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Two Harbors Investment Corp. and CYS Investments, Inc. Announce Final Exchange Ratio for Proposed Merger

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Two Harbors Investment Corp. (NYSE:TWO) ("Two Harbors") and CYS
Investments, Inc. (NYSE:CYS) ("CYS") today announced the final exchange
ratio for the previously announced proposed merger between Two Harbors
and CYS.

Summary

  • If the proposed merger is completed after market close on July 31,
    2018, as is currently anticipated, each outstanding share of common
    stock of CYS ("CYS Common Stock") will be converted into the right to
    receive from Two Harbors (i) 0.4680 newly issued shares of common
    stock of Two Harbors ("Two Harbors Common Stock") and (ii) cash
    consideration of $0.0965 per share. As an illustrative example, a
    stockholder holding 1,000 shares of CYS Common Stock would receive 468
    shares of Two Harbors Common Stock and an additional $96.50 of cash
    consideration.
  • No fractional shares of Two Harbors Common Stock will be issued in
    connection with the merger. Instead, CYS common stockholders will
    receive cash in lieu of any fractional shares.
  • Shares of CYS Common Stock will continue to trade on the New York
    Stock Exchange ("NYSE") through the day on July 31, 2018. If the
    merger is completed as anticipated, trading in CYS Common Stock will
    cease after market close on July 31, 2018, and shares of CYS Common
    Stock will be converted into the right to receive Two Harbors common
    stock and the cash consideration prior to market open on August 1,
    2018.
  • The newly issued shares of Two Harbors Common Stock will begin trading
    on the NYSE under the ticker symbol "TWO" on August 1, 2018.
  • Registered holders of CYS Common Stock will have their Two Harbors
    shares posted to new accounts at Equiniti Shareowner Services, the
    transfer agent for Two Harbors. Beneficial holders of CYS Common Stock
    will have their Two Harbors shares posted to their individual accounts
    at their broker or financial institution, in accordance with the
    policies and procedures of such broker or financial institution.
  • The proposed merger remains subject to approval by both Two Harbors
    and CYS stockholders. The special meeting of stockholders for Two
    Harbors will take place on Friday, July 27, 2018, at 9:00 a.m. Central
    Time, at 601 Carlson Parkway, 2nd Floor, Minnetonka, Minnesota 55305,
    and the special meeting of stockholders for CYS will take place on
    Friday, July 27, 2018, at 9:00 a.m. Eastern Time, at 50 Rowes Wharf,
    Boston, Massachusetts 02110.

Preferred Stock

  • Upon the completion of the merger, each share of CYS 7.75% Series A
    Cumulative Redeemable Preferred Stock will be converted into the right
    to receive one share of newly classified TWO 7.75% Series D Cumulative
    Redeemable Preferred Stock, and each share of CYS 7.50% Series B
    Cumulative Redeemable Preferred Stock will be converted into the right
    to receive one share of newly classified TWO 7.50% Series E Cumulative
    Redeemable Preferred Stock.
  • Such newly issued shares of Two Harbors preferred stock will begin
    trading on the NYSE under the ticker symbols "TWO PRD" and "TWO PRE"
    on August 1, 2018.

Exchange Ratio Determination

The exchange ratio was determined in accordance with the terms of the
previously announced Agreement and Plan of Merger (the "Merger
Agreement"), dated as of April 25, 2018, by and among Two Harbors, CYS
and Eiger Merger Subsidiary LLC ("Merger Sub"), pursuant to which Merger
Sub will merge with and into CYS, with CYS continuing as the surviving
corporation (the "Merger"). As a result of the Merger, the surviving
corporation will become an indirect, wholly owned subsidiary of Two
Harbors.

If the Merger and the other transactions contemplated by the Merger
Agreement are completed, CYS common stockholders will receive 0.4680
newly issued shares of Two Harbors Common Stock for each share of CYS
Common Stock held immediately prior to the effective time of the Merger,
as well as the Per Share Cash Consideration of $0.0965, as specified in
the Merger Agreement. Each holder of CYS Common Stock who would
otherwise have been entitled to receive a fraction of a share of Two
Harbors Common Stock will be entitled to receive, in lieu thereof, cash,
without interest, in an amount equal to such fractional part of a share
of Two Harbors Common Stock, multiplied by the average of the volume
weighted average price of one share of Two Harbors Common Stock for the
five consecutive trading days immediately prior to the date of closing
of the Merger, as reported by Bloomberg L.P.

The number of shares of Two Harbors common stock to be issued in the
Merger is based on an exchange ratio determined by dividing (i) CYS
adjusted book value per share, multiplied by 96.75%, by (ii) Two Harbors
adjusted book value per share, multiplied by 94.20%, each as calculated
at a time and pursuant to certain calculation principles set forth in
the Merger Agreement. As defined in the Merger Agreement, adjusted book
value per share for each company means (i) such company's total
consolidated common stockholders' equity after giving pro forma effect
to any dividends or other distributions for which the record date is
after the exchange ratio determination date (which was June 30, 2018)
but prior to the closing of the Merger and as modified for potential
transaction-related adjustments, divided by (ii) each respective
company's number of shares of common stock issued and outstanding,
including shares issuable upon the vesting of restricted stock. The
calculation is shown in more detail below.

             

(in thousands except share and per share amounts)

          Two Harbors     CYS
Total consolidated stockholders' equity $ 3,480,245 $ 1,388,369
Adjustments(1)   (754,039 )   (287,846 )
Adjusted book value $ 2,726,206 $ 1,100,523
Shares of common stock 175,470,398 155,440,829
Adjusted book value per share(2) $ 15.54 $ 7.08
 
     

(1)

 

Reflects, (a) for Two Harbors, deduction of (i) $726.3 million for
the total pre-Merger Two Harbors preferred stock liquidation
preference and (ii) $27.8 million for additional dividends or
other distributions on shares of Two Harbors Common Stock that are
declared or are anticipated to be declared for which the record
date is or will be prior to the effective time of the Merger and
(b) for CYS, an addition of $6.4 million for certain CYS
transaction-related expenses and a deduction of (i) $275.0 million
for the total CYS preferred stock liquidation preference, (ii)
$14.1 million for additional dividends or other distributions on
shares of CYS Common Stock that are declared or are anticipated to
be declared for which the record date is or will be prior to the
effective time of the Merger and (iii) $5.1 million for an asset
adjustment.

(2)

Two Harbors book value per share as of June 30, 2018 was $15.69
prior to merger-related adjustments of $27.8 million. CYS book
value per share as of June 30, 2018 was $7.16 prior to
merger-related adjustments of $12.8 million.

 

Exchange Ratio

$6.85 / $14.64 = 0.4680

The final exchange ratio is based on the actual book values of Two
Harbors and CYS as of the determination date of June 30, 2018, pursuant
to the Merger Agreement. The previously announced illustrative exchange
ratio of 0.4872 was based on the adjusted book value per share of Two
Harbors and CYS as of March 31, 2018 and was set out for illustrative
purposes only in the joint proxy statement/prospectus, dated June 25,
2018, that was filed by Two Harbors with the Securities and Exchange
Commission ("SEC") and previously distributed to the parties' respective
stockholders. The total consideration to CYS common stockholders
represents a 5.8% premium to the CYS adjusted book value per share.

Based on the number of shares of CYS Common Stock outstanding on June
22, 2018, the record date for the special meetings of stockholders of
CYS and Two Harbors, and the 0.4680 exchange ratio described above,
approximately 72.7 million shares of Two Harbors Common Stock will be
issued in connection with the Merger. Further, based on these
assumptions, after giving effect to the Merger, continuing Two Harbors
common stockholders will own approximately 71% of the common equity of
the combined company, and former CYS common stockholders will own
approximately 29% of the common equity of the combined company.

In addition, as part of the Merger, each share of 7.75% Series A
Cumulative Redeemable Preferred Stock, par value $0.01 per share, of CYS
will be converted into the right to receive one share of newly
classified 7.75% Series D Cumulative Redeemable Preferred Stock, par
value $0.01 per share, of Two Harbors, and each share of 7.50% Series B
Cumulative Redeemable Preferred Stock, par value $0.01 per share, of CYS
will be converted into the right to receive one share of newly
classified 7.50% Series E Cumulative Redeemable Preferred Stock, par
value $0.01 per share, of Two Harbors.

A special meeting of stockholders of Two Harbors will be held on
July 27, 2018 at 9:00 a.m., Central Time, at 601 Carlson Parkway, 2nd
Floor, Minnetonka, Minnesota 55305, at which the Two Harbors common
stockholders will be asked to approve the issuance of shares of Two
Harbors Common Stock to CYS common stockholders pursuant to the Merger
Agreement.

A special meeting of stockholders of CYS will be held on July 27, 2018
at 9:00 a.m., Eastern Time, at 50 Rowes Wharf, Boston, Massachusetts
02110, at which the CYS common stockholders will be asked to approve the
Merger and the other transactions contemplated by the Merger Agreement.

The Merger Agreement has been approved by both companies' boards of
directors. The completion of the Merger is subject to the satisfaction
of certain customary conditions, including approval of the common
stockholders of both Two Harbors and CYS. The companies expect the
transaction to close on July 31, 2018.

About Two Harbors Investment Corp.

Two Harbors Investment Corp., a Maryland corporation, is a real estate
investment trust that invests in residential mortgage-backed securities,
mortgage servicing rights and other financial assets. Two Harbors is
headquartered in New York, New York, and is externally managed and
advised by PRCM Advisers LLC, a wholly owned subsidiary of Pine River
Capital Management L.P. Additional information is available at www.twoharborsinvestment.com.

About CYS Investments, Inc.

CYS Investments, Inc., a Maryland corporation, is a specialty finance
company that invests on a leveraged basis primarily in residential
mortgage pass-through certificates for which the principal and interest
payments are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. CYS
refers to these securities as Agency RMBS. CYS has elected to be taxed
as a real estate investment trust for federal income tax purposes.

Forward-Looking Statements

This press release may contain "forward-looking statements". Such
statements are subject to numerous assumptions, risks, and
uncertainties. Statements that do not describe historical or current
facts, including statements about beliefs and expectations, are
forward-looking statements. The forward-looking statements are intended
to be subject to the safe harbor provided by Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, and the Private
Securities Litigation Reform Act of 1995. All statements, other than
statements of historical fact, included in this communication that
address activities, events or developments that Two Harbors or CYS
expects, believes or anticipates will or may occur in the future are
forward-looking statements. Words such as "project," "predict,"
"believe," "expect," "anticipate," "potential," "create," "estimate,"
"plan," "continue," "intend," "could," "foresee," "should," "may,"
"will," "guidance," "look," "outlook," "goal," "future," "assume,"
"forecast," "build," "focus," "work," or the negative of such terms or
other variations thereof and words and terms of similar substance used
in connection with any discussion of future plans, actions, or events
identify forward-looking statements. However, the absence of these words
does not mean that the statements are not forward-looking. These
forward-looking statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult
to predict. Two Harbors' and CYS's ability to predict results or the
actual effect of future events, actions, plans or strategies is
inherently uncertain. Although Two Harbors and CYS believe the
expectations reflected in any forward-looking statements are based on
reasonable assumptions, the companies can give no assurance that our
expectations will be attained and therefore, actual outcomes and results
may differ materially from what is expressed or forecasted in such
forward-looking statements.

There are a number of risks and uncertainties that could cause actual
results to differ materially from the forward-looking statements
included in this communication, including those related to the merger
between Two Harbors and CYS. All such factors are difficult to predict
and are beyond the control of Two Harbors and CYS, including those
detailed in Two Harbors' annual reports on Form 10-K, quarterly reports
on Form 10-Q and periodic reports on Form 8-K that are available on Two
Harbors' website at http://www.twoharborsinvestment.com
and on the SEC's website at http://www.sec.gov,
those detailed in CYS's annual reports on Form 10-K, quarterly reports
on Form 10-Q and periodic reports on Form 8-K that are available on its
website at http://www.cysinv.com
and on the SEC's website at http://www.sec.gov,
and those detailed in the section entitled "Risk Factors" in the joint
proxy statement/prospectus relating to the Merger filed with the SEC on
June 25, 2018.

Each of the forward-looking statements of Two Harbors or CYS are based
on assumptions that Two Harbors or CYS, as applicable, believes to be
reasonable but that may not prove to be accurate. Any forward-looking
statement speaks only as of the date on which such statement is made,
and neither Two Harbors nor CYS undertakes any obligation to correct or
update any forward-looking statement, whether as a result of new
information, future events or otherwise, except as required by
applicable law. Readers are cautioned not to place undue reliance on
these forward-looking statements that speak only as of the date hereof.

Certain Information Regarding Participants in the Solicitation

Two Harbors, CYS and their respective directors, executive officers and
certain other members of management and employees of Two Harbors and CYS
may be deemed to be "participants" in the solicitation of proxies from
the stockholders of Two Harbors and CYS in connection with the Merger.
Stockholders can find information about Two Harbors and its directors
and executive officers and their ownership of common stock of Two
Harbors in Two Harbors' annual report on Form 10-K for the fiscal year
ended December 31, 2017, in its definitive proxy statement relating to
its 2018 annual meeting of stockholders filed with the SEC on March 29,
2018 and in its Current Report on Form 8-K filed on April 26, 2018.
Stockholders can find information about CYS and its directors and
executive officers and their ownership of common stock of CYS in CYS's
annual report on Form 10-K for the fiscal year ended December 31, 2017,
in its definitive proxy statement relating to its 2018 annual meeting of
stockholders filed with the SEC on March 29, 2018 and in its Current
Report on Form 8-K filed on April 26, 2018. Additional information
regarding the interests of such individuals in the Merger is included in
the joint proxy statement/prospectus relating to the Merger filed with
the SEC on June 25, 2018. Free copies of these documents may be obtained
as described in the preceding paragraph.

Additional Information about the Proposed Transaction and Where to
Find It

This communication relates to the proposed transaction pursuant to the
terms of the Merger Agreement.

In connection with the proposed Merger, Two Harbors has filed with the
SEC a registration statement on Form S-4 (which registration statement
has been declared effective) that includes a joint proxy statement of
Two Harbors and CYS that also constitutes a prospectus. Two Harbors and
CYS also plan to file other relevant documents with the SEC regarding
the proposed transaction. INVESTORS ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IF
AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION
. You may obtain a free copy of the joint proxy
statement/prospectus and other relevant documents (if and when they
become available) filed by Two Harbors and CYS with the SEC at the SEC's
website at www.sec.gov.
Copies of documents filed with the SEC by Two Harbors will be made
available free of charge on Two Harbors' website at http://www.twoharborsinvestment.com or
by directing a request to: Two Harbors Investment Corp., 575 Lexington
Avenue, Suite 2930, New York, NY 10022, Attention: Investor Relations.
Copies of documents filed with the SEC by CYS will be made available
free of charge on CYS's website at http://www.cysinv.com
or by directing a request to: CYS Investments, Inc., 500 Totten Pond
Road, 6th Floor, Waltham, MA 02451, Attention: Richard E. Cleary.

No Offer or Solicitation

This document shall not constitute an offer to sell or the solicitation
of an offer to buy any securities, nor shall there be any sale of
securities in any jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the requirements
of Section 10 of the Securities Act.

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