadia Financial Ltd. 1.01 25.43
Fleetwood Credit Corp. NA NA
Summit Acceptance Corp. NA NA
CarFinance.com NA N/M
Fremont Financial Corp. NA 16.78
Auto Lenders Acceptance Corp. NA 77.72
Media Communications Group NA NA
Decision One Mortgage Co. NA 107.24
Accent Group Inc. NA NM
Century Business Credit Corp. NA 62.28
WMF Group Ltd. 1.80 69.70
First New England Financial NA NA
Prism Financial Corp. 0.73 32.95
Student Loan Funding Resources Inc. NA NA
Litchfield Financial Corp. 6.46 53.64
SBA lending division-4 entities NA 131.51
6.46 279.00
0.73 16.78
2.50 83.34
1.41 62.28
</TABLE>
<PAGE> 36
Ryan, Beck & Co.
================================================================================
--------------------------------------------------------------------------------
BLC FINANCIAL SERVICES, INC.
Break Even Analysis
================================================================================
[RYAN, BECK LOGO]
<PAGE> 37
Ryan, Beck & Co.
BREAK-EVEN ANALYSIS
ANSWERS THE QUESTION:
"At what rate would the Company's earnings have to grow such that the future
stock price would equal today's acquisition price?"
METHODOLOGY:
Determines the earnings growth rate necessary to meet a certain price target
while maintaining the Company's current price / earnings ratio.
INPUT ASSUMPTIONS:
- Projected Earnings
- Annual Growth in Assets
- Price / Earnings Multiple
- Discount Rate
- Dividend Payout Ratio
<PAGE> 38
Ryan, Beck & Co.
BLC FINANCIAL SERVICES, INC.
ANALYSIS OF BREAKEVEN RETURNS
REQUIRED FIVE YEAR COMPOUND ANNUAL GROWTH RATE OVER 2001 ESTIMATED EARNINGS
OFFER VALUE OF $3.50 PER SHARE
65% PREMIUM TO MARKET
285% TANGIBLE BOOK VALUE
13.0x 2001E EPS
<TABLE>
<CAPTION>
TERMINAL YEAR DISCOUNT RATE
MULTIPLE OF -----------------------------------------------------------------
EARNINGS 14.0% 15.0% 16.0% 17.0%
------------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
-----------------------------
10.0 x 25.5% 26.9% 28.7% 30.0%
MARKET
MULTIPLES
12.0 x 20.0% 21.6% 22.6% 24.1%
-----------------------------
------------------------------
14.0 x 15.5% 16.7% 18.4% 19.5%
ACQUISITION
MULTIPLES
16.0 x 11.7% 13.0% 14.2% 15.5%
------------------------------
</TABLE>
<PAGE> 39
RYAN, BECK & CO.
BLC FINANCIAL SERVICES, INC.
ANALYSIS OF BREAKEVEN RETURNS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ASSUMPTIONS:
------------ DIVIDEND PAYOUT RATIO:
----------------------
<S> <C> <C> <C> <C> <C> <C>
2001E EPS: $0.27 [1] YEAR 1 0.00% YEAR 6 0.00%
---------- YEAR 2 0.00% YEAR 7 0.00%
DISCOUNT RATE: 15% YEAR 3 0.00% YEAR 8 0.00%
ASSET GROWTH: 20% [2] YEAR 4 0.00% YEAR 9 0.00%
P/E: 11.0 x YEAR 5 0.00% YEAR 10 0.00%
STOCK PRICE: $2.13 10/30/00
-------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
OFFER VALUE = $3.25
------------------------------------------------------------------------------------
53% PREMIUM TO MARKET
264% TANGIBLE BOOK VALUE [3]
------------------------------------------------------------------------------------
Required
YEAR Market Necessary
ENDED Shares Total Value/ Implied Implied Earnings
06/30 Owned[4] Assets[2,3] Share[5] LTM EPS[6] ROA Growth[7]
----- -------- ----------- -------- ---------- --- ---------
<S> <C> <C> <C> <C> <C> <C>
2001 1.00 85.9 2.13 $0.27 6.77% n/a
2002 1.00 103.1 4.30 0.43 8.98% 59.26%
2003 1.00 123.7 4.94 0.49 8.53% 34.72%
2004 1.00 148.4 5.68 0.57 8.27% 28.28%
2005 1.00 178.1 6.54 0.65 7.86% 24.56%
2006 1.00 213.7 7.52 0.75 7.56% 22.67%
2007 1.00 256.5 8.65 0.86 7.22% 21.30%
2008 1.00 307.8 9.94 0.99 6.93% 20.40%
2009 1.00 369.4 11.43 1.14 6.65% 19.73%
2010 1.00 443.2 13.15 1.31 6.37% 19.18%
2011 1.00 531.9 15.12 1.51 6.11% 18.78%
2012 1.00 638.2 17.39 1.74 5.87% 18.46%
------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
OFFER VALUE = $3.5
------------------------------------------------------------------------------------
65% PREMIUM TO MARKET
285% TANGIBLE BOOK VALUE [3]
------------------------------------------------------------------------------------
Required
YEAR Market Necessary
ENDED Shares Total Value/ Implied Implied Earnings
06/30 Owned[4] Assets[2,3] Share[5] LTM EPS[6] ROA Growth[7]
----- -------- ----------- -------- ---------- --- ---------
<S> <C> <C> <C> <C> <C> <C>
2001 1.00 85.9 2.13 $0.27 6.77% n/a
2002 1.00 103.1 4.63 0.46 9.61% 70.37%
2003 1.00 123.7 5.32 0.53 9.23% 40.11%
2004 1.00 148.4 6.12 0.61 8.85% 31.22%
2005 1.00 178.1 7.04 0.70 8.46% 26.89%
2006 1.00 213.7 8.10 0.81 8.16% 24.57%
2007 1.00 256.5 9.31 0.93 7.81% 22.89%
2008 1.00 307.8 10.71 1.07 7.49% 21.74%
2009 1.00 369.4 12.31 1.23 7.17% 20.87%
2010 1.00 443.2 14.16 1.42 6.90% 20.25%
2011 1.00 531.9 16.28 1.63 6.60% 19.70%
2012 1.00 638.2 18.73 1.87 6.31% 19.24%
------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
OFFER VALUE = $3.75
------------------------------------------------------------------------------------
76% PREMIUM TO MARKET
305% TANGIBLE BOOK VALUE [3]
------------------------------------------------------------------------------------
Required
YEAR Market Necessary
ENDED Shares Total Value/ Implied Implied Earnings
06/30 Owned[4] Assets[2,3] Share[5] LTM EPS[6] ROA Growth[7]
----- -------- ----------- -------- ---------- --- ---------
<S> <C> <C> <C> <C> <C> <C>
2001 1.00 85.9 2.13 $0.27 6.77% n/a
2002 1.00 103.1 4.96 0.50 10.45% 85.19%
2003 1.00 123.7 5.70 0.57 9.92% 45.30%
2004 1.00 148.4 6.56 0.66 9.58% 34.71%
2005 1.00 178.1 7.54 0.75 9.07% 29.10%
2006 1.00 213.7 8.67 0.87 8.77% 26.37%
2007 1.00 256.5 9.98 1.00 8.40% 24.39%
2008 1.00 307.8 11.47 1.15 8.05% 23.00%
2009 1.00 369.4 13.19 1.32 7.70% 21.94%
2010 1.00 443.2 15.17 1.52 7.39% 21.17%
2011 1.00 531.9 17.45 1.74 7.05% 20.48%
2012 1.00 638.2 20.06 2.01 6.78% 20.02%
------------------------------------------------------------------------------------
</TABLE>
Notes:
---------------------------------
(1) 2001 EPS reflects an earnings estimate of $0.27 per share as provided by the
Company.
(2) Assets assumed to grow at 20% per year.
(3) Initially as reported in the Company's financial statements dated June 30,
2000.
(4) Assumes dividends are reinvested in common shares at the end of the previous
period market price.
(5) Equates to required market value divided by shares owned. Required market
value equates to initial offer value compounded annually at the discount rate.
(6) Equates to required market value divided by P/E.
(7) Compound annual growth rate of earnings necessary to provide the same
increase in value to shareholders as the initial offer value, assuming a 15.0%
discount rate, a 10.0x P/E ratio and the specified dividend payout ratio.
<PAGE> 40
RYAN, BECK & CO.
<TABLE>
<CAPTION>
INPUTS FOR CALCULATIONS:
------------------------
<S> <C>
Company Name BLC Financial Services, Inc.
Current Market Price 2.13
Offer Price Case 1 3.25
Case 2 3.50
Case 3 3.75
Shares O/S 21.535514 MM
Assets 86 MM
Tang. Book Value per share 1.23
INPUTS FOR ASSUMPTIONS BOX:
---------------------------
Dividend Payout Ratio - Year 1 0.00%
Dividend Payout Ratio - Year 2 0.00%
Dividend Payout Ratio - Year 3 0.00%
Dividend Payout Ratio - Year 4 0.00%
Dividend Payout Ratio - Years 5-11 0.00%
EPS Estimate $0.27
Year for Earnings Estimate 2001
Discount Rate 15%
Asset Growth Rate 20%
Price/Earnings Ratio 10.0 x
INPUTS FOR FOOTNOTES:
---------------------
Financial Statement Date 6/30/2000
Fiscal Year End 06/30
Earnings Estimate C
(Z=Zachs,R=RBCO,C=Company,I=I/B/E/S)
INPUTS FOR SUMMARY:
-------------------
Specify Market Multiples:
10.0 x
12.0 x
Specify Acquisition Multiples:
14.0 x
16.0 x
Specify Discount Rates:
14.0%
15.0%
16.0%
17.0%
</TABLE>
<PAGE> 41
Ryan, Beck & Co.
================================================================================
--------------------------------------------------------------------------------
ADVANTAGE OF THE TRANSACTION TO FUTURONICS
CORPORATION STOCKHOLDERS
================================================================================
[RYAN, BECK LOGO]
<PAGE> 42
Ryan, Beck & Co.
================================================================================
ADVANTAGES OF THE TRANSACTION TO FUTURONICS
CORPORATION SHAREHOLDERS
--------------------------------------------------------------------------------
- The aggregate consideration of $9,083,284 for Futuronics shares
incorporates a significant premium to the market price of $2.3125, as of
October 30, 2000, for the shares of BLC Financial Services, Inc. held by
Futuronics.
- The transaction allows Futuronics shareholders to avoid the potential for
two layers of taxation that could occur if Futuronics sold its BLC shares
directly to Allied Capital Corporation.
- The transaction allows Futuronics shareholders to liquidate their shares in
Futuronics, a corporation which is illiquid.
================================================================================
[RYAN, BECK LOGO]
<PAGE> 43
Ryan, Beck & Co.
================================================================================
--------------------------------------------------------------------------------
RELATIONSHIP WITH RYAN, BECK & CO., INC.
================================================================================
[RYAN, BECK LOGO]
<PAGE> 44
================================================================================
HISTORY OF RELATIONSHIP WITH FUTURONICS, BLC AND ALLIED
--------------------------------------------------------------------------------
- Ryan, Beck has not had a prior investment banking relationship with
Futuronics.
- Ryan, Beck was retained on February 16, 2000 by BLC Financial Services,
Inc. ("BLC") to pursue a private placement of debt securities. Due to
market conditions, a transaction was not completed within the engagement
period and Ryan, Beck did not receive any compensation. Ryan, Beck & Co.
was retained by BLC on October 25, 2000 to provide a fairness opinion with
respect to the proposed acquisition of BLC by Allied Capital Corporation
("Allied"). Ryan, Beck's research department does not provide published
investment analysis on BLC.
- Ryan, Beck has not had a prior investment banking relationship with Allied.
Ryan, Beck's research department does not provide published investment
analysis on Allied. Ryan, Beck is not a market maker in Allied's Common
Stock.
================================================================================
[RYAN, BECK LOGO]
