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Equity Investment Symposium 2015 Hosted by: Toronto CFA Society

February 23, 2015 Broadview Capital Management Inc.

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This presentation is not to be construed as an offer, solicitation or recommendation to buy, sell or otherwise transact in any of the securities herein named. At the time of reading the investments mentioned may no longer be held by the Broadview Dark Horse LP (the Fund). This information is intended only for informational purposes, is as of the date indicated, is not complete and is subject to change. It may not be relied upon and should not be construed as legal, investment, accounting or other professional advice. Performance information is net of applicable fees unless otherwise specifically noted. Past performance is no guarantee of future results. Performance results will vary, depending on the series in which one is invested. The information contained herein is unaudited. It has been supplied by Broadview Capital Management Inc. (Broadview), the Funds Investment Manager and not the Funds Administrator who is responsible for the final calculation for the actual performance and final month-end Net Asset Values. Every effort has been made to ensure that the material contained herein is accurate as of publication. Broadview makes no representations or warranties as to the accuracy or completeness of such information and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. Broadview has no obligation to update the information at any point in the future.

Disclaimer

We look to arbitrage the difference between perception and reality

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Broadview Capital Management Inc.

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Alaris Royalty Corp. Short selling thesis on Alaris Royalty Corp. AD: TSX $32.80


February 23, 2015

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A hybrid debt/equity provider to mid-market companies in Canada and the U.S.

Provider of Preferred Equity capital tranche in exchange for variable

distributions based on KPIs of investee companies

A royalty stream company Dividends, dividends, dividends

Heavily owned by retail, index funds and safe-haven investors

Alaris Royalty Corp. As They Present Themselves

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Bay Street construct meant to create an artificially low volatility stream of

dividends to retail investors

Not really a royalty stream at all Portfolio comprised of highly-levered, cyclical and/or otherwise challenged businesses

Material mis-pricings in existing book

Poor track record in spite of benign credit environment

Valuation 2x what it should be

Alaris Royalty Corp. As Broadview Sees It

An assortment of inferior cuts of meat and other filler presented in a fashion to make them more appetizing.

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Alaris Royalty Corp. As Broadview Sees It

Sausage:

CC license

http://en.wikipedia.org/wiki/Sausage_sandwichmediaviewer/File:Italian_Sausage_Sandwich.jpg

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Alaris Royalty Corp. Comparing Alaris and Typical BDC

Alaris competes with other mid-market capital providers such as U.S.-based

Business Development Companies (BDCs) Outgrown the ability to source deals without competition

There are roughly 50 publicly-traded BDCs managing tens of billions with thousands of seasoned investment professionals,

often aligned with even larger financial institutions

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Typical BDC: Industry or regional specialists Experienced investment teams Significant resources to assist investee companies on an on-going basis Focussed on:

Senior secured loans Senior Unsecured loans (i.e. cash flow loans) Mezzanine loans Equity


Alariss Preferred Equity investments are most comparable to BDCs senior unsecured (Cash flow) loans

Senior secured loans provide lenders asset protection usually through

determined borrowing bases of A/R and inventory Interest rates are lower than cash flow loans but recoveries are high (80%, higher in

easy environments)

Senior unsecured loans typically buyout loans where asset backing is determined by cash flow and estimates of sale value of the enterprise Interest rates are higher than senior secured loans and equity kickers common but

recoveries are much lower (40%)

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Alaris BDC BDC Tranche Preferred Equity Senior Secured Senior Unsecured Initial Rate 15% 9% 13% Sweetener Variable upside with collar None Equity kicker Covenants No Yes Some Security None Fully secured Second Lien Recovery Rate ??? 90% 40% Maturity None 3 to 5 years 5 to 7 years

Alariss investments provide more upside versus a typical senior secured loan. However, on a risk-adjusted basis,

the proposition is materially worse

Alaris Royalty Corp. Alaris versus Other lending Models

Alaris suffers from adverse selection

Best credits can walk with no upside to Alaris Other hybrid lenders have longer term and/or equity kicker Leaves Alaris with only those who have no other choice

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In a world flush with capital, who willingly pays 15-16%?

Alaris Royalty Corp. Track Record

15 investments since inception (13 of which are more than one year old)

There have been clear financial issues with 6 of them: SHS LMS KMH Cardiology LP Labstat LP Agility Health Lifemark/Centric Health

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Alaris Royalty Corp. Track Record - SHS

SHS Services Management LP was the licensed operator of Sears

Canadas Sears Home Services business Alaris invested $15m in SHS in March 2013

On November 11, 2013 Alaris announced an amendment to its agreement with SHS

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Alaris prides itself in being a valued long term partner to our private company partners. While SHS has had a difficult transition period relating to the takeover of the national home service business from Sears Canada, the short term concessions from Sears and Alaris will provide SHS the flexibility and time needed to implement its remaining initiatives, which have already begun to be put in place by management of SHS. While any disruption in a distribution stream is difficult, we view this as an important decision for our long term cash flow stream from SHS," said Steve King, President and CEO, Alaris Royalty Corp.

On Dec. 14, 2013 SHS went into receivership Alaris expected recovery on its SHS investment is zero

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Alaris Royalty Corp. Track Record - LMS

LMS LP is a Vancouver area rebar manufacturer and installer Alaris invested $51m in LMS in late 2007

Represented 45% of Alaris invested capital at that time Original contemplated distribution to Alaris was $8.5m

Late in its fiscal year 2008, LMS experienced a dramatic shift in its business that included projects being cancelled and others being significantly delayed due to the unprecedented economic conditions that formed at that time. The end result was that LMS incurred material bad debt expenses, for the first time in its operating history, that decreased its reported gross profit for 2008. For 2009, LMS expects to see a significant drop in gross profit compared to the previous year. The net result of these factors on LMS's operation is possible decline in gross profits of as much as 80% for its 2009 fiscal year, which would result in a decrease in LMS's distribution to Alaris in 2010. - Alaris AIF from 2009


LMS EBITDA performance since Alaris investment

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Company 2008 2009 2010 2011 2012 2013

Solowave $9.8 $7.0 $10.5 End of the Roll $1.9 $3.1 $3.3 $2.5 $3.3 $2.6 LifeMark Health $7.9 $9.8 $12.2 $6.8 $7.4 $5.3

LMS $16.6 $1.6 $2.1 $0.3 $2.3 $4.6 KMH $4.6 $8.4 $9.5 Killick $10.8 $12.2 $14.4 Quetico $18.6 $12.4 $11.6 Labstat $7.9 $2.3 Agility Health $11.0 $3.9 SHS $0.0 Sequel $16.3 SCR Mines Technology $13.8 Smi $7.7 Total Implied EBITDA $26.4 $14.5 $17.6 $53.3 $71.9 $102.5

Source: Broadview Capital Management estimates. Company filings


Fair value is $32.5 million, a 33% discount to cost

Distributions fell from $7.6 million in 2009 to $1.6 in 2011

Distributions were being paid out of working cap

This was not a good investment and could have sunk the whole story if not

for new capital raised and deployed

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Alaris Royalty Corp. Track Record KMH

KMH LP is a Mississauga-based radiology clinic roll-up Alaris has invested a total of $54.8m in KMH in multiple rounds between

April 2010 and December 2012 On January 2, 2015 Alaris amended its agreement with KMH:

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Alaris has agreed to receive a portion of its upcoming distributions (the "KMH Distribution") from KMH Cardiology L.P. ("KMH") by way of a deferred payment (the "Deferred KMH Distribution"). Nothing has been formalized as of yet but Alaris expects to receive approximately two thirds of the monthly distribution in cash for the next several months. The portion not paid in cash, the Deferred KMH Distribution, will be booked as revenue on Alaris' income statement and will accumulate as a liability on KMH's balance sheet as the accumulated Deferred KMH Distribution will be paid out to Alaris on any sale of KMH's business or as cash flows suffice. Alaris has also agreed to defer approximately $1,500,000 of the $7,960,000 of distributions that were to be paid in 2014. Alaris and KMH Management are working together to rectify cash flow constraints that have arisen as a result of a number of factors relating to KMH's U.S. operations, including without limitation, the timing of collections on receivables related to Medicare/Medicaid insured patients, which can take up to one year to collect, and KMH's current bank facility being unable to accommodate this extended receivables collection period as well as increased overhead costs

Alaris Royalty Corp. Track Record Labstat

Labstat International LP is a Kitchener-based provider of chemical testing

for tobacco regulation

Alaris invested $41.2m in Labstat in June 2012 Provided additional short-term loans on three occasions

On February 28, 2014 Alaris amended its agreement with Labstat

Alaris distribution reduced from $6.2m to $3.0m with variable free cash flow sweep $6m additional investment to reduce indebtedness to senior lenders

Distributions have since been increased but still lag original expectations

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Alaris Royalty Corp. Track Record Agility Health

Agility Health LLC is a wholly-owned subsidiary of Agility Health Inc. which is a publicly-traded roll-up of physiotherapy clinics

Alaris has invested a total of $19.6m USD in Agility $12.5m in December 2012 $5.6m USD in October 2013 $2.0m USD in November 2013

Agility is not earning its distribution to Alaris currently

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Track Record Benign Credit Loss Environment

21 Source: Prospect Capital Company Filings, Management

Alaris has encountered a large number of problem investments while other mid-market lenders have seen non-accruals hit cycle lows at virtually zero

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Alaris Royalty Corp. Existing Portfolio mis-markings

Portfolio is marked to model against initial investment assumptions No provision for loan losses accrued

Several data points indicate that book value is overstated: Centric Health convertible debentures are $35 with ~50% YTM Centric Health 2018 senior notes are ~$82 with ~16%+ YTM Alaris Preferred Partnership Units marked at $36.9m at Q3 2014

Marking it in the context of other debt would result in a meaningful reduction in book value At 20% yield Alaris units would be worth $20.5m

KMH units should be impaired given announced reduction in cash distributions Conservative estimate of 15% reduction in value of investment is $8.3m

Alaris Royalty Corp. Existing Portfolio mis-markings

Current Book Value is $15.96 per share (as of Q3/14)

Less: CHH/Lifemark $0.50 per share Less: KMH $0.25 per share

Adjusted book value with these two marks is $15.21

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Alaris Royalty Corp. What causes Alaris to crack?

Alaris has shown remarkable resiliency as a stock despite: SHS, Labstat and KMH challenges CRA investigation (on-going) Retirement of Quetico and Killick Founding shareholder, Clay Reidel, disposed of all his shares

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BUT


At some point logic and/or the competitive nature of lending will reveal Alaris for what it is

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Default risk is as low as cheerleaders say ergo, cost of the debt is too high Competitive capital will enter and/or partner companies will exit

15-16% is the right cost for these loans ergo, defaults will be higher

Book should be marked down for eventual loan loss provisions

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This is likely already occurring

Potential for lower returns and higher risk of default as Alaris invests: in a more competitive environment in larger dollar amounts

Most recent investment in fitness franchisor was at a lower rate than

previous dealsand theyre a franchisee of gyms!!!

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The company could be only one or two more body blows away from real trouble

Another company exiting the portfolio, either by choice or default,

could tip the scales from blind enthusiasm to widespread skepticism Market growing impatient with lack of new investments or dividend

increases Recent increase in insider selling Dividend sustainability called into question

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Dividend stream is the backbone of Alaris public market appeal If dividend ever gets called into question, look out below! Forced selling (retail, dividend indices and safe-haven) with no natural buyers

By our math, Alaris will not earn its current distribution by the second half

of 2015 unless it deploys net new capital Deferred tax assets burn off in 2H 2015 causing Alaris to be fully cash tax paying Deferral of cash distributions from KMH will reduce cash flow

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The deferral of KMH cash distributions and the impact of fully cash taxes in 2H 2015 could push dividend payout ration materially above 100%

Alaris Royalty Corp. Valuation

Alaris should trade in-line or at a discount to its U.S. BDC peer group Adjusting for portfolio mis-pricings current book is estimated at $15.21

per share At 100% of adjusted book value Alaris would yield 9.8% - right in-line with BDC peers Average BDC Trades at 0.93% of NAV Greater than 50% downside from current price

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Alaris Royalty Corp. Risks

The downside scenario to the short thesis is that the music keeps playing Sell-side cheerleading keeps valuation elevated enough for Alaris to

continuously raise capital and deploy into new investments Bullish bias towards Alaris from the sell-side due to the companys need

to raise equity Skepticism will be suspended as long as there is some hope of banking fees

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Alaris Royalty Corp. Risks

If capital can be deployed in larger and larger amounts than reality of existing book could be obscured SHS was only 3% of the portfolio when it went to zero

Dividend yield and cost of borrow

No conceivable private market buyer at a price anywhere near current levels There is no equity upside to Alaris if any of its investee companies is acquired

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Alaris Royalty Corp. Conclusion

Alaris has crafted a narrative that it is collecting a low-risk top-line royalty stream from stable underlying businesses.

We do not believe this perception meets reality. With material downside and limited upside on the stock, the Risk/reward

tradeoff of a short position in Alaris is very favorable to Broadview and its LPs

Downside to $15.00 range implies 55%

It wont be very appetizing once everyone sees what goes into

the sausage

Alaris Royalty Corp Appendices

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Alaris Royalty Corp. Implied debt/EBITDA

Company 2008 2009 2010 2011 2012 2013

Solowave 3.38 4.72 3.15 End of the Roll 3.92 2.39 2.23 2.97 2.24 2.77 LifeMark Health 5.94 6.08 5.56 5.47 5.01 3.75 LMS 3.09 32.14 24.70 195.50 21.99 11.91 KMH 6.04 6.56 5.82 Killick 2.54 3.00 2.89 Quetico 1.51 2.23 2.53 Labstat 5.27 18.30 Agility Health 1.19 5.68 SHS Sequel 4.33 SCR Mines Technology 2.94 Smi 4.00 Total Implied Alaris Debt/EBITDA 4.24 8.62 9.74 3.98 4.21 4.51

35 Source: Broadview Capital Management Estimates. Company Filings.

Alaris Royalty Corp. Coverage Ratios

Company 2008 2009 2010 2011 2012 2013

Solowave 1.95 1.50 2.17 End of the Roll 1.33 2.09 2.43 1.81 2.78 2.31 LifeMark Health 1.05 1.17 1.08 1.00 1.05 1.32 LMS 2.34 0.21 0.62 0.16 0.98 1.31 KMH 0.76 1.07 1.02 1.10 Killick 2.52 2.11 2.11 Quetico 4.38 2.66 2.66 Labstat 1.28 0.53 Agility Health 5.49 1.09 SHS 0.00 Sequel 1.50 SCR Mines Technology 2.15 Smi 1.60 Total Coverage Ratio 1.53

36 Source: Broadview Capital Management Estimates. Company Filings.

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Publicly-traded U.S. BDC universe by market cap

BDC Universe valuation Dividend Yield

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BDC Universe valuation Price/NAV

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For investment or other related inquiries, please contact:

Jason Bernstein AssociateOperations and Business Development

Broadview Capital Management Inc. 181 Carlaw Ave., Suite 302

Toronto, Ontario M4M 2S1

Phone: (416) 406-4802

Email: [email protected] www.broadviewcapital.ca


mailto:[email protected]://www.broadviewcapital.ca/

Slide Number 1Slide Number 2Broadview Capital Management Inc.Alaris Royalty Corp.Slide Number 5Slide Number 7Alaris Royalty Corp.Comparing Alaris and Typical BDCAlaris Royalty Corp.Comparing Alaris and Typical BDCAlaris Royalty Corp.Comparing Alaris and Typical BDCAlaris Royalty Corp.Comparing Alaris and Typical BDCAlaris Royalty Corp.Alaris versus Other lending ModelsAlaris Royalty Corp.Track RecordAlaris Royalty Corp.Track Record - SHSAlaris Royalty Corp.Track Record - LMSAlaris Royalty Corp.Track Record - LMSAlaris Royalty Corp.Track Record - LMSAlaris Royalty Corp.Track Record KMHAlaris Royalty Corp.Track Record LabstatAlaris Royalty Corp.Track Record Agility HealthTrack Record Benign Credit Loss EnvironmentAlaris Royalty Corp.Existing Portfolio mis-markingsAlaris Royalty Corp.Existing Portfolio mis-markingsAlaris Royalty Corp.What causes Alaris to crack?Alaris Royalty Corp.What causes Alaris to crack?Alaris Royalty Corp.What causes Alaris to crack?Alaris Royalty Corp.What causes Alaris to crack?Alaris Royalty Corp.What causes Alaris to crack?Alaris Royalty Corp.What causes Alaris to crack?Alaris Royalty Corp.ValuationAlaris Royalty Corp.RisksAlaris Royalty Corp.RisksAlaris Royalty Corp.ConclusionAlaris Royalty CorpAlaris Royalty Corp.Implied debt/EBITDAAlaris Royalty Corp.Coverage RatiosSlide Number 37Slide Number 38Slide Number 39Slide Number 40

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