Filed by Sunset Financial Resources, Inc. pursuant to
Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: Alesco Financial Trust
This filing relates to a proposed merger (the ”Merger”) of Alesco Financial Trust (“Alesco”) into a wholly-owned subsidiary of Sunset Financial Resources, Inc. (“Sunset”) pursuant to the terms of an Agreement and Plan of Merger dated as of April 27, 2006 (the “Merger Agreement”), by and among Sunset and Alesco. The Merger Agreement is on file with the Securities and Exchange Commission (the “Commission”) as an exhibit to the Current Report on Form 8-K filed by Sunset on April 28, 2006. The Merger Agreement is incorporated by reference into this filing.
Investor Presentation |
Page 2 Forward-Looking Statements Information set forth in this release contains forward-looking statements, which involve a number of risks and uncertainties. Sunset and Alesco caution readers that any forward-looking information is not a guarantee of future performance and that actual results could differ materially from those contained or implied in the forward-looking information. Such forward-looking statements include, but are not limited to, statements about the benefits of the business combination transaction involving Sunset and Alesco, including future financial and operating results, the new company’s plans, objectives, expectations and intentions and other statements that are not historical facts. The following factors, among others, could cause actual results to differ from those set forth in the forward- looking statements: factors that affect the timing or ability to complete the transactions contemplated herein; the risk that the business will not be integrated successfully; the risk that cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with lenders, other counterparties, or employees; competition and its effects on pricing, spending, third-party relationships and revenues; the failure of the companies to successfully execute their business plans, gain access to additional financing, the availability of additional loan portfolios for future acquisition, continued qualification as a REIT and the cost of capital. Additional factors that may affect future results are contained in Sunset’s filings with the SEC, which are available at the SEC’s web site www.sec.gov. Sunset and Alesco disclaim any obligation to update and revise statements contained in these materials based on new information or otherwise. |
Page 3 Table of Contents I. Transaction Overview II. Sunset Financial Resources III. Alesco Financial Trust IV. Financial Overview V. Summary VI. Appendix |
Transaction Overview |
Page 5 Transaction Overview Sunset will issue 1.26 shares for each Alesco share Sunset externally managed by Cohen Brothers Management under the Interim Management Agreement, effective April 27, 2006 Combined company to pursue Alesco’s strategy of investing in Bank and Insurance Trust Preferred stock, Middle Market loans and Asset-Backed securities Expected to close September/October 2006 Financial terms subject to adjustments based on performance of Peerless and East- West loans Adjustments: Up to $25 million self-tender offer at $8.74 Tender Offer for Existing Sunset shares: Key Terms and Conditions 58% Alesco / 42% Sunset (If tender offer is fully subscribed, 65% Alesco / 35% Sunset split) Pro-forma Ownership: Alesco designees to constitute a majority of the combined company board Board Composition: |
Page 6 Why Sunset and Alesco? Expected to be accretive to earnings within the first year of operations Sunset shareholders benefit from new investment strategy in higher yielding assets Sunset shareholders gain access to the management expertise and experience of Cohen Brothers Increases Sunset’s overall liquidity and improves access to capital markets Sunset’s Rationale Provides public stock market liquidity to Alesco shareholders Effectively doubles Alesco’s capital base in a cost effective manner Expected to be accretive to Alesco’s current book value and earnings within the first year Alesco’s Rationale |
Page 7 Redeployment of Assets Allows Sunset to reinvest its capital into attractive targeted asset classes Low historical default rates, low volatility assets Alesco management team has assets under management of approximately $17 billion Alesco seeks to obtain long-term match-funding through the CDO market |
Page 8 Access to Cohen Brothers Bank Trust Preferred Cohen Bros. Financial Management Shami J. Patel Managing Director Insurance Trust Preferred Dekania Capital Management Thomas Friedberg Managing Director ABS and MBS Strategos Capital Management Alex P. Cigolle Managing Director Middle Market Loans Emporia Capital Management Kevin R. Braddish Managing Director Capital Markets Research Credit Asset Management Sales & Trading Company Management External REIT Manager Cohen Brothers Management, LLC James J. McEntee III CEO & President |
Page 9 Structured Finance Expertise Alesco CDO IV $415 MM Trust Preferred Securities May 2004 Alesco CDO III $363 MM April 2004 Trust Preferred Securities Alesco CDO I $344 MM Trust Preferred Securities October 2003 Alesco CDO II $348 MM December 2003 Trust Preferred Securities Alesco CDO V $365 MM Trust Preferred Securities September 2004 Alesco CDO IX $683 MM Trust Preferred Securities December 2005 Emporia CDO I $425MM Leveraged Loan October 2005 Taberna IV $673 MM Trust Preferred Securities December 2005 Taberna III $780 MM Trust Preferred Securities September 2005 Alesco CDO VIII $684 MM Trust Preferred Securities August 2005 $690 MM Trust Preferred Securities April 2005 Alesco CDO VII Taberna II $1,044 MM Trust Preferred Securities June 2005 $692 MM Trust Preferred Securities December 2004 Alesco CDO VI Taberna I $729 MM Trust Preferred Securities March 2005 $1,007 MM High Grade ABS June 2005 Kleros CDO I $1,001 MM High Grade ABS January 2006 Kleros CDO II Alesco CDO X $971 MM Trust Preferred Securities March 2006 Dekania CDO II $413 MM Trust Preferred Securities April 2004 |
Page 10 Cohen Brothers is the external manager during the interim period Sunset pays Cohen Brothers a monthly management fee equal to 1/12 of Sunset’s equity multiplied by 1.5% During the interim management period, Sunset is retaining its executive management team After completion of the merger, the interim management agreement will terminate and Cohen Brothers will be hired as external manager of the combined company In order to redeploy Sunset’s assets most efficiently, both management teams agreed to enter into an interim management agreement Interim Management Agreement |
Page 11 Daniel G. Cohen Chairman (17 Years of experience) James J. McEntee, III President & CEO (23 Years of experience) Shami Patel COO (12 Years of experience) John J. Longino CFO & Treasurer (25 Years of experience) Daniel Munley CLO (10 Years of experience) Daniel G. Cohen (Alesco’s Chairman) James J. McEntee, III, (Alesco’s President & CEO) 4 Independent Alesco Directors Thomas P. Costello Jack Haraburda Lance Ullom Director to be named 3 Independent Sunset Directors Rodney E. Bennett G. Steven Dawson Charles Wolcott Executive Management Team Board of Directors Post Merger Management and Board of Directors |
Page 12 Sunset Financial Resources |
Page 13 Sunset Financial Resources, Inc. (NYSE: SFO), headquartered in Jacksonville, Florida, is a REIT specializing in the acquisition and management of residential mortgage backed securities (“RMBS”) and commercial bridge loans Completed its IPO in March of 2004 In September 2005, Sunset completed a significant overhaul of its executive team and board of directors In October 2005, Sunset hired Banc of America Securities to review the Company’s business plan and explore alternatives to maximize shareholder value Overview of Sunset Financial Resources |
Page 14 Income Statement Q1 2006 (1) FYE 2005 (2) Interest and Fee Income $12,972 $46,356 Interest Expense 9,852 34,788 Net Interest Income 3,120 11,568 Provision for Loan Losses (4) 7,042 Net Interest Income After Provision 3,124 4,526 Loss on Sale of Securities and Loans - (50) Operating Expenses: G & A 2,146 8,372 Severance - 841 Total Operating Expenses 2,146 9,213 Net Income (Loss) $978 ($4,737) Diluted Earnings (Loss) Per Share $0.09 ($0.45) Weighted Average Diluted Shares 10,489 10,470 Balance Sheet ($ in thousands) 3/31/2006 (1) 12/31/2005 (2) Assets Cash and Cash equivalents $25,215 $17,570 Commercial Mortgages 21,493 29,347 Residential Mortgages 1,040,973 1,103,502 Allowance for loan losses (6155) (7,321) Other Assets 24,888 19,162 Total Assets $1,106,414 $1,162,260 Liabilities Reverse Repo Agreements 973,604 1,031,831 Junior Subordinated Notes 20,619 20,619 Other Liabilities 2,580 2,813 Total Liabilities $996,803 $1,055,263 Total Stockholders’ Equity $109,611 $106,997 Total Liabilities and Stockholders’ Equity $1,106,414 $1,162,260 Sunset Historical Financials (1) Information from Sunset’s 10Q (2) Information from Sunset’s 10K |
Page 15 Review of Residential Loan Portfolio (1) Unaudited Financials as of 3/31/06 (1) Sunset’s residential assets at March 31, 2006 included: • $884.6 million of mortgage backed securities “available for sale” • $156.3 million of purchased loans that were securitized in 2004 (carried at amortized cost) Agency securities had a weighted average coupon of 4.62% with an average of 44 months to reset Non-agency securities had a weighted average coupon of 4.81% with an average of 39 months to reset All of the RMBS securities have an actual or implied “AAA” rating (Dollars in Thousands) Agency Non-Agency Securitized Securities Securities Loans Total Par value $614,700 $282,734 $154,146 $1,051,580 Unamortized premium/discount 4,778 1,444 2,202 8,424 Net unrealized losses (13,311) (5,720) (6,850) (25,881) Estimated fair value $606,167 $278,458 $149,498 $1,034,123 Residential Portfolio Overview March 31, 2006 |
Page 16 < $13,000,000 April 27, 2006: $3,800,000 Principal Repayments (between Jan 1 and April 27): $16,700,000 January 1, 2006: Outstanding Principal Balance 886 Lots Lots Available for Sale: 1000 Lots Total Lots in Project: 114 Lots Lots Sold as of April 27, 2006: Penland Resort Lots (approximate count) At 3/31/06, there was a total book value of $15.8 million in the portfolio, net of reserves The outstanding balance of the Peerless loan impacts the financial terms of this transaction (see Appendix for details) The Peerless Loan is collateralized by the Penland Resort Development Project Retail sales efforts planned through July are expected to reduce the outstanding principal balance of the loan to $8 million Commercial Loan Portfolio & Peerless Loan Update |
Alesco Financial Trust |
Page 18 Alesco is a recently-formed REIT, externally managed by Cohen Brothers Management, LLC Closed $111 million 144A equity offering on January 31, 2006 at $10.00 per share Issued dividend of $0.20 per share for the first two months of operation As of March 31, 2006, Alesco had investments of approximately: • $1,150 million Trust Preferred securities • $300 million residential whole loans • $500 million ABS • $150 million middle market loans Overview and Recent Developments |
Page 19 Attractive targeted asset classes • Low historical default rates • Significant opportunity for investment Strong risk-adjusted returns with short ramp-up period • Rapid deployment of capital • 13% projected dividend yield Established platform and business model • Management team has approximately $17 billion of assets under management Alesco’s Investment Strategy |
Page 20 Targeted Equity Allocation % Equity % Asset Asset Class Allocation Leverage Allocation TRUPS 50% 15X 28% Middle Market Loans 15% 10X 7% Mortgage-Backed Securities 30% 35X 60% Whole Mortgage Loans 5% 25X 5% |
Page 21 TruPS and surplus notes are corporate bonds that combine characteristics of both debt and equity • Treated as debt for tax purposes • Treated as Tier 1 capital for regulatory purposes • Partial equity credit from rating agencies Since the first CDO of TruPS issued by small to mid-sized banks and insurance companies in 2000, annual origination has grown to over $6 billion; $25 billion aggregate originations to date Attractive target market for pooled TruPS origination • Over 4,700 small to mid-sized banks and thrifts with assets between $100 million and $10 billion • Approximately 550 insurance companies with statutory capital between $10 million and $550 million Additional potential for significant origination activity due to refinancing of existing TruPS beginning in 2006 • 200 bps contraction in TruPS spreads since 2000 Cohen Brothers had 35% market share in 2005, up from 13% in 2003 (1) Pooled Bank and Insurance TruPS Market (1) Estimate based on Cohen Brothers analysis of Fitch Ratings reports |
Page 22 Emporia – Middle Market Leveraged Loans Middle market loans are an attractive asset class • Mature market with total loans outstanding of approximately $1.3 trillion (1) • Low default correlation with other asset classes • Low default rates (currently in the 1.7% range) The typical Emporia CLO portfolio is comprised of • Middle market loans – 70% • Broadly syndicated loans – 15% • Second lien loans – 15% The Emporia CLO structure achieves diversification, especially compared to typical CLO assets, by including broadly syndicated loans along with middle market loans The stable return profile of senior secured loans is then balanced with higher current yields of second lien loans, which enhances the return profile of the portfolio (1) Source: Standard & Poor’s. Data as of December 31, 2004. |
Page 23 Cohen Brothers has managed two Kleros transactions totaling over $2 billion Kleros CDOs are collateralized by RMBS, CMBS and ABS rated investment grade Securities with these credit ratings have experienced low historical defaults (1) The collateral underlying these securities have high historical recovery rates and receive more substantial cash flow after default than comparable corporate securities (1) Source: Moody’s Investors Service, “Default & Loss Rates of Structured Finance Securities: 1993-2004,” July 2005. Impairment is defined in the study as uncured payment defaults or securities downgraded to Ca or C. Payment defaults include shortfalls of interest or losses of principal. Impairment rates calculated using original ratings. Kleros – Asset-Backed Securities |
Page 24 Mortgage Loans Middle Market Leveraged Loans TruPS Asset-Backed Securities Asset Class Long-Term Financing Repo financing Collateral held in CDO structures Alesco intends to hold 51-55% of the preferred equity Short-Term Financing Collateral accumulates in third party warehouses 8% collateral deposit recorded as restricted cash Interest carry plus change in value of collateral position Collateral accumulates in third party warehouses 9% collateral deposit recorded as restricted cash Interest carry plus change in value of collateral position Collateral accumulates in third party warehouses 1-1.2% collateral deposit recorded as restricted cash Interest carry plus change in value of collateral position Collateral held in CLO structures Alesco intends to hold 51-55% of the preferred equity Collateral held in CDO structures Alesco holds 100% of the preferred equity Securitization Financing Strategy |
Financial Overview |
Page 26 Sunset RMBS Commercial (1) Alesco Return on Levered Capital 7.15% 5.70% 9.76% Return on Unlevered Equity 5.00% 12.00% 5.94% Gross ROE 12.15% 17.70% 15.70% % of Total Equity Allocation 90.00% 10.00% 100.00% Allocated Weighted ROE 10.94% 1.77% Gross Portfolio Return on Equity 15.70% G&A Expense (% of Equity) (1.30%) (2) Net ROE 14.40% 12.71% (7.00%) 5.71% Notes: 1) Assumes ~$30 million in total commercial loans. 3/31/06 commercial loan balance net of reserves of $15.8 million. Sunset’s access to funding for new commercial loans is limited. 2) Alesco expenses include G&A, base management fee and incentive management fees, offset by collateral management fee credit. Illustrative Economic Models |
Page 27 Sunset 1Q 2006 Unaudited Financial Results Alesco February & March 06 Unaudited Financial Results ($ in thousands, except per share amounts) Net income $978 $2,394 Earnings per share - diluted: Earnings per share $0.09 $0.21 Earnings per share (Sunset equivalent shares) $0.09 $0.17 Shares outstanding 10,516,600 11,440,797 Sunset equivalent shares 10,516,600 14,415,404 ROE (Annualized) 3.6% 14.1% Comparison of 1st Quarter Financial Results |
Page 28 Note: (1) Alesco Comps - Arbor(ABR), AMAC(AMC), Capital Trust(CT), Deerfield Triarc(DFR), Gramercy(GKK), iStar Financial(SFI), JER Investors Trust(JRT), Newcastle(NCT). Cohen Brothers entered the Bank Trust Preferred market in 2001 and attained a 35% market share in 2005 Within two months after the initial 144A funding of Alesco on January 31, 2006: • Invested approximately $2.2 billion in targeted asset classes • Declared a $0.20 dividend for the 2 month period ending March 31, 2006 Dividend is equivalent to $1.20 per share on an annualized basis Comparable companies currently trade with dividend yields between 7.60% and 11.00%, with an average yield of 9.05% (1) These comparable dividend yields imply an Alesco stock price between $10.91 and $15.79 with an average price of $13.26 (1) At $11.00 per share, Alesco’s Book Value per share of 1.23x is in-line with comparable companies Stock Price Valuation of Alesco |
Page 29 Comparable companies currently trade with dividend yields between 7.60% and 11.00% with an average of 9.05% The comparable dividend yields imply a combined company stock price between $10.91 and $15.79 with an average price of $13.26 Applying the comparable companies book value multiples of 1.0x to 1.5x with an average of 1.33x yields a price range for the combined company of $7.61 to $11.41 with an average of $9.97 Note: (1) All Pro Forma data as of 3/31/06 Stock Price Valuation of Combined Company Applicable Statistics Valuation Factors Combined Company Pro Forma Book Value (1) $171.6 MM Net Alesco Return on Capital 14.40% Projected Net Income (Annualized Run Rate) $24.7 MM Pro Forma Shares (1) 22.2 MM Projected Earnings Per Share (Annualized Run Rate) $1.11 Projected Dividend Per Share (Annualized Run Rate) $1.11 |
Page 30 Average: 0.94x 1.29x 1.24x 0.90x 0.76x 0.86x 0.87x 0.83x 0.83x 0.80x 0.7 x 0.9 x 1.1 x 1.3 x 1.5 x 1.7 x NLY RWT CMO DX SFO MFA LUM HCM ANH Alesco Comps: Price / Book Sunset Comps: Price / Book Alesco Comps: Dividend Yield Sunset Comps: Dividend Yield (1) (2) Source: Factset and publicly filed documents as of 05/09/06. Balance Sheet figures as of 12/31/05. Alesco and Sunset share value is based on price per share at which transaction was consummated, $11.00 and $8.74, respectively. Alesco Comps - Arbor(ABR), AMAC(AMC), Capital Trust(CT), Deerfield Triarc(DFR), Gramercy(GKK), iStar Financial(SFI), JER Investors Trust(JRT), KKR Financial(KFN), Newcastle(NCT). Sunset Comps - Annaly(NLY), Anworth(ANH), Capstead(CMO), Dynex(DX), Hanover(HCM), Luminent(LUM), MFA Mortgage(MFA), Redwood Trust(RWT). (1) Represents most recent quarterly data and is not necessarily indicative of historical performance or representative of future performance (2) Company currently not paying a dividend. Average: 1.31x 1.64x 1.62x 1.04x 0.97x 1.40x 1.12x 1.23x 1.47x 1.08x 1.46x 0.7 x 0.9 x 1.1 x 1.3 x 1.5 x 1.7 x GKK SFI ABR CT NCT Alesco KFN AMC JRT DFR Average: 4.31% 17.79% 6.18% 3.17% 0.00% 0.99% 1.03% 1.37% 2.45% 2.90% 0.0% 4.0% 8.0% 12.0% 16.0% 20.0% HCM RWT NLY MFA LUM SFO CMO ANH DX Average: 9.13% 11.64% 10.99% 10.91% 7.41% 7.45% 7.81% 7.96% 8.55% 9.62% 10.77% 0.0% 4.0% 8.0% 12.0% 16.0% 20.0% ABR DFR Alesco AMC NCT JRT SFI KFN GKK CT Selected Publicly Traded Companies Analysis (1) |
Page 31 Summary |
Page 32 Expected to be accretive to earnings within the first year of operations Sunset shareholders benefit from new investment strategy in higher yielding assets Sunset shareholders gain access to the management expertise and experience of Cohen Brothers Increases Sunset’s overall liquidity and improves access to capital markets Sunset Shareholders Provides public stock market liquidity to Alesco shareholders Effectively doubles Alesco’s capital base in a cost effective manner Expected to be accretive to Alesco’s current book value and earnings within the first year Alesco Shareholders Benefits to Shareholders of an Alesco / Sunset Combination |
Appendix |
Page 34 Date Activity October 2005 Special Committee engaged BAS to explore range of strategic alternatives available to the Company Sunset issued press release stating BAS had been retained as a Financial Advisor to the Special Committee November 2005 BAS contacted over 70 parties 21 parties signed CA’s Sunset data room opened and 21 potential bidders commenced diligence December 2005 Initial letters of interest due Four proposals received January – February 2006 Peerless appraisal process March 2006 Two final proposals received Commenced negotiation of definitive agreement April 28, 2006 Announced transaction Summary of Sunset’s Process |
Page 35 Liquidation Estimated valuation per share between $8.41 and $8.98 Risk in value of commercial assets and timing of sale To maximize value, Peerless asset might need to be placed in a liquidating trust for a period that could extend beyond one year Approximately 50% of assets must be retained through dissolution process (+ 200 days) Stay the Course Limited access to capital Difficult to achieve economies of scale necessary in RMBS portfolio management Continued high G&A burden Thin RMBS spreads produce lower ROE Results in low earnings and dividends Alesco Merger Culmination of publicly announced strategic alternatives process Reallocation of assets into a higher yielding investment model – 14% ROE in Q1 06 Realize immediate benefits from G&A rationalization Increased capital availability and shareholder liquidity Substantial increase in dividend expected Analysis of Sunset’s Primary Alternatives |
Page 36 Notes: Analysis excludes impact of timing on assets for purpose of the liquidation. Actual results may differ from figures presented. (1) Based on unrealized losses of $6.8 million in securitized assets which are classified as held-to-maturity and carried at amortized historical cost. (2) Related to trust preferred financing. (3) Based on current employment agreements of 3x and 2x base salary severance payments for select personnel. (4) Includes $1.5 million in estimated total D&O insurance coverage and other expenses. Range of Values Low High Low High ($ million) ($ million) ($ / share) ($ / share) Unaudited Book Value (As of 03/31/2006) $109.6 $109.6 $10.42 $10.42 Adjustments Mark-to-Market of Securitized Loans (1) (6.8) (6.8) (0.65) (0.65) Deferred Financing Fees (2) (0.6) (0.6) (0.06) (0.06) Total Adjustments (7.4) (7.4) (0.71) (0.71) Adjusted Book Value $102.2 $102.2 $9.72 $9.72 Potential Liquidation Expenses Asset Disposition Losses / Expenses (4.7) (0.1) (0.44) (0.01) Transaction Fees (2.6) (2.5) (0.24) (0.23) Severance Pay (3) (2.7) (2.3) (0.25) (0.22) Estimated Contract / Agreement Termination Costs (0.9) (0.9) (0.08) (0.08) Other (4) (3.0) (2.0) (0.29) (0.19) Total Liquidation Expense Adjustments (13.8) (7.8) (1.31) (0.74) Liquidation Value After Transaction Adjustments $88.4 $94.4 $8.41 $8.98 Sunset Liquidation Analysis |
Page 37 C D 30 120 210 60 90 150 180 (Illustrative timeline in days) B (1) A (1) Board has to approve liquidation Sell up to 50% of RMBS in orderly process and make initial dividend 30 day period to file proxy with SEC Additional 30 to 60 day period if SEC reviews proxy 30 to 45 day consent solicitation period • 2/3 of shareholders must approve measure Once shareholder approval is received, Company must provide 20 day notice to creditors and employees prior to filing for dissolution • Company files for dissolution and then continues to exist only for wind-down Sell remaining portion of RMBS portfolio Commercial loans (approx. $0.75 - $1.25 / share value) would likely still be outstanding and not readily convertible into cash • Prompt disposal of Peerless loan may result in discounted valuation • To achieve full value, the asset may be placed in a liquidating trust • General uncertainty as to the timing and amount of proceeds to be realized from Peerless asset Once liquidation of assets is complete, creditors are paid and stockholders are given 60 days to provide proof of ownership before funds can be distributed Management needed throughout process to execute liquidation and complete filings Incur severance expense, transaction fees, contract breakage costs and other expenses Establish trust for potential litigation post dissolution Process Steps A) (1) B) (1) C) D) E) E Notes: 1) Depending on circumstances existing during the applicable period, these time periods could be reduced. Sunset Liquidation Considerations |
Page 38 Limited access to capital Restart commercial lending platform or other high yielding strategy • Additional personnel required to restart commercial lending program • Access to funding for new commercial loans is limited Continued exposure to refinancing risk Sunset Financial Resources Maximum Assets $1.3 bn - $1.5 bn Maximum Leverage (multiple of equity) 12x G&A Burden (% of equity) 7.0% Return on Equity 3.5% - 5.1% Estimated Annual Dividend $0.38 - $0.42 Dividend Yield (based on $8.29 share price) 4.6% - 5.1% RELEVANT METRICS OTHER CONSIDERATIONS Sunset’s Stay the Course Overview |
Page 39 Book Value Comparison Summary Book Value Data (1) Combined Combined Sunset Alesco Company Company (Dollars in Thousands) 3/31/2006 3/31/2006 (No Tender) (Full $25M Tender) Book Value Per Share $10.42 (2) $8.92 (3) $8.49 $8.43 Adjustments: Mark-to-market of Securitized Assets (0.65) (0.27) (0.31) Other Adjustments (0.78) (0.33) (0.37) Adjusted Book Value Per share: 8.99 8.92 7.89 7.75 Total Stockholders’ Equity 109,611 102,074 211,685 186,685 Adjustments: Mark-to-market of Securitized Assets (6,850) (6,850) (6,850) Other Adjustments (8,232) (8,232) (8,232) Adjusted Stockholders' Equity 94,529 102,074 196,603 171,603 Shares Outstanding 10,517 11,441 24,932 22,151 "Conversion" into old Alesco Book Value Pro-Forma Book Value $7.89 $7.75 Exchange Ratio 1.26 X 1.26 X 3/31/2006 Alesco Book Value Equivalent $9.94 $9.76 Accretion to Alesco 3/31/06 Book Value 11.4% 9.4% (1) Conversions based on 1.26 conversion ratio (2) Information from Sunset's 10Q (3) Based on Alesco's unaudited financial statements |
Page 40 Exchange ratio of 1.26 and repurchase amount of $25,000,000 assumes an outstanding loan balance of $8,000,000 at July 31, 2006 However, the exchange ratio and repurchase amount will change if the outstanding loan balance on the Peerless property exceeds $8,000,000 on July 31, 2006 Under the merger agreement, total exposure is approximately $10 million 1) The Peerless Loan has a current balance outstanding of $12,900,000. If this value is reduced $900,000 by July 31, 2006, this would be $4,000,000 above the target value of $8,000,000 ($12,000,000 - $8,000,000 = $4,000,000). The resulting adjustment to book value would be made by subtracting $2,400,000 (60% * $4,000,000 = $2,400,000). This would result in a book value of $89,499,826 ($91,899,826 - $2,400,000 = $89,499,826). 2) The Adjusted Book Value would be $8.51 ($89,499,826 / 10,516,900 = $8.51). 3) The Exchange Ratio would then be 1.293. This is calculated by dividing Alesco’s share price of $11 by the Adjusted Book Value of $8.51 ($11 / $8.51 = 1.293). 4) The Repurchase Amount would then be $21,000,000 ($25,000,000 - $4,000,000 = $21,000,000) Example of Exchange Ratio and Repurchase Amount Adjustments Potential Impact of Peerless Loan on Financial Terms |
Page 41 This material is not a substitute for the proxy statement/prospectus Sunset will file with the Securities and Exchange Commission. Investors are urged to read the proxy statement/prospectus which will contain important information, including detailed risk factors, when it becomes available. The proxy statement/prospectus and other documents which will be filed by Sunset with the Securities and Exchange Commission will be available free of charge at the SEC’s website, www.sec.gov, or by directing a request when such a filing is made to sriffe@sfous.com. Sunset, its directors, and its executive officers may be considered participants in the solicitation of proxies in connection with the proposed transactions. Information about the directors and executive officers of Sunset and their ownership of Sunset stock is set forth in the 2005 Annual Report and Form 10K. Investors may obtain additional information regarding the interests of such participants by reading the proxy statement/prospectus for the proposed merger when it becomes available. Additional Information About this Transaction |