Redwood (R2V) Risk Analysis

Our charter limits the liability of our directors and officers to us and to our shareholders for pecuniary damages to the fullest extent permitted by Maryland law. Our charter and bylaws also may require us to indemnify our directors and officers, and those of our subsidiaries and affiliates, to the maximum extent permitted by Maryland law in connection with any proceeding to which they are, or are threatened to be, made a party by reason of their service to us. We have entered into, and may in the future enter into, indemnification agreements with our directors and certain officers, as well as with directors and certain officers of our subsidiaries and affiliates, that obligate us to indemnify these individuals against certain losses and related defense costs arising from their service to us or to our subsidiaries or affiliates.

An investment in our stock may involve a higher degree of risk than other types of investments. Economic, financial market, industry, operational, regulatory, and company-specific factors, including those relating to our investing activity, business operations, financial results, dividend practices, and organizational structure, could reduce or eliminate the value of our stock. These risks may not be suitable for many investors, and investors may experience volatile returns and material losses. In addition, trading volume in our stock (i.e., its liquidity) may be insufficient to permit investors to sell their shares when they choose or at prices they consider reasonable. Our earnings, cash flows, book value, and dividends may be volatile and are difficult to predict, and investors should not rely on our estimates, projections, or management's expectations. The sustainability of our financial performance will depend on numerous factors, including our investment and business activity, access to debt and equity financing, the returns earned on our assets, credit losses, prepayments, operating expenses, and other risks described herein. Because our preferred stock has priority as to dividends and liquidating distributions, dividends available to our common stockholders may be limited. Although we seek to pay regular dividends, we may reduce or suspend dividends on our common stock, or defer dividends on our preferred stock, for a variety of reasons and without prior public notice. While we have paid special dividends on our common stock in the past, we have not done so since 2007 and may not do so in the future. Any change in the amount or form of our dividends may adversely affect the value of our stock.

Based on filings of Schedules 13D and 13G with the SEC, we believe that as of December 31, 2025, three institutional shareholders each owned 5% or more of our outstanding common stock and collectively held approximately 37% of our outstanding common stock, and institutional shareholders in the aggregate owned more than 84% of our outstanding common stock. Furthermore, these or other investors could significantly increase their ownership of our preferred or common stock, including through the conversion of outstanding convertible or exchangeable notes into common stock. Significant ownership positions may give such shareholders substantial influence over matters submitted to a vote of our shareholders, including the election of directors and transactions involving a change in control. If any significant shareholder were to liquidate all or a substantial portion of its holdings, or if our stock were removed from an industry or broad-based market index in which it is included, the market price of our stock could be adversely affected. Although our charter generally prohibits any shareholder from beneficially owning more than 9.8% of any class of our outstanding stock, and our articles supplementary for our Series A preferred stock similarly prohibit any shareholder from beneficially or constructively owning more than 9.8% of our outstanding Series A preferred stock, our Board of Directors has granted a limited number of waivers of these limits to institutional investors and may amend the existing ownership limitation waivers it has granted to a limited number of institutional investors or grant new waivers. Any such waivers could permit increased ownership concentration among one or more shareholders.

We may issue additional shares of preferred stock or common stock, warrants to purchase common stock, or securities convertible into or exchangeable for common stock in public offerings or private placements, including as consideration in acquisition or financing transactions. Holders of outstanding warrants, convertible notes, or exchangeable securities may also acquire additional shares of common stock through conversion or exercise, as applicable. In addition, we may issue common stock under our direct stock purchase and dividend reinvestment plan and to our directors, officers, and employees under our equity and employee stock purchase plans, including upon the exercise of, or in respect of distributions on, previously granted awards. We are not required to offer these shares to existing shareholders on a preemptive basis, and existing shareholders may be unable to participate in future issuances, which could dilute their interests. Moreover, purchases by market participants of securities issued by us in future transactions may reduce or replace purchases they might otherwise make in the open market, decreasing trading volume and potentially reducing the market price and liquidity of our stock. As of December 31, 2025, our directors and executive officers collectively beneficially owned less than 3% of our common stock. Sales of shares by these individuals are required to be publicly reported and are monitored by many market participants in making investment decisions. As a result, future sales by these individuals could negatively affect the market price of our stock.

We currently have 2.8 million shares of Series A preferred stock outstanding, which may be converted into common stock upon the occurrence of certain specified change-in-control events. The conversion rate would be based on the number of shares of common stock having a value equal to the $25.00 per-share liquidation preference, subject to a maximum conversion rate of approximately seven shares of common stock for each share of Series A preferred stock. The conversion of the Series A preferred stock into common stock would dilute existing common stockholders, could adversely affect the market price of our common stock, and could impair our ability to raise additional equity capital.