As
previously disclosed, on December 6, 2020, Anworth Mortgage Asset Corporation (“Anworth”) entered into an Agreement
and Plan of Merger with Ready Capital Corporation, a Maryland corporation (“Ready Capital”), and RC Merger Subsidiary,
LLC, a Delaware limited liability company and a wholly owned subsidiary of Ready Capital (“Merger Sub”), pursuant to
which, subject to the terms and conditions therein, Anworth will be merged with and into Merger Sub, with Merger Sub continuing
as the surviving company (such transaction, the “Merger”). On February 9, 2021, Anworth and Ready Capital respectively
filed a definitive joint proxy statement/prospectus (the “Proxy Statement”) with the U.S. Securities and Exchange Commission
for the solicitation of proxies in connection with the respective special meetings of the stockholders of Anworth and the stockholders
of Ready Capital, to be held on March 17, 2021, to vote upon matters in connection with the Merger.
Nine
lawsuits have been filed by purported stockholders of Anworth, and one lawsuit has been filed by a purported stockholder of Ready
Capital, with respect to the Merger. The first suit, styled as Shiva Stein v. Anworth Mortgage Asset Corporation, et al.,
2:21-cv-00122 (the “Stein Lawsuit”), was filed by a purported stockholder of Anworth in the United States District
Court for the Central District of California on January 7, 2021 and asserts claims against Anworth and its board of directors.
The second suit, styled as Giuseppe Alescio v. Anworth Mortgage Asset Corporation, et al., No. 1:21-cv-00258 (the “Alescio
Lawsuit”), was filed by a purported stockholder of Anworth in the United States District Court for the Southern District
of New York on January 12, 2021 and asserts claims against Anworth, its board of directors, Ready Capital and the Merger Sub. The
third suit, styled Joseph Sheridan v. Anworth Mortgage Asset Corporation, et al., No. 1:21-cv-00465 (the “Sheridan
Lawsuit”), was filed by a purported stockholder of Anworth in the United States District Court for the Southern District
of New York on January 19, 2021 and asserts claims against Anworth, its board of directors, Ready Capital and the Merger Sub. The
fourth suit, styled Ken Bishop v. Anworth Mortgage Asset Corporation, et al., No. 1:21-cv-00331 (the “Bishop Lawsuit”),
was filed by a purported stockholder of Anworth in the United States District Court for the Eastern District of New York on January
20, 2021 and asserts claims against Anworth and its board of directors. The fifth suit, styled Samuel Carlisle v. Anworth Mortgage
Asset Corporation, et al., No. 2:21-cv-00566 (the “Carlisle Lawsuit”), was filed by a purported stockholder of
Anworth in the United States District Court for the Central District of California on January 21, 2021 and asserts claims against
Anworth and its board of directors. The sixth suit, styled Reginald Padilla v. Anworth Mortgage Asset Corporation, et al.,
No. 2:21-cv-00702 (the “Padilla Lawsuit”), was filed by a purported stockholder of Anworth in the United States District
Court for the Central District of California on January 26, 2021 and asserts claims against Anworth and its board of directors.
The seventh suit, styled Antasek et al. v. Anworth Mortgage Asset Corporation, et al., No. 2:21-cv-00917 (the “Antasek
Lawsuit”), was filed by a purported stockholder of Anworth in the United States District Court for the Central District of
California on February 1, 2021 and asserts claims against Anworth and its board of directors. The eighth suit, styled Sean
McGillivray v. Ready Capital Corporation, et al., No. 1:21-cv-01152 (the “McGillivray Lawsuit”), was filed by
a purported stockholder of Ready Capital in the United States District Court for the Southern District of New York on February
9, 2021 and asserts claims against Ready Capital and its board of directors. The ninth suit, styled Adam Franchi v. Anworth
Mortgage Asset Corporation, et al., No. 2:21-cv-01782 (the “Franchi Lawsuit”), was filed by a purported stockholder
of Anworth in the United District Court for the Central District of California on February 25, 2021 and asserts claims against
Anworth and its board of directors. The tenth suit, styled Terrance Brodt v. Anworth Mortgage Asset Corporation, et al.,
No. 2:21-cv-000981 (the “Brodt Lawsuit”, and collectively with the Stein Lawsuit, the Alescio Lawsuit, the Sheridan
Lawsuit, the Bishop Lawsuit, the Carlisle Lawsuit, the Padilla Lawsuit, the Antasek Lawsuit, the McGillivray Lawsuit and the Franchi
Lawsuit, the “Lawsuits”), was filed by a purported stockholder of Anworth in the
United States District Court for the Eastern District of Pennsylvania on March 1, 2021 and asserts claims against Anworth, its
board of directors, Ready Capital and Merger Sub.
Each of the Lawsuits alleges that
certain of the disclosures in the Proxy Statement are deficient, and seeks preliminary and injunctive relief. Anworth and
Ready Capital intend to contest the claims asserted in the Lawsuits. However, in
order to avoid further expense and the nuisance created by the Lawsuits, in particular the request for preliminary injunctive
relief, and notwithstanding their position that the disclosure of such information is not required by the federal securities
laws, Anworth and Ready Capital are making the following supplemental disclosures, which are incorporated in the Proxy
Statement by reference:
The disclosure on page 70 of the
Proxy Statement is hereby supplemented by revising the fourth paragraph on the page in its entirety as follows:
As a result of the initial outreach by
Credit Suisse at the direction of the Anworth Board to five potential counterparties (including “Company B” and “Company
C” as described in more detail below), as well as unsolicited, direct inquiries by three other parties, on various dates
between May 2020 and August 2020, Anworth entered into mutual confidentiality and non-disclosure agreements with six
potential counterparties. The terms of these agreements ranged from one year to two years and none contained any provisions
that would preclude such counterparties from making a superior proposal to Anworth. Thereafter, at the direction of the
Anworth Board, Mr. McAdams, representatives of Credit Suisse and representatives of these potential counterparties held introductory
telephonic meetings to discuss a potential strategic transaction. Following such initial interactions, some of these potential
counterparties either declined to further pursue a possible transaction with Anworth or submitted verbal non-binding proposals
that did not, in the view of the Anworth Board, form the basis for further constructive discussions.
The disclosure on page 71 of the
Proxy Statement is hereby supplemented by adding a new fifth paragraph after the fourth paragraph on the page as follows:
Following the meeting, at the direction
of the Anworth Board, Credit Suisse contacted ten additional potential counterparties as a part of the broader marketing process.
As a result of the outreach, four of the additional potential counterparties, including Ready Capital, Company D and Company E
(defined below), entered into mutual confidentiality and non-disclosure agreements between September and October of 2020. The terms
of these agreements ranged from one year to two years. None of these additional mutual confidentiality and non-disclosure agreements
contained any provisions that would preclude such counterparties from making a superior proposal to Anworth.
The disclosure on page 96 of the
Proxy Statement is hereby supplemented by revising the second paragraph on the page in its entirety as follows:
Credit Suisse then applied a selected range
of September 30, 2020 tangible book value (which is referred to in this section as “TBV”) multiples of 0.70x to
0.90x derived from the September 30, 2020 TBV multiples of the selected companies to the September 30, 2020 TBVPS of
Anworth. Approximate implied per share equity values for Anworth derived from such selected range of September 30, 2020 multiples
were calculated as total implied equity value divided by the total number of fully diluted shares of Anworth Common Stock outstanding
as of November 4, 2020 (99,305,604 shares), as provided by the Anworth Manager. This analysis indicated the following
approximate implied per share equity value reference ranges for Anworth:
The disclosure on page 109 of the
Proxy Statement is hereby supplemented by revising the table and the accompanying footnotes under the subheading “Ready Capital
Projections” on the page and that is carried over to page 110 in their entirety as follows:
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For the year ended December 31,
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2021
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2022
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2023
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2024
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2025
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Core Earnings Per Share(1)
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$
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1.38
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$
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1.24
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$
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1.31
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$
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1.35
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$
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1.38
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Book Value per Share (end of period)
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$
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14.79
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$
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14.58
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$
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14.42
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$
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14.27
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$
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14.12
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Dividends per Share / Distributed Cash Flows per Share(2)
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$
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1.24
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$
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1.12
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$
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1.18
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$
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1.21
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$
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1.25
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(1)
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Core earnings is a non-GAAP measure that Ready Capital defines as net income (loss) excluding (i) any unrealized gains
or losses on certain MBS, (ii) any unrealized gains or losses on sales of certain MBS, (iii) any unrealized gains or
losses on residential mortgage servicing rights and (iv) one-time non-recurring gains or losses, such as gains or losses on
discontinued operations, bargain purchase gains, or merger related expenses. Ready Capital believes that providing investors with
core earnings gives investors greater transparency into the information used by management in its financial and operational decision-making.
However, because core earnings is an incomplete measure of Ready Capital’s financial performance and involves differences
from net income computed in accordance with GAAP, it should be considered along with, but not as an alternative to, net income
as a measure of financial performance. In addition, because not all companies use identical calculations, Ready Capital’s
presentation of core earnings may not be comparable to other similarly-titled measures of other companies.
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(2)
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Dividends per Share and share repurchases together encompass Distributed Cash Flows per Share. Given that no share repurchases
are projected during the forecast period, Distributed Cash Flows per Share are equal to Dividends per Share during the forecast
period.
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The disclosure on page 112 of the
Proxy Statement is hereby supplemented by revising the table and the accompanying footnotes on the page in their entirety as follows:
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For the Year Ended December 31,
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2020E
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2021E
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2022E
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2023E
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Core Earnings per Common Share(1)
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$
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0.20
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$
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0.27
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$
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0.32
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$
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0.32
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Book Value per Common Share (end of period)
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$
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3.07
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$
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3.11
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$
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3.15
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$
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3.20
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Dividends per Common Share / Distributed Cash Flows per Common Share(2)
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$
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0.19
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$
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0.27
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$
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0.32
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$
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0.32
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(1)
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Core Earnings is a non-U.S. GAAP measure that Anworth defines as net income (loss) to common stockholders, excluding (a) all
realized and unrealized gains and losses on securities and derivatives, (b) premium amortization expense, (c) depreciation
expense on real property, (d) changes in loss reserves or impairments, and (d) non-recurring expenses such as transaction-related
expenses. As defined, Core Earnings includes (i) paydown expense on Agency MBS and (ii) net settlement on interest rate
swaps after de-designation. Anworth believes that the presentation of Core Earnings provides investors with greater transparency
into its period-over-period financial performance and facilities comparisons to peer REITs. Anworth’s presentation of core
earnings may not be comparable to similarly-titled measures used by other companies, which may employ different calculations. As
a result, Core Earnings should not be considered a substitute for Anworth’s GAAP net income (loss), as a measure of its financial
performance, or any measure of Anworth’s liquidity under GAAP.
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(2)
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Dividends per Common Share and share repurchases together encompass Distributed Cash Flows per Common Share. Given that
no share repurchases are projected during the forecast period, Distributed Cash Flows per Common Share are equal to Dividends per
Common Share during the forecast period.
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