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What are the U.S. federal income tax consequences of the Reverse Stock Split to Two Harbors common stockholders?

Q:

What are the U.S. federal income tax consequences of the Reverse Stock Split to Two Harbors common stockholders?

A:

The Reverse Stock Split will be a non-taxable event to stockholders, with the exception of cash in lieu of fractional shares.  Upon the sale of such fractional share by the distribution agent on behalf of a stockholder, such stockholder generally will recognize short-term or long-term capital gain or loss, depending on such stockholder’s holding period of Two Harbors common stock, for U.S. federal income tax purposes equal to the difference, if any, between the amount realized and the stockholders basis in the fractional share. The cash in lieu of Two Harbors common stock to be received by certain Two Harbors common stockholders, including non-U.S. stockholders, will be reduced in connection with any applicable withholding taxes.

HOLDERS OF TWO HARBORS COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT.