15.	Subsequent Event

Merger Agreement

On April 10, 2016, the Company, Annaly and Ridgeback Merger Sub Corporation, a Maryland corporation and a wholly owned subsidiary of Annaly (“Purchaser”), entered into an Agreement and Plan of Merger (the “Merger Agreement”).

Pursuant to the Merger Agreement, and upon the terms and conditions thereof, Purchaser will commence an exchange offer (the “Offer”) to purchase all of the Company’s issued and outstanding shares of the Company’s common stock. In the Offer, holders of the Company’s common stock will have the option to elect from among three forms of consideration for each share (subject to proration as described below):

$5.55 in cash and 0.9894 shares of Annaly common stock (the “Mixed Consideration Option”);

$15.85 in cash (the “Cash Consideration Option”); or

1.5226 shares of Annaly common stock (the “Stock Consideration Option”).

Holders of the Company’s common stock who do not make a valid election will receive the Mixed Consideration Option for their shares. Holders who elect to receive the Cash Consideration Option or Stock Consideration Option will be subject to proration to ensure that approximately 65% of the aggregate consideration paid to holders of the Company’s common stock in the Offer will be paid in the form of Annaly common stock and approximately 35% of the aggregate consideration paid to holders of the Company’s common stock in the Offer will be paid in cash.

It is a condition to the closing of the Offer that one share more than two-thirds of the outstanding shares of the Company’s common stock, when added to any shares of the Company’s common stock owned by Annaly and Purchaser, are validly tendered and not validly withdrawn. In addition to the minimum tender condition, completion of the Offer is subject to the satisfaction or waiver of a number of other customary closing conditions as set forth in the Merger Agreement, including the effectiveness of a registration statement on Form S-4 registering the shares of Annaly common stock to be issued in connection with the Offer and the Merger (as defined below) and the receipt of certain regulatory approvals.

Immediately following the closing of the Offer, subject to the terms and conditions set forth in the Merger Agreement, the Company will be merged with and into Purchaser (the “Merger”), with Purchaser surviving the Merger. The Merger Agreement contemplates that, if the Offer is completed, the Merger will be effected pursuant to Section 3-106.1 of the Maryland General Corporation Law, which permits completion of the Merger without a vote of the holders of the Company’s common stock upon the acquisition by Purchaser of at least two-thirds of shares of the Company’s common stock that are then issued and outstanding. In the Merger, holders of the Company’s common stock will be entitled to the same election options as described above for the Offer and subject to the same proration rules.

Each share of the Company’s 7.625% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share (“Series A Preferred Stock”), that is outstanding as of immediately prior to the Merger will be converted into one share of a newly-designated series of Annaly preferred stock, par value $0.01 per share, which Annaly expects will be classified and designated as 7.625% Series E Cumulative Redeemable Preferred Stock, and which will have rights, preferences, privileges and voting powers substantially the same as a Series A Preferred Stock immediately prior to the Merger.

In general, each award of restricted shares of the Company’s common stock outstanding at the effective time of the Merger will vest and be cancelled in exchange for the right of the holder thereof to receive the Mixed Consideration Option in respect of each share subject to such award, less applicable tax withholding, except that certain awards of restricted shares of the Company’s common stock shall instead be converted at the effective time of the Merger into restricted stock awards with respect to Annaly common stock on the terms set forth in the Merger Agreement.

Prior to closing the transactions contemplated by the Merger Agreement, each of the Company and Annaly will declare a prorated dividend to their respective shareholders with a record and payment date on the last business day prior to the completion of the Offer. Each of the dividends will be prorated based on the number of days that elapsed since the record date for the most recent quarterly dividend paid to the Company and Annaly shareholders, respectively, and the amount of such prior quarterly dividend, as applicable.

The Merger Agreement also contains customary representations, warranties and covenants, including, among others, covenants by the Company to conduct its business in all material respects in the ordinary course of business consistent with past practice, subject to certain exceptions, during the period between the execution of the Merger Agreement and the consummation of the Merger.

The Company’s board of directors has unanimously agreed, based on the unanimous recommendation of the special committee of the board of directors (composed entirely of independent directors), to recommend that holders of the Company’s common stock tender their shares into the Offer, and has agreed not to solicit alternative transactions, subject to customary exceptions.

The Merger Agreement contains certain termination rights by the Company and Annaly. If the Merger Agreement is terminated under specified circumstances, including with respect to a change of the recommendation of the Company’s board of directors, the Company will pay Annaly a termination fee equal to $44,949.

Management Agreement Amendment

In connection with the execution of the Merger Agreement, the Company and ACA entered into an amendment (the “Management Agreement Amendment”) to the Management Agreement. The Management Agreement Amendment provides that upon the completion of the transactions contemplated by the Merger Agreement, the Management Agreement will terminate, and as a result of such termination, the Company will pay to ACA a termination fee of $45,411.