UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14D-9
(Amendment No. 4)
(RULE
14d-101)
SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
HATTERAS FINANCIAL CORP.
(Name of Subject Company)
HATTERAS
FINANCIAL CORP.
(Name of Persons Filing Statement)
Common Stock, par value $0.001 per share
(Title of Class of Securities)
41902R 103
(CUSIP Number
of Class of Securities)
Michael R. Hough
Chairman and Chief Executive Officer
Hatteras Financial Corp.
751 West Fourth Street, Suite 400
Winston-Salem, North Carolina 27101
(336) 760-9347
(Name,
address and telephone numbers of person authorized to receive notices and communications
on behalf of the persons filing statement)
With copies to:
Kerry E. Johnson, Esq.
Robert W. Smith, Jr., Esq.
Penny J. Minna, Esq.
DLA
Piper LLP (US)
1251 Avenue of the Americas
New York, New York 10020
(212) 335-4501
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Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
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Purpose of Amendment
This Amendment No. 4 (this “
Amendment
”) amends and supplements the Solicitation/Recommendation Statement on Schedule
14D-9
of Hatteras Financial Corp. (“
Hatteras
”), a Maryland corporation, filed with the Securities and Exchange Commission (the “
SEC
”) on May 5, 2016, as amended by
Amendment No. 1 filed with the SEC on May 19, 2016, Amendment No. 2 filed with the SEC on May 27, 2016 and Amendment No. 3 filed with the SEC on June 15, 2016 (as amended, the “
Schedule 14D-9
”). The Schedule 14D-9 relates to
the offer (the “
Offer
”) by Annaly Capital Management, Inc. (“
Annaly
”), a Maryland corporation, and its direct wholly owned subsidiary, Ridgeback Merger Sub Corporation
(“
Offeror
”), a Maryland corporation, to exchange for each outstanding share of common stock, $0.001 par value per share, of Hatteras, at the election of the holder thereof: (a) $5.55 in cash and 0.9894 shares of Annaly common
stock, par value $0.01 per share (“
Annaly common stock
”), (b) $15.85 in cash (the “
all-cash consideration
”), or (c) 1.5226 shares of Annaly common stock (the “
all-stock
consideration
”), subject in each case to the election procedures and, in the case of elections to receive the all-cash consideration or the all-stock consideration, to the proration procedures described in the Prospectus (as defined
below) and the related Letter of Election and Transmittal (as defined below).
Annaly has filed with the Securities and Exchange Commission
(“
SEC
”) a Tender Offer Statement on Schedule TO dated May 5, 2016, as amended, and a Registration Statement on Form S-4 dated May 5, 2016, relating to, among other things, the offer and sale of shares of Annaly common stock
to be issued to holders of shares of Hatteras common stock in the Offer, as amended by Amendment No. 1 to the Registration Statement on Form S-4 dated May 27, 2016, Amendment No. 2 to the Registration Statement on Form S-4 dated June 15, 2016 and
Amendment No. 3 to the Registration Statement on Form S-4 dated July 1, 2016 (as amended, the “
Registration Statement
”). The terms and conditions of the Offer are set forth in the Prospectus/Offer to Exchange, which is a part
of the Registration Statement (the “
Prospectus
”), and the related letter of election and transmittal (the “
Letter of Election and Transmittal
”), which are incorporated herein by reference as Exhibit
(a)(4) and (a)(1)(A), respectively, hereto. The Agreement and Plan of Merger, dated as of April 10, 2016, by and among Annaly, Offeror and Hatteras (the “
Merger Agreement
”), a copy of which is incorporated by reference as
Exhibit (e)(1) to this Schedule 14D-9, are incorporated by reference into this Schedule 14D-9.
Except as otherwise set forth below, the information set
forth in the Schedule 14D-9 remains unchanged and is incorporated by reference as relevant to the items in this Amendment. Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the Schedule 14D-9. This
Amendment is being filed to reflect certain updates as reflected below.
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Item 4.
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The Solicitation or Recommendation.
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Item 4 of the Schedule 14D-9 is hereby amended and restated in its
entirety as follows:
As previously disclosed on page 6 of Amendment No. 2 to Schedule 14D-9 filed by Hatteras with the Securities and
Exchange Commission on May 27, 2016, subsequent to the public announcement of the proposed acquisition of Hatteras by Annaly, four civil actions (the “
Actions
”) were filed challenging the proposed transaction and/or the
disclosures made in connection therewith. On or about June 30, 2016, the parties to the Actions entered into a Memorandum of Understanding (the “
MOU
”) providing for the settlement of the Actions. Hatteras and the other named
defendants have vigorously denied, and continue vigorously to deny, that they have committed or aided and abetted in the commission of any violation of law or engaged in any of the wrongful acts that were or could have been alleged in the Actions,
and expressly maintain that, to the extent applicable, they diligently and scrupulously complied with their fiduciary duties, obligations under the Securities Exchange Act of 1934 and other legal duties. While Hatteras and the other named defendants
in the Actions believe that no supplemental disclosure is required under applicable law, in order to (i) avoid the burden, inconvenience, expense and distraction of further litigation in connection with the Actions, (ii) finally put to rest and
terminate all of the claims that were or could have been asserted against the defendants in the Actions and (iii) permit the proposed transaction to proceed without risk of an injunction being entered or damages being awarded, Hatteras has agreed,
without admitting any liability or wrongdoing, pursuant to the terms of the MOU, to make certain supplemental disclosures related to the proposed transaction, all of which are set forth below. The settlement will not affect the amount of
consideration to be paid in the proposed transaction. The MOU and this filing should not be deemed an admission of the legal necessity or materiality of any of the disclosures set forth below.
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The MOU contemplates that the parties will enter into a stipulation of settlement. The stipulation
of settlement will be subject to customary conditions, including approval by the United States District Court for the Middle District of North Carolina (the “
Court
”) following notice to Hatteras’s stockholders. In the
event that the parties enter into a stipulation of settlement, a hearing will be scheduled at which the Court will consider the fairness, reasonableness and adequacy of the settlement. If the settlement is finally approved by the Court, it will
resolve and release all claims by stockholders of Hatteras challenging any aspect of the proposed transaction or any disclosures made in connection therewith, pursuant to terms that will be set forth in the notice sent to Hatteras’s
stockholders prior to final approval of the settlement. In addition, in connection with the settlement, the parties contemplate that plaintiffs’ counsel will file a petition in the Court for an award of attorneys’ fees and expenses to be
paid by Hatteras or its successor. The settlement is contingent upon, among other things, the acquisition of Hatteras by Annaly becoming effective under Maryland law. There can be no assurance that the Court will approve the settlement. In the event
that the settlement is not approved or that the conditions are not satisfied, the settlement may be terminated.
Recommendation of the
Hatteras Board of Directors
At a meeting held on April 10, 2016, the Hatteras board of directors, acting upon the unanimous recommendation of
the Hatteras special committee, unanimously:
(i) determined that the terms of the merger agreement and the transactions, including the offer, the merger
and the issuance of shares of Annaly common stock in connection therewith, are fair to, and in the best interests of, Hatteras and its stockholders;
(ii)
declared the offer, the merger and the other transactions contemplated by the merger agreement advisable;
(iii) approved the execution and delivery by
Hatteras of the merger agreement, the performance by Hatteras of its covenants and agreements contained in the merger agreement and the consummation of the offer, the merger and the other transactions contemplated by the merger agreement on the
terms and subject to the conditions contained therein; and
(iv) resolved to recommend that Hatteras stockholders accept the offer and tender their shares
of Hatteras common stock to Annaly in the offer.
Accordingly, and for the reasons described in more detail below under “
Hatteras’
Reasons for the Offer and the Merger; Recommendation of the Hatteras Board of Directors
” the Hatteras board of directors unanimously recommends that the holders of Hatteras common stock accept the offer and tender their shares of
Hatteras common stock to Annaly in the offer.
A press release dated April 11, 2016, issued by Hatteras and Annaly announcing the offer, the merger and the other transactions contemplated by the merger agreement, is included as Exhibit
(a)(5)(A) hereto and is incorporated herein by reference.
Background of the Offer and the Merger
The Hatteras board of directors regularly evaluates Hatteras’ strategic direction and ongoing business plans and reviews possible ways of increasing
long-term stockholder value. Since 2013, the residential mortgage REIT sector has faced significant headwinds for a variety of reasons, including uncertainty regarding the outlook for interest rates and the financial markets generally. As a result,
in recent years, the price per share of Hatteras common stock has traded at a substantial discount to Hatteras’ book value per share, which makes raising equity capital to fund new investments dilutive to stockholders. Because of these
circumstances, Hatteras has been and continues to be unable to raise equity capital on acceptable terms, and accordingly, has been unable to significantly increase its size and scale through capital market transactions.
In response to these market conditions, the Hatteras board of directors and the Hatteras external manager have considered various approaches to addressing
these challenges to better position Hatteras to continue to deliver appropriate risk-adjusted returns throughout all parts of the interest rate cycle.
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In 2013, Hatteras began an initiative to acquire and aggregate individual prime jumbo whole mortgage loans with a
goal of securitizing them into non-agency securities. In addition, on August 31, 2015, Hatteras closed its acquisition of Pingora Asset Management, LLC and Pingora Loan Servicing, LLC (collectively, “
Pingora
”), a
specialized asset manager focused on investing in new-production performing mortgage servicing rights and master-servicing residential mortgage loans sourced primarily from direct, ongoing relationships with loan originators. Because Hatteras has
been unable to raise equity on acceptable terms, in order to allocate capital to these new investments and diversify its portfolio, Hatteras has been repositioning its asset base over time by redeploying capital from agency securities into
residential whole loans and mortgage servicing rights.
In August 2015, Michael R. Hough, the Chairman of the Hatteras board of directors and Chief
Executive Officer of Hatteras, was approached by the representatives of another mortgage REIT having a market capitalization of comparable size to Hatteras (“
Company A
”) with an interest in exploring a potential merger
between the two companies. Mr. Michael Hough subsequently briefed the Hatteras board of directors regarding these discussions and in early-September 2015, the Hatteras board of directors authorized the execution of a non-disclosure agreement
with Company A, which was executed on September 17, 2015. Following the execution of the non-disclosure agreement, Hatteras and Company A held very preliminary discussions regarding a potential transaction, but no terms were proposed and
no confidential information was exchanged.
On November 4, 2015, the Hatteras board of directors held a telephonic meeting with a representative of
DLA Piper LLP (US), counsel to Hatteras (“
DLA Piper
”), and discussed the relative strategic merits of a potential transaction with Company A. After discussion, Mr. Michael Hough and Mr. Benjamin M. Hough,
Director, President and Chief Operating Officer of Hatteras, excused themselves from the meeting and the independent members of the Hatteras board of directors continued to meet in executive session. Due to potential conflicts of interest with
(a) the Hatteras external manager as a result of the possible termination of the management agreement in connection with any potential transaction, and (b) Messrs. Michael R. and Benjamin M. Hough as a result of their ownership interests
in the Hatteras external manager, the independent members of the Hatteras board of directors formed the Hatteras special committee during this meeting, consisting of independent directors Vicki McElreath, Jeffrey D. Miller (who was later designated
as the chairman), and Thomas D. Wren. The independent members of the Hatteras board of directors determined, among other things, not to approve any potential transaction without the affirmative recommendation of the Hatteras special committee. In
addition, the Hatteras special committee was delegated complete and final authority for dealing with any matters relating to payments under or in respect of Hatteras’ management agreement with the Hatteras external manager, or any other
transactions connected with or related to a potential transaction involving the Hatteras external manager. The Hatteras special committee was authorized (i) to hire independent legal and financial advisors, (ii) to consider, evaluate and
respond to any proposal that might be received from Company A regarding a potential transaction, (iii) to consider potential strategic alternatives that might maximize long-term stockholder value, and (iv) to make recommendations, if any,
to the Hatteras board of directors concerning these matters. From its formation on November 4, 2015 to January 20, 2016, the Hatteras special committee held a number of meetings and other discussions to analyze and consider a potential
transaction with Company A and related matters delegated to it by the Hatteras board of directors.
On or around November 4, 2015, the Hatteras
special committee initiated a search for its own legal and financial advisors to assist the Hatteras special committee in its consideration of a potential transaction with Company A and other strategic alternatives available to Hatteras. Shortly
thereafter, the Hatteras special committee engaged Hogan Lovells US LLP (“
Hogan Lovells
”) to represent it in connection with the potential transaction.
On December 8, 2015, at the regular quarterly board meeting, the Hatteras board of directors met with a representative of DLA Piper, who was present for
a portion of the meeting, and representatives of Hogan Lovells, who were present for the entire meeting, and discussed, among other things, the Hatteras board of directors’ fiduciary duties in the context of any potential transaction with
Company A and the appropriate roles of management and the Hatteras special committee in negotiating and evaluating any strategic alternatives. Messrs. Michael and Benjamin Hough and the representative of DLA Piper excused themselves from the portion
of the board meeting involving discussion of the Hatteras management agreement and related matters.
During December 2015, the Hatteras special committee,
together with representatives of DLA Piper and Hogan Lovells, considered the qualifications of several investment banks with significant experience advising mortgage REITs to potentially serve as the financial advisor to the Hatteras special
committee. The Hatteras special
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committee’s criteria for selecting an investment bank to act as the Hatteras special committee’s financial advisor included, among other things, the absence of material conflicts of
interest between the investment bank and Company A, the Hatteras external manager and its affiliates and Hatteras, including with respect to Hatteras’ financing arrangements, its institutional knowledge of the commercial and residential
mortgage REIT industries, its capacity to provide the functions of a full-service investment bank, including its knowledge of the trading market for mortgage-backed securities, and the investment banking team’s past experience advising other
companies in connection with similar transactions. Based on this criteria, the Hatteras special committee selected Goldman, Sachs & Co. (“
Goldman Sachs
”) to be interviewed at the upcoming meeting of the Hatteras
special committee on January 5, 2016. During the interview, the Hatteras special committee assessed Goldman Sachs’ experience in the mortgage REIT industry, its views on the current state of the financial markets, as well as potential
strategic alternatives that might be available to Hatteras to enhance Hatteras’ long-term stockholder value, including remaining independent and the advantages and disadvantages of a potential transaction with Company A. After this interview
and after careful consideration of other information, on January 5, 2016, the Hatteras special committee determined to engage Goldman Sachs to act as its financial advisor in connection with a potential transaction with Company A or other
strategic alternatives.
Also, on January 5, 2016, Hatteras executed an amended and restated non-disclosure agreement with Company A. The amended and
restated non-disclosure agreement with Company A provides generally that, for a period of 18 months, Company A will not make an unsolicited acquisition offer for Hatteras, but explicitly provides that this prohibition “shall be inoperative and
of no force or effect if a Competing Transaction occurs” with respect to Hatteras. A “Competing Transaction” is defined to include the merger agreement between Hatteras, Annaly and the Offeror.
During January 2016, there was a significant deterioration in market conditions for mortgage REITs and stock trading prices across the industry fell to
depressed levels, including the Hatteras common stock, which decreased 17% from its high closing price to its low closing price during the month. At a special committee meeting in mid-January 2016, the Hatteras special committee discussed with
Mr. Michael Hough current market conditions and concluded that a strategic transaction with Company A would not be attractive at such valuations.
On
or around January 20, 2016, the Hatteras special committee held a telephonic meeting with Mr. Michael Hough and a representative of DLA Piper. Mr. Michael Hough updated the Hatteras special committee on his discussions with the
managing director of Company A and reported that he and the managing director of Company A had acknowledged that a possible strategic business combination would be difficult to accomplish in light of current market conditions and the depressed
common stock trading levels and would not be in the best interests of their respective stockholders. The Hatteras special committee, therefore, determined to terminate discussions with Company A and instructed Mr. Michael Hough to confirm the
termination of discussions with Company A, which Mr. Michael Hough did with the managing director of Company A on January 20, 2016. Hatteras and Company A never discussed pricing or valuations, and no due diligence materials were exchanged
between Hatteras and Company A.
On January 27, 2016, Kevin G. Keyes, the Chief Executive Officer and President of Annaly, called Mr. Michael
Hough to arrange for an in-person meeting, the purpose of which was not discussed. On February 11, 2016, Mr. Michael Hough and Mr. Keyes met, and Mr. Keyes raised the possibility of exploring a potential merger between the two
companies. No specific terms were discussed or negotiated. After the meeting on February 11, 2016, Mr. Michael Hough reported to Mr. Miller, chairman of the Hatteras special committee, on his meeting with Mr. Keyes.
On February 18, 2016, Annaly sent a presentation to Hatteras for the Hatteras board of directors, which was distributed by Mr. Michael Hough to the
Hatteras special committee. The presentation outlined the strategic considerations for a proposed transaction, including that the transaction consideration may be composed of cash and Annaly common stock, but did not propose any specific financial
terms.
On February 19, 2016, the Hatteras special committee held a telephonic meeting with Mr. Michael Hough and a representative of DLA Piper.
The Hatteras special committee discussed the potential opportunity for a transaction with Annaly and asked Mr. Michael Hough to call a special meeting of the Hatteras board of directors to discuss the opportunity with the full board. The
Hatteras special committee distributed the Annaly presentation to the other
4
members of the Hatteras board of directors on February 22, 2016. On February 22, 2016, the Hatteras board of directors held a telephonic meeting with representatives of DLA Piper, who
were present for a portion of the meeting. After discussion, Messrs. Michael and Benjamin Hough and the representatives of DLA Piper excused themselves from the meeting and the independent members of the Hatteras board of directors continued to meet
in executive session. During the discussion, the independent members of the Hatteras board of directors reauthorized the Hatteras special committee (a) to consider, evaluate and respond to any proposal that might be received from Annaly
regarding the transaction, (b) to explore potential strategic alternatives that might maximize long-term stockholder value, (c) to evaluate and negotiate the terms of a potential transaction with Annaly or any alternative transaction, and
(d) to make recommendations, if any, to the Hatteras board of directors regarding such matters. The independent members of the Hatteras board of directors also determined not to approve a transaction without the affirmative recommendation of
the Hatteras special committee and to delegate to the Hatteras special committee complete and final authority for dealing with any matters relating to payments under or in respect of Hatteras management agreement with the Hatteras external manager,
or any other transactions connected with or related to a potential transaction involving the Hatteras external manager. The independent members of the Hatteras board of directors also authorized the negotiation of an appropriate mutual
non-disclosure agreement to permit the exchange of confidential information in connection with each party’s respective evaluation of a potential transaction.
On February 22, 2016, Annaly’s legal advisor, Wachtell, Lipton, Rosen & Katz (“
Wachtell Lipton
”) sent an initial
draft of a non-disclosure agreement to DLA Piper, which DLA Piper shared with Hogan Lovells, and DLA Piper, in consultation with Hogan Lovells, reviewed and negotiated the agreement. On February 26, 2016, Annaly and Hatteras entered into a
mutual non-disclosure agreement. Shortly thereafter, Annaly, Wachtell Lipton and Wells Fargo Securities, LLC (“
Wells Fargo
”) and Sandler O’Neill & Partners, L.P. (“
Sandler O’Neill
”),
Annaly’s financial advisors, were granted access to an electronic data room containing certain non-public information concerning Hatteras’ business and operations in order to facilitate their respective due diligence investigation of
Hatteras.
On February 29, 2016, Hatteras, Goldman Sachs and DLA Piper were provided access to an electronic data room containing certain non-public
information concerning Annaly’s business and operations in order to facilitate the Hatteras board of directors’ reverse due diligence investigation of Annaly. Hogan Lovells was provided access to the same electronic data room concerning
Annaly’s business and operations on March 5, 2016. In early March 2016, Weiner Brodsky Kider PC (“
Weiner Brodsky
”), was retained by Hatteras as its mortgage regulatory legal counsel to assist with its reverse
due diligence investigation of Annaly with respect to mortgage regulatory matters and mortgage regulatory matters related to the proposed transaction.
During the period from February 26, 2016 through the signing of the merger agreement, representatives of Annaly and Hatteras, and their respective legal
and financial advisors, engaged in their due diligence investigations of one another.
On March 7, 2016, a proposed merger agreement prepared by
Wachtell Lipton was provided to DLA Piper and Hogan Lovells that reflected a potential transaction structured as an exchange offer in which the Hatteras common stockholders would have the right to receive a fixed amount of cash and shares of Annaly
common stock. The draft merger agreement did not contain the amount of cash or stock that would be payable in a potential transaction. The draft merger agreement proposed a termination fee payable by Hatteras in specified circumstances, including if
the merger agreement was terminated in order to accept a superior proposal, was in an amount equal to 4% of the transaction equity value. The draft merger agreement also included a no-shop covenant, with a fiduciary out for a superior proposal and
an ability for the Hatteras board of directors to change its recommendation for an intervening event, as well the ability for Annaly to make a matching offer each time a third party submits a superior proposal or in the case of an intervening event.
In addition, the draft merger agreement contemplated that the shares of Hatteras Series A preferred stock would be exchanged for shares of a newly designated Annaly Series E preferred stock with substantially the same terms as the existing terms of
the Hatteras Series A preferred stock. The draft merger agreement included a provision that the Hatteras external manager agree to terminate the management agreement in connection with the consummation of the offer and the merger.
On March 10, 2016, the Hatteras special committee met with certain members of the Hatteras management team and representatives of DLA Piper, who were
present for a portion of the meeting, and representatives of Goldman Sachs and Hogan Lovells, who were present for the entire meeting, to discuss the possible transaction. The representatives
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of Goldman Sachs made a presentation regarding Annaly, its current management, strategy and portfolio, and the strategic considerations with respect to a transaction with Annaly. The members of
the Hatteras management team and the representatives of DLA Piper excused themselves from the portion of the board meeting involving discussion of the management agreement and related matters.
On March 17, 2016, Annaly’s financial advisors hosted a due diligence call to discuss the methodology and process used by each of Annaly and
Hatteras for valuing their respective assets, including fixed-rate and adjustable rate agency securities, and Hatteras’ methodology and process for valuing mortgage servicing rights.
On March 18, 2016, Annaly delivered to Hatteras’ financial and legal advisors and Mr. Michael Hough a preliminary non-binding indicative
proposal for a strategic transaction with Hatteras in which Hatteras common stockholders would receive $15.25 per share of Hatteras common stock comprised of $3.81 in cash and 1.09894 shares of Annaly common stock, such that the total consideration
would be comprised of 25% cash and 75% Annaly common stock. The proposal indicated that Annaly would assume the existing notional amount of $287,500,000 of the Hatteras Series A preferred stock. In addition, the proposal stated that Annaly would be
willing to pay the Hatteras external manager, in consideration for the termination of the Hatteras management agreement, the termination fee provided for under the existing terms of the management agreement between Hatteras and the Hatteras external
manager, subject to additional commercial arrangements in respect of the Hatteras external manager and its executives. Under the existing terms of the Hatteras management agreement, Hatteras was obligated to pay to the Hatteras external manager a
termination fee in cash equal to four times the average annual management fee earned by the Hatteras external manager during the two-year period immediately preceding the date of termination in the event of a termination for any reason other than
for cause.
On March 21, 2016, at the quarterly board dinner, the Hatteras board of directors met to discuss the transaction and the proposal
received from Annaly. Also, on March 21, 2016, Hogan Lovells provided the Hatteras special committee, at its request, a summary of the vesting provisions of the equity awards held by the Hatteras external manager and its executives. On
March 22, 2016, at its regular quarterly meeting, the Hatteras board of directors met with representatives of Goldman Sachs, DLA Piper and Hogan Lovells and discussed the proposal received from Annaly. Specifically, at the March 22, 2016
meeting, the Hatteras board of directors, including the members of the Hatteras special committee, and its advisors, discussed whether such proposal (i) proposed a sufficient amount of consideration for each outstanding share of Hatteras common
stock, (ii) provided the optimal mix of stock and cash consideration, (iii) included an appropriate termination fee in the case of a termination of the merger agreement under specified circumstances, and (iv) adequately addressed the
treatment of ordinary quarterly dividends. Also at the March 22, 2016 meeting, the Hatteras board of directors, including the members of the Hatteras special committee, and its advisors, discussed the state of the mortgage REIT industry,
Hatteras’ earnings and book value projections and other potential strategic alternatives available to Hatteras, including remaining independent.
Upon completion of the Hatteras board of directors meeting on March 22, 2016, the Hatteras special committee met with the other independent members of
the Hatteras board of directors and representatives of Hogan Lovells and continued to discuss the proposal received from Annaly. During the discussion, a representative of Hogan Lovells provided the Hatteras special committee an overview of the
payments and other benefits that would be provided to the Hatteras external manager and its executives pursuant to the Annaly proposal, including a termination payment provided to the Hatteras external manager in consideration for the termination of
the management agreement, vesting of Hatteras equity awards, and certain post-closing transition services arrangements. Hogan Lovells also discussed retention payments to employees of the Hatteras external manager upon closing of the transaction and
severance payments to employees of Hatteras. The Hatteras special committee discussed whether negotiating reductions in such payments might increase the consideration that Annaly would be willing to pay to the Hatteras stockholders. At the
conclusion of the March 22, 2016 meetings, the Hatteras special committee instructed representatives of Goldman Sachs to (i) communicate to Annaly that the Hatteras special committee considered the proposal from Annaly to be financially
inadequate and (ii) suggest that the advisors of Hatteras, the Hatteras special committee and Annaly engage in further diligence and negotiations. Shortly after the March 22, 2016 meetings, representatives of Goldman Sachs communicated
these messages to representatives of Wells Fargo and Sandler O’Neill. Thereafter, representatives of Goldman Sachs, Wells Fargo and Sandler O’Neill engaged in multiple discussions regarding Annaly’s financial valuation of
Hatteras’ assets and explored possible improvements in the proposed transaction terms.
6
On March 24, 2016, representatives of Annaly and Hatteras, and their respective advisors, including Wells
Fargo, Sandler O’Neill, Goldman Sachs, Wachtell Lipton, DLA Piper and Weiner Brodsky, met to discuss the due diligence investigations, including questions arising from the due diligence investigation of Hatteras and reverse due diligence
investigation of Annaly. The representatives also discussed the methodology for valuing Hatteras’ assets, including agency securities and mortgage servicing rights.
On March 28, 2016, DLA Piper and Hogan Lovells held a conference call to discuss the terms of the draft merger agreement. On March 29, 2016, DLA
Piper submitted a revised draft of the merger agreement to Wachtell Lipton. At the specific request of the Hatteras special committee, the revised draft provided for an exchange offer that permitted Hatteras common stockholders to elect to receive
either a mix of cash and Annaly common stock or all Annaly common stock as consideration in the transaction, provided that the total amount of cash consideration to be paid out could not exceed 25% of the total consideration. The termination fee
payable by Hatteras in specified circumstances, including if the agreement was terminated in order to accept a superior proposal, was proposed to be 2.5% of the transaction equity value, except in order to accept a superior proposal with a party
that submitted a superior proposal during a 30-day “go-shop period” following signing (during which time Hatteras would have been permitted to solicit alternative proposals), in which case the termination fee payable by Hatteras would be
1% of the transaction value.
Following receipt of the revised merger agreement, Wachtell Lipton, Wells Fargo and Sandler O’Neill communicated issues
raised in the revised merger agreement to DLA Piper, Hogan Lovells and Goldman Sachs. On March 30, 2016, representatives of Wachtell Lipton, DLA Piper and Hogan Lovells held a conference call to discuss the open legal issues on the merger
agreement.
On March 31, 2016, Wachtell Lipton delivered to Goldman Sachs, DLA Piper and Hogan Lovells a revised draft merger agreement, which
reflected a transaction structured as an exchange offer in which the Hatteras stockholders would have the right to elect to receive a fixed amount of cash, a fixed number of shares of Annaly common stock or a mix of a fixed amount of cash and shares
of Annaly common stock. Elections for either all cash or all shares of Annaly common stock would be subject to proration so that total consideration would not exceed 25% cash and 75% stock. The termination fee payable by Hatteras in specified
circumstances, including if the agreement was terminated in order to accept a superior proposal, was proposed to be 4% of the transaction value. The revised merger agreement removed the ability of Hatteras to solicit alternative proposals after the
signing of the merger agreement, but retained a fiduciary out for a superior proposal subject to payment of a termination fee.
Also on March 31,
2016, Wachtell Lipton delivered to Goldman Sachs, DLA Piper, Hogan Lovells and Rogers & Hardin LLP (“
Rogers
& Hardin
”), counsel for the Hatteras external manager, a proposal from
Annaly regarding the treatment of the Hatteras management agreement and related matters, in which Annaly proposed to pay to the Hatteras external manager a termination fee of approximately $74 million for the termination of the Hatteras management
agreement, a payment of approximately $3 million for retention and severance costs for employees of the Hatteras external manager and a transition services agreement that the Annaly external manager would enter into with the Hatteras external
manager, with a minimum payment of $3 million for actual transition services to be performed.
From the last two weeks of March 2016 until the signing of
the merger agreement on April 10, 2016, representatives of Rogers & Hardin engaged in discussions with representatives of Wachtell Lipton with respect to the proposed termination of the management agreement and related matters. This
included discussion regarding the continued provision of services by the executive officers of the Hatteras external manager following the closing of the transaction as well as the potential implications of such agreements and the possibility of
Annaly or its affiliates acquiring the Hatteras external manager. Annaly advised that it was not interested in acquiring the Hatteras external manager and would require that the Hatteras external manager agree to terminate the management agreement
as a condition to the transaction and that the Hatteras external manager and its executive officers agree to other covenants for the benefit of Annaly.
On April 3, 2016, the Hatteras special committee held a telephonic meeting with Mr. Michael Hough and representatives of DLA Piper, who were present
for a portion of the meeting, and representatives of Goldman Sachs and Hogan Lovells, who were present for the entire meeting, to discuss the revised provisions of the merger agreement, including the ability for Hatteras common stockholders to elect
the form of consideration received and
7
the termination fee, and to discuss certain diligence items. After discussion, Mr. Michael Hough and the representatives of DLA Piper excused themselves from the meeting and the Hatteras
special committee met in executive session with its advisors. During the discussion, the Hatteras special committee directed the representatives from Goldman Sachs to communicate to Annaly’s representatives their views on a number of
transaction terms, including that the current financial terms of the proposal were still not adequate and that the proposed termination fee payable if the merger agreement was terminated in specified circumstances was too high. The Hatteras special
committee also directed its chairman, Mr. Miller, to engage in negotiations with Mr. Michael Hough regarding a possible reduction in the termination fee and other benefits that would be received by the Hatteras external manager and its
executives, to the extent such reductions could result in an increase in the consideration offered by Annaly to the holders of Hatteras common stock. In addition, to ensure continuity in Hatteras operations, the Hatteras special committee approved
in principle the payment of reasonable retention payments by Hatteras to employees of Hatteras and the Hatteras external manager, with respect to services that would be provided prior to closing, if the transaction were approved. The Hatteras
special committee delegated to its chairman, Mr. Miller, the authority to negotiate the details of such retention payments with Mr. Michael Hough.
On April 3, 2016, representatives from Goldman Sachs as directed by the Hatteras special committee engaged in discussions with Annaly and its advisors
regarding the open business issues, including the amount of consideration, the cash/equity split of the consideration, the amount of the termination fee payable if the merger agreement was terminated in specified circumstances, and the terms of the
termination of the Hatteras management agreement and related matters.
On April 4, 2016, after discussions with Mr. Michael Hough regarding
employee retention payments, Mr. Miller communicated to Mr. Michael Hough that the Hatteras special committee would only approve retention payments for certain employees of Hatteras and the Hatteras external manager (excluding the
executive officers of Hatteras, Michael R. Hough, Benjamin M. Hough, Kenneth A. Steele and Frederick J. Boos, II) of up to one times each such employee’s base salary. In addition, Mr. Miller communicated to Mr. Michael Hough that
given the current level of consideration being proposed to be paid to the Hatteras stockholders in the proposed transaction, it would be likely that the Hatteras special committee would not recommend the transaction unless the consideration was
increased, including as a result of agreed upon reductions in payments to the Hatteras external manager and its executives.
On April 4, 2016, the
Hatteras special committee also formally confirmed the engagement of Goldman Sachs to act as its financial advisor in connection with the transaction and its consideration of other strategic alternatives. Goldman Sachs provided a disclosure letter
to the Hatteras special committee relating to certain investment banking and team member relationships with Annaly and Hatteras, and after deliberation with representatives of Hogan Lovells, the Hatteras special committee determined that such
relationships would not impact Goldman Sachs’ ability to provide financial advice to the Hatteras special committee in connection with the proposed transaction or the Hatteras special committee’s review of other strategic alternatives. On
April 5, 2016, the Hatteras special committee executed an engagement letter to formally engage Goldman Sachs as financial advisor to the Hatteras special committee in connection with the transaction and the Hatteras special committee’s
consideration of other strategic alternatives.
On April 6, 2016, the Hatteras special committee held a telephonic meeting with Messrs. Michael and
Benjamin Hough and representatives from Goldman Sachs, DLA Piper and Hogan Lovells to discuss the status of pricing discussions among Goldman Sachs, Wells Fargo and Sandler O’Neill, including the asset valuation metrics impacting the pricing
determination. A representative of Goldman Sachs informed the Hatteras special committee that based on his discussions with Annaly’s financial advisors he believed that Annaly would consider increasing its offer to between $15.40 and $15.50 per
share, but would not increase beyond that. The Hatteras special committee directed Goldman Sachs to inform Annaly’s representatives that the offer was financially inadequate and that the Hatteras special committee intended to discontinue any
further negotiations until at least after Hatteras had released its quarterly financial results.
On the morning of April 7, 2016, Mr. Keyes
requested a telephonic meeting with the Hatteras special committee. The Hatteras special committee agreed and later that afternoon Mr. Keyes made a presentation to the Hatteras special committee and a representative from Hogan Lovells at which
he described Annaly’s business and diversification strategy. He also outlined a best and final offer from Annaly valued at $15.85 per share, with 40% of the total consideration in the form of cash and 60% of the total consideration in the form
of Annaly common stock.
8
The Hatteras common stockholders would continue to have the right to elect to receive a fixed amount of cash, a fixed number of shares of Annaly common stock or a mix of a fixed amount of cash
and shares of Annaly common stock. Elections for either all cash or all shares of Annaly common stock would be subject to proration so that total consideration would not exceed 40% cash and 60% shares of Annaly common stock. The offer assumed that
the Hatteras external manager would agree to reduce the termination fee from the level provided for in the management agreement to approximately three times the average annual management fee. In addition, Annaly would enter into post-closing
consulting arrangements with the Hatteras executive officers, pursuant to which they perform various services for Annaly post-closing, and Annaly would provide certain severance protections to employees of Hatteras that would join Annaly in
connection with the proposed transaction. Mr. Keyes outlined for the Hatteras special committee his views on the strategic advantages of the combination for Hatteras stockholders, including portfolio and business line diversification, improved
liquidity, improved access to capital and the possibility of growing Hatteras’ operating businesses, and responded to questions from the Hatteras special committee on Annaly’s risk and diversification strategy. The Hatteras special
committee discussed the revised proposal after Mr. Keyes departed the meeting.
A telephonic meeting of the Hatteras board of directors was held on
April 7, 2016 following the meeting between Mr. Keyes and the Hatteras special committee in order to update the entire Hatteras board of directors on the revised offer and the meeting with Mr. Keyes. Representatives from DLA Piper,
who were present for a portion of the meeting, Goldman Sachs and Hogan Lovells attended. A representative from Goldman Sachs provided a presentation on the financial terms of the revised offer. After discussion, Messrs. Michael and Benjamin Hough
and the representatives of DLA Piper excused themselves from the meeting, and a telephonic meeting of the Hatteras special committee was convened. The other independent members of the Hatteras board of directors and representatives of Goldman Sachs
and Hogan Lovells attended the meeting. The Hatteras special committee discussed the updated proposal and solicited the input of Goldman Sachs and Hogan Lovells, including with respect to the relative advantages and disadvantages of the transaction
over continuing as an independent company, outstanding diligence issues and open issues in the draft merger agreement. The Hatteras special committee also reviewed the state of negotiations relating to the termination of the management agreement,
severance arrangements for Hatteras employees, retention bonuses for employees of the Hatteras external manager, and consulting arrangements between Annaly and certain executives of the Hatteras external manager. After deliberating, the Hatteras
special committee directed its chair, Mr. Miller, to inform Mr. Keyes that the Hatteras special committee could support the revised proposal subject to the percentage of stock consideration being increased to 65%, the termination fee
payable if the merger agreement was terminated in specified circumstances being reduced to 3%, and satisfaction of certain outstanding financial diligence items.
On April 8, 2016, Mr. Miller had individual telephone conferences with each independent member of the Hatteras board of directors to review the
current terms of the transaction and to confirm support for the proposed transaction subject to the changes discussed at the April 7, 2016 meeting. After these discussions, on April 8, 2016, Mr. Miller informed Mr. Keyes by
telephone that the Hatteras special committee could support the revised proposal subject to the conditions noted above, and Mr. Keyes subsequently called Mr. Miller to inform him that the transaction based on the terms discussed, including
an increase in the stock percentage to 65% of total consideration and a reduction in the termination fee to 3%, was acceptable to Annaly. Mr. Keyes also indicated that Annaly would address the open financial diligence items. Mr. Miller
communicated these updates to Messrs. Michael and Benjamin Hough and the other members of the Hatteras board of directors.
Annaly’s revised proposal
was conditioned on the Hatteras external manager agreeing to amend the terms of the Hatteras management agreement to provide for, among other things, the termination of the management agreement in connection with the closing of the transaction for a
reduced termination fee and the Hatteras external manager’s release of all claims that it may have under the management agreement against Hatteras and its subsidiaries and Annaly and its affiliates. On April 9 and 10, 2016, representatives
of Rogers & Hardin and Wachtell Lipton engaged in negotiations regarding the terms of such amendment to the management agreement. In addition, representatives of Rogers & Hardin and Wachtell Lipton negotiated the economic and other
terms of consulting agreements pursuant to which each of the Hatteras executive officers, Michael R. Hough, Benjamin M. Hough, Kenneth A. Steele and Frederick J. Boos II, would provide certain consulting services to Annaly during a consulting period
ending 30 months following the closing of the merger, during which term each of them also agreed to certain non-competition and other covenants.
9
On the morning of April 10, 2016, the Hatteras special committee and Hatteras board of directors convened to
consider the best and final offer from Annaly, as modified by the conversations between Mr. Miller and Mr. Keyes. All members of the Hatteras board of directors were present at the meeting. Also participating were representatives of
Goldman Sachs, DLA Piper and Hogan Lovells. Representatives of Hogan Lovells reviewed with the Hatteras board of directors its fiduciary duties in considering a merger of Hatteras with Annaly. Representatives of DLA Piper then provided a detailed
review of the terms of the proposed merger agreement with Annaly. Representatives of Goldman Sachs reviewed its financial analysis of the proposed transaction. Following this presentation, Goldman Sachs delivered its oral opinion, subsequently to be
confirmed in writing, that, as of April 10, 2016 and based upon and subject to various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken in preparing its written opinion,
the (i) $15.85 in cash, (ii) 1.5226 shares of Annaly common stock or (iii) $5.55 in cash and 0.9894 shares of Annaly common stock, collectively referred to as the “
Aggregate Consideration
”, to be paid to the
holders (other than Annaly and its affiliates) of shares of Hatteras common stock, taken in the aggregate, pursuant to the merger agreement, was fair from a financial point of view to such holders. For more information about Goldman Sachs’
opinion, see below under the heading “—
Opinion of Hatteras’ Financial
Advisor.” In connection with the services it provided to the Hatteras special committee, Goldman advised the Hatteras special committee that, in the
past two years, its investment banking division had not performed any financial advisory and/or underwriting services for Annaly or its affiliates for which it had received or earned compensation.
After discussion, the Hatteras board of directors meeting was then temporarily adjourned, Messrs. Michael and Benjamin Hough and the representatives of DLA
Piper were excused and the Hatteras special committee convened a meeting to consider whether to recommend that the Hatteras board of directors approve the transaction and to approve any payments under or in respect of the Hatteras management
agreement with the Hatteras external manager, or any other transactions connected with or related to the transaction involving the Hatteras external manager. Each independent member of the Hatteras board of directors and representatives of Goldman
Sachs and Hogan Lovells attended the meeting. After careful deliberation, the Hatteras special committee (i) unanimously recommended that the offer and merger and the other transactions contemplated by the merger agreement, on the terms set
forth therein, be submitted to and approved by the Hatteras board of directors, (ii) approved and authorized Hatteras to enter into the agreement terminating the Hatteras management agreement at the closing of the proposed transaction and to
comply with the terms thereof, including the payment of the reduced management agreement termination fee from the amount provided for in the management agreement of the four times the average annual management fee to approximately three times the
average annual management fee, and (iii) approved the provisions of the merger agreement providing for or relating to payments to the Hatteras external manager and its employees.
The Hatteras board of directors meeting reconvened immediately after the Hatteras special committee meeting was adjourned. All members of the Hatteras board
of directors and representatives of Goldman Sachs, DLA Piper and Hogan Lovells were present when the meeting reconvened. After discussing the relative merits of the transaction (see below under the heading “—
Hatteras’ Reasons for
the Offer and the Merger and Recommendation of the Hatteras Board
”), the Hatteras board of directors unanimously (a) determined that the terms of the merger agreement and the transaction, including the offer the merger and the issuance
of Annaly common stock in connection therewith, were fair to and in the best interests of Hatteras and its stockholders, (b) declared the offer, the merger and the other transactions contemplated by the merger agreement advisable,
(c) approved the execution and delivery by Hatteras of the merger agreement, the performance by Hatteras of its covenants and agreements contained in the merger agreement and the consummation of the offer, the merger and the other transactions
contemplated by the merger agreement on the terms and subject to the conditions contained therein, and (iv) resolved to recommend that Hatteras’ stockholders accept the offer and tender their shares of Hatteras common stock to Annaly in
the offer. The Hatteras board of directors also adopted a resolution authorizing an amendment to Hatteras’ bylaws to provide that the Circuit Court of Baltimore City, Maryland would be the exclusive forum for derivative claims brought on behalf
of Hatteras, claims asserting breaches of fiduciary duties or arising from the MGCL or Hatteras’ charter or bylaws, and certain other types of claims. The Hatteras board of directors also approved as part of its approval of the offer and the
merger and the merger agreement the proposed retention and severance plans for employees of Hatteras and the Hatteras external manager described above.
On April 10, 2016, following the Hatteras board of directors meetings, Mr. Miller informed Mr. Keyes by telephone that the Hatteras board of
directors, acting on the unanimous recommendation of the special committee, approved the proposed merger of Hatteras and Annaly
10
Following the telephone call between Mr. Miller and Mr. Keyes, Annaly, Hatteras and the Hatteras
external manager and their respective advisors finalized the merger agreement and related schedules and agreements, including the articles supplementary designating the Annaly Series E preferred stock, and the merger agreement, the amendment to the
management agreement and the consulting agreements were executed.
Prior to the opening of markets in the United States on April 11, 2016, Annaly and
Hatteras jointly announced the transaction.
Hatteras’ Reasons for the Offer and the Merger; Recommendation of the Hatteras Board of Directors
The Hatteras board of directors, acting upon the unanimous recommendation of the Hatteras special committee, has unanimously (i) determined
that the terms of the merger agreement and the transactions, including the offer, the merger and the issuance of shares of Annaly common stock in connection therewith, are fair to, and in the best interests of, Hatteras and its stockholders,
(ii) declared the offer, the merger and the other transactions contemplated by the merger agreement advisable, (iii) approved the execution and delivery by Hatteras of the merger agreement, the performance by Hatteras of its covenants and
agreements contained in the merger agreement and the consummation of the offer, the merger and the other transactions contemplated by the merger agreement on the terms and subject to the conditions contained therein, and (iv) resolved to
recommend that Hatteras stockholders accept the offer and tender their shares of Hatteras common stock to Annaly in the offer.
In evaluating the merger
agreement and the transactions contemplated by the merger agreement, including the offer, the merger and the issuance of shares of Annaly common stock in connection therewith, the Hatteras special committee and the Hatteras board of directors
consulted with their financial and legal advisors, including Goldman Sachs, as financial advisor to the Hatteras special committee, DLA Piper, as counsel to Hatteras, and Hogan Lovells, as counsel to the Hatteras special committee, as well as
members of Hatteras’ senior management.
In the course of reaching a determination that the offer and the merger are fair to, and in the best
interests of, Hatteras and its stockholders, and a recommendation that the holders of Hatteras common stock accept the offer and tender their shares of Hatteras common stock to Annaly in the offer, the Hatteras special committee and the Hatteras
board of directors considered numerous factors, including the following material factors and benefits of the offer and the merger, each of which the Hatteras special committee and the Hatteras board of directors believed supported its unanimous
determination and recommendation:
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Recommendation of the Hatteras Special Committee
. The Hatteras board of directors considered the unanimous recommendation of the Hatteras special committee that the Hatteras board of directors determine that the
terms of the merger agreement and the transactions contemplated by the merger agreement, including the offer, the merger and the issuance of shares of Annaly common stock in connection therewith, are fair to, and in the best interests of, Hatteras
and its stockholders and declare the offer, the merger and the other transactions contemplated by the merger agreement advisable, as well as the independence of the members of the Hatteras special committee making such recommendation and the
independence, experience and expertise of Goldman Sachs as the financial advisor to the Hatteras special committee.
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Industry and Business Considerations.
The Hatteras special committee and the Hatteras board of directors considered the current and historical industry conditions and the financial condition, results of
operations, business, and financing prospects of Hatteras, including the following:
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the challenges facing the residential mortgage REIT sector in general, including significant uncertainty regarding the outlook for interest rates as well as uncertainty regarding the outlook for the financial markets
generally;
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the challenges facing Hatteras in particular, including that, since 2013, the price per share of Hatteras common stock has traded at a substantial discount to Hatteras’ book value per share, which makes raising
equity capital to fund new investments dilutive to shareholders and has made it difficult for Hatteras to significantly increase its size and scale through capital market transactions; and
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the general views of the members of the Hatteras special committee and the Hatteras board of directors with respect to the business, financial condition, current business strategy and prospects of Hatteras, including
the potential challenges for Hatteras to continue to access financing resources on acceptable terms.
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Offer Price and Right to Participate in Annaly’s Future Growth
. The Hatteras special committee and the Hatteras board of directors considered:
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the fact that the value of the consideration represents a premium of approximately 24% to the 60-day volume-weighted average price of Hatteras common stock ending on April 8, 2016, the last trading day before
Hatteras entered into the merger agreement;
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the fact that for each outstanding share of Hatteras common stock accepted for payment in the offer or converted and exchanged in the merger the holder thereof will be entitled to receive at least 65% of the
consideration in Annaly common stock and, therefore, participate in benefits of the combined company;
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the fact that in lieu of receiving the mixed consideration, holders of shares of Hatteras common stock may elect to receive, for each share of Hatteras common stock that they hold, the all-cash consideration or the
all-stock consideration, in each case, subject to proration;
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the belief of the Hatteras special committee that as a result of negotiations between the parties it had obtained Annaly’s best and final offer for the Hatteras common stock, which was $0.60 per share higher than
Annaly’s initial proposal; and
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the offer and the merger are expected to be immediately accretive to Annaly’s earnings per share and will not be dilutive to Annaly’s book value.
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Benefits of Combining with Annaly of Increased Scale, Portfolio Diversity and other Operating Considerations.
The Hatteras special committee and the Hatteras board of directors considered the following benefits
and operating considerations in combining with Annaly:
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the increased portfolio diversification of the combined company, taking into account Annaly’s diversified portfolio of agency and non-agency mortgage-backed securities, commercial real estate debt and equity and
commercial credit and Hatteras’ portfolio of adjustable-rate agency and non-agency mortgage-backed securities, residential whole loans and mortgage servicing rights;
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the potential access to capital and asset acquisition opportunities resulting from the scale and resources of the combined company, the fact that Annaly’s average expenses have historically been a lower percentage
of assets and equity than other residential mortgage REITs, and the potential for increased capital allocation alternatives for the combined company;
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the potential access to additional financing resources that would not be available to Hatteras as a stand-alone company; and
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the continuing access to an external manager with broad expertise and resources to invest across a range of asset classes at a cost that has historically been a lower percentage of assets and equity than other
residential mortgage REITs.
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Opinion of Goldman Sachs and Related Analysis.
The Hatteras special committee and the Hatteras board
of directors considered the oral opinion of Goldman Sachs, subsequently confirmed in writing, dated April 10, 2016, that, as of such date, based upon and subject to the assumptions made, procedures followed, matters
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considered, and qualifications and limitations upon the review undertaken by Goldman Sachs in preparing its written opinion, as set forth in such written opinion, the Aggregate Consideration to
be paid to the holders (other than Annaly or its affiliates) of the shares of Hatteras common stock, taken in the aggregate, pursuant to the merger agreement was fair from a financial point of view to such holders, as more fully described below in
“—Opinion of Hatteras’ Financial Advisor.” The Hatteras special committee and Hatteras board of directors were aware that Goldman Sachs will become entitled to certain fees upon consummation of the offer and merger, as more fully
described below in “—
Opinion of Hatteras’ Financial Advisor
.”
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Other Terms of the Merger Agreement.
The Hatteras special committee and the Hatteras board of directors considered certain other terms of the merger agreement, which are more fully described in the
prospectus/offer to exchange under the caption “
Merger Agreement
.” Certain provisions of the merger agreement that the Hatteras special committee and Hatteras board of directors considered important included:
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the merger agreement provides for the prompt commencement of the offer, which may enable holders of Hatteras common stock who tender their shares into the offer to receive their consideration more quickly than in a
transaction structured as a one-step merger;
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the ability to respond to unsolicited acquisition proposals by the Hatteras board of directors, upon the recommendation of the Hatteras special committee and determination that the failure to take such action would be
inconsistent with the directors’ fiduciary duties under applicable law, and to engage in negotiations or discussions with third parties regarding alternative transactions under certain circumstances (see the section of the prospectus/offer to
exchange captioned “
Merger Agreement—No Solicitation of Other Offers by
Hatteras” for more information);
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the right of the Hatteras board of directors to change or withdraw its recommendation to holders of Hatteras common stock, following receipt of an unsolicited superior proposal or upon the occurrence of certain other
intervening events and upon the recommendation of the Hatteras special committee and determination that the failure to take such action would be inconsistent with the directors’ fiduciary duties under applicable law (see the section of the
prospectus/offer to exchange captioned “
Merger Agreement—No Solicitation of Other Offers by Hatteras
” for more information);
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the right of the Hatteras board of directors to terminate the merger agreement and to accept a superior proposal, if certain conditions are met, subject to the payment of the termination fee to Annaly (see the section
of the prospectus/offer to exchange captioned “
Merger Agreement—Termination of the Merger Agreement—Termination by Hatteras
” for more information);
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the fact that Offeror’s obligations to purchase (and Annaly’s obligation to cause the Offeror to purchase) the shares of Hatteras common stock tendered in the offer and to close the merger are subject to
limited conditions, and that the offer and the merger are reasonably likely to be consummated; and
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the fact that the Offeror must generally extend the offer for one or more periods until the offer conditions have been satisfied.
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The Hatteras special committee in making its recommendation to the Hatteras board of directors and the Hatteras board of directors in making its determination
also identified and considered the following potentially negative factors in its deliberations:
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Fluctuations in the Price of Annaly Common Stock.
The Hatteras special committee and the Hatteras board of
directors considered the fact that holders of shares of Hatteras common stock who receive shares of Annaly common stock in the offer or the merger will receive a fixed number of shares of Annaly common stock, which is based on the Hatteras common
stock being valued at $15.85 per share based upon the
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closing price of Annaly common stock on April 8, 2016, and such number of shares will not be adjusted for any decrease in the trading price of shares of Annaly common stock between the date
of the merger agreement and the completion of the offer or the merger, and the fact that Hatteras is not permitted to terminate the merger agreement solely because of changes in the market price of shares of Annaly common stock;
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Non-Solicitation Covenant.
The Hatteras special committee and the Hatteras board of directors considered the fact that the merger agreement imposes restrictions on soliciting and responding to competing
acquisition proposals from third parties;
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Termination Fee.
The Hatteras special committee and the Hatteras board of directors considered that the termination fee of $44,948,637.45 payable in cash to Annaly if the merger agreement is terminated under
certain circumstances, including if the merger agreement is terminated in order for the Hatteras board of directors to accept a superior proposal, may discourage third parties that may otherwise have an interest in a business combination with, or an
acquisition of, Hatteras from pursuing such a transaction;
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Interim Operating Covenants.
The Hatteras special committee and the Hatteras board of directors considered that the merger agreement imposes restrictions on the conduct of the business of Hatteras and its
subsidiaries prior to the consummation of the merger (see the section of the prospectus/offer to exchange captioned “
Merger Agreement—Conduct of Business Before Completion of the Merger—Restrictions on Hatteras’
Operations
”);
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Risks the Offer and Merger May Not Be Completed.
The Hatteras special committee and the Hatteras board of directors considered the following factors in connection with the risk that the offer and the merger
not be completed:
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the risk that the conditions to the offer may not be satisfied and that, therefore, shares of Hatteras common stock may not be purchased pursuant to the offer and the merger may not be consummated; and
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the risks and costs to Hatteras of the adverse effect of the resulting public announcement of any termination of the merger agreement on the market price of shares of Hatteras common stock, and operating results of
Hatteras, particularly in light of the diversion of management resources from operational matters and other strategic opportunities and the costs incurred in connection with the transaction;
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Potential Conflict of Interest Relating to Termination of Management Agreement.
The Hatteras special committee and the Hatteras board of directors considered the potential conflict of interest created as a result
of the termination of the management agreement in connection with the transaction and the resulting payment of a termination fee to the Hatteras external manager.
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Interests of Directors and Executive Officers.
The Hatteras special committee and the Hatteras board of directors considered the interests of certain directors and executive officers in the merger, including
the proposed consulting agreements between Annaly and each of Hatteras’ executive officers, Michael R. Hough, Benjamin M. Hough, Kenneth A. Steele and Frederick J. Boos, II, each as more fully described in “
Item 3.—Past Contacts,
Transactions, Negotiations and Agreements— Arrangements with Current Executive Officers and Directors of Hatteras
” and “
Item 8.—Additional Information—Quantification of Potential Payments and Benefits to Hatteras
Named Executive Officers in Connection with the Merger.
”
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Regulatory Approvals.
The Hatteras special committee and the Hatteras board of directors considered the period of time necessary to obtain the regulatory approvals that would be required to consummate the
offer; and
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Cash Component of Consideration.
The Hatteras special committee and the Hatteras board of directors
considered that the holders of Hatteras common stock who receive cash consideration, either because of an
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affirmative election or because of subsequent proration, will have that portion of their investment in Hatteras liquidated at a discount to Hatteras’ book value per share and, with respect
to that portion of their investment, will not be able to participate in the future benefits of the combined company and the fact that the receipt of cash will be a taxable transaction for U.S. federal income tax purposes.
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Other Risks of the Offer and the Merger
. The Hatteras special committee and the Hatteras board of directors also considered the following additional risks:
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the substantial costs to be incurred in connection with the transaction;
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the absence of appraisal rights for holders of Hatteras common stock under Maryland law; and
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the risks described in the section captioned “Risk Factors” in the prospectus/offer to exchange.
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Although the foregoing discussion sets forth the material factors considered by the Hatteras special committee in making its recommendation to the Hatteras
board of directors and the Hatteras board of directors in reaching its determination, it does not include all of the factors considered by either the Hatteras special committee or the Hatteras board of directors, and each director may have
considered different factors or given different weights to different factors. In view of the variety of factors and the amount of information considered, neither the Hatteras special committee nor the Hatteras board of directors found it practicable
to, and did not, make specific assessments of, quantify or otherwise assign relative weights to the specific factors considered in reaching its recommendation. Both the Hatteras special committee and the Hatteras board of directors realized that
there can be no assurance about future results, including results expected or considered in the factors above. However, both the Hatteras special committee and the Hatteras board of directors concluded that the potential positive factors described
above significantly outweighed the negative factors described above. The recommendations were made after consideration of all of the factors as a whole.
THE HATTERAS BOARD OF DIRECTORS, ACTING UPON THE UNANIMOUS RECOMMENDATION OF THE HATTERAS SPECIAL COMMITTEE, HAS UNANIMOUSLY DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTION, INCLUDING THE OFFER, THE MERGER AND THE ISSUANCE OF SHARES OF ANNALY COMMON STOCK IN CONNECTION THEREWITH, WERE FAIR TO, AND IN THE BEST INTERESTS OF, HATTERAS AND ITS STOCKHOLDERS, DECLARED THE OFFER, THE
MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ADVISABLE, APPROVED THE EXECUTION AND DELIVERY BY HATTERAS OF THE MERGER AGREEMENT, THE PERFORMANCE BY HATTERAS OF ITS COVENANTS AND AGREEMENTS CONTAINED IN THE MERGER AGREEMENT
AND THE CONSUMMATION OF THE OFFER, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ON THE TERMS AND SUBJECT TO THE CONDITIONS CONTAINED THEREIN, AND RECOMMENDS THAT HATTERAS STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES OF HATTERAS COMMON STOCK TO ANNALY IN THE OFFER.
In considering the Hatteras special committee’s recommendation and the Hatteras board of
directors’ determination with respect to the offer and the merger, you should be aware that the Hatteras external manager and certain executive officers of Hatteras and the Hatteras external manager have arrangements that cause them to have
interests in the transaction that are different from, or are in addition to, the interests of Hatteras stockholders generally. See “
Item 3.—Past Contacts, Transactions, Negotiations and Agreements— Arrangements with Current
Executive Officers and Directors of Hatteras
” and “
Item 8.—Additional Information—Quantification of Potential Payments and Benefits to Hatteras Named Executive Officers in Connection with the Merger.
”
Hatteras Unaudited Prospective Financial Information
Hatteras does not publicly disclose projections as to future interest income, performance, earnings or other results due to, among other reasons, the
uncertainty and subjectivity of the underlying assumptions and estimates as well as the high likelihood that actual results will vary from any such estimates. As a result, Hatteras does not endorse the unaudited prospective financial information
included in this document as a reliable indication of future results.
15
The Hatteras limited unaudited prospective financial information is being included in this document solely
because it was among the financial information made available to Hatteras’ financial advisor for its use in connection with its financial analyses and opinion. Certain of the limited unaudited prospective financial information (as identified
below) was also made available to Annaly and its financial advisors. While the limited unaudited prospective financial information presented below was reviewed by the chairperson of the Hatteras special committee, such information was not reviewed
or approved by the Hatteras board of directors, and is not the result of any formal internal review or process. As such, the unaudited prospective financial information may vary significantly from subsequent forecasts, financial plans, guidance
and/or actual results due to a number of factors, including (but not limited to) changes in the Hatteras investment portfolio and changes in interest rates, trading activity, market valuations, general market and economic conditions, capital
commitments, other unexpected changes that cannot be predicted with any certainty, or at all, and the other factors described below. Although presented with numerical specificity, the limited unaudited prospective financial information reflects
numerous assumptions and estimates as to future events made by the management of Hatteras.
Additionally, Hatteras’ future financial results may also
materially differ from those expressed in the unaudited prospective financial information due to numerous factors that are beyond Hatteras’, Annaly’s or anyone else’s ability to control or predict, including with respect to the
interest rate environment, industry performance, competitive factors, industry consolidation, general business, economic, regulatory, market and financial conditions, as well as matters specific to Hatteras’ business, including with respect to
Hatteras’ investment and capital allocation strategy and future business initiatives. The assumptions underlying the unaudited prospective financial information may not prove to have been, or may no longer be, accurate.
Hatteras’ management estimated the unaudited prospective financial information in the context of the business, economic, regulatory, market and financial
conditions that existed at that time, and the unaudited prospective financial information has not been updated to reflect revised prospects for Hatteras’ business and investment portfolio, changes in general business, economic, regulatory,
market and financial conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time such unaudited prospective financial information was prepared.
Specifically, the unaudited prospective financial information is based on the Hatteras audited balance sheet and investment portfolio as of December 31,
2015 and does not take into account any circumstances or events occurring after January 1, 2016, and specifically does not include any financial consequences resulting from the April 11, 2016 announcement of the offer and the merger or
subsequent integration planning activities to follow. Additionally, the unaudited prospective financial information does not give effect to any other changes that may result from the offer, the merger or the other transactions contemplated by the
merger agreement.
Moreover, the unaudited prospective financial information was based upon several assumptions, and the realization of any or all of
these assumptions is less than certain. As such, stockholders are cautioned not to place undue, if any, reliance on the unaudited prospective financial information included in this document, including in making a decision as to whether to tender
their shares of Hatteras common stock in the offer. The following are among the assumptions used for preparing the unaudited prospective financial information:
|
|
•
|
|
interest rate changes through the prospective periods based on Hatteras’ expectations for future increases in the overall level of interest rates and the shape of the yield curve;
|
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|
•
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|
changes in principal repayment rates based on the overall level of interest rates assumptions above and the resulting yield and reinvestment rates;
|
|
|
•
|
|
the repositioning of the Hatteras investment portfolio through sales of adjustable-rate agency securities and the redeployment of capital from such sales into mortgage servicing rights;
|
|
|
•
|
|
a reduction in leverage and Eurodollar futures contracts in connection with the repositioning of the Hatteras investment portfolio, resulting in a decrease in the overall size of the investment portfolio;
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16
|
|
•
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|
changes in portfolio net interest margins or net interest spreads as a result of the expected changes in the overall level of interest rates referenced above; and
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•
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|
no material changes in net duration measures.
|
Given the uncertainty of the aforementioned assumptions, actual
results are likely to differ from the unaudited prospective financial information, and such differences may be material.
THE UNAUDITED PROSPECTIVE
FINANCIAL INFORMATION PRESENTED IN THIS DOCUMENT HAS NOT BEEN AND WILL NOT BE UPDATED SINCE THE DATE OF ITS PREPARATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE OF ITS PREPARATION OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE
EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE, EXCEPT AS MAY BE REQUIRED BY LAW.
The inclusion of this information should not be regarded as an indication that Hatteras, the Hatteras board of directors, Goldman Sachs, the Offeror, Annaly,
the Annaly board of directors or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results. There can be no assurance that the prospective results will be realized or that actual
results will not be significantly higher or lower than estimated.
Since the unaudited prospective financial information included in this document covers
multiple quarterly periods, such information by its nature becomes less predictive with each successive quarterly period. Holders of shares of Hatteras common stock are urged to review the section of the prospectus/offer to exchange titled
“Risk Factors” and SEC filings of Hatteras for a description of risk factors with respect to the business of Hatteras. See “
Forward-Looking Statements
,” and “Where to Obtain More Information” and the section of
the prospectus/offer to exchange captioned “
Risk Factors
.”
The unaudited prospective financial information was not prepared with a view
toward public disclosure, nor was it prepared with a view toward compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective
financial information.
Ernst & Young LLP has not audited, reviewed, compiled or performed any procedures with respect to the accompanying
unaudited prospective financial information for the purpose of its inclusion herein, and accordingly, Ernst & Young LLP does not express an opinion or provide any form of assurance on such information or its achievability, and assumes no
responsibility for, and disclaims any association with, the unaudited prospective financial information. The Ernst & Young LLP report incorporated by reference into the prospectus/offer to exchange relates to Hatteras’ historical
financial information. It does not extend to the unaudited prospective financial information of Hatteras and should not be read to do so.
The inclusion
of the unaudited prospective financial information below should not be deemed an admission or representation by Hatteras, the Offeror, Annaly, Goldman Sachs, or any of their affiliates with respect to such information or that such information is or
was viewed by any such person as material information regarding Hatteras, and in fact Hatteras views such information as non-material because such information is based on preliminary assessments of future performance and involves inherent risks and
uncertainties.
The unaudited prospective financial information is not being included in this document to influence your decision whether to tender your
shares of Hatteras common stock in the offer, but because such information was provided to Goldman Sachs and/or Annaly.
The unaudited prospective
financial information should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding Hatteras contained in Hatteras’ public filings with the SEC. In light of the foregoing factors and the
uncertainties inherent in the unaudited prospective financial information, stockholders are cautioned not to place undue, if any, reliance on the unaudited prospective financial information included in this document, including in making a decision
as to whether to tender their shares of Hatteras common stock in the offer.
17
The following table presents limited unaudited prospective financial data with respect to Hatteras that was made
available to Goldman Sachs and Annaly in connection with their evaluation of the offer and the merger.
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Quarterly
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2016
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2017
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$ in thousands, except per share amounts
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Q1
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Q2
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Q3
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Q4
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|
Q1
|
|
|
Q2
|
|
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Q3
|
|
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Q4
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|
|
Total Interest Income
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|
$
|
82,970
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|
|
$
|
77,204
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|
|
$
|
75,644
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|
|
$
|
76,855
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|
|
$
|
80,930
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|
|
$
|
81,301
|
|
|
$
|
81,728
|
|
|
$
|
82,602
|
|
|
MSR Net Income
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|
$
|
12,778
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|
|
$
|
18,320
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|
|
$
|
21,193
|
|
|
$
|
19,821
|
|
|
$
|
21,851
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|
|
$
|
22,114
|
|
|
$
|
22,610
|
|
|
$
|
19,577
|
|
|
Total Interest Expense(1)
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|
$
|
38,980
|
|
|
$
|
36,211
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|
|
$
|
35,097
|
|
|
$
|
41,061
|
|
|
$
|
49,756
|
|
|
$
|
52,059
|
|
|
$
|
51,438
|
|
|
$
|
49,979
|
|
|
Net Interest Income(1)
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|
$
|
56,768
|
|
|
$
|
59,313
|
|
|
$
|
61,741
|
|
|
$
|
55,615
|
|
|
$
|
53,025
|
|
|
$
|
51,357
|
|
|
$
|
52,900
|
|
|
$
|
52,200
|
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|
Share Based Compensation Expense
|
|
|
1,099
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|
|
|
1,182
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|
|
|
1,065
|
|
|
|
1,006
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|
|
|
1,006
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|
|
|
1,006
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|
|
|
976
|
|
|
|
823
|
|
|
Net Income(1)
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|
$
|
47,649
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|
|
$
|
49,848
|
|
|
$
|
52,222
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|
|
$
|
45,992
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|
|
$
|
43,559
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|
|
$
|
42,141
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|
|
$
|
43,964
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|
|
$
|
43,667
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Preferred Dividend
|
|
|
5,480
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|
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|
5,480
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|
|
5,480
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|
|
5,480
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|
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|
5,480
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|
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|
5,480
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|
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|
5,480
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|
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|
5,480
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|
Core Earnings Per Share of Common Stock(2)
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$
|
0.45
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|
|
$
|
0.47
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|
|
$
|
0.49
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|
|
$
|
0.43
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|
|
$
|
0.40
|
|
|
$
|
0.39
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|
|
$
|
0.41
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|
|
$
|
0.40
|
|
|
Dividend Declared(3)
|
|
|
42,169
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|
|
|
44,368
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|
|
|
46,741
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|
|
|
40,511
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|
|
|
38,078
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|
|
|
36,660
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|
|
|
38,484
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|
|
|
38,186
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|
|
(1)
|
Total interest expense, net interest income and net income were adjusted to exclude certain items, including mark-to-market losses related to futures contracts and amortization of interest rate swap balances. In
addition, general and administrative expenses related to the Hatteras subsidiaries were not included in expenses as they are non-core items. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for,
financial information presented in compliance with GAAP, and non-GAAP financial measures used in the above unaudited prospective financial information may not be comparable to similarly titled amounts used by other companies or persons.
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(2)
|
Core earnings per share of common stock represents a non-GAAP financial measure. Hatteras defines core earnings as effective net interest margin (as defined below) plus MSR income net of amortization, management fee
income and gain from mortgage loans held for sale, less adjusted operating expenses (which exclude transaction costs, amortization of intangible assets and change in representation and warranty reserve) and dividends on preferred stock. Hatteras
defines effective net interest margin as net interest margin determined in accordance with GAAP, adjusted to exclude reclassification of deferred swap losses included in interest expense, to include interest rate swap monthly net settlements, to
include swap equivalent gains and losses related to futures contracts, and to include TBA dollar roll income. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in
compliance with GAAP, and non-GAAP financial measures used in the above unaudited prospective financial information may not be comparable to similarly titled amounts used by other companies or persons.
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(3)
|
Dividends declared assumes the Hatteras board of directors declares quarterly per share dividends on the Hatteras common stock in an amount equal to the Company’s core earnings per share for each quarter.
|
The following tables present additional limited unaudited prospective financial data with respect to Hatteras that was made available to
Goldman Sachs in connection with its evaluation of the offer and the merger.
Transaction Assumptions – Cost Synergies
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Quarterly
|
|
|
|
2016
|
|
|
2017
|
|
|
$ in millions, except per share amounts
|
|
H1
|
|
|
|
|
Q3
|
|
|
Q4
|
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|
Q1
|
|
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Q2
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|
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Q3
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|
Q4
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(+) Hatteras Management Fee
|
|
$
|
8.0
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|
|
|
|
$
|
4.0
|
|
|
$
|
4.0
|
|
|
$
|
4.0
|
|
|
$
|
4.0
|
|
|
$
|
4.0
|
|
|
$
|
4.0
|
|
|
(+) Hatteras Expenses and G&A Synergies
|
|
|
6.8
|
|
|
|
|
|
3.3
|
|
|
|
3.3
|
|
|
|
3.4
|
|
|
|
3.4
|
|
|
|
3.3
|
|
|
|
3.2
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|
|
(-) Annaly Management Fee
|
|
|
(6.8
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)
|
|
|
|
|
(3.4
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)
|
|
|
(3.4
|
)
|
|
|
(3.4
|
)
|
|
|
(3.4
|
)
|
|
|
(3.4
|
)
|
|
|
(3.4
|
)
|
|
(-) Opportunity Cost of Cash from Transaction @2.9%
|
|
|
(7.6
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)
|
|
|
|
|
(3.8
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)
|
|
|
(3.8
|
)
|
|
|
(3.8
|
)
|
|
|
(3.8
|
)
|
|
|
(3.8
|
)
|
|
|
(3.8
|
)
|
18
Discounted Dividend Analysis – Pro Forma Forecast
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|
|
|
|
|
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|
Quarterly
|
|
|
|
2016
|
|
|
2017
|
|
|
$ in millions
|
|
H1
|
|
|
|
|
Q3
|
|
|
Q4
|
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Dividends Paid
|
|
$
|
628
|
|
|
|
|
$
|
305
|
|
|
$
|
305
|
|
|
$
|
312
|
|
|
$
|
301
|
|
|
$
|
302
|
|
|
$
|
296
|
|
Please see the section below entitled
“Opinion of Hatteras’ Financial Advisor—Summary of Financial
Analysis—Illustrative Pro Forma Combined Company Discounted Dividend Analysis”
for more information regarding the foregoing “Discounted Dividend Analysis—Pro Forma Forecast”.
Opinion of Hatteras’ Financial Advisor
Hatteras retained Goldman, Sachs & Co. as financial advisor to the Hatteras board of directors in connection with the proposed offer and merger and
the other transactions contemplated by the merger agreement, which are collectively referred to as “
the offer and the merger
” throughout this section.
At a meeting of the Hatteras special committee and the Hatteras board of directors held on April 10, 2016, Goldman Sachs rendered its oral opinion to the
Hatteras special committee and Hatteras board of directors, subsequently confirmed in writing dated April 10, 2016, that, as of such date and based upon and subject to various assumptions made, procedures followed, matters considered, and
qualifications and limitations upon the review undertaken in preparing Goldman Sachs’ written opinion as set forth in such written opinion, the Aggregate Consideration (as defined in the section above captioned “—
Background of the
Offer and the Merger
”) to be paid to the holders (other than Annaly and its affiliates) of the shares of Hatteras common stock, taken in the aggregate, pursuant to the merger agreement, was fair from a financial point of view to such
holders. The merger agreement provides that the Aggregate Consideration is subject to proration and certain other procedures and limitations, as to which Goldman Sachs expressed no opinion.
The full text of the written opinion of Goldman Sachs, dated April 10, 2016, which sets forth the assumptions made, procedures followed, matters
considered, qualifications and limitations on the review undertaken in connection with the opinion, is attached to this Schedule 14D-9 as Annex A. The summary of Goldman Sachs’ opinion contained in this Schedule 14D-9 is qualified in its
entirety by reference to the full text of Goldman Sachs’ written opinion. Goldman Sachs’ advisory services and opinion were provided for the information and assistance of the Hatteras special committee and Hatteras board of directors in
connection with their consideration of the offer and the merger (the “transaction”) and the opinion does not constitute a recommendation as to whether or not any holder of shares of Hatteras common stock should tender such shares in
connection with the offer or how any holder of shares of Hatteras common stock should make any election with respect to the offer or the merger or any other matter.
In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:
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•
|
|
annual reports to stockholders and Annual Reports on Form 10-K of Hatteras and Annaly for the five years ended December 31, 2015;
|
|
|
•
|
|
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Hatteras and Annaly;
|
19
|
|
•
|
|
certain other communications from Hatteras and Annaly to their respective stockholders;
|
|
|
•
|
|
certain publicly available research analyst reports for Hatteras and Annaly; and
|
|
|
•
|
|
certain internal financial analyses for Hatteras prepared by its management, certain Wall Street analyst forecasts for Annaly, certain internal financial analyses and forecasts for Annaly prepared by the management of
Annaly, and certain financial analyses and forecasts for Annaly, pro forma for consummation of the transaction, prepared by the management of Hatteras, in each case, as approved for Goldman Sachs’ use by Hatteras, which are referred to as the
“Forecasts”, including certain cost synergies expected by the management of Hatteras to result from the transaction and as approved for Goldman Sachs’ use by Hatteras, which are referred to as the “Synergies”.
|
Goldman Sachs also held discussions with members of the senior managements of Hatteras and Annaly regarding their assessment of the
strategic rationale for, and the potential benefits of, the transaction and the past and current business operations, financial condition and future prospects of Annaly and with members of the senior management of Hatteras regarding their assessment
of the past and current business operations, financial condition and future prospects of Hatteras; reviewed the reported price and trading activity for the shares of Hatteras common stock and shares of Annaly common stock; compared certain financial
and stock market information for Hatteras and Annaly with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the residential mortgage
REIT industry; and performed such other studies and analyses, and considered such other factors, as Goldman Sachs deemed appropriate.
For purposes of
rendering the opinion described above, Goldman Sachs, with the consent of Hatteras, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with
or reviewed by, Goldman Sachs, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed, with the consent of Hatteras, that the Forecasts, including the Synergies, had been reasonably prepared
on a basis reflecting the best currently available estimates and judgments of the management of Hatteras. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other
off-balance-sheet assets and liabilities) of Hatteras or Annaly or any of their respective subsidiaries, nor was any evaluation or appraisal of the assets or liabilities of Hatteras or Annaly or any of their respective subsidiaries furnished to
Goldman Sachs. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the transaction will be obtained without any adverse effect on Hatteras or Annaly or on the expected benefits of
the transaction in any way meaningful to its analysis. Goldman Sachs also assumed that the transaction will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of
which would be in any way meaningful to its analysis.
Goldman Sachs’ opinion did not address the underlying business decision of Hatteras to engage
in the transaction, or the relative merits of the transaction as compared to any strategic alternatives that may be available to Hatteras; nor did it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addressed
only the fairness from a financial point of view to the holders (other than Annaly and its affiliates) of shares of Hatteras common stock, as of the date of its opinion, of the Aggregate Consideration to be paid to such holders pursuant to the
merger agreement. Goldman Sachs did not express any view on, and its opinion did not address, any other term or aspect of the merger agreement or the transaction or any term or aspect of any other agreement or instrument contemplated by the merger
agreement or entered into or amended in connection with the transaction, including, the fairness of the transaction to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other
constituencies of Hatteras; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Hatteras or Annaly, or class of such persons, in connection with the transaction,
whether relative to the Aggregate Consideration to be paid to the holders (other than Annaly and its affiliates) of shares of Hatteras common stock pursuant to the Agreement or otherwise. Goldman Sachs did not express any opinion as to the prices at
which shares of Annaly common stock will trade at any time or as to the impact of the transaction on the solvency or viability of Hatteras or Annaly or the ability of Hatteras or Annaly to pay their respective obligations when they come due. Goldman
Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, the date of its opinion and Goldman Sachs assumed no responsibility for
updating, revising or
20
reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and its opinion were provided for the
information and assistance of the Hatteras special committee and Hatteras board of directors in connection with their consideration of the transaction and its opinion does not constitute a recommendation as to whether or not any holder of shares of
Hatteras common stock should tender such shares in connection with the offer or how any holder of shares of Hatteras common stock should make any election with respect to the offer or the merger or any other matter. Goldman Sachs’ opinion was
approved by a fairness committee of Goldman Sachs.
Summary of Financial Analyses
The following is a summary of the material financial analyses presented by Goldman Sachs to the Hatteras special committee and Hatteras board of directors in
connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative
importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a
complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before April 8, 2016
(the last trading day prior to the announcement of the transaction) and is not necessarily indicative of current market conditions.
For purposes of its
analyses, Goldman Sachs calculated an implied consideration per share to be paid to the holders of shares of Hatteras common stock pursuant to the merger agreement based on the closing price for the Annaly common stock of $10.41 on April 8,
2016 by adding the $5.55 in cash to the implied value for 0.9894 shares of Annaly common stock (determined by multiplying 0.9894 by the April 8, 2015 closing price for the Annaly common stock) to derive an implied consideration per Share in the
transaction of $15.85.
Historical Stock Trading Analysis
Goldman Sachs compared the Aggregate Consideration to (i) the closing price of the shares of Hatteras common stock as of April 8, 2016, (ii) the
volume weighted average trading price of the shares of Hatteras common stock for the 30-trading day period ended April 8, 2016 and (iii) the volume weighted average trading price of the shares of Hatteras common stock for the 52-week
period ended April 8, 2016.
This analysis indicated that the Aggregate Consideration represented:
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•
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a premium of 11.2% to the closing price of $14.26 per Share as of April 8, 2016;
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•
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a premium of 10.5% to the volume weighted average trading price of $14.35 per Share for the 30-trading day period ended April 8, 2016; and
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•
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a premium of 6.5% to the volume weighted average trading price of $14.88 per Share for the 52-week period ended April 8, 2016.
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Selected Companies Analysis
Goldman Sachs reviewed and
compared certain financial information for Hatteras and Annaly to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the residential mortgage REIT industry with a market
capitalization greater than $750 million as of April 8, 2016 (which we collectively refer to as the selected companies):
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•
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American Capital Agency Corp.
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•
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Two Harbors Investment Corp.
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•
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New Residential Investment
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21
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•
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Chimera Investment Corp.
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•
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Invesco Mortgage Capital Inc.
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•
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PennyMac Mortgage Investment
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•
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Capstead Mortgage Corp.
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•
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Armour Residential REIT
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Although none of the selected companies is directly comparable to Hatteras, the
companies included were chosen because they are publicly traded companies with operations and scale that for purposes of analysis may be considered similar to certain operations of Hatteras.
Goldman Sachs reviewed and compared various financial multiples and ratios. The multiples and ratios of Hatteras were based on information regarding shares
outstanding provided by Hatteras’ management as of April 7, 2016, Hatteras’ SEC filings and Bloomberg market data as of April 8, 2016. The multiples and ratios of Annaly were based on information regarding shares of Annaly common
stock outstanding provided by Hatteras’ management as of April 3, 2016, Annaly’s SEC filings and Bloomberg market data as of April 8, 2016. The multiples and ratios of the selected companies were based on SEC filings and
Bloomberg market data as of April 8, 2016. With respect to Hatteras and each of the selected companies, Goldman Sachs calculated:
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price per share as of April 8, 2016 as a multiple of book value per share as of December 31, 2015, which we refer to as “P/BV”; and
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•
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the implied dividend yield by annualizing the dividends paid in the most recent quarter.1
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The following table
presents the results of these analyses:
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Selected Companies
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Hatteras
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Annaly
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Range
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Median
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P/BV
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0.64x – 0.96x
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0.86x
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0.74x
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0.89x
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Annualized Dividend Yield
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8.8% – 18.2%
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12.8
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%
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12.6
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%
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11.5
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%
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Selected Companies
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P/BV
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Annualized Dividend Yield
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American Capital Agency Corp.
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0.83x
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12.8
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%
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Two Harbors Investment Corp.
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0.76x
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12.0
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%
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New Residential Investment
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0.96x
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15.8
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%
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MFA Financial Inc.
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0.92x
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11.7
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%
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Chimera Investment Corp.
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0.86x
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14.2
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%
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Invesco Mortgage Capital Inc.
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0.71x
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13.2
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%
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CYS Investments
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0.87x
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12.7
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%
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Redwood Trust Inc.
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0.86x
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8.8
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%
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PennyMac Mortgage Investment
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0.64x
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14.4
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%
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Capstead Mortgage Corp.
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0.86x
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10.6
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%
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Armour Residential REIT
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0.78x
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18.2
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%
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1
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American Capital Agency Corp. and Armour Residential REIT pay dividends monthly; dividends in the most recent quarter were calculated based on dividends per share over the course of the quarter.
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22
Goldman Sachs, using its professional judgment, applied the range of P/BV multiples to Hatteras’ book value
per share as of February 29, 2016 of $18.72, as provided by the management of Hatteras, to derive a range of implied values per share of Hatteras’ common stock of $12.06 to $17.91. Goldman Sachs, using its professional judgment, applied
the range of annualized dividend yields to the annualized dividend paid by Hatteras in the most recent quarter of $0.45, as provided by the management of Hatteras, to derive a range of implied values per share of Hatteras’ common stock of $9.87
to $20.38.
Selected Precedent Transactions Analysis
Goldman Sachs analyzed certain publicly available information relating to the acquisition transactions listed below involving target companies in the
residential and commercial mortgage REIT industry:
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Date Announced
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Acquiror
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Target
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03-02-2016
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Armour Residential REIT (“
ARR
”)
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Javelin Mortgage Investment Corp. (“
JMI
”)
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02-26-2016
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Apollo Commercial Real Estate Finance (“
ARI
”)
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Apollo Residential Mortgage, Inc. (“
AMTG
”)
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Although none of the selected transactions is directly comparable to the transaction, the target companies in the selected
transactions were companies that, for purposes of analysis, may be considered similar to Hatteras.
For the above selected transactions, based on
information obtained from SEC filings and Capital IQ, Goldman Sachs calculated and reviewed the final announced transaction price as a multiple of the target company’s last reported book value as of, in the case of the transaction between ARR
and JMI, ten business days before the expiration of the applicable tender offer, and in the case of the transaction between ARI and AMTG, December 31, 2015, which we refer to as “
Target P/BV
”.
The following table presents the results of this analysis:
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Low
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Mean
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High
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Target P/BV
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0.87x
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0.88x
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0.89x
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Transaction
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Target P/BV
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ARR/JMI
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0.87x
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ARI/AMTG
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0.89x
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From the transactions above, Goldman Sachs, using its professional judgment, applied the range of multiples to Hatteras’
book value per share as of February 29, 2016 of $18.72, as provided by the management of Hatteras, to derive a range of implied values per share of Hatteras’ common stock of $16.28 to $16.66.
Illustrative Discounted Dividend Analysis of Hatteras
Goldman Sachs performed an illustrative dividend discount model analysis on Hatteras using the Forecasts and certain publicly available information. Goldman
Sachs calculated estimates of the net present value of estimated dividend streams for the period beginning with the second quarter of 2016 through 2017, as set forth in the Forecasts, and a range of illustrative terminal values, and applied discount
rates ranging from 5.3% to 12.6%. The range of discount rates from 5.3% to 12.6% used by Goldman Sachs was determined by taking into account an
23
estimate of Hatteras’ cost of equity, which was derived by application of the Capital Asset Pricing Model, which requires certain company-specific inputs, including a beta for Hatteras, as
well as certain financial metrics for the United States financial markets generally, and Hatteras’ dividend yield. The terminal values were calculated using two methodologies: (i) the required dividend yields methodology and (ii) the
P/BV ratio methodology. Using a range of implied terminal values calculated by applying a historical 3-year dividend yield range for Hatteras of 9.8% to 16.1% to the projected dividends per share for calendar year 2017 according to the Forecasts,
this analysis resulted in a range of implied present values per share of Hatteras’ common stock of $10.92 to $18.12. Using a range of implied terminal P/BV values calculated by applying a historical 3-year range for Hatteras of 0.57x to 0.99x
to Hatteras’ projected book value per share of Hatteras’ common stock as of December 31, 2017 as set forth in the Forecasts, this analysis resulted in a range of implied present values per share of Hatteras’ common stock of
$11.39 to $19.89.
Illustrative Pro Forma Combined Company Discounted Dividend Analysis
Goldman Sachs performed an illustrative dividend discount model analysis on Hatteras and Annaly on a pro forma basis, which we refer to as the combined
company, using the Forecasts and certain public information. Goldman Sachs calculated estimates of the net present value of the estimated dividend streams of the combined company for the period beginning with the second quarter of 2016 through 2017,
as set forth in the Forecasts, and assuming a dividend payout ratio of 100% per Hatteras management, and a range of illustrative terminal values for the combined company, and applied discount rates ranging from 3.9% to 11.6%. The range of
discount rates from 3.9% to 11.6% used by Goldman Sachs was determined by taking into account an estimate of the combined company’s weighted average cost of equity, which was derived by application of the Capital Asset Pricing Model, which
requires certain company-specific inputs, including a beta for the combined company, as well as certain financial metrics for the United States financial markets generally, and the combined company’s weighted average dividend yield. The
terminal values were calculated using two methodologies: (i) the required dividend yields methodology and (ii) the P/BV ratio methodology. Using a range of implied terminal values calculated by applying a weighted average historical 3-year
dividend yield range for the combined company of 10.0% to 15.1% to the combined company’s estimated dividends per share for calendar year 2017, this analysis resulted in range of implied present values per share of Hatteras’ common stock
of $13.71 to $18.36. Using a range of implied terminal P/BV values calculated by applying a weighted average historical 3-year range for the combined company of 0.70x to 1.01x to the combined company’s estimated book value per share as of
December 31, 2017, this analysis resulted in a range of implied present values per share of Hatteras’ common stock of $14.14 to $18.60.
Illustrative Pro Forma Accretion/Dilution Analysis.
Goldman Sachs performed illustrative pro forma analyses of the potential financial impact of the merger on the book value per share for holders of shares of
Hatteras and Annaly common stock, earnings per share for holders of shares of Annaly common stock, and dividends per share for holders of shares of Hatteras common stock using the Forecasts and Synergies. Goldman Sachs compared the book value per
share of Hatteras and the book value per share of Annaly, in each case, on a standalone basis, to the projected book value per share of the pro forma combined company. This analysis indicated the combination would be dilutive to the holders of
shares of Hatteras common stock and accretive to holders of shares of Annaly common stock on a book value per share basis. For each of the calendar years 2016 and 2017, Goldman Sachs compared the projected earnings per share of Annaly common stock
on a standalone basis to the projected earnings per share of the pro forma combined company. This analysis indicated the combination would be accretive to the holders of shares of Annaly common stock on an earnings per share basis in each of the
calendar years 2016 and 2017. Goldman Sachs compared the dividends per share of Hatteras common stock on a standalone basis to the projected dividends per share of the pro forma combined company as of the closing of the merger. This analysis
indicated the combination would be accretive to the holders of shares of Annaly common stock on a dividends per share basis as of the closing of the merger.
General
The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the
processes underlying the opinion of Goldman Sachs. In arriving at its fairness determination, Goldman Sachs considered the results of all of the analyses and did not
24
attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment
after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Hatteras or Annaly or the contemplated transaction.
Goldman Sachs prepared these analyses for purposes of providing its opinion to the Hatteras special committee and the Hatteras board of directors as to the
fairness from a financial point of view to the holders of shares of Hatteras common stock, as of the date of its opinion, of the Aggregate Consideration to be paid to the holders (other than Annaly and its affiliates) of shares of Hatteras common
stock pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of Hatteras, Annaly, the Offeror, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.
The Aggregate Consideration payable to holders of shares of Hatteras common stock was determined through arm’s-length negotiations between Hatteras and
Annaly and was approved by the Hatteras board of directors upon the recommendation of the Hatteras special committee. Goldman Sachs provided advice to the Hatteras special committee and the Hatteras board of directors during these negotiations.
Goldman Sachs did not, however, recommend any specific amount of consideration to the Hatteras special committee or the Hatteras board of directors or that any specific amount of consideration constituted the only appropriate consideration for the
proposed transaction. As described above, Goldman Sachs’ opinion to the Hatteras special committee and Hatteras board of directors was one of many factors taken into consideration by the Hatteras special committee and the Hatteras board of
directors in making their determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the delivery of its fairness opinion to the
Hatteras special committee and the Hatteras board of directors and is qualified in its entirety by reference to its written opinion attached as Annex A to this Schedule 14D-9.
Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management
and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with
which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of Hatteras, Annaly, any of
their respective affiliates and third parties, including Atlantic Capital Advisors LLC and Annaly Management Company LLC or any currency or commodity that may be involved in the transaction. Goldman Sachs has acted as financial advisor to the
Hatteras special committee in connection with, and has participated in certain of the negotiations leading to, the transaction. Goldman Sachs has provided certain financial advisory and/or underwriting services to Hatteras and/or its affiliates from
time to time. During the two year period ended April 10, 2016, no financial advisory and/or underwriting services were provided to Hatteras and/or its affiliates by Goldman Sachs’ Investment Banking Division for which Goldman Sachs
received compensation. Goldman Sachs has also provided certain financial advisory and/or underwriting services to Annaly and/or its affiliates from time to time. During the two year period ended April 10, 2016, no financial advisory and/or
underwriting services were provided to Annaly and/or its affiliates by Goldman Sachs’ Investment Banking Division for which Goldman Sachs received compensation. Goldman Sachs may also in the future provide financial advisory and/or underwriting
services to Hatteras, Annaly, Atlantic Capital Advisors LLC and Annaly Management Company LLC for which Goldman Sachs’ Investment Banking Division may receive compensation.
The Hatteras special committee selected Goldman Sachs as its financial advisor due to its familiarity with Hatteras, as well as its reputation, capabilities
and substantial experience in transactions of this nature. Pursuant to a letter agreement, dated April 5, 2016, the Hatteras special committee engaged Goldman Sachs to act as its financial advisor in connection with the exploration of
Hatteras’ strategic alternatives including a possible sale of all or a portion of Hatteras. Pursuant to the terms of this engagement letter, Hatteras has agreed to pay Goldman Sachs a transaction fee based on the total consideration paid in the
transaction. Based on information available as of the date of announcement of the transaction, the transaction fee, all of which is contingent upon consummation of the
25
transaction, is estimated to be approximately $11 million. In addition, Hatteras has agreed to reimburse Goldman Sachs for its expenses, including attorneys’ fees and disbursements, and to
indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.
Intent to
Tender
To Hatteras’ knowledge, after making reasonable inquiry, all of Hatteras’ executive officers and directors currently intend to
validly tender or cause to be validly tendered pursuant to the offer all shares of Hatteras common stock held of record or beneficially owned by such persons immediately prior to the expiration of the offer, as it may be extended (other than shares
of Hatteras common stock for which such holder does not have discretionary authority). The foregoing does not include any shares of Hatteras common stock over which, or with respect to which, any such executive officer or director acts in a
fiduciary or representative capacity or is subject to the instructions of a third party with respect to such tender.
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Item 8.
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Additional Information
|
Item 8 of the Schedule 14D-9 is hereby amended by amending and restating in its
entirety the section entitled “
Regulatory Approvals
” as follows:
Regulatory Approvals
Annaly and Hatteras conduct operations in a number of jurisdictions where regulatory filings or approvals may be required or advisable in connection with the
completion of the offer and the merger. In particular, Annaly’s acquisition of Hatteras’ mortgage conduit and mortgage servicing platforms as a result of the offer and merger will require approval from Fannie Mae and Ginnie Mae, as well as
approval of licensing regulators in approximately 12 states. As of July 1, 2016, Annaly and Hatteras received regulatory approvals from Fannie Mae, Ginnie Mae and all of the state licensing regulators. In addition, Annaly and Hatteras
have provided notice to Freddie Mac, and Freddie Mac must not object to the change of control that would occur as a result of the completion of the offer. As a result, all regulatory approvals required to complete the offer and the merger have
been obtained.
Hatteras has been advised that the offer and the merger are exempt from the pre-notification and waiting period requirements of the HSR
Act. Therefore, we are not attempting to comply with those requirements. The fact that a transaction is exempt from the requirements of the HSR Act does not preclude the Department of Justice or the Federal Trade Commission from seeking to
prevent the transaction on the ground that it violates the United States antitrust laws. However, we have no reason to believe that the offer or the merger will be viewed as violating the antitrust laws.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Schedule 14D-9 contains “forward-looking statements” that involve significant risks and uncertainties. All statements other than statements of
historical fact are statements that could be deemed forward-looking statements, including: any statements regarding the anticipated timing of filings and approvals relating to the offer and the merger; any statements regarding the expected timing of
the completion of the offer and the merger; any statements regarding the ability to complete the offer or the merger considering the various closing conditions, including that
26
the acceptance time shall have occurred; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Investors and holders of shares of Hatteras
common stock are cautioned not to place undue reliance on these forward-looking statements. Actual results could differ materially from those currently anticipated due to a number of risks and uncertainties. Risks and uncertainties that could cause
results to differ from expectations include: uncertainties as to the timing of the offer and the merger; uncertainties as to how many of the holders of shares of Hatteras common stock will tender their shares of Hatteras common stock into the offer;
the possibility that various closing conditions for the offer or the merger may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the offer or the merger; the
effects of disruption from the offer and the merger making it more difficult for Hatteras to maintain relationships with employees, collaboration parties, other business partners or governmental entities; other business effects, including the
effects of economic or political conditions outside of Hatteras’ control; transaction costs; actual or contingent liabilities; and other risks and uncertainties discussed in this Schedule 14D-9 and other documents filed with the SEC by Hatteras
and Annaly, as well as the Schedule TO filed with the SEC by Annaly and the Offeror. All of the materials related to the offer (and all other offer documents filed with the SEC) are available at no charge from the SEC through its website at
www.sec.gov. Holders of shares of Hatteras common stock also may obtain free copies of the documents filed with the SEC by Hatteras at www.HatFin.com. Hatteras does not undertake any obligation to update any forward-looking statements as a result of
new information, future developments or otherwise, except as expressly required by law.
Where You Can Find More Information
Hatteras and Annaly are subject to the informational requirements of the Exchange Act and in accordance therewith file periodic reports, proxy statements
and other information with the SEC relating to their business, financial condition and other matters. Hatteras and Annaly are required to disclose in such proxy statements certain information, as of particular dates, concerning their respective
directors and officers, their remuneration, stock options granted to them, the principal holders of their securities and any material interest of such persons in transactions with Hatteras or Annaly, as applicable. Such reports, proxy
statements and other information may be inspected at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of such material can also be obtained at prescribed rates from the Public Reference
Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549, or free of charge at the web site maintained by the SEC at
http://www.sec.gov.
The SEC allows Hatteras to “incorporate by reference” information into this Schedule 14D-9, which means that Hatteras can disclose important
information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this Schedule 14D-9, except for any information superseded by information contained directly in
this Schedule 14D-9.
Hatteras incorporates by reference in this Schedule 14D-9 the following documents filed with the SEC pursuant to the Exchange Act:
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•
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the Annual Report to Form 10-K for the fiscal year ended December 31, 2015 filed with the SEC on February 24, 2016;
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•
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the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2016, as filed with the SEC on May 3, 2016;
|
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•
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|
the Current Report on Form 8-K, filed with the SEC on April 11, 2016;
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•
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|
the information specifically incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2015 from the Definitive Proxy Statement on Schedule 14A, as filed with the SEC on
March 25, 2016;
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•
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the description of Hatteras’ common stock set forth or incorporated by reference in Hatteras’ Registration Statement on Form 8-A, including all amendments and reports filed for the purpose of updating such
description, filed with the SEC on April 23, 2008; and
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•
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the description of Hatteras’ 7.625% Series A Cumulative Redeemable Preferred Stock set forth or incorporated by reference in Hatteras’ Registration Statement on Form 8-A, including all amendments and reports
filed for the purpose of updating such description, filed with the SEC on August 23, 2012.
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27
Hatteras also incorporates by reference any future filings made by it with the SEC under Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act (excluding any information furnished pursuant to Item 2.02 or Item 7.01 of any such Current Report on Form 8-K that is filed in the future and is not deemed filed under the Exchange Act).
Item 9 of the Schedule 14D-9 is hereby amended and supplemented by amending the following
exhibits:
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Exhibit
No.
|
|
Description
|
|
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|
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(a)(4)
|
|
Prospectus/Offer to Exchange (incorporated by reference to Amendment No. 3 to Annaly’s Registration Statement on Form S-4 filed with the SEC on July 1, 2016).
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(a)(5)(C)
|
|
Opinion of Goldman, Sachs & Co. dated April 10, 2016 (incorporated by reference to Annex A attached to the Schedule 14D-9 filed with the SEC on May 5, 2016).
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(a)(5)(D)
|
|
Consent of Goldman, Sachs & Co.*
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|
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|
|
(a)(5)(E)
|
|
Press release dated July 1, 2016 announcing the declaration of a short period common stock dividend (incorporated by reference to Hatteras’ filing pursuant to Rule 425 on July 1, 2016).
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28
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
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HATTERAS FINANCIAL CORP.
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Date: July 1, 2016
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By:
|
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/s/ Kenneth A. Steele
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Name:
|
|
Kenneth A. Steele
|
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|
|
Title:
|
|
Chief Financial Officer, Treasurer and Secretary
|
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