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As filed with the Securities and Exchange Commission on June 15, 2016

Registration No. 333-211140

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Amendment No. 2
to

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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Annaly Capital Management, Inc.
(Exact name of registrant as specified in its charter)

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1211 Avenue of the Americas
New York, New York 10036
(212) 696-0100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

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R. Nicholas Singh, Esq.
Chief Legal Officer
Annaly Capital Management, Inc.
1211 Avenue of the Americas
New York, New York 10036
(212) 696-0100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

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Approximate date of commencement of proposed sale of the securities to the public:

          May 5, 2016, the date on which the preliminary prospectus and tender offer materials were filed and sent to securityholders. The offer cannot, however, be completed prior to the time this Registration Statement becomes effective. Accordingly, any actual sale or purchase of securities pursuant to the offer will occur only after this Registration Statement is effective, subject to the conditions to the transactions described herein.

          If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:    o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

          If applicable, place an ý in the box to designate the appropriate rule provision relied upon in conducting this transaction:

          Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)    o

          Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)    o

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          The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   

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The information in this document may change. The registrant may not complete the offer and issue these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This document is not an offer to sell these securities, and the registrant is not soliciting an offer to buy these securities in any state or jurisdiction in which such offer is not permitted.

PRELIMINARY AND SUBJECT TO CHANGE, DATED JUNE 15, 2016

Offer by

RIDGEBACK MERGER SUB CORPORATION,

a direct wholly owned subsidiary of

ANNALY CAPITAL MANAGEMENT, INC.

to Exchange Each Outstanding Share of Common Stock of

HATTERAS FINANCIAL CORP.

for

$5.55 in Cash and
0.9894 Shares of Common Stock of Annaly Capital Management, Inc.

or

$15.85 in Cash

or

1.5226 Shares of Common Stock of Annaly Capital Management, Inc.

(subject in each case to the election procedures and, in the case of an all-cash election or an all-stock election, to the proration procedures described in this document and related letter of election and transmittal)

THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON JULY 11, 2016, UNLESS EXTENDED.

           Annaly Capital Management, Inc., a Maryland corporation ("Annaly") through its direct wholly owned subsidiary Ridgeback Merger Sub Corporation, a Maryland corporation (the "Offeror"), is offering (the "offer"), upon the terms and subject to the conditions set forth in this prospectus/offer to exchange and in the accompanying letter of election and transmittal, to exchange for each outstanding share of common stock, par value $0.001 per share (the "Hatteras common stock"), of Hatteras Financial Corp., a Maryland corporation ("Hatteras"), validly tendered and not validly withdrawn in the offer:

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$5.55 in cash; and



•

0.9894 shares of Annaly common stock, par value $0.01 per share (the "Annaly common stock"), together with cash in lieu of any fractional shares of Annaly common stock.

We refer to the above as the "mixed consideration."

           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, (1) $15.85 in cash (we refer to this election as the "all-cash election" and this amount as the "all-cash consideration") or (2) 1.5226 shares of Annaly common stock, together with cash in lieu of any fractional shares of Annaly common stock (we refer to this election as the "all-stock election" and this amount as the "all-stock consideration"). The mixed consideration, the all-cash consideration and the all-stock consideration (as applicable) will be paid without interest and less any applicable withholding taxes.

           Hatteras common stockholders who validly tender and do not validly withdraw their shares of Hatteras common stock in the offer but who do not make a valid election will receive the mixed consideration for their shares of Hatteras common stock. Hatteras common stockholders who make the all-cash election or the all-stock election will be subject to proration so that approximately 65.0% of the aggregate consideration in the offer will be paid in shares of Annaly common stock and approximately 35.0% of the aggregate consideration in the offer will be paid in cash. See "The Offer—Elections and Proration" for a description of the proration procedure.

           The purpose of the offer is for Annaly to acquire control of, and ultimately the entire equity interest in, Hatteras. The offer is the first step in Annaly's plan to acquire all of the outstanding shares of Hatteras common stock. If the offer is completed, promptly following the consummation of the offer, Annaly intends to consummate a merger of Hatteras with and into the Offeror, with the Offeror surviving the merger under the name "Hatteras Financial Corp." (which we refer to as the "merger"). The purpose of the merger is for Annaly to acquire all of the shares of Hatteras common stock that it did not acquire in the offer, as well as each issued and outstanding share of Hatteras' 7.625% Series A Cumulative Redeemable Preferred Stock, $0.001 par value per share (the "Hatteras Series A preferred stock"). In the merger, each outstanding share of Hatteras common stock that was not acquired by Annaly or the Offeror will be converted into the mixed consideration or, at the election of the holder of such shares, the all-cash consideration or all-stock consideration, subject to proration so that approximately 65.0% of the aggregate consideration in the merger will be paid in shares of Annaly common stock and approximately 35.0% of the aggregate consideration in the merger will be paid in cash. In addition, in the merger, each outstanding share of Hatteras Series A preferred stock will be automatically converted into the right to receive one newly issued share of Annaly's 7.625% Series E Cumulative Redeemable Preferred Stock, $0.01 par value per share, which will have rights, privileges and voting powers substantially the same as those of the Hatteras Series A preferred stock. After the merger, the Hatteras business will be held in a wholly owned subsidiary of Annaly, and the former Hatteras stockholders will no longer have any direct ownership interest in the surviving corporation.

NOTICE OF OFFER AND MERGER UNDER SECTION 3-106.1 OF THE MARYLAND GENERAL CORPORATION LAW

In accordance with Section 3-106.1(e) of the Maryland General Corporation Law (the "MGCL"), notice of the offer and the merger and the
transactions contemplated thereby is hereby given by Annaly and the Offeror. The Articles of Merger, pursuant to which the Merger will become effective,
will be filed with the State Department of Assessments and Taxation of Maryland not earlier than 30 days after the date of this
preliminary prospectus/offer to exchange.

           The Offeror's obligation to accept for exchange, and to exchange, shares of Hatteras common stock for cash and shares of Annaly common stock in the offer is subject to a number of conditions, including that at least one share more than two-thirds of the outstanding shares of Hatteras common stock have been validly tendered (and not validly withdrawn) in the offer. See "The Offer—Conditions of the Offer" for a description of all of such conditions.

           Annaly common stock is listed on the New York Stock Exchange ("NYSE") under the symbol "NLY," and Hatteras common stock is listed on the NYSE under the symbol "HTS."

           The merger will not entitle Hatteras stockholders to dissenters' rights or rights of objecting stockholders under the MGCL.

           For a discussion of certain factors that Hatteras common stockholders should consider in connection with the offer, please read the section of this document entitled "Risk Factors" beginning on page 25.

           You are encouraged to read this entire document and the related letter of election and transmittal carefully, including the annexes and information referred to or incorporated by reference in this document.

           Neither Annaly nor the Offeror has authorized any person to provide any information or to make any representation in connection with the offer other than the information contained or incorporated by reference in this document, and if any person provides any information or makes any representation of this kind, that information or representation must not be relied upon as having been authorized by Annaly or the Offeror.

           Neither the U.S. Securities and Exchange Commission (the "SEC") nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense.

   

The date of this preliminary prospectus/offer to exchange is June 15, 2016.

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        This document incorporates by reference important business and financial information about Annaly, Hatteras and their respective subsidiaries from documents filed with the SEC that have not been included in or delivered with this document. This information is available without charge at the SEC's website at www.sec.gov, as well as from other sources. See "Where To Obtain More Information."

        You can obtain the documents incorporated by reference in this document by requesting them in writing or by telephone at the following address and telephone number:

Annaly Capital Management, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attention: Investor Relations
1-888-8ANNALY
http://www.annaly.com/investors

        In addition, if you have questions about the offer or the merger, or if you need to obtain copies of this document, the letter of election and transmittal or other documents incorporated by reference in this document, you may contact the information agent for this offer listed below. You will not be charged for any of the documents you request.

Innisfree M&A Incorporated
501 Madison Avenue, 20^th Floor
New York, New York 10022
Stockholders may call toll free: (888) 750-5834
Banks and Brokers may call collect: (212) 750-5833

        If you would like to request documents, please do so by July 1, 2016, in order to receive them before the expiration of the offer.

        Information included in this document relating to Hatteras, including but not limited to the descriptions of Hatteras and its business and the information under the headings "Selected Historical Consolidated Financial Data of Hatteras," "The Offer—Background of the Offer and the Merger," "The Offer—Hatteras' Reasons for the Offer and the Merger; Recommendation of the Hatteras Board of Directors," "The Offer—Opinion of Hatteras' Financial Advisor," "The Offer—Prospective Financial Information of Hatteras" and "The Offer—Interests of Certain Persons in the Offer and the Merger" appears in the Solicitation/Recommendation Statement on Schedule 14D-9 dated May 5, 2016 and filed by Hatteras with the SEC (the "Schedule 14D-9"). The Schedule 14D-9 was mailed to holders shares of Hatteras common stock on or about May 5, 2016.

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QUESTIONS AND ANSWERS ABOUT THE OFFER AND THE MERGER

        Below are some of the questions that you as a Hatteras stockholder may have regarding the offer and the merger and answers to those questions. You are urged to carefully read the remainder of this document and the related letter of election and transmittal and the other documents to which we have referred because the information contained in this section and in the section entitled "Summary" is not complete. Additional important information is contained in the remainder of this document and the related letter of election and transmittal. See "Where To Obtain More Information." As used in this document, unless otherwise indicated or the context requires, "Annaly," "we" or "us" refers to Annaly Capital Management, Inc. and its consolidated subsidiaries; the "Offeror" refers to Ridgeback Merger Sub Corporation, a wholly owned subsidiary of Annaly; and "Hatteras" refers to Hatteras Financial Corp. and its consolidated subsidiaries. The "acceptance time" for purposes of this document and the merger agreement is the time that Annaly will accept for payment, subject to the terms and conditions of the merger agreement, all shares of Hatteras common stock, par value $0.001 per share (the "Hatteras common stock") that are validly tendered and not validly withdrawn in the offer.

Who is offering to buy my shares of Hatteras common stock and why I am receiving this document?

        Annaly Capital Management, Inc. and the Offeror are making this offer to exchange cash and shares of Annaly common stock, par value $0.01 per share (the "Annaly common stock") for shares of Hatteras common stock pursuant to the Agreement and Plan of Merger, which is referred to as the "merger agreement", entered into by Annaly, the Offeror and Hatteras on April 10, 2016. You are receiving this document because you own shares of Hatteras common stock.

        Annaly is a leading mortgage real estate investment trust ("REIT") listed on the New York Stock Exchange ("NYSE") and externally managed by Annaly Management Company LLC. Since its founding in 1997, Annaly has strived to generate net income for distribution to its stockholders and preserve capital through the prudent selection and management of its investments, and since its inception has paid $14 billion in dividends to stockholders. Annaly uses its capital coupled with borrowed funds to invest in real estate related investments earning the spread between the yield on its assets and the cost of its borrowings and hedges.

What are the classes and amounts of Hatteras securities that Annaly is seeking to acquire in the offer?

        Annaly is seeking to acquire all of the issued and outstanding shares of Hatteras common stock in the offer.

What will I receive for my shares of Hatteras common stock in the offer?

        Annaly and the Offeror are offering (the "offer") to exchange for each outstanding share of Hatteras common stock validly tendered and not validly withdrawn in the offer:

•

$5.55 in cash; and



•

0.9894 shares of Annaly common stock, par value $0.01 per share, together with cash in lieu of any fractional shares of Annaly common stock.

We refer to the above as the "mixed consideration."

        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, (1) $15.85 in cash (we refer to this election as the "all-cash election" and this amount as the "all-cash consideration") or (2) 1.5226 shares of Annaly common stock, together with cash in lieu of any fractional shares of Annaly common stock (we refer to this election as the "all-stock election" and this amount as the "all-stock consideration").

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The mixed consideration, the all-cash consideration and the all-stock consideration (as applicable) will be paid without interest and less any applicable withholding taxes.

        Hatteras common stockholders who validly tender and do not validly withdraw their shares of Hatteras common stock in the offer but who do not make a valid election will receive the mixed consideration for their shares of Hatteras common stock. Hatteras common stockholders who make the all-cash election or the all-stock election will be subject to proration so that approximately 65.0% of the aggregate consideration in the offer will be paid in shares of Annaly common stock and approximately 35.0% of the aggregate consideration in the offer will be paid in cash. See "The Offer—Elections and Proration" for a description of the proration procedure.

        Hatteras common stockholders should consider the potential effects of proration and should obtain current market quotations for shares of Hatteras common stock and shares of Annaly common stock before deciding whether to tender pursuant to the offer and before electing the form of consideration they wish to receive. The market value of the stock portion of the common transaction consideration will change as the market value of Annaly common stock fluctuates during the offer period and thereafter. Please see "Risk Factors—Risk Factors Relating to the Offer and the Merger."

What will happen to my shares of Hatteras preferred stock?

        If you own shares of Hatteras' 7.625% Series A Cumulative Redeemable Preferred Stock, $0.001 par value per share (the "Hatteras Series A preferred stock"), you do not need to do anything in connection with the offer, as the offer is not applicable to the Hatteras Series A preferred stock. If the offer is completed, in connection with the completion of the merger, each outstanding share of Hatteras Series A preferred stock will be automatically converted into the right to receive one share of Annaly's 7.625% Series E Cumulative Redeemable Preferred Stock, $0.01 par value per share (the "Annaly Series E preferred stock").

Will I have to pay any fee or commission to exchange my shares of Hatteras common stock?

        If you are the record owner of your shares of Hatteras common stock and you tender these shares in the offer, you will not have to pay any brokerage fees, commissions or similar expenses. If you own your shares of Hatteras common stock through a broker, dealer, commercial bank, trust company or other nominee and your broker, dealer, commercial bank, trust company or other nominee tenders your shares of Hatteras common stock on your behalf, your broker or such other nominee may charge a fee for doing so. You should consult your broker, dealer, commercial bank, trust company or other nominee to determine whether any charges will apply.

Why is Annaly making this offer and what is the purpose of the merger?

        The purpose of the offer is for Annaly to acquire control of, and ultimately own the entire equity interest in, Hatteras. The offer is the first step in Annaly's plan to acquire all of the outstanding shares of Hatteras common stock. Annaly intends to consummate the merger promptly following the completion of the offer. The purpose of the merger is for Annaly to acquire all of the shares of Hatteras common stock that it did not acquire in the offer, as well as each outstanding share of the Hatteras Series A preferred stock. After the merger, the Hatteras business will be held in a wholly owned subsidiary of Annaly, and the former Hatteras stockholders will no longer have any direct ownership interest in this entity.

What does the Hatteras board of directors recommend?

        The Hatteras board of directors, acting upon the recommendation of a special committee of the Hatteras board of directors comprised of three independent directors (the "Hatteras special committee"), has unanimously resolved to recommend that the Hatteras stockholders accept the offer

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and tender their shares of Hatteras common stock to Annaly in the offer. The Hatteras board of directors, upon the unanimous recommendation of the Hatteras special committee, also unanimously 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, and declared the offer, the merger and the other transactions contemplated by the merger agreement advisable.

        See "The Offer—Hatteras' Reasons for the Offer and the Merger; Recommendation of the Hatteras Board of Directors" for more information. A description of the reasons for this recommendation is also set forth in Hatteras' Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") that is being mailed to you together with this document.

What are the most significant conditions of the offer?

        The offer is conditioned upon, among other things, the following:

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Minimum Tender Condition—Hatteras common stockholders having validly tendered and not validly withdrawn in accordance with the terms of the offer and prior to the expiration of the offer a number of shares of Hatteras common stock that, together with any shares of Hatteras common stock then owned by Annaly and the Offeror, represents at least one share more than two-thirds of the then-outstanding shares of Hatteras common stock at any expiration of the offer (the "minimum tender condition");



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Effectiveness of Form S-4—The registration statement on Form S-4, of which this document is a part, having become effective under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and must not be the subject of any stop order or proceeding seeking a stop order, at any expiration of the offer;



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No Hatteras Material Adverse Effect—There not having occurred any change, effect, development, circumstance, condition, state of facts, event or occurrence after the date of the merger agreement that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Hatteras (with such term as defined in the merger agreement and described under "Merger Agreement—Material Adverse Effect");



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No Annaly Material Adverse Effect—There not having occurred any change, effect, development, circumstance, condition, state of facts, event or occurrence after the date of the merger agreement that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Annaly (with such term as defined in the merger agreement and described under "Merger Agreement—Material Adverse Effect");



•

Accuracy of Hatteras' Representations and Warranties—The representations and warranties of Hatteras contained in the merger agreement being true and correct as of the expiration of the offer, subject to specified materiality standards;



•

Hatteras' Compliance with Covenants—Hatteras must have, in all material respects, performed or complied with its obligations, agreements and covenants required to be performed or complied with by it under the merger agreement at or prior to the expiration of the offer;



•

Accuracy of Annaly's and the Offeror's Representations and Warranties—The representations and warranties of Annaly and the Offeror contained in the merger agreement being true and correct as of the expiration of the offer, subject to specified materiality standards;



•

Annaly's and the Offeror's Compliance with Covenants—each of Annaly and the Offeror must have, in all material respects, performed or complied with their agreements and covenants required to be performed or complied with by it under the merger agreement at or prior to the expiration of the offer;

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Listing of Annaly Common Stock and Annaly Preferred Stock—The shares of Annaly common stock to be issued in the offer and the merger and the shares of Annaly Series E preferred stock to be issued in the merger having been approved for listing on the NYSE, subject to official notice of issuance;



•

No Legal Prohibition—No law, order or injunction restraining or enjoining or otherwise prohibiting the consummation of the offer or the merger must have been enacted, issued, promulgated or granted by a governmental entity of competent jurisdiction;



•

Management Agreement Termination—The management agreement between Hatteras and Atlantic Capital Advisors LLC (the "Hatteras external manager"), dated as of February 23, 2012 (the "management agreement"), must have been terminated in accordance with the terms of the amendment to the management agreement entered into as of April 10, 2016;



•

Regulatory Approvals—The required approvals of certain governmental authorities and the Federal National Mortgage Association ("Fannie Mae") and the Government National Mortgage Association ("Ginnie Mae") must have been obtained at or prior to the expiration of the offer and the Federal Home Loan Mortgage Corporation ("Freddie Mac") has not notified Annaly and Hatteras of any objection to the change of control that would occur as a result of the completion of the offer;



•

Transaction Tax Opinions—The receipt of a written opinion by each of Annaly and Hatteras from its legal counsel, dated as of the date of the expiration of the offer, to the effect that the offer and the merger, taken together, will qualify as a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and



•

REIT Tax Opinions—The receipt of a written opinion by each of Annaly and Hatteras from the other party's tax counsel, dated as of the date of the expiration of the offer, to the effect that at all times since the year of inception of the applicable company and through the date of the expiration of the offer, such company has been organized and operated in conformity with the requirements for qualification as a REIT under the Code and, and with respect to Annaly, that the proposed method of operation of Annaly will enable Annaly to continue to meet the requirements for qualification as a REIT under the Code.

        The offer is subject to certain other conditions set forth below in the section entitled "The Offer—Conditions of the Offer." The conditions to the offer are for the sole benefit of Annaly and the Offeror and may be asserted by Annaly or the Offeror regardless of the circumstances giving rise to any such condition (other than as a result of any action or inaction by Annaly or the Offeror that is completely within the control of Annaly or the Offeror), and may be waived by Annaly or the Offeror, by express and specific action to that effect, in whole or in part at any time and from time to time, in each case. However, certain specified conditions (including all the conditions noted above other than the conditions related to a material adverse effect on Hatteras, accuracy of Hatteras' representations, Hatteras' compliance with covenants, receipt by Annaly of the transaction and REIT tax opinions noted above, the termination of the management agreement and regulatory approvals) may only be waived by Annaly or the Offeror with the express written consent of Hatteras. Pursuant to the merger agreement, Hatteras has the right to require that Annaly and the Offeror waive the conditions set forth in the fourth, seventh, eighth, thirteenth and fourteenth bullets above (no material adverse effect on Annaly, accuracy of Annaly's and the Offeror's representations and warranties, Annaly's and the Offeror's compliance with covenants, Hatteras' receipt of the transaction tax opinion and Hatteras' receipt of the REIT tax opinion). There is no financing condition to the offer.

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How long will it take to complete the offer and the merger?

        The offer and the merger are expected to be completed before the end of the third quarter of 2016, subject to the satisfaction or waiver of the conditions described in the sections entitled "The Offer—Conditions of the Offer" and "Merger Agreement—Conditions to the Merger."

How long do I have to decide whether to tender my shares of Hatteras common stock in the offer?

        The offer is scheduled to expire at 5:00 p.m., Eastern Time, on July 11, 2016, unless further extended or terminated. Any extension, delay, termination, waiver or amendment of the offer will be followed as promptly as practicable by public announcement thereof to be made no later than 9:00 a.m., Eastern Time, on the next business day after the previously scheduled expiration date. During any such extension, all of the shares of Hatteras common stock previously tendered and not validly withdrawn will remain subject to the offer, subject to the rights of a tendering stockholder to withdraw such stockholder's shares. "Expiration date" means 5:00 p.m., Eastern Time, on July 11, 2016, unless and until the Offeror has extended the period during which the offer is open, subject to the terms and conditions of the merger agreement, in which event the term "expiration date" means the latest time and date at which the offer, as so extended by the Offeror, will expire.

        Subject to the provisions of the merger agreement and the applicable rules and regulations of the Securities and Exchange Commission ("SEC"), and unless Hatteras consents otherwise or the merger agreement is otherwise terminated, the Offeror must (1) extend the offer for one or more successive periods of up to 10 business days each in order to further seek to satisfy the conditions to the offer in the event that any of the offer conditions (other than the minimum tender condition) have not been satisfied or validly waived as of any then scheduled expiration of the offer, (2) extend the offer for up to two successive periods of up to 10 business days if each of the offer conditions (other than the minimum tender condition) has been satisfied or validly waived and the minimum tender condition has not been satisfied as of the scheduled expiration of the offer, and Hatteras requests that the Offeror so extend the offer, and (3) extend the offer for the minimum period required by any rule, regulation, interpretation or position of the SEC or its staff or NYSE that is applicable to the offer or the merger or to the extent necessary to resolve any comments of the SEC or its staff applicable to the offer, the merger, the Schedule TO or the related offer documents. However, the Offeror is not required to extend the offer beyond January 10, 2017 (which is the "outside date").

        Any decision to extend the offer will be made public by an announcement regarding such extension as described under the section entitled "The Offer—Extension, Termination and Amendment."

How do I tender my shares of Hatteras common stock?

        To tender your shares of Hatteras common stock represented by physical certificates in the offer, you must deliver the certificates representing such shares, together with a completed letter of election and transmittal and any other documents required by the letter of election and transmittal, to Computershare Trust Company, N.A. ("Computershare"), the depositary and exchange agent for the offer, not later than the expiration date. The letter of election and transmittal is enclosed with this document.

        To tender your shares of Hatteras common stock in electronic book entry form, you must deliver an agent's message in connection with a book-entry transfer, and any other required documents, to the exchange agent at its address set forth elsewhere in this document and follow the other procedures for book-entry tender set forth herein, not later than the expiration date.

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        If your shares of Hatteras common stock are held in "street name" (i.e., through a broker, dealer, commercial bank, trust company or other nominee), these shares can be tendered by your nominee by book-entry transfer through The Depository Trust Company.

        We are not providing for guaranteed delivery procedures and therefore you must allow sufficient time for the necessary tender procedures to be completed during normal business hours of The Depository Trust Company prior to the expiration date. Tenders received by the exchange agent after the expiration date will be disregarded and of no effect. In all cases, you will receive your consideration for your tendered shares of Hatteras common stock only after timely receipt by the exchange agent of certificates for such shares (or of a confirmation of a book-entry transfer of such shares) and a properly completed and duly executed letter of election and transmittal and any other required documents.

        For a complete discussion on the procedures for tendering your shares of Hatteras common stock, see "The Offer—Procedure for Tendering."

Until what time can I withdraw tendered shares of Hatteras common stock?

        You may withdraw your previously tendered shares of Hatteras common stock at any time until the offer has expired and, if the Offeror has not accepted your shares of Hatteras common stock for payment by July 5, 2016, you may withdraw them at any time on or after that date until the Offeror accepts shares for payment. Once the Offeror accepts your tendered shares of Hatteras common stock for payment upon expiration of the offer, however, you will no longer be able to withdraw them. For a complete discussion of the procedures for withdrawing your shares of Hatteras common stock, see "The Offer—Withdrawal Rights."

How do I withdraw previously tendered shares of Hatteras common stock?

        To withdraw previously tendered shares of Hatteras common stock, you must deliver a written notice of withdrawal with the required information to the exchange agent at any time that you have the right to withdraw shares. If you tendered shares of Hatteras common stock by giving instructions to a broker, dealer, commercial bank, trust company or other nominee, you must instruct such broker, dealer, commercial bank, trust company or other nominee to arrange for the withdrawal of your shares of Hatteras common stock and such broker, dealer, commercial bank, trust company or other nominee must effectively withdraw such shares at any time that you have the right to withdraw shares. For a discussion on the procedures for withdrawing your shares of Hatteras common stock, including the applicable deadlines for effecting withdrawals, see "The Offer—Withdrawal Rights."

When and how can I expect to receive the offer consideration in exchange for my tendered shares of Hatteras common stock?

        The Offeror will exchange all validly tendered and not validly withdrawn shares of Hatteras common stock promptly after the expiration date of the offer, subject to the terms thereof and the satisfaction or waiver of the conditions to the offer, as set forth in "The Offer—Conditions of the Offer." The Offeror will deliver the consideration for your validly tendered and not validly withdrawn shares through the exchange agent, that will act as your agent for the purpose of receiving the common transaction consideration from the Offeror and transmitting such consideration to you. In all cases, you will receive the consideration for your tendered shares of Hatteras common stock only after timely receipt by the exchange agent of certificates representing such shares of Hatteras common stock (or a confirmation of a book-entry transfer of such shares as described in the section entitled "The Offer—Procedure for Tendering") and a properly completed and duly executed letter of election and transmittal and any other required documents for such shares.

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Why does the cover page to this document state that this offer is preliminary and subject to change, and that the registration statement filed with the SEC is not yet effective? Does this mean that the offer has not commenced?

        No. Completion of this document and effectiveness of the registration statement are not necessary to commence this offer. The offer was commenced on May 5, 2016, the date of the initial filing of the registration statement on Form S-4 of which this document is a part. The Offeror cannot, however, accept for exchange any shares of Hatteras common stock tendered in the offer or exchange any shares until the registration statement is declared effective by the SEC and the other conditions to the offer have been satisfied or waived.

What happens if I do not tender my shares of Hatteras common stock?

        If, after consummation of the offer, Annaly and the Offeror own one share more than two-thirds of the outstanding shares of Hatteras common stock, Annaly and the Offeror intend to promptly complete the merger. Upon consummation of the merger, each issued and outstanding share of Hatteras common stock that has not been tendered and accepted for exchange in the offer will be converted in the merger into the right to receive, at the election of the holder, the all-cash consideration, the all-stock consideration or the mixed consideration, but the all-cash consideration and all-stock consideration will be subject to proration so that approximately 65.0% of the aggregate consideration in the merger will be paid in shares of Annaly common stock and approximately 35.0% of the aggregate consideration in the merger will be paid in cash. A letter of election and transmittal will be sent to you following the merger to make these elections. The election deadline to make these elections will be 5:00 p.m. Eastern Time, on the 20^th calendar day following the date on which such forms of election and transmittal are mailed. If you do not make a valid election, you will be treated as if you had made an election to receive the mixed consideration.

If the offer is completed, will Hatteras continue as a public company?

        No. Annaly is required, on the terms and subject to the satisfaction or waiver of the conditions set forth in the merger agreement, to consummate the merger promptly following the purchase of shares of Hatteras common stock in the offer. If the merger takes place, Hatteras will no longer be publicly traded. If, for some reason, the merger does not take place, and Annaly (through the Offeror) purchases all of the shares of Hatteras common stock validly tendered and not validly withdrawn, there may be so few remaining stockholders and publicly held shares that Hatteras common stock will no longer be eligible to be traded through the NYSE or other securities exchanges, there may not be an active public trading market for Hatteras common stock, and Hatteras may no longer be required to make filings with the SEC or otherwise comply with the SEC rules relating to publicly held companies.

Will the offer be followed by a merger if all of the shares of Hatteras common stock are not tendered in the offer?

        Yes, unless the conditions to the merger are not satisfied or waived. If the Offeror accepts for payment all of the shares of Hatteras common stock validly tendered and not validly withdrawn pursuant to the offer, and the other conditions to the merger are satisfied or waived, the merger will take place promptly after the consummation of the offer. If the merger takes place, Annaly will own 100% of the equity of Hatteras, and all of the remaining holders of Hatteras common stock, other than Annaly and the Offeror, will have the right to receive the mixed consideration, the all-cash consideration or the all-stock consideration, in each case without interest and less any applicable withholding taxes, with the form of such consideration to be subject to further election and proration as described in this document (such consideration, the "common transaction consideration").

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        Because the merger will be governed by Section 3-106.1 of the Maryland General Corporation Law (the "MGCL"), no stockholder vote will be required to consummate the merger in the event that the offer is consummated. Annaly is required, on the terms and subject to the satisfaction or waiver of the conditions set forth in the merger agreement, to consummate the merger promptly following the consummation of the offer. As such, Annaly does not expect there to be a significant period of time between the consummation of the offer and the consummation of the merger.

Does Annaly have the financial resources to complete the offer and the merger?

        Yes. The common transaction consideration will consist of Annaly common stock and cash. The offer and the merger are not conditioned upon any financing arrangements or contingencies.

What are the U.S. federal income tax consequences of receiving shares of Annaly common stock and/or cash in exchange for my shares of Hatteras common stock in the offer and/or the merger?

        The offer and the merger, taken together, are intended to qualify as a "reorganization" within the meaning of Section 368(a) of the Code. If the offer and the merger, taken together, qualify as a "reorganization" within the meaning of Section 368(a) of the Code, the U.S. federal income tax consequences to Hatteras stockholders who are U.S. persons and receive shares of Annaly common stock and/or cash in exchange for their shares pursuant to the offer and/or the merger generally will be as follows:

•

if a Hatteras stockholder receives solely shares of Annaly common stock in exchange for such stockholder's shares, such stockholder generally will not recognize any gain or loss, except with respect to cash received in lieu of any fractional shares of Annaly common stock;



•

if a Hatteras stockholder receives solely cash in exchange for such stockholder's shares, such stockholder generally will recognize gain or loss equal to the difference between the amount of cash received and the stockholder's tax basis in its Hatteras common stock; and



•

if a Hatteras stockholder receives a combination of Annaly common stock and cash in exchange for such stockholder's shares, such stockholder generally will recognize gain (but not loss) in an amount equal to the lesser of (1) the sum of the cash and the fair market value of the Annaly common stock received, minus the stockholder's tax basis in its Hatteras common stock surrendered, and (2) the amount of cash received.

Non-U.S. holders (as described under "Material U.S. Federal Income Tax Consequences") of Hatteras common stock that receive the common transaction consideration pursuant to the offer and/or the merger may be subject to U.S. withholding tax with respect to cash received.

        Each Hatteras stockholder should read the discussion under "Material U.S. Federal Income Tax Consequences" and should consult its own tax advisor for a full understanding of the tax consequences of the offer and the merger to such stockholder.

Will I have the right to have my shares of Hatteras common stock appraised?

        No. Appraisal rights, rights of objecting stockholders or dissenters' rights are not available in connection with the offer or the merger. See "The Offer—Purpose of the Offer and the Merger; Dissenters' Rights."

Who should I call if I have questions about the offer?

        You may call Innisfree M&A Incorporated, the information agent, toll free at (888) 750-5834.

Where can I find more information about Annaly and Hatteras?

        You can find more information about Annaly and Hatteras from various sources described in the section entitled "Where To Obtain More Information."

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RISK FACTORS

        Hatteras stockholders should carefully read this document and the other documents referred to or incorporated by reference into this document, including in particular the following risk factors, in deciding whether to tender shares pursuant to the offer. Additional risks and uncertainties not presently known to Annaly or Hatteras or that are not currently believed to be important may have adverse effects on the offer, the merger and the combined company.

Risk Factors Relating to the Offer and the Merger

The stock portion of the common transaction consideration is fixed and will not be adjusted. Because the market price of Annaly common stock may fluctuate, Hatteras common stockholders cannot be certain of the market value of the common transaction consideration they will receive in exchange for their shares of Hatteras common stock in connection with the transactions.

        In connection with the offer and the merger, Hatteras common stockholders will receive, at their election, the mixed consideration, the all-cash consideration or the all-stock consideration. The mixed consideration and all-stock consideration provide for a fixed number of shares of Annaly common stock for each share of Hatteras common stock. In addition, Hatteras common stockholders who make the all-cash election or the all-stock election will be subject to proration so that approximately 65.0% of the aggregate consideration in the offer and merger will be paid in shares of Annaly common stock and approximately 35.0% of the aggregate consideration in the offer will be paid in cash. As a result, a portion of the consideration that Hatteras common stockholders who make the all-cash election will receive in the offer and the merger may be a fixed number of shares of Annaly common stock. Because the number of shares of Annaly common stock being offered as part of the portion of the common transaction consideration will not vary based on the market value of Annaly common stock, the market value of the common transaction consideration that you will receive in the offer or the merger that is based on the value of Annaly common stock will vary based on the price of such stock at the time you receive the common transaction consideration. The market price of Annaly common stock may decline after the date of this document, after you tender your shares and/or after the offer and the merger are completed.

        A decline in the market price of Annaly common stock could result from a variety of factors, some of which are beyond Annaly's control, including, among other things, an increase in interest rates, the possibility that Annaly may not achieve the expected benefits of the acquisition of Hatteras as rapidly or to the extent anticipated, Hatteras' portfolio and businesses may not perform as anticipated following the transactions, the effect of Annaly's acquisition of Hatteras on Annaly's financial results may not meet the expectations of Annaly, financial analysts or investors, or the addition and integration of Hatteras' business may be unsuccessful, take longer or be more disruptive than anticipated, as well as numerous factors affecting Annaly and its businesses that are unrelated to Hatteras, including the price of the securities and loans in Annaly's existing portfolio.

        Because the offer will not be completed until certain conditions have been satisfied or waived, a significant period of time may pass between the commencement of the offer, the time you tender your shares and the time that the Offeror accepts your shares for payment. See "The Offer—Conditions of the Offer." Therefore, at the time you tender your shares of Hatteras common stock pursuant to the offer, you will not know the exact market value of the stock portion of the common transaction consideration that will be issued if the Offeror accepts such shares for payment.

        See "Comparative Market Price and Dividend Matters" of this document. You are urged to obtain current market quotations for Hatteras common stock and Annaly common stock.

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Hatteras common stockholders may not receive all consideration in the form elected.

        Hatteras common stockholders electing to receive either the all-cash consideration or the all-stock consideration in the offer will be subject to proration so that approximately 65.0% of the aggregate consideration in the offer will be paid in shares of Annaly common stock, and approximately 35.0% of the aggregate consideration in the offer will be paid in cash. Similarly, Hatteras common stockholders electing to receive either the all-cash consideration or the all-stock consideration in the merger will be subject to proration so that approximately 65.0% of the aggregate consideration in the merger will be paid in shares of Annaly common stock, and approximately 35.0% of the aggregate consideration in the merger will be paid in cash. Accordingly, some of the consideration a Hatteras common stockholder receives in the offer or the merger may differ from the type of consideration selected and such difference may be significant. This may result in, among other things, tax consequences that differ from those that would have resulted if the Hatteras common stockholder had received solely the form of consideration elected. A discussion of the proration mechanism can be found under the heading "The Offer—Elections and Proration" and a discussion of the material U.S. federal income tax consequences of the offer and the merger can be found under "Material U.S. Federal Income Tax Consequences."

The offer remains subject to conditions that Annaly cannot control.

        The offer is subject to conditions, including that at least one more share than two thirds of the outstanding shares of Hatteras common stock have been validly tendered in the offer (and not validly withdrawn), receipt of required regulatory approvals, lack of legal prohibitions, no material adverse effect (with such term as defined in the merger agreement and described under the section entitled "Merger Agreement—Material Adverse Effect") having occurred with respect to Hatteras, Annaly and their respective subsidiaries, the truth and accuracy of Hatteras' and Annaly's representations and warranties made in the merger agreement, subject to specified materiality standards, Hatteras, Annaly and the Offeror being in material compliance with their covenants under the merger agreement, the listing of the shares of the Annaly common and preferred stock to be issued in the offer and the merger being authorized for listing on the NYSE, the receipt of opinions by each of Annaly and Hatteras from their respective legal counsel to the effect that the offer and the merger, taken together, will qualify as a "reorganization" within the meaning of Section 368(a) of the Code and that each of Annaly and Hatteras (as applicable) meet and, in the case of Annaly, will continue to meet after closing of the merger, the requirements for qualification as a REIT under the Code, that the management agreement is terminated, and the registration statement on Form S-4 of which this document is a part, becoming effective. There are no assurances that all of the conditions to the offer will be satisfied or that the conditions will be satisfied in the time frame expected. If the conditions to the offer are not met, then Annaly may, subject to the terms and conditions of the merger agreement, allow the offer to expire, or amend or extend the offer. See "The Offer—Conditions of the Offer" for a discussion of the conditions to the offer.

Hatteras common stockholders who receive Annaly common stock in the offer will become Annaly common stockholders. Annaly common stock may be affected by different factors and Annaly common stockholders will have different rights than Hatteras common stockholders.

        Upon consummation of the offer, Hatteras common stockholders receiving shares of Annaly common stock will become common stockholders of Annaly. Annaly's business differs from that of Hatteras, and Annaly's results of operations and the trading price of Annaly common stock may be adversely affected by factors different from those that would affect Hatteras' results of operations and stock price.

        In addition, holders of shares of Annaly common stock will have rights as Annaly common stockholders that differ from the rights they had as Hatteras common stockholders before the offer or

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the merger. For a detailed comparison of the rights of Annaly common stockholders to the rights of Hatteras common stockholders, see "Comparison of Stockholders' Rights."

The receipt of shares of Annaly common stock in the offer and/or the merger may be taxable to Hatteras common stockholders.

        The offer is contingent upon the receipt of an opinion by each of Annaly and Hatteras from their respective legal counsel to the effect that the offer and the merger, taken together, will qualify as a "reorganization" within the meaning of Section 368(a) of the Code. However, if the offer and the merger are not treated as component parts of an integrated transaction for U.S. federal income tax purposes, if the merger is not completed or if the transaction otherwise fails to qualify as a "reorganization" within the meaning of Section 368(a) of the Code, the exchange of shares of Hatteras common stock for shares of Annaly common stock in the offer and/or the merger will be taxable to such Hatteras common stockholders for U.S. federal income tax purposes.

        Hatteras common stockholders should consult their tax advisors to determine the specific tax consequences to them of the offer and the merger, including any federal, state, local, foreign or other tax consequences, and any tax return filing or other reporting requirements.

Risk Factors Relating to Annaly as the Combined Company

Annaly, as the combined company, may fail to realize all of the anticipated benefits of the merger or those benefits may take longer to realize than expected.

        The full benefits of the transactions may not be realized as expected or may not be achieved within the anticipated time-frame, or at all. Failure to achieve the anticipated benefits of the transactions could adversely affect Annaly's results of operations or cash flows, cause dilution to the earnings per share or book value per share of Annaly, decrease or delay the expected accretive effect of the transactions, and negatively impact the price of Annaly common stock.

        In addition, Annaly and Hatteras will be required to devote significant attention and resources prior to closing to prepare for the post-closing operation of Annaly, as the combined company, and Annaly will be required post-closing to devote significant attention and resources to successfully integrate the Hatteras portfolio and operating businesses into the existing Annaly structure. In particular, prior to the acquisition, Annaly will have limited experience operating Hatteras' mortgage conduit and servicing platforms and managing Hatteras' mortgage servicing rights portfolio. These businesses present additional regulatory constraints and pose operational risks different from those that Annaly has successfully managed in the past. This integration process, coupled with managing new business lines, may disrupt Annaly's businesses and, if ineffective, would limit the anticipated benefits of the merger and could adversely affect Annaly's results of operations or cash flows, cause dilution to the earnings per share or book value per share of Annaly, decrease or delay the expected accretive effect of the transactions, and negatively impact the price of Annaly common stock.

Annaly and Hatteras will incur direct and indirect costs as a result of the offer and the merger.

        Annaly and Hatteras will incur substantial expenses in connection with and as a result of completing the offer and the merger and, following the completion of the merger, Annaly expects to incur additional expenses in connection with combining the businesses, operations, policies and procedures of Annaly and Hatteras. Factors beyond Annaly's control could affect the total amount or timing of these expenses, many of which, by their nature, are difficult to estimate accurately.

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Annaly's and Hatteras' actual financial positions and results of operations may differ materially from the unaudited pro forma financial data included in this document.

        The pro forma financial information contained in this document is presented for illustrative purposes only and may differ materially from what Annaly's actual financial position or results of operations would have been had the transactions been completed on the dates indicated. The pro forma financial information has been derived from the audited and unaudited historical financial statements of Annaly and Hatteras and certain adjustments and assumptions have been made regarding Annaly, as the combined company, after giving effect to the transactions. Annaly and Hatteras use different methodologies to measure the value of assets carried at fair value on their respective balance sheets. These differing methodologies may produce different valuation results for the same or similar assets. The assets and liabilities of Hatteras that are not carried at fair value have been valued based on various preliminary estimates using assumptions that Annaly management believes are reasonable, utilizing information currently available. The process for estimating the fair value of acquired assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. These estimates may be revised as additional information becomes available and as additional analyses are performed, and Annaly has no obligation to use the same methodologies, estimates or assumptions as those currently used by Hatteras. Differences between preliminary estimates in the pro forma financial information and the final acquisition accounting will occur and could have a material impact on the pro forma financial information and the financial position and future results of operations of Annaly, as the combined company.

        In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect Annaly's financial condition or results of operations following the closing. Any potential decline in Annaly's financial condition or results of operations may cause significant variations in the share price of Annaly. See "Unaudited Pro Forma Condensed Combined Financial Data."

REITs are subject to a range of complex organizational and operational requirements.

        To qualify as a REIT, each of Annaly and Hatteras must distribute with respect to each taxable year at least 90% of its net income (excluding capital gains) to its stockholders. A REIT must also meet certain other requirements, including with respect to the nature of its income and assets, and the ownership of its stock. For any taxable year that Annaly or Hatteras fails to qualify as a REIT, it will not be allowed a deduction for dividends paid to its stockholders in computing its net taxable income and thus would become subject to U.S. federal, state and local income tax as if it were a regular taxable corporation. In such an event, Annaly or Hatteras, as the case may be, could be subject to potentially significant tax liabilities. Unless entitled to relief under certain statutory provisions, Annaly or Hatteras, as the case may be, would also be disqualified from treatment as a REIT for the four taxable years following the year in which it lost its qualification. If Annaly or Hatteras failed to qualify as a REIT, the market price of its common stock may decline, and Annaly or Hatteras, as the case may be, may need to reduce substantially the amount of distributions to its stockholders because of its increased tax liability.

Risks Related to Annaly's Business

        You should read and consider the risk factors specific to Annaly's business that will also affect Annaly, as the combined company, after the merger. These risks are described in Part I, Item 1A of Annaly's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and in other documents that are incorporated by reference into this document. See "Where To Obtain More Information" for more detail on the information incorporated by reference in this document.

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Risks Related to Hatteras' Business

        You should read and consider the risk factors specific to Hatteras' business that will also affect Annaly, as the combined company, after the merger. These risks are described in Part I, Item 1A of Hatteras' Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and in other documents that are incorporated by reference into this document. See "Where To Obtain More Information" for more detail on the information incorporated by reference in this document.

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FORWARD-LOOKING STATEMENTS

        Information both included and incorporated by reference in this document may contain forward-looking statements, concerning, among other things, Annaly's and Hatteras' outlook, financial projections and business strategies, all of which are subject to risks, uncertainties and assumptions. These forward-looking statements are identified by their use of terms such as "intend," "plan," "may," "should," "will," "anticipate," "believe," "could," "estimate," "forecast," "expect," "continue," "potential," "opportunity," "project" and similar terms. These statements are based on certain assumptions and analyses that we believe are appropriate under the circumstances. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may differ materially from those expected, estimated or projected. Management believes that these forward-looking statements are reasonable. However, we cannot guarantee that we actually will achieve these plans, intentions or expectations, including completing the offer and the merger on the terms summarized in this document. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any of them in light of new information, future events or otherwise. Factors that could have a material adverse effect on Annaly's operations and future prospects or the consummation of the offer and the merger include, but are not limited to:

•

failure to satisfy the conditions to consummate the offer and the merger;



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the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement;



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the failure of the offer or the merger to close in a timely manner or at all for any other reason;



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the amount of the costs, fees, expenses and charges related to the offer and the merger (collectively, the "transactions");



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the ability to successfully integrate Annaly and Hatteras following completion of the transactions;



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failure to realize the expected benefits of the transactions in a timely manner or at all;



•

effects of the pendency of the transactions on relationships with employees and business partners;



•

general economic and business conditions;



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global economic growth and activity;



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industry conditions;



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changes in interest rates, interest rate spreads and the yield curve;



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changes in prepayment rates;



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the availability of mortgage-backed securities and other securities for purchase;



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the availability of financing, and, if available, the terms of any financing;



•

the ability to maintain qualification as a REIT for federal income tax purposes;



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the ability to maintain an exemption from registration under the Investment Company Act of 1940, as amended;



•

changes in program requirements of Fannie Mae, Freddie Mac or Ginnie Mae;



•

the loss of governmental approvals to purchase or service mortgage loans; and



•

changes in laws or regulations.

        These risks and uncertainties, along with the risk factors discussed under "Risk Factors" in this document, should be considered in evaluating any forward-looking statements contained in this document. All forward-looking statements speak only as of the date of this document. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section.

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THE COMPANIES

Annaly

        Annaly is a leading mortgage REIT listed on the NYSE and externally managed by Annaly Management Company LLC. Since its founding in 1997, Annaly has strived to generate net income for distribution to its stockholders and preserve capital through the prudent selection and management of its investments, and since its inception has paid $14 billion in dividends to stockholders. Annaly uses its capital coupled with borrowed funds to invest in real estate related investments earning the spread between the yield on its assets and the cost of its borrowings.

        Annaly's common stock trades under the ticker symbol "NLY" on the NYSE.

        The address of Annaly's principal executive offices is 1211 Avenue of the Americas, New York, New York 10036. Annaly's telephone number is (212) 696-0100.

        Annaly also maintains an Internet site at www.annaly.com. Annaly's website and the information contained therein or connected thereto shall not be deemed to be incorporated herein, and you should not rely on any such information in making an investment decision.

Offeror

        Ridgeback Merger Sub Corporation, a Maryland corporation, is a wholly owned subsidiary of Annaly. The Offeror is newly formed, and was organized for the purpose of making the offer and consummating the merger. The Offeror has engaged in no material business activities to date and it has no material assets or liabilities of any kind, other than those incidental to its formation and those incurred in connection with the offer and the merger. The Offeror's address is c/o Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, New York 10036.

Hatteras

        Hatteras is an externally managed mortgage REIT that invests primarily in single-family residential mortgage real estate assets, such as mortgage-backed securities, mortgage servicing rights, residential mortgage loans and other financial assets. The majority of Hatteras' investments have been mortgage-backed securities issued by a U.S. government agency, such as Ginnie Mae, or by a U.S. government-sponsored enterprise, such as Fannie Mae or Freddie Mac. Hatteras was incorporated in Maryland in September 2007. Hatteras' common stock trades under the ticker symbol "HTS" on the NYSE.

        The address of Hatteras' principal executive offices is 751 West Fourth Street, Suite 400, Winston-Salem, North Carolina 27101. Hatteras' telephone number is (336) 760-9391.

        Hatteras also maintains an Internet site at www.hatfin.com. Hatteras' website and the information contained therein or connected thereto shall not be deemed to be incorporated herein, and you should not rely on any such information in making an investment decision.

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THE OFFER

General

        Annaly and the Offeror are offering, upon the terms and subject to the conditions set forth in this prospectus/offer to exchange and in the accompanying letter of election and transmittal, to exchange for each outstanding share of Hatteras common stock validly tendered and not validly withdrawn in the offer:

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$5.55 in cash; and



•

0.9894 shares of Annaly common stock, together with cash in lieu of any fractional shares of Annaly common stock.

We refer to the above as the "mixed consideration."

        In lieu of receiving the mixed consideration, each holder of shares of Hatteras common stock may elect to receive, for each share of Hatteras common stock that it holds, (1) $15.85 in cash (we refer to this election as the "all-cash election" and this amount as the "all-cash consideration") or (2) 1.5226 shares of Annaly common stock, together with cash in lieu of any fractional shares of Annaly common stock (we refer to this election as the "all-stock election" and this amount as the "all-stock consideration"). The mixed consideration, the all-cash consideration and the all-stock consideration (as applicable) will be paid without interest and less any applicable withholding taxes.

        Each Hatteras common stockholder who validly tenders and does not validly withdraw its shares of Hatteras common stock in the offer that does not make a valid election will receive the mixed consideration for their shares of Hatteras common stock. Hatteras common stockholders who make the all-cash election or the all-stock election will be subject to proration so that approximately 65.0% of the aggregate consideration in the offer will be paid in shares of Annaly common stock and approximately 35.0% of the aggregate consideration in the offer will be paid in cash. See "The Offer—Elections and Proration" for a description of the proration procedure.

        The purpose of the offer is for Annaly to acquire control of, and ultimately the entire equity interest in, Hatteras. The offer is the first step in Annaly's plan to acquire all of the outstanding shares of Hatteras common stock. If the offer is completed, Annaly intends to consummate promptly following the consummation of the offer a merger of Hatteras with and into the Offeror, with the Offeror surviving the merger under the name "Hatteras Financial Corp." (which we refer to as the "merger"). The purpose of the merger is for Annaly to acquire all of the issued and outstanding shares of Hatteras common stock that it did not acquire in the offer, as well as each issued and outstanding share of Hatteras Series A preferred stock. In the merger, each outstanding share of Hatteras common stock that was not acquired by Annaly or the Offeror will be converted into the mixed consideration or, at the election of the holder of such shares, the all-cash consideration or all-stock consideration, subject to proration so that approximately 65.0% of the aggregate consideration in the merger will be paid in shares of Annaly common stock and approximately 35.0% of the aggregate consideration in the merger will be paid in cash.

        In addition, in the merger, each outstanding share of Hatteras Series A preferred stock will be automatically converted into the right to receive one newly issued share of the Annaly Series E preferred stock, which will have rights, privileges and voting powers substantially the same as those of the Hatteras Series A preferred stock.

        After the merger, the Hatteras business will be held by the Offeror, and the former Hatteras stockholders will no longer have any direct ownership interest in the surviving corporation.

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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.

        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

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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 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.

        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

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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 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

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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 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

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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.

        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.

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        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

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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 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

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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. 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.

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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.

        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."

        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

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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

        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.

Annaly's Reasons for the Offer and the Merger

        In reaching its decision to approve the offer, the merger, the merger agreement and the other transactions contemplated by the merger agreement, Annaly's board of directors consulted with Annaly's senior management team and external manager, as well as Annaly's outside advisors, and considered a number of factors, including the following material factors (not in any relative order of importance), which it viewed as supporting its decision to approve the offer, the merger, the merger agreement and the other transactions contemplated by the merger agreement:

•

the fact that Hatteras' portfolio consists primarily of agency adjustable rate mortgage-backed securities and the expectation that these assets will be complementary to Annaly's existing portfolio, which is comprised primarily of fixed rate mortgage-backed securities;



•

the expectation that the combined company's enhanced capital base will support the continued growth of all businesses;

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•

the expectation that the acquisition would create incremental efficiency and growth opportunities;



•

the fact that the offer and merger are expected to be accretive to Annaly's common equity book value per share and core earnings;



•

the expectation that the merger and offer would further enhance Annaly's leadership position in the fragmented mortgage REIT market;



•

the amount and form of consideration to be paid in the offer and merger, including the fact that the exchange ratio and aggregate mix of consideration to be paid are fixed;



•

the view that the terms and conditions of the merger agreement and the transactions contemplated therein, including the representations, warranties, covenants, closing conditions and termination provisions, are comprehensive and favorable to completing the proposed transaction;



•

the anticipated short time period from announcement to completion achievable through the exchange offer structure and the expectation that the satisfaction of the conditions to consummation of the offer and the merger will be satisfied on a timely basis;



•

the fact that the merger agreement places limitations on Hatteras' ability to seek a superior proposal and requires Hatteras to pay Annaly a termination fee of approximately $44.95 million if Annaly or Hatteras terminates the merger agreement under certain circumstances and Hatteras consummates or enters into an agreement with respect to a competing acquisition proposal within a specified time period after termination of the merger agreement;



•

that former Hatteras common stockholders will own in the aggregate approximately 9.21% of the outstanding shares of Annaly common stock after completion of the offer and the merger;



•

the scope and results of the due diligence investigation of Hatteras conducted by Annaly management and outside advisors, and the results of that investigation;



•

current financial market conditions and forecast and the current and historical market prices, and trading information with respect to, shares of Annaly and Hatteras common stock; and



•

the recommendation of Annaly's management and external manager in favor of the offer and the merger.

        The Annaly board of directors also considered a variety of uncertainties and risks and other potentially negative factors concerning the transactions, including the following (not in any relative order of importance):

•

the risk that the acquisition of Hatteras might not be completed in a timely manner or at all and the attendant adverse consequences for Annaly's and Hatteras' businesses as a result of the pendency of the acquisition and operational disruption;



•

costs associated with the offer and the merger;



•

the risk that the offer and merger may not be consummated despite the parties' efforts or that the closing of the transactions may be unduly delayed due to regulatory processes or other factors outside of the parties' control;



•

the risks associated with the occurrence of events which may materially and adversely affect the operations or financial condition of Hatteras and its subsidiaries, which may not entitle Annaly to terminate the merger agreement;



•

the risk that the potential benefits of the acquisition may not be fully or partially achieved, or may not be achieved within the expected time frame;

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•

the challenges and difficulties relating to combining the portfolios and operations of Annaly and Hatteras;



•

the risk of diverting Annaly's management's focus and resources from other strategic opportunities and from operational matters while working to implement the transaction with Hatteras, and other potential disruption associated with combining the companies, and the potential effects of such diversion and disruption on the businesses of Annaly and Hatteras;



•

the effects of general competitive, economic, political and market conditions and fluctuations on Annaly, Hatteras or the combined company; and



•

various other risks associated with the acquisition and the businesses of Annaly, Hatteras and the combined company, some of which are described under "Risk Factors."

        The Annaly board of directors concluded that the potential negative factors associated with the acquisition were outweighed by the potential benefits that it expected Annaly to achieve as a result of the offer and the merger. Accordingly, the Annaly board of directors approved the merger agreement, the offer, the merger and the other transactions contemplated by the merger agreement.

        The foregoing discussion of the information and factors considered by the Annaly board of directors is not intended to be exhaustive, but includes the material factors considered by the Annaly board of directors. In view of the variety of factors considered in connection with its evaluation of the acquisition, the Annaly board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. In addition, individual directors may have given different weights to different factors. The Annaly board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Annaly board of directors based its determination on the totality of the information presented.

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

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special committee and the Hatteras board of directors believed supported its unanimous determination and recommendation:

•

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.



•

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:



•

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;



•

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



•

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.



•

Offer Price and Right to Participate in Annaly's Future Growth.  The Hatteras special committee and the Hatteras board of directors considered:



•

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;



•

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;



•

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;



•

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



•

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:



•

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;



•

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;



•

the potential access to additional financing resources that would not be available to Hatteras as a stand-alone company; and



•

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.



•

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 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."



•

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 section entitled "Merger Agreement." Certain provisions of the merger agreement that the Hatteras special committee and Hatteras board of directors considered important included:



•

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;



•

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 "Merger Agreement—No Solicitation of Other Offers by Hatteras");



•

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

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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 "Merger Agreement—No Solicitation of Other Offers by Hatteras");

•

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 "Merger Agreement—Termination of the Merger Agreement—Termination by Hatteras");



•

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



•

the fact that the Offeror must generally extend the offer for one or more periods until the offer conditions have been satisfied.

        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:

•

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 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;



•

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;



•

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;



•

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 "Merger Agreement—Conduct of Business Before Completion of the Merger—Restrictions on Hatteras' Operations");



•

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:



•

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;



•

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.



•

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 "The Offer—Interests of Certain Persons in the Offer and the Merger;"



•

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



•

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 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.



•

Other Risks of the Offer and the Merger.  The Hatteras special committee and the Hatteras board of directors also considered the following additional risks:



•

the substantial costs to be incurred in connection with the transaction;



•

the absence of appraisal rights for holders of Hatteras common stock under Maryland law; and



•

the risks described in the section entitled "Risk Factors".

        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

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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 "The Offer—Interests of Certain Persons in the Offer and the Merger."

Opinion of Hatteras' Financial Advisor

        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 entitled "—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 document as Annex B. The summary of Goldman Sachs' opinion contained in this document 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:

•

the merger agreement;



•

annual reports to stockholders and Annual Reports on Form 10-K of Hatteras and Annaly for the five years ended December 31, 2015;

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•

certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Hatteras and Annaly;



•

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

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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 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:

•

a premium of 11.2% to the closing price of $14.26 per Share as of April 8, 2016;

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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



•

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.

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):

•

American Capital Agency Corp.



•

Two Harbors Investment Corp.



•

New Residential Investment



•

MFA Financial Inc.



•

Chimera Investment Corp.



•

Invesco Mortgage Capital Inc.



•

CYS Investments



•

Redwood Trust Inc.



•

PennyMac Mortgage Investment



•

Capstead Mortgage Corp.



•

Armour Residential REIT

        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:

•

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



•

the implied dividend yield by annualizing the dividends paid in the most recent quarter.¹

   

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(1)

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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        The following table presents the results of these analyses:

        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:

        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:

        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

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discount rates ranging from 5.3% to 12.6%, reflecting estimates of Hatteras' cost of equity. 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 3-year dividend yield range 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 range 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%, reflecting estimates of the combined company's cost of equity. 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 3-year dividend yield range 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 range 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.

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 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.

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        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 B to this document.

        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 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.

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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.

        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. The limited unaudited prospective financial information 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

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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;



•

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;



•

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



•

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 this document 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," "Risk Factors" and "Where to Obtain More Information."

        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 (or unaudited prospective financial information presented under the heading "Annaly 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 this document relates to

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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 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.

        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.

Annaly Unaudited Prospective Financial Information

        Annaly 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

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estimates. As a result, Annaly does not endorse the unaudited prospective financial information included in this document as a reliable indication of future results.

        Annaly is including the limited unaudited prospective financial information in this document solely because it was among the financial information made available to Goldman Sachs and the Hatteras board of directors in connection with their evaluation of the offer and the merger. The limited unaudited prospective financial information presented below was not reviewed or approved by the Annaly 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 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 Annaly.

        Additionally, Annaly's future financial results may also materially differ from those expressed in the unaudited prospective financial information due to numerous factors that are beyond Annaly's, the combined company'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 Annaly's business, including with respect to future business initiatives. The assumptions underlying the unaudited prospective financial information may not prove to have been, or may no longer be, accurate.

        Annaly's 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 Annaly's business, 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 does not take into account any circumstances or events occurring after April 8, 2016, the date it was prepared, 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:

•

static interest rates through the prospective periods with no change in overall level of interest rates or shape of the yield curve;



•

no material changes in overall size of portfolio assets;



•

no material changes in leverage;



•

no material changes in portfolio net interest margins or net interest spreads; and



•

no material changes in hedge ratio or net duration measures.

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        Given the relatively static nature 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 the Offeror, Annaly, its board of directors, Goldman Sachs, Hatteras, its 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 this document titled "Risk Factors" and SEC filings of Annaly for a description of risk factors with respect to the business of Annaly. See "Forward-Looking Statements," "Risk Factors" and "Where to Obtain More Information".

        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 (or unaudited prospective financial information presented under the heading "Hatteras 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 this document relates to Annaly's historical financial information. It does not extend to the prospective financial information of Annaly 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 Annaly, the Offeror, Hatteras, 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 Annaly, and in fact Annaly 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 Hatteras' board of directors and Hatteras' financial advisor.

        The unaudited prospective financial information should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding Annaly contained in Annaly's 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

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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 table presents the limited unaudited prospective financial data with respect to Annaly that were made available to Goldman Sachs and Hatteras in connection with their evaluation of the offer and the merger:

        In addition to the information provided in the table above, in connection with Hatteras' and Goldman Sachs' evaluation of the offer and the merger, Annaly informed Goldman Sachs that, under current market conditions and subject to the assumptions and factors described herein, the consensus estimate of research analysts for Annaly's Normalized Core Income per share of $1.15 was a reasonable approximation for Annaly's prospective results for the year ended December 31, 2016.

        Normalized Core Income, as referenced above, may be considered a non-GAAP financial measure. 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.

Elections and Proration

        Hatteras common stockholders electing the mixed consideration will not be subject to proration; however, holders electing the all-cash consideration or the all-stock consideration may receive a different form of consideration than selected. Hatteras common stockholders who make the all-cash election or the all-stock election will be subject to proration so that approximately 35.0% of the aggregate consideration in the offer will be paid in cash and approximately 65.0% of the aggregate consideration in the offer will be paid in shares of Annaly common stock. Hatteras common stockholders who validly tender and do not validly withdraw their shares of Hatteras common stock in the offer but who do not make a valid election will receive the mixed consideration for their shares of Hatteras common stock. See "Consequences of Tendering with No Election" for more information.

        The number of shares of Hatteras common stock eligible to receive the all-cash consideration in the offer will be equal to 35.0% multiplied by the sum of the total number of shares making an all-cash election in the offer and the total number of shares making an all-stock election in the offer (such product is referred to as the "maximum all-cash shares in offer").

        The number of shares of Hatteras common stock eligible to receive the all-stock consideration in the offer will be equal to 65.0% multiplied by the sum of the total number of shares making an all-cash

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election in the offer and the total number of shares making an all-stock election in the offer (such product is referred to as the "maximum all-stock shares in offer").

Over-Election of Cash

        If the aggregate number of shares attributable to holders of Hatteras common stock making an all-cash election in the offer is greater than the maximum all-cash shares in offer, such shares will be subject to proration. To determine the amount of proration, an "offer cash proration factor" will apply. The "offer cash proration factor" will be equal to:

•

the maximum all-cash shares in offer



divided by

•

the aggregate number of shares of Hatteras common stock for which an all-cash election in the offer has been made.

        Proration will be calculated so that for each Hatteras common stockholder making an all-cash election, the number of shares of Hatteras common stock entitled to the all-cash consideration will be equal to the number of shares of Hatteras common stock for which such stockholder has made an all-cash election, multiplied by the offer cash proration factor (as calculated above), rounded down to the nearest share. The shares of Hatteras common stock that do not receive the all-cash consideration as a result of such proration will instead receive the all-stock consideration.

        If following proration a Hatteras common stockholder would be entitled to receive a fractional share of Annaly common stock, such stockholder will instead receive an amount in cash (without interest) equal to the amount of such fraction multiplied by the volume weighted average closing sale price per share of Annaly common stock as reported on the NYSE for the 10 consecutive trading days ending on and including the trading day prior to the acceptance time.

Over-Election of Cash Example

        For purposes of this example, assume the following:

•

there are 100,000,000 outstanding shares of Hatteras common stock;



•

Hatteras stockholders make a mixed election with respect to 50,000,000 (or 50%) shares of Hatteras common stock;



•

Hatteras stockholders make the all-cash election with respect to 30,000,000 (or 30%) shares of Hatteras common stock;



•

Hatteras stockholders make the all-stock election with respect to 20,000,000 (or 20%) shares of Hatteras common stock; and



•

The 10-day volume weighted average closing sale price per share of Annaly common stock as reported on the NYSE for the 10 consecutive trading days ending on and including the trading day prior to the acceptance time is $10.41 per share.

        In this example, without proration, there would be an over-election of cash because the number of shares of Hatteras common stock making the all-cash election is 30,000,000, which is greater than 17,500,000, which is the maximum all-cash shares in offer (calculated as follows: 0.35 × (30,000,000 + 20,000,000)). To adjust for the over-election, the number of shares of Hatteras common stock making the all-cash election will be multiplied by the offer cash proration factor of 0.5833, with the resulting number of shares rounded down to the nearest share. The offer cash proration factor is calculated by dividing 17,500,000 (which is the maximum all-cash shares in offer) by

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30,000,000 (which is the aggregate number of shares of Hatteras common stock making an all-cash election in the offer).

        In this example, a Hatteras stockholder who makes an all-cash election for 100 shares of Hatteras common stock would be entitled to receive the all-cash consideration for 58 of those shares (calculated as follows: 100 shares × 0.5833 offer cash proration factor, rounded down to the nearest share), and the all-stock consideration for the remaining 42 of those shares. This equates to $919.30 in cash (calculated as follows: 58 shares × $15.85 all-cash consideration per share) plus 63.9492 shares of Annaly common stock (calculated as follows: 42 shares × 1.5226 shares of Annaly common stock, the all-stock consideration per share). Because fractional shares of Annaly common stock will be converted to cash, the number of actual shares of Annaly common stock such holder would be entitled to receive would be 63, with the additional 0.9492 shares of Annaly common stock converted into $9.88 in cash (calculated as follows: 0.9492 × $10.41).

        See "Risk Factors—Risk Factors Relating to the Offer and the Merger—Hatteras common stockholders may not receive all consideration in the form elected."

Over-Election of Stock

        If the aggregate number of shares attributable to holders of Hatteras common stock making an all-stock election in the offer is greater than the maximum all-stock shares in offer, such shares will be subject to proration. To determine the amount of proration, an "offer stock proration factor" will apply. The "offer stock proration factor" will be equal to:

•

the maximum all-stock shares in offer



divided by

•

the aggregate number of shares of Hatteras common stock for which an all-stock election in the offer has been made.

        Proration will be calculated so that for each Hatteras common stockholder making an all-stock election, the number of shares of Hatteras common stock entitled to the all-stock consideration will be equal to the number of shares of Hatteras common stock for which such stockholder has made an all-stock election, multiplied by the offer stock proration factor (as calculated above), rounded down to the nearest share. The shares of Hatteras common stock that do not receive the all-stock consideration as a result of proration will instead receive the all-cash consideration.

        If following proration a Hatteras common stockholder would be entitled to receive a fractional share of Annaly common stock, such stockholder will instead receive an amount in cash (without interest) equal to the amount of such fraction multiplied by the volume weighted average closing sale price per share of Annaly common stock as reported on the NYSE for the 10 consecutive trading days ending on and including the trading day prior to the acceptance time.

Over-Election of Stock Example

        For purposes of this example, assume the following:

•

there are 100,000,000 outstanding shares of Hatteras common stock;



•

Hatteras stockholders make the mixed election with respect to 20,000,000 (or 20%) shares of Hatteras common stock;



•

Hatteras stockholders make the all-cash election with respect to 10,000,000 (or 10%) shares of Hatteras common stock;

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•

Hatteras stockholders make the all-stock election with respect to 70,000,000 (or 70%) shares of Hatteras common stock; and



•

The 10-day volume weighted average closing sale price per share of Annaly common stock as reported on the NYSE for the 10 consecutive trading days ending on and including the trading day prior to the acceptance time is $10.41 per share.

        In this example, without proration, there would be an over-election of stock because the number of shares of Hatteras common stock making the all-stock election is 70,000,000, which is greater than 52,000,000, which is the maximum all-stock shares in offer (calculated as follows: 0.65 × (10,000,000 + 70,000,000)). To adjust for the over-election, the number of shares of Hatteras common stock making the all-stock election will be multiplied by the offer stock proration factor of 0.7429, with the resulting number of shares rounded down to the nearest share. The offer stock proration factor is calculated by dividing 52,000,000 (which is the maximum all-stock shares in offer) by 70,000,000 (which is the aggregate number of shares of Hatteras common stock making an all-stock election in the offer).

        In this example, a Hatteras stockholder who makes an all-stock election for 100 shares of Hatteras common stock would be entitled to receive the all-stock consideration for 74 of those shares (calculated as follows: 100 shares × 0.7429 offer stock proration factor, rounded down to the nearest share), and the all-cash consideration for the remaining 26 of those shares. This equates to $412.10 in cash (calculated as follows: 26 shares × $15.85 all-cash consideration per share) plus 112.6724 shares of Annaly common stock (calculated as follows: 74 shares × 1.5226 shares of Annaly common stock, the all-stock consideration per share). Because fractional shares of Annaly common stock will be converted to cash, the number of actual shares of Annaly common stock such holder would be entitled to receive would be 112, with the additional 0.6724 shares converted into $7.00 in cash (calculated as follows: 0.6724 × $10.41).

        See "Risk Factors—Risk Factors Relating to the Offer and Merger—Hatteras common stockholders may not receive all consideration in the form elected."

Consequences of Tendering with No Election

        Hatteras common stockholders who validly tender and do not validly withdraw their shares of Hatteras common stock in the offer that do not make an election will be deemed to have elected to receive the mixed consideration.

Distribution of Offering Materials

        This document, the related letter of election and transmittal and other relevant materials will be delivered to record holders of shares of Hatteras common stock and to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on Hatteras' stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, so that they can in turn send these materials to beneficial owners of shares of Hatteras common stock.

Expiration of the Offer

        The offer is scheduled to expire at 5:00 p.m., Eastern Time, on July 11, 2016, unless further extended or terminated. "Expiration date" means 5:00 p.m., Eastern Time, on July 11, 2016, unless and until the Offeror has extended or terminated the period during which the offer is open, subject to the terms and conditions of the merger agreement, in which event the term "expiration date" means the latest time and date at which the offer, as so extended by the Offeror, will expire.

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Extension, Termination and Amendment

        Subject to the provisions of the merger agreement and the applicable rules and regulations of the SEC, and unless Hatteras consents otherwise or the merger agreement is otherwise terminated, the Offeror must (1) extend the offer for one or more successive periods of up to 10 business days each in order to further seek to satisfy the conditions to the offer in the event that any of the conditions to the offer (other than the minimum tender condition) have not been satisfied or validly waived as of any then-scheduled expiration of the offer, (2) extend the offer for up to two successive periods of up to 10 business days if each of the offer conditions (other than the minimum tender condition) has been satisfied or validly waived and the minimum tender condition has not been satisfied as of the scheduled expiration of the offer, and Hatteras requests that the Offeror so extend the offer, and (3) extend the offer for the minimum period required by any rule, regulation, interpretation or position of the SEC or its staff or NYSE which is applicable to the offer or the merger or to the extent necessary to resolve any comments of the SEC or its staff applicable to the offer, the merger, the Schedule TO or the related offer documents. However, the Offeror is not required to extend the offer beyond the outside date.

        The merger agreement prohibits the Offeror and Annaly from making certain changes to the offer or waiving certain conditions to the offer without the express written consent of Hatteras. Changes to the offer that require the express written consent of Hatteras include changes (i) to the terms or conditions to the offer that change the form of consideration to be paid in the offer, (ii) that decrease the consideration in the offer or the number of shares sought in the offer, (iii) that extend the offer (other than extensions required by law or SEC or NYSE regulation, extensions of up to 10 business days each if either any of the conditions to the offer (other than the minimum tender condition) have not been satisfied or validly waived as of the then-scheduled expiration date of the offer in order to seek the satisfaction of such conditions, or all of the conditions (other than the minimum tender condition) have been satisfied or validly waived as of the then-scheduled expiration date of the offer in order to seek the satisfaction of the minimum tender condition, and extensions for any period necessary to meet the notice requirements for a short form merger pursuant to Section 3-106.1(e)(1) of the MGCL), (iv) that impose conditions in the offer not included in the merger agreement, or (v) that amend or modify any other terms or conditions of the offer in a manner adverse to Hatteras common stockholders. Conditions to the offer that the Offeror and Annaly may not waive without the express written consent of Hatteras include (i) the minimum tender condition, (ii) effectiveness of the registration statement on Form S-4 of which this document is a part, (iii) there not having occurred a material adverse effect (with such term as defined in the merger agreement and described under "Merger Agreement—Material Adverse Effect") with respect to Annaly, (iv) the accuracy of Annaly's representations and warranties, (v) Annaly and the Offeror's compliance with covenants under the merger agreement, (vi) the approval for listing on the NYSE of the shares of Annaly common and preferred stock to be issued in the offer and the merger, (vii) lack of legal prohibitions, (viii) the receipt of an opinion by Hatteras from its legal counsel to the effect that the offer and the merger, taken together, will qualify as a "reorganization" within the meaning of Section 368(a) of the Code, and (ix) the receipt of a written opinion by Hatteras from Annaly's legal counsel to the effect that Annaly since inception has and through the expiration date of the offer meets the requirements for REIT qualification under the Code, and that the proposed method of operation of Annaly will enable Annaly to continue to meet the requirements for qualification as a REIT under the Code.

        The Offeror will effect any extension, termination, amendment or delay by giving oral or written notice to the exchange agent and by making a public announcement as promptly as practicable thereafter. In the case of an extension, any such announcement will be issued no later than 9:00 a.m., Eastern Time, on the next business day following the previously scheduled expiration date. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the offer

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be promptly disseminated to stockholders in a manner reasonably designed to inform them of such change) and without limiting the manner in which the Offeror may choose to make any public announcement, the Offeror assumes no obligation to publish, advertise or otherwise communicate any such public announcement of this type other than by issuing a press release.

        If the Offeror materially changes the terms of the offer or the information concerning the offer, or if the Offeror waives a material condition of the offer, the Offeror will extend the offer to the extent legally required under the Exchange Act. If, prior to the expiration date, the Offeror changes the percentage of shares being sought or the consideration offered, that change will apply to all Hatteras common stockholders whose shares are accepted for exchange pursuant to the offer. If, at the time notice of that change is first published, sent or given to Hatteras common stockholders, the offer is scheduled to expire at any time earlier than the 10^th business day from and including the date that such notice is first so published, sent or given, the Offeror will extend the offer until the expiration of that 10 business day period. For purposes of the offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern Time.

        No subsequent offering period will be available after the offer.

Exchange of Shares; Delivery of Cash and Annaly Shares

        Annaly has retained Computershare as the depositary and exchange agent for the offer and the merger (the "exchange agent") to handle the exchange of shares for the common transaction consideration in each of the offer and the merger. In addition, the exchange agent will handle the exchange of shares of Hatteras Series A preferred stock for the shares of Annaly Series E preferred stock.

        Upon the terms and subject to the satisfaction or waiver of the conditions of the offer (including, if the offer is extended or amended, the terms and conditions of any such extension or amendment), the Offeror will accept for exchange, and will exchange, shares validly tendered and not validly withdrawn promptly after the expiration date. In all cases, a Hatteras stockholder will receive consideration for tendered shares of Hatteras common stock only after timely receipt by the exchange agent of certificates for those shares, or a confirmation of a book-entry transfer of those shares into the exchange agent's account at The Depository Trust Company ("DTC"), a properly completed and duly executed letter of election and transmittal, or an agent's message in connection with a book-entry transfer, and any other required documents.

        For purposes of the offer, the Offeror will be deemed to have accepted for exchange shares validly tendered and not validly withdrawn if and when it notifies the exchange agent of its acceptance of those shares pursuant to the offer. The exchange agent will deliver to the applicable Hatteras common stockholders any cash and shares of Annaly common stock issuable in exchange for shares validly tendered and accepted pursuant to the offer promptly after receipt of such notice. The exchange agent will act as the agent for tendering Hatteras common stockholders for the purpose of receiving cash and shares of Annaly common stock from the Offeror and transmitting such cash and stock to the tendering Hatteras common stockholders. Hatteras common stockholders will not receive any interest on any cash that the Offeror pays in the offer, even if there is a delay in making the exchange.

        If the Offeror does not accept any tendered shares of Hatteras common stock for exchange pursuant to the terms and conditions of the offer for any reason, or if certificates are submitted representing more shares than are tendered for, the Offeror will return certificates for such unexchanged shares without expense to the tendering stockholder or, in the case of shares tendered by book-entry transfer into the exchange agent's account at DTC pursuant to the procedures set forth below in "—Procedure for Tendering," the shares to be returned will be credited to an account maintained with DTC as soon as practicable following expiration or termination of the offer.

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Withdrawal Rights

        Hatteras common stockholders can withdraw tendered shares of Hatteras common stock at any time until the expiration date and, if the Offeror has not agreed to accept the shares for exchange on or prior to July 5, 2016, Hatteras common stockholders can thereafter withdraw their shares from tender at any time after such date until the Offeror accepts shares for exchange.

        For the withdrawal of shares to be effective, the exchange agent must receive a written notice of withdrawal from the Hatteras stockholder at one of the addresses set forth elsewhere in this document, prior to the expiration date. The notice must include the Hatteras stockholder's name, address, social security number, the certificate number(s), the number of shares to be withdrawn and the name of the registered holder, if it is different from that of the person who tendered those shares, and any other information required pursuant to the offer or the procedures of DTC, if applicable.

        A financial institution must guarantee all signatures on the notice of withdrawal, unless the shares to be withdrawn were tendered for the account of an eligible institution. Most banks, savings and loan associations and brokerage houses are able to provide signature guarantees. An "eligible institution" is a financial institution that is a participant in the Securities Transfer Agents Medallion Program.

        If shares have been tendered pursuant to the procedures for book-entry transfer discussed under the section entitled "—Procedure for Tendering," any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn shares and must otherwise comply with DTC's procedures. If certificates have been delivered or otherwise identified to the exchange agent, the name of the registered holder and the serial numbers of the particular certificates evidencing the shares withdrawn must also be furnished to the exchange agent, as stated above, prior to the physical release of such certificates.

        The Offeror will decide all questions as to the form and validity (including time of receipt) of any notice of withdrawal in its sole discretion, and its decision will be final and binding to the fullest extent permitted by law, subject to the rights of holders of shares of Hatteras common stock to challenge such decision in a court of competent jurisdiction. None of the Offeror, Annaly, Hatteras, the exchange agent, the information agent or any other person is under any duty to give notification of any defects or irregularities in any tender or notice of withdrawal or will incur any liability for failure to give any such notification. Any shares validly withdrawn will be deemed not to have been validly tendered for purposes of the offer. However, a Hatteras stockholder may re-tender withdrawn shares by following the applicable procedures discussed under the section "—Procedure for Tendering" at any time prior to the expiration date.

Procedure for Tendering

        For a Hatteras common stockholder to validly tender shares of Hatteras common stock held of record pursuant to the offer, a Hatteras common stockholder must:

•

if such shares are in certificated form, deliver to the exchange agent a properly completed and duly executed letter of election and transmittal, along with any required signature guarantees and any other documents required by the letter of election and transmittal, and certificates for tendered shares of Hatteras common stock held in certificate form, at one of its addresses set forth elsewhere in this document before the expiration date; or



•

if such shares are in electronic book-entry form, deliver an agent's message in connection with a book-entry transfer, and any other required documents, to the exchange agent at its address set forth elsewhere in this document and follow the other procedures for book-entry tender set forth herein, all of which must be received by the exchange agent prior to the expiration date.

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        If shares of Hatteras common stock are held in "street name" (i.e., through a broker, dealer, commercial bank, trust company or other nominee), those shares may be tendered by the nominee holding such shares by book-entry transfer through DTC. To validly tender such shares held in street name, Hatteras common stockholders should instruct such nominee to do so prior to the expiration date.

        The term "agent's message" means a message transmitted by DTC to, and received by, the exchange agent and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the DTC participant tendering the shares that are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the terms of the letter of election and transmittal and that the Offeror may enforce that agreement against such participant.

        The exchange agent has established an account with respect to the shares at DTC in connection with the offer, and any financial institution that is a participant in DTC may make book-entry delivery of shares by causing DTC to transfer such shares prior to the expiration date into the exchange agent's account in accordance with DTC's procedure for such transfer. However, although delivery of shares may be effected through book-entry transfer at DTC, the letter of election and transmittal with any required signature guarantees, or an agent's message, along with any other required documents, must, in any case, be received by the exchange agent at one of its addresses set forth on the back cover of this document prior to the expiration date. The Offeror cannot assure Hatteras common stockholders that book-entry delivery of shares will be available. If book-entry delivery is not available, Hatteras common stockholders must tender shares by means of delivery of Hatteras share certificates. We are not providing for guaranteed delivery procedures and, therefore, you must allow sufficient time for the necessary tender procedures to be completed during normal business hours of DTC prior to the expiration date. Tenders received by the exchange agent after the expiration date will be disregarded and of no effect.

        Signatures on all letters of election and transmittal must be guaranteed by an eligible institution, except in cases in which shares are tendered either by a registered holder of shares who has not completed the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" on the letter of election and transmittal or for the account of an eligible institution.

        If the certificates for shares are registered in the name of a person other than the person who signs the letter of election and transmittal, or if certificates for unexchanged shares are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates, with the signature(s) on the certificates or stock powers guaranteed by an eligible institution.

        The method of delivery of Hatteras share certificates and all other required documents, including delivery through DTC, is at the option and risk of the tendering Hatteras stockholder, and delivery will be deemed made only when actually received by the exchange agent. If delivery is by mail, the Offeror recommends registered mail with return receipt requested and properly insured. In all cases, Hatteras stockholders should allow sufficient time to ensure timely delivery.

        To prevent U.S. federal backup withholding, each Hatteras stockholder that is a U.S. person (as defined in the Code), other than a stockholder exempt from backup withholding, must provide the exchange agent with its correct taxpayer identification number and certify that it is not subject to backup withholding of U.S. federal income tax by completing the Internal Revenue Service ("IRS") Form W-9 included in the letter of election and transmittal. Certain stockholders (including, among others, certain foreign persons) are not subject to these backup withholding requirements. In order for a Hatteras stockholder that is a foreign person to qualify as an exempt recipient for purposes of U.S. federal backup withholding, the stockholder must submit an IRS Form W-8BEN or IRS

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Form W-8BEN-E, as applicable, or other applicable IRS Form W-8, signed under penalties of perjury, attesting to such person's exempt status. In addition, Hatteras stockholders that are foreign persons may be subject to U.S. federal withholding tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) with respect to cash received pursuant to the offer and/or the merger. See the discussion under "Material U.S. Federal Income Tax Consequences."

        The tender of shares pursuant to any of the procedures described above will constitute a binding agreement between the Offeror and the tendering Hatteras stockholder upon the terms and subject to the satisfaction or waiver of the conditions of the offer (including, if the offer is extended or amended, the terms and conditions of any such extension or amendment).

No Guaranteed Delivery

        We are not providing for guaranteed delivery procedures and, therefore, Hatteras common stockholders must allow sufficient time for the necessary tender procedures to be completed during normal business hours of DTC prior to the expiration date. Hatteras common stockholders must tender their shares of Hatteras common stock in accordance with the procedures set forth in this document. In all cases, the Offeror will exchange shares tendered and accepted for exchange pursuant to the offer only after timely receipt by the exchange agent of certificates for shares (or timely confirmation of a book-entry transfer of such shares into the exchange agent's account at DTC as described above), a properly completed and duly executed letter of election and transmittal (or an agent's message in connection with a book-entry transfer) and any other required documents.

Grant of Proxy

        By executing a letter of election and transmittal as set forth above, a Hatteras stockholder irrevocably appoints the Offeror's designees as such Hatteras stockholder's attorneys-in-fact and proxies, each with full power of substitution, to the full extent of such stockholder's rights with respect to its shares tendered and accepted for exchange by the Offeror and with respect to any and all other shares and other securities issued or issuable in respect of those shares on or after the expiration date. That appointment is effective, and voting rights will be affected, when and only to the extent that the Offeror accepts tendered shares of Hatteras common stock for exchange pursuant to the offer and deposits with the exchange agent the cash consideration or the shares of Annaly common stock consideration for such shares. All such proxies will be considered coupled with an interest in the tendered shares of Hatteras common stock and therefore will not be revocable. Upon the effectiveness of such appointment, all prior proxies that the Hatteras stockholder has given will be revoked, and such stockholder may not give any subsequent proxies (and, if given, they will not be deemed effective). The Offeror's designees will, with respect to the shares for which the appointment is effective, be empowered, among other things, to exercise all of such stockholder's voting and other rights as they, in their sole discretion, deem proper at any annual, special or adjourned meeting of the Hatteras' stockholders or otherwise.

        The Offeror reserves the right to require that, in order for shares to be deemed validly tendered, immediately upon the exchange of such shares, the Offeror must be able to exercise full voting rights with respect to such shares. However, prior to acceptance for exchange by the Offeror in accordance with terms of the offer, the appointment will not be effective, and the Offeror will have no voting rights as a result of the tender of shares.

Fees and Commissions

        Tendering registered Hatteras stockholders who tender shares directly to the exchange agent will not be obligated to pay any charges or expenses of the exchange agent or any brokerage commissions. Tendering Hatteras stockholders who hold Hatteras shares through a broker or bank should consult that institution as to whether or not such institution will charge the stockholder any service fees in

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connection with tendering shares pursuant to the offer. Except as set forth in the instructions to the letter of election and transmittal, transfer taxes on the exchange of shares pursuant to the offer will be paid by the Offeror.

Matters Concerning Validity and Eligibility

        The Offeror will determine questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of shares, in its sole discretion, and its determination will be final and binding to the fullest extent permitted by law, subject to the rights of holders of shares of Hatteras common stock to challenge such determination in a court of competent jurisdiction. The Offeror reserves the absolute right to reject any and all tenders of shares that it determines are not in the proper form or the acceptance of or exchange for which may be unlawful. The Offeror also reserves the absolute right to waive any defect or irregularity in the tender of any shares. No tender of shares will be deemed to have been validly made until all defects and irregularities in tenders of such shares have been cured or waived. None of the Offeror, Annaly, Hatteras the exchange agent, the information agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any shares or will incur any liability for failure to give any such notification. The Offeror's interpretation of the terms and conditions of the offer (including the letter of election and transmittal and instructions thereto) will be final and binding to the fullest extent permitted by law.

        Hatteras common stockholders who have any questions about the procedure for tendering shares in the offer should contact the information agent at the address and telephone number set forth elsewhere in this document.

Announcement of Results of the Offer

        Annaly will announce the final results of the offer, including whether all of the conditions to the offer have been satisfied or waived and whether the Offeror will accept the tendered shares of Hatteras common stock for exchange, as promptly as practicable following the expiration date. The announcement will be made by a press release in accordance with applicable securities laws and stock exchange requirements.

Ownership of Annaly Common Stock After the Offer and the Merger

        It is estimated that former common stockholders of Hatteras will own in the aggregate approximately 9.21% of the outstanding shares of common stock of Annaly immediately following the consummation of the offer and the merger, assuming that:

•

Annaly acquires through the offer and the merger 100% of the outstanding shares of Hatteras common stock;



•

Annaly issues 93,856,396 shares of Annaly common stock as part of the consideration in the offer and the merger; and



•

immediately following completion of the offer and the merger, there are 1,018,709,529 shares of Annaly common stock outstanding (calculated by adding 924,853,133, the number of shares of Annaly common stock outstanding as of April 10, 2016, plus 93,856,396, the number of shares of Annaly common stock estimated to be issued as part of the offer and merger consideration).

Purpose of the Offer and the Merger; Dissenters' Rights

Purpose of the Offer and the Merger

        The purpose of the offer is for Annaly to acquire control of, and ultimately the entire equity interest in, Hatteras. The offer, as the first step in the acquisition of Hatteras, is intended to facilitate the acquisition of Hatteras. The purpose of the merger is for Annaly to acquire all outstanding shares

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of Hatteras common stock not tendered pursuant to the offer, as well as to acquire each issued and outstanding share of Hatteras Series A preferred stock. If the offer is successful, Annaly intends to consummate the merger promptly after the consummation of the offer. After the merger, the Hatteras business will be held in a wholly owned subsidiary of Annaly, and the former Hatteras stockholders will no longer have any direct ownership interest in the surviving corporation.

No Stockholder Approval

        If the offer is consummated, Annaly is not required to and will not seek the approval of Hatteras' remaining public stockholders before effecting the merger. Section 3-106.1 of the MGCL provides that following consummation of a successful tender offer for any and all of the outstanding shares of the target corporation, and subject to certain other statutory requirements, if the acquiring corporation owns at least the percentage of the shares, and of each class or series of the shares, of the target corporation that would otherwise be required to approve a merger involving the target corporation, and the other stockholders receive the same consideration for their stock in the merger as was payable in the tender offer, the acquiring corporation can effect a merger without the action of the other stockholders of the target corporation. Accordingly, if Annaly consummates the offer, it intends to effect the closing of the merger without a vote of the Hatteras stockholders in accordance with Section 3-106.1 of the MGCL.

No Rights of Objecting Stockholders

        Pursuant to Hatteras' charter, no appraisal rights, rights of objecting stockholders or dissenters' rights are available to Hatteras stockholders in connection with the offer or the merger.

"Going Private" Transactions

        The SEC has adopted Rule 13e-3 under the Exchange Act, which is applicable to certain "going private" transactions, and which may under certain circumstances be applicable to the merger or another business combination following the purchase of shares pursuant to the offer in which the Offeror seeks to acquire the remaining shares not held by it. The Offeror believes that Rule 13e-3 will not be applicable to the merger because it is anticipated that the merger will be effected within one year following the consummation of the offer and, in the merger, stockholders will receive the same consideration as that paid in the offer.

Plans for Hatteras

        In connection with the offer, Annaly has reviewed and will continue to review various possible business strategies that it might consider in the event that the Offeror acquires control of Hatteras, whether pursuant to the offer, the merger or otherwise. Following a review of additional information regarding Hatteras, these changes could include, among other things, changes in Hatteras' business, operations, personnel, employee benefit plans, corporate structure, capitalization and management.

Delisting and Termination of Registration

        If Hatteras qualifies for termination of registration under the Exchange Act after the offer is consummated, Annaly intends to seek to have Hatteras withdraw the Hatteras common stock and preferred stock from listing on the NYSE and to terminate the registration of Hatteras common stock and preferred stock under the Exchange Act. See "—Effect of the Offer on the Market for Hatteras Shares; NYSE Listing; Registration Under the Exchange Act; Margin Regulations."

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Board of Directors and Management

        Upon consummation of the merger, the directors and officers of the Offeror immediately prior to the merger will be the directors and officers of the surviving corporation from and after the effective time of the merger.

Effect of the Offer on the Market for the Hatteras Shares; NYSE Listing; Registration Under the Exchange Act; Margin Regulations

Effect of the Offer on the Market for Hatteras Shares

        If the offer is successful, there will be no market for the Hatteras common stock because the Offeror intends to consummate the merger promptly following the consummation of the offer.

NYSE Listing

        The Hatteras common stock and the Hatteras Series A preferred stock are currently listed on the NYSE. Immediately following the consummation of the merger (which is expected to occur promptly following the consummation of the offer), the Hatteras common stock and the Hatteras Series A preferred stock will no longer meet the requirements for continued listing on the NYSE because the only stockholder of the surviving corporation will be Annaly. The NYSE requires, among other things, that any listed shares have at least 400 total stockholders. Immediately following the consummation of the merger, Annaly expects to cause the delisting of the Hatteras common stock and preferred stock from the NYSE.

Margin Regulations

        The shares of Hatteras common stock are currently "margin securities" under the Regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which designation has the effect, among other effects, of allowing brokers to extend credit on the collateral of shares of Hatteras common stock. Depending upon factors similar to those described above regarding the market for Hatteras common stock and stock listing, it is possible that, following the offer, the shares of Hatteras common stock would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and, therefore, could no longer be used as collateral for loans made by brokers.

Registration under the Exchange Act

        The Hatteras common stock and preferred stock are currently registered under the Exchange Act. Such registration may be terminated upon application by Hatteras to the SEC if Hatteras shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of Hatteras shares under the Exchange Act would substantially reduce the information required to be furnished by Hatteras to its stockholders and to the SEC and would make certain provisions of the Exchange Act no longer applicable to Hatteras, such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in connection with meetings of stockholders and the related requirement of furnishing an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, the ability of "affiliates" of Hatteras and persons holding "restricted securities" of Hatteras to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act may be impaired. If registration of Hatteras shares under the Exchange Act were terminated, Hatteras shares would no longer be "margin securities" or be eligible for listing on the NYSE as described above. After consummation of the offer and the merger, Annaly and the Offeror currently intend to cause Hatteras to terminate the

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registration of Hatteras shares under the Exchange Act as soon as the requirements for termination of registration are met.

Conditions of the Offer

        Notwithstanding any other provisions of the offer and in addition to the Offeror's rights to extend, amend or terminate the offer in accordance with the terms and conditions of the merger agreement, the Offeror and Annaly are not required to accept for exchange or, subject to any applicable rules and regulations of the SEC (including Rule 14e-1(c) under the Exchange Act), exchange the common transaction consideration for any tendered shares of Hatteras common stock, if at any expiration of the offer any of the following conditions have not been satisfied or waived:

•

Minimum Tender Condition—Hatteras stockholders having validly tendered and not validly withdrawn in accordance with the terms of the offer and prior to the expiration of the offer a number of shares of Hatteras common stock that, together with any shares of Hatteras common stock then owned by Annaly and the Offeror, represents at least one share more than two-thirds of the then-outstanding shares of Hatteras common stock at any expiration of the offer.



•

Effectiveness of Form S-4—The registration statement on Form S-4, of which this document is a part, having become effective under the Securities Act, and must not be the subject of any stop order or proceeding seeking a stop order, at any expiration of the offer;



•

No Hatteras Material Adverse Effect—There not having occurred any change, effect, development, circumstance, condition, state of facts, event or occurrence after the date of the merger agreement that would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Hatteras (with such term as defined in the merger agreement and described under "Merger Agreement—Material Adverse Effect");



•

No Annaly Material Adverse Effect—There not having occurred change, effect, development, circumstance, condition, state of facts, event or occurrence after the date of the merger agreement that would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Annaly (with such term as defined in the merger agreement and described under "Merger Agreement—Material Adverse Effect");



•

Accuracy of Hatteras' Representations and Warranties—The representations and warranties of Hatteras contained in the merger agreement must be true and correct as of the expiration of the offer as though made on and as of the expiration of the offer (except for representations and warranties that by their terms speak specifically as of the date of the merger agreement or another date, in which case as of such date), except where the failure of such representations and warranties to be true and correct (without giving effect to any qualification as to materiality or material adverse effect) have not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Hatteras (with such term as defined in the merger agreement and described under "Merger Agreement—Material Adverse Effect"); provided that (1) Hatteras' representations and warranties related to its organization, qualification and existence, that no dissenters' or appraisal rights will be available to holders of shares of Hatteras common or preferred stock in the merger, Hatteras' authority to enter into the merger agreement, that no approval of the merger is required by Hatteras common or preferred stockholders, enforceability of the merger agreement, undisclosed liabilities, that no material adverse effect on Hatteras (with such term as defined in the merger agreement and described under "Merger Agreement—Material Adverse Effect") having occurred from December 31, 2015 through April 10, 2016 (the date of the merger agreement), its qualification as a REIT under the Code, state takeover statutes, its exemption under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and brokers must be true and correct in all respects, (2) Hatteras' representations and warranties related to its

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subsidiaries, equity awards schedule, voting debt or other agreements, and the opinion of its financial advisor must be true and correct in all material respects, and (3) Hatteras' representations and warranties related to its capitalization must be true and correct in all respects, except for any de minimis exceptions;

•

Hatteras' Compliance with Covenants—Hatteras must have in all material respects performed or complied with the obligations, agreements and covenants required to be performed or complied with by it under the merger agreement at or prior to the expiration of the offer;



•

Accuracy of Annaly's and the Offeror's Representations and Warranties—The representations and warranties of Annaly and the Offeror contained in the merger agreement must be true and correct as of the expiration of the offer as though made on and as of the expiration of the offer (except for representations and warranties that by their terms speak specifically as of the date of the merger agreement or another date, in which case as of such date), except where the failure of such representations and warranties to be true and correct (without giving effect to any qualification as to materiality or material adverse effect) have not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Annaly (with such term as defined in the merger agreement and described under "Merger Agreement—Material Adverse Effect"); provided that (1) Annaly's representations and warranties related to existence, authority to enter into the merger agreement, enforceability of the merger agreement, undisclosed liabilities, that no material adverse effect on Annaly (with such term as defined in the merger agreement and described under "Merger Agreement—Material Adverse Effect") having occurred from December 31, 2015 through April 10, 2016 (the date of the merger agreement), its qualification as a REIT under the Code, and its exemption under the Investment Company Act must be true and correct in all respects, (2) Annaly's representations and warranties related to the ownership of subsidiary shares, certain outstanding securities and voting agreements must be true and correct in all material respects, and (3) Annaly's representations related to its capitalization and voting debt must be true and correct in all respects, except for any di minimis exceptions;



•

Annaly's and Offeror's Compliance with Covenants—Annaly and the Offeror must have in all material respects performed or complied with the agreements or covenants required to be performed or complied with by them under the merger agreement on or prior to the expiration of the offer;



•

Listing of Annaly Common Stock and Annaly Preferred Stock—The shares of Annaly common stock to be issued in the offer and the merger and the shares of Annaly Series E preferred stock to be issued in the merger having been approved for listing on the NYSE, subject to official notice of issuance;



•

No Legal Prohibition—No law, order or injunction restraining or enjoining or otherwise prohibiting the consummation of the offer or the merger must have been enacted, issued, promulgated or granted by a governmental entity of competent jurisdiction;



•

Management Agreement Termination—The Hatteras management agreement must have been terminated in accordance with the terms of the amendment to the Hatteras management agreement entered into on April 10, 2016;



•

Regulatory Approvals—The required approvals of certain governmental authorities and Fannie Mae and Ginnie Mae must have been obtained at or prior to the expiration of the offer and Freddie Mac must not have notified Annaly and Hatteras of any objection to the change of control that would occur as a result of the completion of the offer;



•

Hatteras Transaction Tax Opinion—Hatteras must have received an opinion of DLA Piper LLP (US), counsel to Hatteras, in form and substance reasonably satisfactory to Hatteras, dated as of

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the date of the expiration of the offer, to the effect that, based on facts, representations and assumptions described or referred to in such opinion, the offer and the merger, taken together, will qualify as a "reorganization" within the meaning of Section 368(a) of the Code;

•

REIT Tax Opinion with Respect to Annaly—Hatteras shall have received a written opinion of K&L Gates LLP, tax counsel to Annaly, in form and substance reasonably satisfactory to Hatteras, dated as of the date of the expiration of the offer, to the effect that, based on facts, representations and assumptions described or referred to in such opinion, at all times since the taxable year ended December 31, 1997 and through the date of the expiration of the offer, Annaly has been organized and operated in conformity with the requirements for qualification as a REIT under the Code, and the proposed method of operation of Annaly will enable Annaly to continue to meet the requirements for qualification as a REIT under the Code;



•

Annaly Transaction Tax Opinion—Annaly must have received an opinion of Wachtell, Lipton, Rosen & Katz, counsel to Annaly, in form and substance reasonably satisfactory to Annaly, dated as of the date of the expiration of the offer, to the effect that, based on facts, representations and assumptions described or referred to in such opinion, the offer and the merger, taken together, will qualify as a "reorganization" within the meaning of Section 368(a) of the Code;



•

REIT Tax Opinion with Respect to Hatteras—Annaly shall have received a written opinion of Hunton & Williams LLP, tax counsel to Hatteras, in form and substance reasonably satisfactory to Hatteras, dated as of the date of the expiration of the offer, to the effect that, based on facts, representations and assumptions described or referred to in such opinion, at all times since the taxable year ended December 31, 2007 and through the date of the expiration of the offer, Hatteras has been organized and operated in conformity with the requirements for qualification as a REIT under the Code;



•

Officer's Certificate—Annaly must have received from Hatteras, a certificate dated as of the expiration date of the offer and signed by Hatteras' Chief Executive Officer or Chief Financial Officer certifying as to the satisfaction of the conditions related to the accuracy of Hatteras' representations and warranties, Hatteras' compliance with covenants and the absence of a Hatteras material adverse effect; and



•

No Termination of the Merger Agreement—the merger agreement will not have been terminated in accordance with its terms.

        The foregoing conditions are in addition to, and not a limitation of, the rights of Annaly and the Offeror to extend, terminate or modify the offer in accordance with the terms and conditions of the merger agreement. The conditions to the offer are for the sole benefit of Annaly and the Offeror and may be asserted by Annaly or the Offeror regardless of the circumstances giving rise to any such condition (other than as a result of any action or inaction by Annaly or the Offeror that is completely within the control of Annaly or the Offeror), or may be waived by Annaly or the Offeror, by express and specific action to that effect, in whole or in part, at any time and from time to time, in each case. However, certain specified conditions may only be waived by Annaly or the Offeror with the express written consent of Hatteras. These conditions include the minimum tender condition, the effectiveness of the registration statement on Form S-4 of which this document is a part, the absence of an Annaly material adverse effect, the accuracy of Annaly's and the Offeror's representations and warranties, Annaly's and Offeror's compliance with covenants, the shares of Annaly common and preferred stock to be issued in the offer and the merger having been approved for listing on the NYSE, lack of legal prohibitions, the receipt of an opinion by Hatteras from its legal counsel to the effect that the offer and the merger, taken together, will qualify as a "reorganization" within the meaning of Section 368(a) of the Code, and the receipt of a written opinion by Hatteras from Annaly's tax counsel, dated as of the date of the expiration of the offer, to the effect that at all times since the year of inception of

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Annaly through the date of the expiration of the offer, Annaly has been organized and operated in conformity with the requirements for qualification as a REIT under the Code and that the proposed method of operation of Annaly will enable Annaly to continue to meet the requirements for qualification as a REIT under the Code. Pursuant to the merger agreement, Hatteras has the right to require that Annaly and the Offeror waive the conditions relating to the absence of an Annaly material adverse effect, the accuracy of Annaly's and the Offeror's representations and warranties, Annaly's and Offeror's compliance with covenants, the receipt of an opinion by Hatteras from its legal counsel to the effect that the offer and the merger, taken together, will qualify as a "reorganization" within the meaning of Section 368(a) of the Code, and the receipt of a written opinion by Hatteras from Annaly's tax counsel, dated as of the date of the expiration of the offer, to the effect that at all times since the year of inception of Annaly through the date of the expiration of the offer, Annaly has been organized and operated in conformity with the requirements for qualification as a REIT under the Code and that the proposed method of operation of Annaly will enable Annaly to continue to meet the requirements for qualification as a REIT under the Code. There is no financing condition to the offer.

Certain Legal Matters; Regulatory Approvals

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. In addition, Annaly and Hatteras must provide 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. It is a condition to the closing of the offer that these regulatory approvals are obtained, which condition may be waived by Annaly in its sole discretion. The merger agreement provides that the parties must use their reasonable best efforts to obtain the approvals that are necessary, proper or advisable to consummate the offer and the merger. Annaly and Hatteras have submitted applications or made notice filings, as applicable, for these approvals. As of June 15, 2016, Annaly and Hatteras have received regulatory approvals from 8 state licensing regulators.

        Although we do not expect regulatory authorities to raise any significant objections in connection with their review of the offer and merger, we cannot assure you that we will obtain all required regulatory approvals or that these regulatory approvals will not contain terms, conditions or restrictions that would be detrimental to the combined company after the completion of the offer and the merger.

        Annaly 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.

Litigation

        Subsequent to the public announcement of the proposed acquisition of Hatteras by Annaly, four civil actions have been filed challenging the proposed transaction. On May 11, 2016, James Wilson, who alleges he is a stockholder of Hatteras, commenced an action in the United States District Court for the Middle District of North Carolina against Hatteras and its directors. The plaintiff alleges that the defendants are violating various provisions of the Exchange Act because the public disclosures they have made concerning the proposed transaction allegedly are false and misleading. The plaintiff

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purports to sue directly on behalf of a class consisting of all of Hatteras' common stockholders except for the defendants and their affiliates. The plaintiff seeks an injunction preventing consummation of the proposed transaction, rescission of the proposed transaction in the event it is consummated, the award of damages in an unspecified amount, and the award of litigation expenses in an unspecified amount. On May 12, 2016, Stephen Twiss, who alleges he is a stockholder of Hatteras, commenced an action in the Circuit Court for Baltimore City, Maryland against Hatteras, its directors, Annaly and Offeror. The plaintiff alleges that Hatteras' directors have breached their fiduciary duties by approving the proposed transaction and making public disclosures concerning the proposed transaction that allegedly are false and misleading. The plaintiff alleges that the other defendants are aiding and abetting those breaches of fiduciary duty. The plaintiff purports to sue directly on behalf of a class consisting of all of Hatteras' common stockholders except for the defendants and their affiliates. The plaintiff also purports to sue derivatively on behalf of Hatteras. The plaintiff seeks rescission of the proposed transaction in the event it is consummated, the award of damages in an unspecified amount, and the award of litigation expenses in an unspecified amount. On May 24, 2016, Stephen Bushansky, who alleges he is a stockholder of Hatteras, commenced an action in the United States District Court for the District of Maryland against Hatteras, its directors, Annaly and Offeror. The plaintiff alleges that the defendants are violating various provisions of the Exchange Act because the public disclosures Hatteras has made concerning the proposed transaction allegedly are false and misleading. The plaintiff purports to sue on behalf of a class consisting of all of Hatteras' common stockholders except for the defendants and their affiliates. The plaintiff seeks an injunction preventing consummation of the proposed transaction, rescission of the proposed transaction in the event it is consummated, the award of damages in an unspecified amount, and the award of litigation expenses in an unspecified amount. On May 26, 2016, William Friedman, who alleges he is a stockholder of Hatteras, commenced an action in the United States District Court for the Middle District of North Carolina against Hatteras, its directors, Annaly and Offeror. The plaintiff alleges that the defendants are violating various provisions of the Exchange Act because the public disclosures Hatteras has made concerning the proposed transaction allegedly are false and misleading. The plaintiff purports to sue on behalf of a class consisting of all of Hatteras' common stockholders except for the defendants and their affiliates. The plaintiff seeks an injunction preventing consummation of the proposed transaction, rescission of the proposed transaction in the event it is consummated, the award of damages in an unspecified amount, and the award of litigation expenses in an unspecified amount. The defendants believe the actions are without merit.

Interests of Certain Persons in the Offer and the Merger

        Hatteras' directors and executive officers may have interests in the offer, the merger, and the other transactions contemplated by the merger agreement that are different from, or in addition to, the interests of the Hatteras stockholders generally. These interests may create actual or potential conflicts of interest. The Hatteras board of directors was aware of these interests during its deliberations and considered them, among other matters, in approving the merger agreement and the transactions contemplated by the merger agreement, as more fully discussed below in "The Offer—Hatteras' Reasons for the Offer and the Merger; Recommendation of the Hatteras Board of Directors." Since Hatteras' named executive officers are its only executive officers, the disclosure set forth below relates to Hatteras' directors and named executive officers. Two of Hatteras' named executive officers, Michael R. Hough and Benjamin M. Hough, are also directors.

Consideration for Hatteras Restricted Stock Awards in the Merger

        As of May 4, 2016, Hatteras' directors and executive officers held outstanding Hatteras restricted stock awards under the Hatteras equity incentive plans covering a total of 678,806 shares of Hatteras common stock. Pursuant to, and as further described in, the merger agreement, at the effective time of the merger, each Hatteras restricted stock award held by a Hatteras non-executive director that is outstanding and unvested immediately prior to the effective time of the merger will automatically be

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cancelled, with the holder of such restricted stock award becoming entitled to receive the mixed consideration in respect of each share of Hatteras common stock subject to the restricted stock award immediately prior to the effective time. Hatteras non-executive directors who otherwise would be entitled to receive a fractional share of Annaly common stock in respect of their restricted stock awards will instead receive an amount in cash (without interest) equal to the amount of such fraction multiplied by the volume weighted average closing sale price per share of Annaly common stock as reported on the NYSE for the 10 consecutive trading days ending on and including the trading day prior to the acceptance time.

        At the effective time of the merger, each restricted stock award held by Hatteras executive officers Michael R. Hough, Benjamin M. Hough, Kenneth A. Steele and Frederick J. Boos, II that is outstanding and unvested immediately prior to the effective time of the merger will be assumed and converted automatically into a restricted stock award with respect to the number of shares of Annaly common stock equal to the product obtained by multiplying the total number of shares of Hatteras common stock subject to such restricted stock award immediately prior to the effective time of the merger by 1.5226, with any fractional shares rounded to the nearest whole share. Each such assumed restricted stock award will vest in accordance with the terms of the consulting agreement between the holder of such restricted stock award and Annaly entered into on the date of the merger agreement, and will otherwise have the same terms and conditions as such restricted stock award had immediately prior to the effective time of the merger.

        The estimated aggregate value, based on a price per share of Hatteras common stock of $15.87, which is the average closing price per share of Hatteras common stock on the NYSE over the first five business days following the first public announcement of the merger on April 11, 2016, of (i) the unvested restricted stock awards held by the Hatteras executive officers as of May 4, 2016 is $9,798,186, and (ii) the unvested restricted stock awards held by the Hatteras non-employee directors as of May 4, 2016 is $974,466.

Consulting Agreements

        Concurrently with the execution of the merger agreement, Annaly entered into consulting agreements with each of Michael R. Hough, the Chief Executive Officer of Hatteras and the Hatteras external manager, Benjamin M. Hough, the President and Chief Operating Officer of Hatteras and the Hatteras external manager, Kenneth A. Steele, Chief Financial Officer, Secretary and Treasurer of Hatteras and the Hatteras external manager, and Frederick J. Boos, II, Executive Vice President and Chief Investment Officer of Hatteras and the Hatteras external manager, providing for monthly consulting fees in the amount of $250,000, $234,000, $105,500, and $73,500, respectively, in consideration for consulting services to be rendered to Annaly during a consulting period ending 30 months following the date of the closing of the transactions contemplated by the merger agreement (or such earlier termination date as is permitted under the terms of the agreements). During the consulting period, each consultant will be available to render services for at least 20 hours per week. Pursuant to their respective consulting agreements, each of Michael R. Hough, Benjamin M. Hough, Kenneth A. Steele and Frederick J. Boos, II agreed not to own, manage, control, be employed by or consult with a publicly-traded mortgage REIT during such consulting period, subject to specified exceptions. The consulting agreements are conditioned on, and will be effective upon, the closing of the transactions contemplated by the merger agreement.

Hatteras Management Agreement

        In connection with the execution of the merger agreement, Hatteras and the Hatteras external manager entered into an amendment to the Hatteras management agreement, to which Annaly is a third-party beneficiary, which provides that as of and subject to the acceptance time, the Hatteras management agreement will terminate, and that Hatteras will pay the Hatteras external manager a

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termination fee of $45,411,000 prior to, and conditioned on, such termination. The Hatteras executive officers also serve as executive officers of the Hatteras external manager and own all of the equity interest in the Hatteras external manager. For more information, see "—Management Agreement Termination" below.

Hatteras Special Committee Fees

        Each member of the Hatteras special committee earns cash committee fees in connection with their service on the Hatteras special committee. Each member of the Hatteras special committee receives $2,500 per telephonic meeting and $5,000 per in-person meeting. In addition, the chairman of the Hatteras special committee was paid an additional fee of $10,000.

Indemnification of Directors and Officers

        The merger agreement provides that Annaly will cause the ultimate surviving company of the merger to indemnify and hold harmless, to the fullest extent permitted under applicable law and provided pursuant to organizational documents of Hatteras or its subsidiaries, or any indemnification agreements in existence as of the time of the merger agreement that were provided to Annaly (including the Hatteras management agreement), each current and former director, officer and agent of Hatteras and its subsidiaries against costs and expenses in connection with claims asserted or claimed prior to, at or after the effective time of the merger, in respect of acts or omissions occurring or alleged to have occurred at or prior to the effective time of the merger, based on or arising out of the fact that such person is or was serving as an officer, director, employee or agent of Hatteras or its subsidiaries or any other entity if such service was at the request or for the benefit of Hatteras or any of its subsidiaries. In addition, for a period of six years following the effective time of the merger, Annaly and Offeror are required to maintain in effect the provisions in any organizational documents of Hatteras and its subsidiaries and contracts (including the Hatteras management agreement) of Hatteras and its subsidiaries regarding elimination of liability, indemnification, and advancement of expenses in favor of the current and former directors, officers, and agents of Hatteras and its subsidiaries that are in existence as of the time of the merger agreement and were provided to Annaly prior to the date of the merger agreement, except to the extent that any such contract provides for an earlier termination. For a more complete description of the indemnification of the officers and directors of Hatteras and its subsidiaries, see "The Merger Agreement—Directors' and Officers' Indemnification."

Certain Relationships With Hatteras

        As of the date of this document, Annaly does not own any shares of Hatteras common stock. Neither Annaly nor the Offeror have effected any transaction in securities of Hatteras in the past 60 days. To the best of Annaly's and the Offeror's knowledge, after reasonable inquiry, none of the persons listed on Annex C hereto, nor any of their respective associates or majority-owned subsidiaries, beneficially owns or has the right to acquire any securities of Hatteras or has effected any transaction in securities of Hatteras during the past 60 days.

Management Agreement Termination

        In connection with the execution of the merger agreement, Hatteras and the Hatteras external manager entered into an amendment to the Hatteras management agreement, to which Annaly is a third-party beneficiary, which provides that as of and subject to the acceptance time, the Hatteras management agreement will terminate, and that Hatteras will pay the Hatteras external manager a termination fee of $45,411,000 prior to, and conditioned on, such termination. The amendment provides that in addition to the termination fee, Hatteras will pay the Hatteras external manager for management fees that accrue up to the acceptance time, including for the prorated portion of the

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month in which the acceptance time occurs. Hatteras will reimburse the Hatteras external manager for expenses it incurs prior to the acceptance time in the ordinary course of business and consistent with past practice to the extent reimbursable pursuant to the Hatteras management agreement. Such expense reimbursement has an aggregate cap of $1.2 million for each calendar quarter beginning April 1, 2016.

        The amendment to the Hatteras management agreement also provides that the Hatteras external manager may not take any action, directly or indirectly, that is inconsistent with, or that if taken by Hatteras would be in breach of, Hatteras' non-solicitation obligations under the merger agreement. However, to the extent that Hatteras is permitted to, and in fact does, engage in discussions or negotiations regarding an acquisition proposal in accordance with the merger agreement, the Hatteras external manager may assist Hatteras in such discussions or negotiations. The Hatteras external manager further agreed that, other than those actions that Hatteras is permitted to take under the merger agreement or as required by law, it will not intentionally take any action that would reasonably be expected to cause any of the conditions to the offer or the merger to fail to be satisfied.

        The amendment to the Hatteras management agreement also provides that the Hatteras external manager will not take any action with respect to its employees or agents whose compensation is reimbursed by Hatteras, that if taken by Hatteras with respect to its own employees, would be in violation of Hatteras' covenants under the merger agreement with respect to compensation, granting or vesting of equity awards, employee benefit plans, employment or severance arrangements, termination of employees or funding for rabbi trusts or similar arrangements. The Hatteras external manager agreed to comply with its obligations under the merger agreement with respect to retention payments for certain of the Hatteras external manager's employees.

        Except for those rights that pursuant to the express terms of the amendment to the Hatteras management agreement survive the termination, including the payment of certain accrued management fees and expenses, the amendment to the Hatteras management agreement provides that the Hatteras external manager and its affiliates fully and unconditionally release any claims or liabilities whatsoever that they may have against Hatteras and its subsidiaries and Annaly and its subsidiaries and affiliates arising under, or pursuant to, the Hatteras management agreement.

Source and Amount of Funds

        The offer and the merger are not conditioned upon any financing arrangements or contingencies.

        Annaly estimates the aggregate amount of cash consideration required to purchase the outstanding shares of Hatteras common stock and consummate the merger will be approximately $521 million, plus related fees and expenses. Annaly anticipates that the funds needed to complete the transactions will be derived from available cash on hand. Neither Annaly nor the Offeror have any specific alternative financing arrangements or alternative financing plans in connection with the Offer or the Merger.

Fees and Expenses

        Annaly has retained Innisfree M&A Incorporated as information agent in connection with the offer and the merger. The information agent may contact holders of shares by mail, email, telephone, facsimile and personal interview and may request brokers, dealers and other nominee stockholders to forward material relating to the offer and the merger to beneficial owners of shares. Annaly will pay the information agent reasonable and customary compensation for these services in addition to reimbursing the information agent for its reasonable out-of-pocket expenses. Annaly agreed to indemnify the information agent against certain liabilities and expenses in connection with the offer, including certain liabilities under the U.S. federal securities laws.

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        In addition, Annaly has retained Computershare as exchange agent in connection with the offer and the merger. Annaly will pay the exchange agent reasonable and customary compensation for its services in connection with the offer and the merger, will reimburse the exchange agent for its reasonable out-of-pocket expenses and will indemnify the exchange agent against certain liabilities and expenses, including certain liabilities under the U.S. federal securities laws.

        Annaly will reimburse brokers, dealers, commercial banks and trust companies and other nominees, upon request, for customary clerical and mailing expenses incurred by them in forwarding offering materials to their customers. Except as set forth above, neither Annaly nor the Offeror will pay any fees or commissions to any broker, dealer or other person for soliciting tenders of shares pursuant to the offer.

Accounting Treatment

        In accordance with accounting principles generally accepted in the United States, Annaly will account for the acquisition of shares through the offer and the merger under the acquisition method of accounting for business combinations.

Stock Exchange Listing

        Shares of Annaly common stock and preferred stock are listed on the NYSE. Annaly intends to submit a supplemental listing application to list on the NYSE the shares of Annaly common stock and Annaly Series E preferred stock that Annaly will issue in the offer and the merger. Such listing is a condition to completion of the offer.

Resale of Annaly Common Stock

        All shares of Annaly common stock and/or Annaly Series E preferred stock (as applicable) received by Hatteras stockholders as consideration in the offer and/or the merger will be freely tradable for purposes of the Securities Act, except for Annaly common stock and/or preferred stock received by any person who is deemed an "affiliate" of Annaly at the time of the closing of the merger. Annaly common stock and/or preferred stock held by an affiliate of Annaly may be resold or otherwise transferred without registration in compliance with the volume limitations, manner of sale requirements, notice requirements and other requirements under Rule 144 or as otherwise permitted under the Securities Act. This document does not cover resales of Annaly common stock and/or preferred stock received upon completion of the merger by any person, and no person is authorized to make any use of this document in connection with any resale.

Exchange Agent Contact Information

        The contact information for the exchange agent for the offer and the merger is:

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MERGER AGREEMENT

        The following summary describes certain material provisions of the merger agreement entered into by Annaly, the Offeror, and Hatteras, a copy of which is attached hereto as Annex A. This summary may not contain all of the information about the merger agreement that is important to Hatteras common stockholders, and Hatteras common stockholders are encouraged to read the merger agreement carefully in its entirety. The legal rights and obligations of the parties are governed by the specific language of the merger agreement and not this summary.

The Offer

        Pursuant to the terms of the merger agreement, the Offeror is offering to exchange for each outstanding share of Hatteras common stock validly tendered and not validly withdrawn in the offer:

•

$5.55 in cash; and



•

0.9894 shares of Annaly common stock.

We refer to the above as the "mixed consideration."

        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, (1) $15.85 in cash (we refer to this election as the "all-cash election" and this amount as the "all-cash consideration") or (2) 1.5226 shares of Annaly common stock (we refer to this election as the "all-stock election" and this amount as the "all-stock consideration"). The mixed consideration, the all-cash consideration and the all-stock consideration (as applicable) will be paid without interest and less any applicable withholding taxes.

        See "The Offer—Elections and Proration" for a detailed description of the proration procedures applicable to the offer.

        The Offeror's obligation to accept for exchange and to exchange shares of Hatteras common stock validly tendered and not validly withdrawn in the offer is subject to the satisfaction or waiver by the Offeror of certain conditions, including the valid tender of at least one share more than two-thirds of the shares of Hatteras common stock outstanding as of the expiration of the offer, including any shares of Hatteras common stock then owned by Annaly and the Offeror (the "minimum tender condition"), as more fully described under "The Offer—Conditions of the Offer."

        Under the merger agreement, unless Hatteras consents otherwise or the merger agreement is otherwise terminated, the Offeror must extend the offer:

•

for any period required by law, or by any rule, regulation, interpretation or position of the SEC, the SEC's staff or NYSE applicable to the offer or merger, or to the extent necessary to resolve any comments of the SEC or its staff applicable to the offer, the Schedule TO, the registration statement of which this document is a part, or any other related document;



•

for one or more successive periods of up to 10 business days each (or such longer period as may be agreed by Hatteras) if any of the conditions to the offer (other than the minimum tender condition) have not been satisfied or validly waived as of any then-scheduled expiration of the offer in order to permit satisfaction of such condition or conditions; and



•

for up to two successive periods of up to 10 business days each if each condition to the offer (other than the minimum tender condition) has been satisfied or validly waived and the minimum tender condition has not been satisfied as of any then-scheduled expiration of the offer, and Hatteras requests that the Offeror so extend the offer.

        No extension will impair, limit or otherwise restrict the right of the parties to terminate the merger agreement pursuant to its terms.

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        The merger agreement may be terminated by either Annaly or Hatteras if the acceptance time has not occurred by 11:59 p.m., Eastern Time, on January 10, 2017, which is referred to as the "outside date" (as described below under "—Termination"). The Offeror will not be required to extend the offer beyond the outside date.

        The "acceptance time" for purposes of the merger agreement is the time that the Offeror accepts for payment all shares of Hatteras common stock that are validly tendered and not validly withdrawn in the offer.

        For a more complete description of the offer, see "The Offer."

The Merger

        The merger agreement provides that, promptly following the acceptance time, the parties will effect the merger of Hatteras with and into the Offeror, with the Offeror continuing as the surviving corporation in the merger, under the name "Hatteras Financial Corp." After the merger, the surviving corporation will be a wholly owned subsidiary of Annaly, and the former Hatteras stockholders will not have any direct equity ownership interest in the surviving corporation.

Completion and Effectiveness of the Merger

        Under the merger agreement, the closing of the merger must occur as promptly as practicable after the acceptance time, and in any case no later than the third business day after satisfaction or permitted waiver of the conditions to closing of the merger, unless Annaly or Hatteras agrees otherwise in writing (see "—Conditions to the Merger"). The merger will become effective at the time the articles of merger are accepted for record by the State Department of Assessments and Taxation of Maryland unless a later date (not to exceed 30 days after the acceptance for record of the articles of merger) is specified therein.

Merger Consideration for Common Stock

General

        In the merger, Hatteras common stockholders will have the opportunity to elect to receive the mixed consideration, the all-cash consideration or the all-stock consideration, subject to proration of the all-cash consideration or the all-stock consideration, in each case without interest and less any applicable withholding taxes (such consideration, the "common transaction consideration").

Election Procedures

        Each Hatteras common stockholder as of immediately prior to the consummation of the merger will be entitled to elect to receive the mixed consideration, the all-cash consideration or the all-stock consideration. The election will be made on a form of election and transmittal that will be mailed promptly after the effective time of the merger to record holders of shares of Hatteras common stock and to brokers, dealers, commercial banks, trust companies and similar persons who names, or the names of whose nominees, appear on Hatteras' stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, so that they can complete the forms of election and transmittal on behalf of beneficial owners of shares of Hatteras common stock. To make such election, Hatteras common stockholders must submit an effective, properly completed form of election and transmittal to the exchange agent before 5:00 p.m. Eastern Time, on the 20^th calendar day following the date on which the forms of election are mailed (the "merger election deadline"). Holders of record of shares of Hatteras common stock who hold such shares as nominees, trustees or in other representative capacities may submit multiple forms of election on behalf of their respective beneficial holders.

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        Any form of election and transmittal may be revoked or changed by the person who submitted such form of election by written notice received by the exchange agent prior to the merger election deadline. If a form of election and transmittal is revoked prior to the merger election deadline, the shares of Hatteras common stock represented by such form of election and transmittal will be deemed to have elected to receive the mixed consideration, unless a subsequent form of election and transmittal is properly submitted prior to the merger election deadline.

        The exchange agent will have reasonable discretion to determine whether any election, revocation or change has been properly or timely made and to disregard immaterial defects in any form of election and transmittal, and any good-faith decisions of the exchange agent regarding such matters will be binding and conclusive. The exchange agent will have no obligation to notify any person of a defect in such person's form of election.

Consequences of Failing to Make an Election in the Merger

        Hatteras common stockholders with shares to be converted into the common transaction consideration in the merger who do not make an election will be deemed to have elected to receive the mixed consideration.

Proration

        Hatteras common stockholders electing the mixed consideration will not be subject to proration; however, holders electing the all-cash consideration or the all-stock consideration may receive a different form of consideration than selected. Hatteras common stockholders who make the all-cash election or the all-stock election will be subject to proration so that approximately 35.0% of the aggregate consideration in the merger will be paid in cash and approximately 65.0% of the aggregate consideration in the merger will be paid in shares of Annaly common stock.

        The number of shares of Hatteras common stock eligible to receive the all-cash consideration in the merger will be equal to 35.0% multiplied by the sum of the total number of shares making an all-cash election in the merger and the total number of shares making an all-stock election in the merger (such product is referred to as the "maximum all-cash shares in merger").

        The number of shares of Hatteras common stock eligible to receive the all-stock consideration in the merger will be equal to 65.0% multiplied by the sum of the total number of shares making an all-cash election in the merger and the total number of shares making an all-stock election in the merger (such product is referred to as the "maximum all-stock shares in merger").

Over-Election of Cash

        If the aggregate number of shares attributable to holders of Hatteras common stock making an all-cash election in the merger is greater than the maximum all-cash shares in merger, such shares will be subject to proration. To determine the amount of proration, a "merger cash proration factor" will apply. The "merger cash proration factor" will be equal to:

•

the maximum all-cash shares in merger

divided by

•

the aggregate number of shares of Hatteras common stock for which an all-cash election in the merger has been made.

        Proration will be calculated so that for each Hatteras common stockholder making an all-cash election, the number of shares of Hatteras common stock entitled to the all-cash consideration will be equal to the number of shares of Hatteras common stock for which such stockholder has made an all-cash election, multiplied by the merger cash proration factor (as calculated above), rounded down to

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the nearest share. The shares of Hatteras common stock that do not receive the all-cash consideration as a result of such proration will instead receive the all-stock consideration.

        If following proration a Hatteras common stockholder would be entitled to receive a fractional share of Annaly common stock, such stockholder will instead receive an amount in cash (without interest) equal to the amount of such fraction multiplied by the volume weighted average closing sale price per share of Annaly common stock as reported on the NYSE for the 10 consecutive trading days ending on and including the trading day prior to the acceptance time.

Over-Election of Cash Example

For purposes of this example, assume the following:

•

there are 20,000,000 outstanding shares of Hatteras common stock;



•

Hatteras stockholders make a mixed election with respect to 10,000,000 (or 50%) shares of Hatteras common stock;



•

Hatteras stockholders make the all-cash election with respect to 6,000,000 (or 30%) shares of Hatteras common stock;



•

Hatteras stockholders make the all-stock election with respect to 4,000,000 (or 20%) shares of Hatteras common stock; and



•

The 10-day volume weighted average closing sale price per share of Annaly common stock as reported on the NYSE for the 10 consecutive trading days ending on and including the trading day prior to the acceptance time is $10.41 per share.

        In this example, without proration, there would be an over-election of cash because the number of shares of Hatteras common stock making the all-cash election is 6,000,000, which is greater than 3,500,000, which is the maximum all-cash shares in merger (calculated as follows: 0.35 × (6,000,000 + 4,000,000)). To adjust for the over-election, the number of shares of Hatteras common stock making the all-cash election will be multiplied by the merger cash proration factor of 0.5833, with the resulting number of shares rounded down to the nearest share. The merger cash proration factor is calculated by dividing 3,500,000 (which is the maximum all-cash shares in merger) by 6,000,000 (which is the aggregate number of shares of Hatteras common stock making an all-cash election in the merger).

        In this example, a Hatteras stockholder who makes an all-cash election for 100 shares of Hatteras common stock would be entitled to receive the all-cash consideration for 58 of those shares (calculated as follows: 100 shares × 0.5833 merger cash proration factor, rounded down to the nearest share), and the all-stock consideration for the remaining 42 of those shares. This equates to $919.30 in cash (calculated as follows: 58 shares × $15.85 all-cash consideration per share) plus 63.9492 shares of Annaly common stock (calculated as follows: 42 shares × 1.5226 shares of Annaly common stock, the all-stock consideration per share). Because fractional shares of Annaly common stock will be converted to cash, the number of actual shares of Annaly common stock such holder would be entitled to receive would be 63, with the additional 0.9492 shares of Annaly common stock converted into $9.88 in cash (calculated as follows: 0.9492 × $10.41).

        See "Risk Factors—Risk Factors Relating to the Offer and the Merger—Hatteras common stockholders may not receive all consideration in the form elected."

Over-Election of Stock

        If the aggregate number of shares attributable to holders of Hatteras common stock making an all-stock election in the merger is greater than the maximum all-stock shares in merger, such shares will

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be subject to proration. To determine the amount of proration, a "merger stock proration factor" will apply. The "merger stock proration factor" will be equal to:

•

the maximum all-stock shares in merger

divided by

•

the aggregate number of shares of Hatteras common stock for which an all-stock election in the merger has been made.

        Proration will be calculated so that for each Hatteras common stockholder making an all-stock election, the number of shares of Hatteras common stock entitled to the all-stock consideration will be equal to the number of shares of Hatteras common stock for which such stockholder has made an all-stock election, multiplied by the merger stock proration factor (as calculated above), rounded down to the nearest share. The shares of Hatteras common stock that do not receive the all-stock consideration as a result of proration will instead receive the all-cash consideration.

        If following proration a Hatteras common stockholder would be entitled to receive a fractional share of Annaly common stock, such stockholder will instead receive an amount in cash (without interest) equal to the amount of such fraction multiplied by the volume weighted average closing sale price per share of Annaly common stock as reported on the NYSE for the 10 consecutive trading days ending on and including the trading day prior to the acceptance time.

Over-Election of Stock Example

For purposes of this example, assume the following:

•

there are 20,000,000 outstanding shares of Hatteras common stock;



•

Hatteras stockholders make the mixed election with respect to 4,000,000 (or 20%) shares of Hatteras common stock;



•

Hatteras stockholders make the all-cash election with respect to 2,000,000 (or 10%) shares of Hatteras common stock;



•

Hatteras stockholders make the all-stock election with respect to 14,000,000 (or 70%) shares of Hatteras common stock; and



•

The 10-day volume weighted average closing sale price per share of Annaly common stock as reported on the NYSE for the 10 consecutive trading days ending on and including the trading day prior to the acceptance time is $10.41 per share.

        In this example, without proration, there would be an over-election of stock because the number of shares of Hatteras common stock making the all-stock election is 14,000,000, which is greater than 10,400,000, which is the maximum all-stock shares in merger (calculated as follows: 0.65 × (2,000,000 + 14,000,000)). To adjust for the over-election, the number of shares of Hatteras common stock making the all-stock election will be multiplied by the merger stock proration factor of 0.7429, with the resulting number of shares rounded down to the nearest share. The merger stock proration factor is calculated by dividing 10,400,000 (which is the maximum all-stock shares in merger) by 14,000,000 (which is the aggregate number of shares of Hatteras common stock making an all-stock election in the merger).

        In this example, a Hatteras stockholder who makes an all-stock election for 100 shares of Hatteras common stock would be entitled to receive the all-stock consideration for 74 of those shares (calculated as follows: 100 shares × 0.7429 merger stock proration factor, rounded down to the nearest share), and the all-cash consideration for the remaining 26