As filed with the Securities and Exchange Commission on June 11, 2024
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GREAT AJAX CORP.
(Exact name of registrant as specified in its charter)
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Maryland
(State or other jurisdiction of
incorporation or organization)
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46-5211870
(I.R.S. Employer
Identification No.)
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799 Broadway
New York, New York
(212) 850-7770
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Michael Nierenberg
Chairman and Chief Executive Officer
799 Broadway
New York, New York
(212) 850-7770
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Please send copies of all communications to:
Anna T. Pinedo, Esq.
Brian D. Hirshberg, Esq.
Mayer Brown LLP
1221 Avenue of the Americas
New York, NY 10020
Telephone: (212) 506-2500
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: ☐
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) 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: ☐
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box: ☐
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box: ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. ☐
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 that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act 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.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 11, 2024
PROSPECTUS
6,139,670 Shares of Common Stock
This prospectus relates to the offer and resale, from time to time, by Rithm Capital Corp., or its transferees, assignees or successors-in-interest (the “selling stockholder”), of up to an aggregate of 6,139,670 shares of our common stock, par value $0.01 per share (“common stock”) consisting of (i) 2,874,744 shares of common stock held by the selling stockholder and (ii) 3,264,926 shares of common stock (the “warrant shares”) issuable upon exercise of the warrants to purchase shares of our common stock at an initial exercise price of $5.36 per share held by the selling stockholder (the “Warrants”).
The selling stockholder received the shares of common stock and Warrants from us pursuant to a private placement transaction. See “Summary Information” for additional information.
The shares of common stock described in this prospectus or in any supplement to this prospectus may be sold from time to time pursuant to this prospectus or any such supplement thereto by the selling stockholder, to or through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, concessions or commissions therefrom, in ordinary brokerage transactions, in transactions in which brokers solicit purchases, in negotiated transactions, or in a combination of any such methods of sale, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at fixed prices or prices subject to change, or at negotiated prices. See “Selling Stockholder” and “Plan of Distribution.” The registration of the shares of our common stock described in this prospectus does not necessarily mean that any of such shares will be offered or sold by the selling stockholder and we cannot predict when, if or in what amounts the selling stockholder may sell any of the shares offered by this prospectus.
We are not selling any of the shares of our common stock described in this prospectus, and we will not receive any of the proceeds from the sale of such shares by the selling stockholder. We will, however, receive the net proceeds of any Warrants exercised by the selling stockholder for cash. The selling stockholder will pay all brokerage fees and commissions and similar sale-related expenses. We will bear fees and expenses relating to the registration of the offer and sale of the shares of our common stock described in this prospectus with the U.S. Securities and Exchange Commission (the “SEC”).
A supplement to this prospectus may add, update or change information contained in this prospectus. You should read this prospectus and any prospectus supplement, together with the documents we incorporate by reference, carefully before you invest.
Our common stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “AJX.” On June 10, 2024, the last reported sale price of our common stock on the NYSE was $3.28 per share.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2024.
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we filed with the SEC, using a “shelf” registration process for the delayed offering and sale of securities pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). Under this shelf registration process, the selling stockholder named in this prospectus or any supplement to this prospectus may sell the securities described in this prospectus in one or more offerings. The selling stockholder is required to provide you with this prospectus and, in certain cases, a prospectus supplement containing specific information about the selling stockholder and the terms upon which the securities are being offered.
We may also add, update or change information contained in this prospectus by means of a prospectus supplement or by incorporating by reference information that we file or furnish to the SEC. The registration statement that we filed with the SEC includes exhibits that provide more detail on the matters discussed in this prospectus. If the information in this prospectus is inconsistent with a prospectus supplement, you should rely on the information in that prospectus supplement. Please carefully read this prospectus and any prospectus supplement, together with the additional information described under the headings “Information Incorporated by Reference” and “Where You Can Find More Information” before purchasing any securities.
You should rely only on the information contained or incorporated by reference in this prospectus, any prospectus supplement and any issuer free writing prospectus. “Incorporated by reference” means that we can disclose important information to you by referring you to another document filed separately with the SEC. Neither we, nor any selling stockholder, has authorized any other person to provide you with different information. If anyone provides you with different information, you should not rely on it. We are not making an offer of these securities in any state or jurisdiction where the offer is not permitted. You should only assume that the information in this prospectus or in any prospectus supplement or issuer free writing prospectus is accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates.
In this prospectus, the “Company,” “we,” “us” and “our” refer to Great Ajax Corp. and its consolidated subsidiaries, except where the context otherwise requires.
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus and any accompanying prospectus supplement, including the documents incorporated by reference into this prospectus and any accompanying prospectus supplement, contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors including but not limited to:
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our ability to recognize the anticipated benefits of the strategic transaction (the “Transaction”) with Rithm Capital Corp. and its affiliates (“Rithm”);
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changes to our business strategy as a result of the Transaction;
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the significant losses we have incurred to date from our holdings of non-performing loans (“NPLs”) and re-performing loans (“RPLs”);
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the expectation that we will continue to incur increasing and significant consolidated net losses from our mortgage holdings;
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difficulties in consummating sales of our NPLs and RPLs at attractive prices and on a prompt timeline or at all and adverse market developments negatively impacting the value of, and the returns expected from, such assets;
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the impact of changes in interest rates and the market value of the collateral underlying our RPL and NPL portfolios or of our other real estate assets;
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the impact of adverse real estate, mortgage or housing markets and changes in the general economy;
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Rithm’s ability to manage and address potential conflicts of interest relating to our investment objectives, which may overlap with the investment objectives of Rithm or one of its operating companies;
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our share price has been and may continue to be volatile;
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the broader impacts of increasing interest rates, inflation, and potential for a global economic recession;
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general volatility of the capital markets;
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the impact of adverse legislative or regulatory tax changes;
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our ability to control our costs;
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our failure to qualify or maintain qualification as a real estate investment trust (“REIT”); and
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our failure to maintain our exemption from registration under the Investment Company Act of 1940, as amended.
The preceding list is not intended to be an exhaustive list of all forward-looking statements in this prospectus and any accompanying prospectus supplement. You should read this prospectus and any accompanying prospectus supplement with the understanding that actual future results, levels of activity, performance and achievements may be materially different from what is currently expected. We qualify all of the forward-looking statements by these cautionary statements. Additional factors that could cause results to differ materially from those described above can be found in the reports and information that we file with the SEC from time to time.
SUMMARY INFORMATION
This summary does not contain all the information that you should consider before investing in our Company. You should carefully read the entire prospectus and any accompanying prospectus supplement, including all documents incorporated by reference herein and therein.
Overview
We are a Maryland corporation that is organized and operated in a manner intended to allow us to qualify as a REIT. As previously announced on February 26, 2024, we entered into a series of agreements with Rithm, a global asset manager focused on real estate, credit and financial services, which are described below (see “— The Transaction”). On May 20, 2024, we received stockholder approval for the Transaction and the stockholders elected to reconstitute our board of directors as follows: a five-member board, two members of which are existing directors, one member nominated by Rithm, and one member of which is a new independent director (with one vacant board seat).
In connection with the closing of the Transaction, on June 11, 2024, we entered into a management agreement with an affiliate of Rithm to serve as our external manager. Under Rithm’s management, we expect to shift our strategic direction and invest in commercial mortgage loans. Our target assets will include preferred equity or debt instruments secured by mortgages on commercial real estate, small balance commercial loans, mezzanine loans secured by pledges of equity interests in entities that own commercial real estate or other forms of subordinated debt in connection with commercial real estate, as well as commercial mortgage servicing rights and operating businesses in the commercial real estate sector. We do not anticipate investing in residential mortgage loans, RPLs or NPLs. Given the change in focus of our business, we intend to, over time, reposition much of our existing portfolio. We believe commercial real estate offers an attractive investment opportunity given market dynamics that are creating significant refinancing challenges and funding gaps.
Great Ajax Operating Partnership L.P., our operating partnership (the “Operating Partnership”), through interests in certain entities, as of March 31, 2024, owns 99.9% of Great Ajax II REIT Inc., which owns Great Ajax II Depositor LLC which then acts as the depositor of mortgage loans into securitization trusts and holds subordinated securities issued by such trusts. Similarly, as of March 31, 2024, the Operating Partnership wholly-owned Great Ajax III Depositor LLC, which was formed to act as the depositor into Ajax Mortgage Loan Trust 2021-E, which is a real estate mortgage investment conduit. We have securitized mortgage loans through these securitization trusts and retained subordinated securities from the secured borrowings. These trusts are considered to be variable interest entities (“VIEs”), and we have determined that we are the primary beneficiary of the VIEs.
In 2018, we formed Gaea Real Estate Corp. (“Gaea”), as a wholly-owned subsidiary of the Operating Partnership that invests in multifamily properties with a focus on property appreciation and triple net lease veterinary clinics. We elected to treat Gaea as a taxable REIT subsidiary (“TRS”) under the Internal Revenue Code of 1986, as amended (the “Code”) for 2018 and elected to treat Gaea as a REIT under the Code in 2019 and thereafter. Also during 2018, we formed Gaea Real Estate Operating Partnership LP, a wholly-owned subsidiary of Gaea, to hold investments in commercial real estate assets, and Gaea Real Estate Operating LLC, to act as its general partner. We also formed Gaea Veterinary Holdings LLC, BFLD Holdings LLC, Gaea Commercial Properties LLC, Gaea Commercial Finance LLC and Gaea RE Holdings LLC as subsidiaries of Gaea Real Estate Operating Partnership. In 2019, we formed DG Brooklyn Holdings LLC, also a subsidiary of Gaea Real Estate Operating Partnership LP, to hold investments in multi-family properties. At March 31, 2024, we owned approximately 22.2% of Gaea. We account for our investment in Gaea under the equity method.
We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2014. Our qualification as a REIT depends upon our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our capital stock. We believe that we are organized in conformity with the requirements for qualification as a REIT under the Code, and that our current intended manner of operation enables us to meet the requirements for taxation as a REIT for U.S. federal income tax purposes.
The Transaction
Termination and Release Agreement
In connection with the closing of the Transaction, we entered into a termination and release agreement (“Termination and Release Agreement”) with Thetis Asset Management LLC, our former external manager, pursuant to which we paid the termination fee due thereunder in shares of common stock. See the sections entitled “The Transaction — Management Agreement” and “The Transaction — Registration Rights Agreements” in the Proxy Statement, which are incorporated by reference herein. The Termination and Release Agreement is filed as an exhibit to the registration statement of which this prospectus forms a part, and the foregoing description of the Termination and Release Agreement is qualified by reference thereto.
Securities Purchase Agreement
In connection with the Transaction, on February 26, 2024, we, the Operating Partnership, and Thetis Asset Management LLC entered into a securities purchase agreement (the “Purchase Agreement”) with Rithm. See the section entitled “The Transaction — Securities Purchase Agreement” in the Proxy Statement, which is incorporated by reference herein. Pursuant to the Purchase Agreement, we issued 2,874,744 shares of common stock to Rithm at a purchase price of $4.87 per share, for aggregate proceeds of approximately $14.0 million, and warrants to purchase an aggregate of 3,264,926 shares of common stock for an exercise price of $5.36 per share. The Purchase Agreement is filed as an exhibit to the registration statement of which this prospectus forms a part, and the foregoing description of the Purchase Agreement is qualified by reference thereto.
Registration Rights Agreement
In connection with the Transaction, on April 23, 2024, we entered into a registration rights agreement (the “Registration Rights Agreement”), with Rithm, pursuant to which we are registering for resale the shares of common stock and the warrant shares hereunder. The Registration Rights Agreement also includes customary piggyback registration and demand underwritten offering rights with respect to the resale from time to time by Rithm or its permitted transferees and assignees. See the section entitled “The Transaction — Registration Rights Agreements” in the Proxy Statement, which is concorporated by reference herein. The Registration Rights Agreement is filed as an exhibit to the registration statement of which this prospectus forms a part, and the foregoing description of the Registration Rights Agreement is qualified by reference thereto.
Corporate Information
Our principal offices are located at 13190 SW 68th Parkway, Suite 110, Tigard, OR 97223. Our telephone number is 503-505-5670. Our web address is www.greatajax.com. The information on our website does not constitute a part of this prospectus.
THE OFFERING
This prospectus relates to the offer and resale, from time to time, by the selling stockholder of up to an aggregate of 6,139,670 shares of common stock, consisting of 2,874,744 shares of common stock and 3,264,926 warrant shares. While we will not receive any proceeds from the sale of any shares of common stock by the selling stockholder, we will receive the net proceeds from the exercise by the selling stockholder of any Warrants for cash. Shares of our common stock that may be offered under this prospectus will be fully paid and non-assessable.
Great Ajax Corp.
Common Stock Offered by the Selling Stockholder
Up to an aggregate of 6,139,670 shares of common stock consisting of (i) 2,874,744 shares and (ii) 3,264,926 warrant shares.
Common Stock Currently Outstanding(1)
45,613,049 shares
Common Stock to be Outstanding Assuming the Exercise of Warrants in Full
48,877,975 shares
The Warrants have an exercise price per share of $5.36 and are immediately exercisable upon the effectiveness of the registration statement of which this prospectus forms a part.
We are not selling any of the shares of our common stock described in this prospectus, and we will not receive any of the proceeds from the sale of such shares by the selling stockholder. We will, however, receive the net proceeds of any Warrants exercised by the selling stockholder for cash.
We intend to use the proceeds from the exercise of the Warrants for cash for working capital and general corporate purposes. See “Use of Proceeds.”
AJX
See “Risk Factors” on page 7 for a discussion of factors you should carefully consider before deciding to invest in our common stock.
(1)
Total shares currently outstanding is based on 39,563,660 shares of common stock issued and outstanding as of May 21, 2024 and includes the following which were issued in connection with the closing of the Transaction: (i) 2,874,744 shares issued to Rithm pursuant to the Purchase Agreement, and (ii) 3,174,645 shares issued to our former external manager in connection with the Termination and Release Agreement.
RISK FACTORS
An investment in our securities offered pursuant to this prospectus involves substantial risks. Before acquiring any of our securities from the selling stockholder, you should carefully consider the risk factors incorporated by reference from our Annual Report on Form 10-K for the year ended December 31 2023, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, and the other information contained in this prospectus, as updated by our subsequent filings under the Exchange Act, and the risk factors and other information contained in any prospectus supplement or other documents that are incorporated by reference into this prospectus. The occurrence of any of these risks might cause you to lose all or part of your investment in the offered securities. Please also refer to the section entitled “Cautionary Note Concerning Forward-Looking Statements.”
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of any shares of common stock offered by the selling stockholder pursuant to this prospectus. Any proceeds from the sale of shares of common stock under this prospectus will be received by the selling stockholder. See “Selling Stockholder.”
We will, however, receive the net proceeds of any Warrants exercised by the selling stockholder for cash. We intend to use the proceeds from the exercise of the Warrants for cash for working capital and general corporate purposes.
SELLING STOCKHOLDER
This prospectus relates to the offer and sale from time to time by the selling stockholder of up to an aggregate 6,139,670 shares of our common stock consisting of (i) 2,874,744 shares of common stock and (ii) 3,264,926 warrant shares. The shares of common stock and Warrants were offered and sold to the selling stockholder pursuant to the exemption from the registration requirements afforded by Section 4(a)(2) of the Securities Act.
We do not know how long the selling stockholder will hold the shares of common stock before selling them or how many shares of common stock the selling stockholder will sell, if any.
The following table sets forth the maximum number of securities that may be sold by the selling stockholder, the name of the selling stockholder, the nature of any position, office, or other material relationship the selling stockholder has had, within the past three years, with us or with any of our predecessors or affiliates, and the number of securities to be owned by the selling stockholder after completion of the offering.
We prepared the following table based on information provided to us by the selling stockholder. We have not sought to verify such information. Additionally, the selling stockholder may have sold or transferred some or all of their securities in transactions exempt from the registration requirements of the Securities Act since the date on which the information in the table was provided to us. Other information about the selling stockholder may also change over time and, if necessary, we will amend or supplement this prospectus accordingly and as required.
Except as otherwise indicated, the selling stockholder has sole voting and dispositive power with respect to such securities.
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Shares of Common Stock
Beneficially Owned Prior to
the Offering(1)(2)
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Shares of
Common Stock
Offered Hereby(4)
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Shares of Common Stock
Beneficially Owned After
Completion of the Offering(5)
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Name of Selling Stockholder
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Number
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Percent(3)
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Number
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Number
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Percent(6)
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Rithm Capital Corp.
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6,139,670(7) |
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12.6% |
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6,139,670 |
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(1)
Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. In computing the number of securities beneficially owned and the percentage ownership of each selling stockholder, securities that are currently exercisable into shares of our common stock, or exercisable into shares of our common stock within 60 days of the date hereof, are deemed outstanding.
(2)
Beneficial ownership prior to the offering consists of shares of common stock directly owned by the selling stockholder and includes the warrant shares held by RCM GA Purchaser LLC, an affiliate of the selling stockholder.
(3)
Calculated based on 45,613,049 shares of common stock outstanding, which consists of (i) 39,563,660 shares of our common stock issued and outstanding on May 21, 2024, (ii) 2,874,744 shares of common stock issued to Rithm pursuant to the Purchase Agreement, and (iii) 3,174,645 shares of common stock issued to our former external manager pursuant to the Termination and Release Agreement.
(4)
Pursuant to Rule 416 under the Securities Act, the shares of common stock being registered hereunder include such indeterminate number of shares of common stock as may be issuable with respect to the shares of common stock being registered hereunder as a result of stock splits, stock dividends or similar transactions.
(5)
Because the selling stockholder is not obligated to sell all or any portion of the shares of our common stock shown as offered by it, we cannot estimate the actual number or percentage of shares of our common stock that will be held by the selling stockholder upon completion of this offering. However, for purposes of this table, we have assumed that all shares of common stock being registered under the registration statement of which this prospectus is a part are sold in this offering, and that the selling stockholder does not acquire additional shares of our common stock after the date of this prospectus and prior to completion of this offering.
(6)
Calculated based on 48,877,975 shares of our common stock outstanding, which includes the assumed exercise in full of the Warrants for 3,264,926 shares of our common stock.
(7)
Consists of 2,874,744 shares of common stock held by Rithm and 3,264,926 warrant shares held by RCM GA Purchaser LLC, an affiliate of Rithm. Mr. Michael Nierenberg, the Chief Executive Officer, Chairman of the board of directors and President of Rithm, is a member of our board of directors. The business address for Rithm is 799 Broadway, New York, New York 10003.
Relationship with the Selling Stockholder
In connection with the Transaction, we entered into a series of agreements with Rithm. See the section entitled “The Transaction” in the Proxy Statement, which is incorporated by reference herein.
Also in connection with the Transaction, on April 23, 2024, we entered into the Registration Rights Agreement with Rithm. See “Summary Information — Transaction Agreements — Registration Rights Agreement.”
Other than the relationships described above, the selling stockholder has no material relationships with us or any of our predecessors or affiliates within the past three years, other than as a result of the ownership of our shares of common stock, Warrants or other securities.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
This section summarizes the material U.S. federal income tax considerations a prospective stockholder of our common stock (“Shares”) may consider relevant. Because this section is a summary, it does not address all aspects of taxation that may be relevant to particular stockholders in light of their personal investment or tax circumstances, or to certain types of stockholders that are subject to special treatment under the U.S. federal income tax laws, such as:
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insurance companies;
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tax-exempt organizations, tax-deferred and tax-advantaged accounts;
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financial institutions or broker-dealers;
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dealers in securities or currencies;
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non-U.S. individuals and non-U.S. corporations (except to the extent discussed in “— Taxation of Non-U.S. Holders” or “— Foreign Account Tax Compliance Act” below);
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U.S. expatriates;
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persons who mark-to-market our Shares;
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subchapter S corporations;
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U.S. stockholders (as defined below) whose functional currency is not the U.S. dollar;
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regulated investment companies and REITs, and their investors;
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trusts and estates (except to the extent discussed herein);
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persons who receive our Shares through the exercise of employee stock options or otherwise as compensation; persons holding our Shares as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment;
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persons subject to special rules under Section 451(b) of the Code;
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persons subject to the alternative minimum tax provisions of the Code;
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persons holding our Shares through a partnership or similar pass-through entity; and
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persons holding a 10% or more (by vote or value) beneficial interest in our Shares.
This summary assumes that stockholders hold our Shares as capital assets for U.S. federal income tax purposes, which generally means as property held for investment.
The statements in this section are not intended to be, and should not be construed as, tax advice. The statements in this section are based on the Code, current, temporary and proposed U.S. Department of Treasury regulations promulgated under the Code (the “Treasury Regulations”), the legislative history of the Code, current administrative interpretations and practices of the U.S. Internal Revenue Service (“IRS”), and court decisions. The reference to IRS interpretations and practices includes the IRS practices and policies endorsed in private letter rulings, which are not binding on the IRS except with respect to the taxpayer that receives the ruling. In each case, these sources are relied upon as they exist on the date of this discussion. Future legislation, Treasury Regulations, administrative interpretations and court decisions could change current law or adversely affect existing interpretations of current law on which the information in this section is based. Any such change could apply retroactively. We have not received any rulings from the IRS concerning our intention to qualify as a REIT, but we have received a private letter ruling from the IRS that allows us to exclude our proportionate share of gross income from the Manager if we held our interest in the Manager through our Operating Partnership. Although we have received such a ruling, we continue to hold our interest in the Manager through Thetis TRS instead of through our Operating Partnership. Accordingly, even if there is no change in the applicable law, no assurance can be provided that the statements made in the following discussion, which do not bind the IRS or the courts, will not be challenged by the IRS or will be sustained by a court if so challenged.
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISER REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND SALE OF OUR SHARES AND
OF OUR ELECTION TO BE TAXED AS A REIT. SPECIFICALLY, YOU SHOULD CONSULT YOUR OWN TAX ADVISER REGARDING THE U.S. FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND REGARDING POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of Our Company
We elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our short taxable year ended December 31, 2014. We believe that, commencing with our short taxable year ended December 31, 2014, we have been organized and have operated in such a manner as to qualify for taxation as a REIT under the U.S. federal income tax laws, and we intend to continue to operate in such a manner, but no assurances can be given that we will operate in a manner so as to qualify or remain qualified as a REIT. This section discusses the laws governing the U.S. federal income tax treatment of a REIT and its stockholders. These laws are highly technical and complex.
In connection with this filing, Mayer Brown LLP will render an opinion that, commencing with our taxable year ended December 31, 2014, we were organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and our current and proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT for our taxable year ending December 31, 2020 and subsequent taxable years. Investors should be aware that Mayer Brown LLP’s opinion is based upon customary assumptions, will be conditioned upon certain representations made by us as to factual matters, including representations regarding the nature of our assets and the conduct of our business, is not binding upon the IRS, or any court and speaks as of the date issued. In addition, Mayer Brown LLP’s opinion will be based on existing U.S. federal income tax law governing qualification as a REIT, which is subject to change either prospectively or retroactively. Moreover, our qualification and taxation as a REIT depends upon our ability to meet on a continuing basis, through actual results, certain qualification tests set forth in the U.S. federal income tax laws. Those qualification tests involve the percentage of income that we earn from specified sources, the percentage of our assets that falls within specified categories, the diversity of our capital stock ownership, and the percentage of our earnings that we distribute. Mayer Brown LLP will not review our compliance with those tests on a continuing basis. Accordingly, no assurance can be given that our actual results of operations for any particular taxable year will satisfy such requirements. Our ability to satisfy the REIT qualification tests will depend upon our analysis of the characterization and fair market values of our assets, some of which will not be susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis (which, based on the types of assets we will own, could fluctuate rapidly, significantly and unpredictably). In addition, we will be required to make estimates of or otherwise determine the value of real property that is collateral for our mortgage loan assets. There can be no assurance that the IRS would not challenge our valuations or valuation estimates of this collateral.
If we qualify as a REIT, we generally will not be subject to U.S. federal income tax on our REIT taxable income that we currently distribute to our stockholders, but taxable income generated by any domestic TRS, such as Thetis TRS, will be subject to regular corporate income tax. However, we will be subject to U.S. federal tax in the following circumstances:
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We will pay U.S. federal income tax on our taxable income, including net capital gain, that we do not distribute to stockholders during, or within a specified time period after, the calendar year in which the income is earned.
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We will pay income tax at the highest corporate rate on:
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net income from the sale or other disposition of property acquired through foreclosure, or foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, and
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other non-qualifying income from foreclosure property.
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We will pay a 100% tax on net income earned from sales or other dispositions of property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business.
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If we fail to satisfy the 75% gross income test or the 95% gross income test, as described below under “— Gross Income Tests,” but nonetheless continue to qualify as a REIT because we meet other requirements, we will be subject to a 100% tax on:
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the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, multiplied, in either case, by
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a fraction intended to reflect our profitability.
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If we fail to satisfy the asset tests (other than a de minimis failure of the 5% asset test, the 10% vote test or the 10% value test, as described below under “— Asset Tests”), as long as the failure was due to reasonable cause and not to willful neglect, we dispose of the assets or otherwise comply with such asset tests within six months after the last day of the quarter in which we identify such failure and we file a schedule with the IRS describing the assets that caused such failure, we will pay a tax equal to the greater of $50,000 or the product of the highest U.S. federal corporate tax rate and the net income from the non-qualifying assets during the period in which we failed to satisfy such asset tests.
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If we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, and the failure was due to reasonable cause and not to willful neglect, we will be required to pay a penalty of $50,000 for each such failure.
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We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet recordkeeping requirements intended to monitor our compliance with rules relating to the composition of a REIT’s stockholders, as described below in “— Requirements for Qualification.”
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If we fail to distribute during a calendar year at least the sum of: (i) 85% of our REIT ordinary income for the year, (ii) 95% of our REIT capital gain net income for the year and (iii) any undistributed taxable income from earlier periods, we will pay a 4% nondeductible excise tax on the excess of the required distribution over the amount we actually distributed, plus any retained amounts on which income tax has been paid at the corporate level.
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We may elect to retain and pay income tax on our net long-term capital gain. In that case, a U.S. stockholder would be taxed on its proportionate share of our undistributed long-term capital gain (to the extent that we make a timely designation of such gain to the stockholder) and would receive a credit or refund for its proportionate share of the tax we paid.
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We will be subject to a 100% excise tax on transactions between us and a TRS that are not conducted on an arm’s-length basis including “redetermined TRS service income.” Redetermined TRS service income generally represents gross income of a TRS that is understated and attributable to services provided to us or on our behalf.
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The earnings of our TRSs and any other TRS that we may form will be subject to U.S. federal corporate income tax.
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If we acquire any asset from a C corporation, or a corporation that generally is subject to full corporate — level tax, in a merger or other transaction in which we acquire a basis in the asset that is determined by reference either to the C corporation’s basis in the asset or to another asset, we will pay tax at the highest regular corporate rate applicable if we recognize gain on the sale or disposition of the asset during the 5-year period after we acquire the asset. The amount of gain on which we will pay tax is the lesser of:
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the amount of gain that we recognize at the time of the sale or disposition, and
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the amount of gain that we would have recognized if we had sold the asset at the time we acquired it, assuming that the C corporation will not elect, in lieu of this treatment, to be subject to an immediate tax when the asset is acquired.
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If we derive “excess inclusion income” from an interest in certain mortgage loan securitization structures (i.e., from a taxable mortgage pool (“TMP”), or a residual interest in a real estate mortgage investment conduit (“REMIC”)), we could be subject to corporate level U.S. federal income tax to the extent that such income is allocable to specified types of tax-exempt stockholders known as “disqualified organizations” that are not subject to unrelated business income tax. To the extent that
we own a REMIC residual interest or a TMP through a TRS, we will not be subject to this tax directly, but all of the income from the investment will be subject to U.S. federal income tax at the TRS level. See “— Taxable Mortgage Pools and Excess Inclusion Income” below.
In addition, notwithstanding our qualification as a REIT, we may also have to pay certain state and local income taxes, because not all states and localities treat REITs in the same manner that they are treated for U.S. federal income tax purposes. Moreover, as further described below, any domestic TRS in which we may own an interest will be subject to U.S. federal, state and local corporate income tax on its taxable income. In addition, we may be subject to a variety of taxes other than U.S. federal income tax, including state and local franchise, property and other taxes and foreign taxes. We could also be subject to tax in situations and on transactions not presently contemplated.
Requirements for Qualification
A REIT is a corporation, trust, or association that meets each of the following requirements:
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It is managed by one or more trustees or directors.
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Its beneficial ownership is evidenced by transferable shares or by transferable certificates of beneficial interest.
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It would be taxable as a domestic corporation, but for the REIT provisions of the U.S. federal income tax laws.
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It is neither a financial institution nor an insurance company subject to special provisions of the U.S. federal income tax laws.
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At least 100 persons are beneficial owners (determined without reference to any rules of attribution) of its shares or ownership certificates.
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Not more than 50% in value of its outstanding shares or ownership certificates is owned, directly or indirectly, by five or fewer individuals, which the U.S. federal income tax laws define to include certain entities, during the last half of any taxable year.
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It elects to be taxed as a REIT, or has made such election for a previous taxable year, and satisfies all relevant filing and other administrative requirements that must be met to elect and maintain REIT qualification.
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It meets certain other qualification tests, described below, regarding the nature of its income and assets and the distribution of its income.
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It uses the calendar year as its taxable year.
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It has no earnings and profits from any non-REIT taxable year at the close of any taxable year.
We must meet requirements 1 through 4 and 9 during our entire taxable year and must meet requirement 5 during at least 335 days of a taxable year of twelve months, or during a proportionate part of a taxable year of less than twelve months. Requirements 5 and 6 apply to us beginning with our 2015 taxable year. If we comply with all the requirements for ascertaining the ownership of our outstanding shares in a taxable year and have no reason to know that we violated requirement 6, we will be deemed to have satisfied requirement 6 for that taxable year. For purposes of determining share ownership under requirement 6, an “individual” generally includes a supplemental unemployment compensation benefits plan, a private foundation, or a portion of a trust permanently set aside or used exclusively for charitable purposes. An “individual” generally does not include a trust that is a qualified employee pension or profit sharing trust under the U.S. federal income tax laws, however, and beneficiaries of such a trust will be treated as holding our shares in proportion to their actuarial interests in the trust for purposes of requirement 6.
We believe that we have issued shares with sufficient diversity of ownership to satisfy requirements 5 and 6. In addition, our charter restricts the ownership and transfer of our shares so that we should continue to satisfy these requirements. These restrictions, however, may not ensure that we will, in all cases, be able to satisfy these share ownership requirements. If we fail to satisfy these share ownership requirements, our
qualification as a REIT may terminate. The provisions of our charter restricting the ownership and transfer of the shares are described in “Restrictions on Ownership and Transfer.”
To monitor compliance with the share ownership requirements, we generally will be required to maintain records regarding the actual ownership of our shares. To do so, we must demand written statements each year from the record holders of significant percentages of our shares pursuant to which the record holders must disclose the actual owners of the shares (i.e., the persons required to include our dividends in their gross income). We must maintain a list of those persons failing or refusing to comply with this demand as part of our records. We could be subject to monetary penalties if we fail to comply with these record-keeping requirements. If you fail or refuse to comply with the demands, you will be required by Treasury Regulations to submit a statement with your tax return disclosing your actual ownership of our shares and other information. In addition, we must satisfy all relevant filing and other administrative requirements that must be met to elect and maintain REIT status. We intend to comply with these requirements.
Qualified REIT Subsidiaries
A corporation that is a “qualified REIT subsidiary” is not treated as a corporation separate from its parent REIT. All assets, liabilities, and items of income, deduction, and credit of a qualified REIT subsidiary are treated as assets, liabilities, and items of income, deduction, and credit of the REIT. A qualified REIT subsidiary is a corporation, other than a TRS, all of the shares of which is owned, directly or through one or more qualified REIT subsidiaries or disregarded entities, by the REIT. Thus, in applying the requirements described herein, any qualified REIT subsidiary that we own will be ignored, and all assets, liabilities, and items of income, deduction, and credit of such subsidiary will be treated as our assets, liabilities, and items of income, deduction, and credit.
Other Disregarded Entities and Partnerships
An unincorporated domestic entity, such as a limited liability company, that has a single owner generally is not treated as an entity separate from its parent for U.S. federal income tax purposes. An unincorporated domestic entity with two or more owners generally is treated as a partnership for U.S. federal income tax purposes. In the case of a REIT that is a partner in a partnership that has other partners, the REIT is treated as owning its proportionate share of the assets of the partnership and as earning its allocable share of the gross income of the partnership for purposes of the applicable REIT qualification tests. For purposes of the 10% value test (see “— Asset Tests”), our proportionate share is based on our proportionate interest in the equity interests and certain debt securities issued by the partnership. For all of the other asset and income tests, our proportionate share is based on our proportionate interest in the capital interests in the partnership. Our proportionate share of the assets, liabilities, and items of income of any partnership, joint venture, or limited liability company that is treated as a partnership for U.S. federal income tax purposes in which we acquire an interest, directly or indirectly, will be treated as our assets and gross income for purposes of applying the various REIT qualification requirements. In the event that a disregarded subsidiary of ours ceases to be wholly-owned — for example, if any equity interest in the subsidiary is acquired by a person other than us or another disregarded subsidiary of ours — the subsidiary’s separate existence would no longer be disregarded for U.S. federal income tax purposes. Instead, the subsidiary would have multiple owners and would be treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect our ability to satisfy the various asset and gross income requirements applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% of the total value or total voting power of the outstanding securities of another corporation. See “— Asset Tests” and “— Gross Income Tests.”
Ownership of Subsidiary REITs
Our Operating Partnership currently owns an indirect majority interest in Great Ajax II REIT, Inc. and may own 100% of the common stock in one or more of our subsidiaries that will elect to be taxed as REITs, which we refer to as “Subsidiary REITs.” We may use the Subsidiary REITs for various purposes, including to execute non-REMIC securitization transactions that are treated as TMPs, as described in “— Taxable Mortgage Pools and Excess Inclusion Income.”
Any Subsidiary REIT will be subject to the various REIT qualification requirements and other limitations described that apply to us. We believe that Great Ajax II REIT, Inc. and any other Subsidiary REIT that we may own an interest in will be organized and will operate in a manner to permit it to qualify for taxation as a REIT for U.S. federal income tax purposes from and after the effective date of its REIT election. However, if any Subsidiary REIT were to fail to qualify as a REIT, then (i) the Subsidiary REIT would become subject to regular corporate income tax as described in “— Failure to Qualify,” and (ii) our ownership of shares of common stock in the Subsidiary REIT would not be a qualifying real estate asset for purposes of the 75% asset test and would become subject to the 5% asset test, the 10% vote test, and the 10% value test generally applicable to our ownership in corporations other than REITs, qualified REIT subsidiaries and TRSs. See “— Asset Tests.” If a Subsidiary REIT were to fail to qualify as a REIT, it is possible that we would not meet the 10% vote test, 10% value test and the 5% asset test with respect to our indirect interest in such entity, in which event we would fail to qualify as a REIT unless we could avail ourselves of certain relief provisions, as described in “— Asset Tests.”
Taxable REIT Subsidiaries
A REIT is permitted to own up to 100% of the stock of one or more TRSs. A TRS is a fully taxable corporation that may earn income that would not be qualifying income if earned directly by the parent REIT. The subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation with respect to which a TRS directly or indirectly owns more than 35% of the voting power or value of the outstanding securities will automatically be treated as a TRS. However, an entity will not qualify as a TRS if it directly or indirectly operates or manages a lodging or health care facility or, generally, provides to another person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated. We generally may not own more than 10%, as measured by voting power or value, of the securities of a corporation that is not a qualified REIT subsidiary or a REIT unless we and such corporation elect to treat such corporation as a TRS. Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs.
The separate existence of a TRS or other taxable corporation, unlike a disregarded subsidiary as discussed above, is not ignored for U.S. federal income tax purposes. Accordingly, a domestic TRS would generally be subject to corporate income tax on its earnings, which may reduce the cash flow generated by us and our subsidiaries in the aggregate and our ability to make distributions to our stockholders.
A REIT is not treated as holding the assets of a TRS or other taxable subsidiary corporation or as receiving any income that the subsidiary earns. Rather, the stock issued by the subsidiary is an asset in the hands of the REIT, and the REIT generally recognizes as income the dividends, if any, that it receives from the subsidiary. This treatment can affect the gross income and asset test calculations that apply to the REIT, as described below.
Because a parent REIT does not include the assets and income of such subsidiary corporations in determining the parent REIT’s compliance with the REIT requirements, such entities may be used by the parent REIT to undertake indirectly activities that the REIT rules might otherwise preclude it from doing directly or through pass-through subsidiaries or render commercially unfeasible (for example, activities that give rise to certain categories of income such as non-qualifying hedging income or inventory sales).
Certain restrictions imposed on TRSs are intended to ensure that such entities will be subject to appropriate levels of U.S. federal income taxation. If amounts are paid to a REIT or deducted by a TRS due to transactions between a REIT, its tenants and/or a TRS, that exceed the amount that would be paid to or deducted by a party in an arm’s-length transaction, the REIT generally will be subject to an excise tax equal to 100% of such excess. Similarly, if amounts are paid to a TRS for services provided to or on behalf of its parent REIT and such amounts are less than the amount that would be paid to a party in an arm’s-length transaction, the REIT generally will be subject to an excise tax equal to 100% of such deficiency. We intend that all of our transactions with Thetis TRS, GAJX Real Estate Corp. and any other TRS that we may form will be conducted on an arm’s-length basis, but there can be no assurance that we will be successful in this regard.
We have elected to treat certain of our subsidiaries, including Thetis TRS and GAJX Real Estate Corp as TRSs and we may form or invest in additional domestic or foreign TRSs in the future. We have received a
private letter ruling from the IRS that allows us to exclude our proportionate share of gross income from the Manager if we held our interest in the Manager through our Operating Partnership. Although we received such a ruling, we continue to hold our interest in the Manager through Thetis TRS instead of through our Operating Partnership. Thetis TRS owns a 19.8% equity interest in Thetis Asset Management LLC. We may also use a TRS, including GAJX Real Estate Corp., to market and sell distressed mortgage loans and property acquired upon foreclosure of those loans, and may modify loans through a TRS. We intend to market and sell mortgage loans and the related foreclosed property through a TRS when the sale of those assets directly by us or our Operating Partnership may be subject to the 100% prohibited transactions tax. See “— Gross Income Tests — Prohibited Transactions.” We anticipate that our marketing and sales of loans and the related foreclosed property will generally be conducted through a TRS.
It is possible that such TRS will be treated as a dealer for U.S. federal income tax purposes. In that case, such TRS will generally mark all the loans it holds on the last day of each taxable year, if any, to their market value, and will recognize ordinary income or loss on such loans with respect to such taxable year as if they had been sold for that value on that day. If we significantly modify mortgage loans in a TRS and determine that such TRS qualifies as a trader, but not a dealer, for tax purposes, such TRS may elect to be subject to similar “mark-to-market” rules that apply to electing traders.
A TRS may also provide services with respect to our properties to the extent we determine that having a TRS provide those services will assist us in complying with the gross income tests applicable to REITs. See “— Gross Income Tests — Rents From Real Property.”
Under legislation commonly known as the “Tax Cuts and Jobs Act,” for taxable years beginning after December 31, 2017, the deduction of net interest expense is limited for all businesses; provided that certain businesses, including real estate businesses, may elect not to be subject to such limitations and instead to depreciate their real property related assets over longer depreciable lives. To the extent that our TRSs or any other TRS we form has interest expense that exceeds its interest income, the net interest expense limitation could potentially apply to such TRS.
To the extent that our TRSs or any other TRS that we may form pays any taxes, they will have less cash available for distribution to us. If dividends are paid by domestic TRSs to us, then the dividends we designate and pay to our stockholders who are taxed at individual rates, up to the amount of dividends that we receive from such entities, generally will be eligible to be taxed at the reduced 20% maximum U.S. federal rate applicable to qualified dividend income. See “— Taxation of U.S. Holders — Taxation of Taxable U.S. Holders on Distributions on Shares.”
Gross Income Tests
We must satisfy two gross income tests annually to qualify and maintain our qualification as a REIT. First, at least 75% of our gross income for each taxable year must consist of defined types of income that we derive, directly or indirectly, from investments relating to real property or mortgage loans on real property or qualified temporary investment income. Qualifying income for purposes of the 75% gross income test generally includes:
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rents from real property;
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interest on debt secured by a mortgage on real property or on interests in real property, and interest on debt secured by mortgages on both real and personal property if the fair market value of such personal property does not exceed 15% of the total fair market value of all such property;
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dividends or other distributions on, and gain from the sale of, shares in other REITs;
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gain from the sale of real property or mortgage loans;
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income and gain derived from foreclosure property (as described below);
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income derived from a REMIC in proportion to the real estate assets held by the REMIC, unless at least 95% of the REMIC’s assets are real estate assets, in which case all of the income derived from the REMIC; and
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income derived from the temporary investment of new capital that is attributable to the issuance of our shares or a public offering of our debt with a maturity date of at least five years and that we receive during the one-year period beginning on the date on which we received such new capital.
Second, in general, at least 95% of our gross income for each taxable year must consist of income that is qualifying income for purposes of the 75% gross income test (except for income derived from the temporary investment of new capital), other types of interest and dividends, gain from the sale or disposition of stock or securities or any combination of these.
Certain income items do not qualify for either gross income test. Other types of income are excluded from both the numerator and the denominator in one or both of the gross income tests. For example, gross income from the sale of property that we hold primarily for sale to customers in the ordinary course of business, income and gain from “hedging transactions,” as defined in “— Hedging Transactions,” and gross income attributable to cancellation of indebtedness, or “COD,” income will be excluded from both the numerator and the denominator for purposes of both the 75% and 95% gross income tests. In addition, certain foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests. See “— Foreign Currency Gain.” For purposes of the 75% and 95% gross income tests, we are treated as receiving our proportionate share of our Operating Partnership’s gross income. We will monitor the amount of our non-qualifying income and will seek to manage our investment portfolio to comply at all times with the gross income tests. The following paragraphs discuss the specific application of the gross income tests to us.
Dividends
Our share of any dividends received from any corporation (including dividends from our TRSs and any other TRS that we may form, but excluding any REIT) in which we own an equity interest will qualify for purposes of the 95% gross income test but not for purposes of the 75% gross income test. Our share of any dividends received from any other REIT in which we own an equity interest, if any, will be qualifying income for purposes of both gross income tests.
Interest
The term “interest,” as defined for purposes of both gross income tests, generally excludes any amount that is based in whole or in part on the income or profits of any person. However, interest generally includes the following:
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an amount that is based on a fixed percentage or percentages of receipts or sales; and
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an amount that is based on the income or profits of a debtor, as long as the debtor derives substantially all of its income from the real property securing the debt from leasing substantially all of its interest in the property, and only to the extent that the amounts received by the debtor would be qualifying “rents from real property” if received directly by a REIT.
If a loan contains a provision that entitles a REIT to a percentage of the borrower’s gain upon the sale of the real property securing the loan or a percentage of the appreciation in the property’s value as of a specific date, income attributable to that loan provision will be treated as gain from the sale of the property securing the loan, which generally is qualifying income for purposes of both gross income tests, provided that the property is not inventory or dealer property in the hands of the borrower or the REIT.
Interest on debt secured by a mortgage on real property or on interests in real property, including, for this purpose, market discount, original issue discount, discount points, prepayment penalties, loan assumption fees, and late payment charges that are not compensation for services, generally is qualifying income for purposes of the 75% gross income test. However, if the loan is secured by real property and other property and the highest principal amount of a loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of (i) the date the REIT agreed to originate or acquire the loan or (ii) as discussed below, in the event of a “significant modification,” the date we modified the loan, a portion of the interest income from such loan will not be qualifying income for purposes of the 75% gross income test, but will be qualifying income for purposes of the 95% gross income test. The portion of the interest income that will not be qualifying income for purposes of the 75% gross income test will be equal to the
portion of the principal amount of the loan that is not secured by real property — that is, the amount by which the loan balance exceeds the applicable value of the real estate that secures the loan.
We generally acquire re-performing and non-performing mortgage loans. Our mortgage loans are secured by a first lien on real property. Interest on debt secured by mortgages on real property or on interests in real property, including, for this purpose, prepayment penalties, loan assumption fees and late payment charges that are not compensation for services, generally is qualifying income for purposes of the 75% gross income test.
Under the applicable Treasury Regulation (referred to as the “interest apportionment regulation”), if we receive interest income with respect to a mortgage loan that is secured by both real property and other property, and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property on the date that we acquired the mortgage loan, the interest income will be apportioned between the real property and the other collateral, and our income from the arrangement will qualify for purposes of the 75% gross income test only to the extent that the interest is allocable to the real property. Even if a mortgage loan is not secured by real property, or is undersecured, the income that it generates may nonetheless qualify for purposes of the 95% gross income test. In Revenue Procedure 2014-51, the IRS interpreted the “principal amount” of the loan for purposes of that test to be the face amount of the loan, despite the Code’s requirement that taxpayers treat any market discount (discussed below) as interest rather than principal. In the case of mortgage loans secured by both real and personal property, if the fair market value of such personal property does not exceed 15% of the total fair market value of all property securing the loan, then the personal property securing the loan will be treated as real property for purposes of determining whether the mortgage interest income is qualifying for purposes of the 75% gross income test.
We generally acquire re-performing and non-performing mortgage loans for substantially less than their face amount. However, we believe that all of the mortgage loans that we acquire are secured only by real property and no other property value is taken into account in our underwriting and pricing. Accordingly, we believe that the interest apportionment rules and Revenue Procedure 2014-51 (to the extent it addresses interest apportionment) will not apply to our mortgage loans. Nevertheless, if the IRS were to assert successfully that our mortgage loans were secured by other property, then depending upon the value of the real property securing our mortgage loans and their face amount, and the sources of our gross income generally, we might not be able to satisfy the 75% income test.
Under the Code, if the terms of a loan are modified in a manner constituting a “significant modification,” such modification triggers a deemed exchange of the original loan for the modified loan. IRS Revenue Procedure 2014-51 provides a safe harbor pursuant to which we will not be required to redetermine the fair market value of the real property securing a loan for purposes of the gross income and asset tests in connection with a loan modification that is: (i) occasioned by a borrower default; or (ii) made at a time when we reasonably believe that the modification to the loan will substantially reduce a significant risk of default on the original loan. If we modify our mortgage loans in the future, no assurance can be provided that all of our loan modifications will qualify for the safe harbor in Revenue Procedure 2014-51. To the extent we significantly modify a mortgage loan in a manner that does not qualify for that safe harbor, we will be required to redetermine the value of the real property securing the loan at the time it was significantly modified. If the fair market value of the real property securing a loan has decreased, a portion of the interest income from the loan would not be qualifying income for the 75% gross income test and a portion of the value of the loan would not be a qualifying asset for purposes of the 75% asset test.
Hedging Transactions
From time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase these items, and futures and forward contracts. Except to the extent provided by Treasury Regulations, income and gain from “hedging transactions” will be excluded from gross income for purposes of both the 75% and 95% gross income tests. A “hedging transaction” includes any transaction entered into in the normal course of our trade or business primarily to manage the risk of interest rate changes, price changes, or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets, or liability hedge. A “hedging transaction” also includes any transaction entered into primarily to manage risk of currency fluctuations with respect to
any item of income or gain that is qualifying income for purposes of the 75% or 95% gross income test (or any property which generates such income or gain). To the extent we enter into transactions to mitigate the risk of hedging transactions where the hedged asset has been extinguished or disposed of, such transaction may also constitute a “hedging transaction.” We are required to clearly identify any such hedging transaction before the close of the day on which it was acquired, originated, or entered into and satisfy other identification requirements. To the extent that we hedge for other purposes, or to the extent that a portion of the hedged assets are not treated as “real estate assets” (as described below under “— Asset Tests”) or we enter into derivative transactions that are not liability hedges or we fail to satisfy the identification requirements with respect to a hedging transaction, the income from those transactions will likely be treated as non-qualifying income for purposes of both gross income tests. We intend to structure any hedging transactions in a manner that does not jeopardize our qualification as a REIT, but we cannot assure you that we will be able to do so. We may conduct some or all of our hedging activities through a TRS or other corporate entity, the income from which may be subject to U.S. federal income tax, rather than by participating in the arrangements directly or through pass — through subsidiaries.
Fee Income
We may earn income from fees in certain circumstances. Fee income generally will be qualifying income for purposes of both the 75% and 95% gross income tests if it is received in consideration for entering into an agreement to make a loan secured by real property and the fees are not determined by income and profits. Other fees, including certain amounts received in connection with mortgage servicing rights (which we do not currently intend to acquire on a standalone basis), generally are not qualifying income for purposes of either gross income test. Any fees earned by a TRS, like other income earned by a TRS, will not be included in the REIT’s gross income for purposes of the gross income tests.
Foreign Currency Gain
Certain foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests. “Real estate foreign exchange gain” will be excluded from gross income for purposes of the 75% and 95% gross income tests. Real estate foreign exchange gain generally includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of the 75% gross income test, foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) obligations secured by mortgages on real property or on interest in real property and certain foreign currency gain attributable to certain “qualified business units” of a REIT. “Passive foreign exchange gain” will be excluded from gross income for purposes of the 95% gross income test. Passive foreign exchange gain generally includes real estate foreign exchange gain as described above, and also includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of the 95% gross income test and foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) obligations. These exclusions for real estate foreign exchange gain and passive foreign exchange gain do not apply to foreign currency gain derived from dealing, or engaging in substantial and regular trading, in securities. Such gain is treated as non-qualifying income for purposes of both the 75% and 95% gross income tests.
Rents from Real Property
We acquired interests in real property as part of our initial portfolio and may acquire additional real property or an interest therein in the future. Rents we receive from our interests in real property will qualify as “rents from real property” in satisfying the gross income requirements for a REIT described above only if the following conditions are met:
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First, the amount of rent must not be based in whole or in part on the income or profits of any person. An amount received or accrued generally will not be excluded, however, from rents from real property solely by reason of being based on fixed percentages of receipts or sales.
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Second, rents we receive from a “related party tenant” will not qualify as rents from real property in satisfying the gross income tests unless the tenant is a TRS, at least 90% of the property is leased to unrelated tenants, the rent paid by the TRS is substantially comparable to the rent paid by the unrelated tenants for comparable space and the rent is not attributable to an increase in rent due to a
modification of a lease with a “controlled TRS” (i.e., a TRS in which we own directly or indirectly more than 50% of the voting power or value of the stock). A tenant is a related party tenant if the REIT, or an actual or constructive owner of 10% or more of the REIT, actually or constructively owns 10% or more of the tenant.
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Third, if rent attributable to personal property, leased in connection with a lease of real property, is greater than 15% of the total rent received under the lease, then the portion of rent attributable to the personal property will not qualify as rents from real property.
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Fourth, we generally must not operate or manage our real property or furnish or render services to our tenants, other than through an “independent contractor” who is adequately compensated and from whom we do not derive revenue. We may, however, provide services directly to tenants if the services are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not considered to be provided for the tenants’ convenience. In addition, we may provide a minimal amount of “non-customary” services to the tenants of a property, other than through an independent contractor, as long as our income from the services does not exceed 1% of our income from the related property. Furthermore, we may own up to 100% of the stock of a TRS, which may provide customary and non-customary services to tenants without tainting our rental income from the related properties.
If a portion of the rent that we receive from a property does not qualify as “rents from real property” because the rent attributable to personal property exceeds 15% of the total rent for a taxable year, the portion of the rent that is attributable to personal property will not be qualifying income for purposes of either the 75% or 95% gross income test. Thus, if such rent attributable to personal property, plus any other income that is non-qualifying income for purposes of the 95% gross income test, during a taxable year exceeds 5% of our gross income during the year, we would lose our REIT qualification. Further, the rent from a particular property does not qualify as “rents from real property” if (i) the rent is considered based on the income or profits of the tenant, (ii) the tenant either is a related party tenant or fails to qualify for the exceptions to the related party tenant rule for qualifying TRS or (iii) we furnish non-customary services to the tenants of the property, or manage or operate the property, other than through a qualifying independent contractor or a TRS.
Our Operating Partnership and/or its subsidiaries will generally lease our real estate owned (“REO”) properties to tenants that are individuals. Our REO property leases will typically have a term of at least one year and require the tenant to pay fixed rent. We may also lease portions of our mixed-use properties, if any, to tenants that are entities. We intend to structure any such leases so that the rent will qualify as “rents from real property,” and do not intend to own more than 10% of any tenant of a mixed-use property. We do not anticipate leasing significant amounts of personal property pursuant to any of our leases. Moreover, we do not intend to perform any services other than customary ones for our tenants, unless such services are provided through independent contractors or a TRS. Accordingly, we believe that our leases generally produce rent that qualifies as “rents from real property” for purposes of the 75% and 95% gross income tests.
In addition to the rent, the tenants may be required to pay certain additional charges. To the extent that such additional charges represent reimbursements of amounts that we are obligated to pay to third parties such charges generally will qualify as “rents from real property.” To the extent such additional charges represent penalties for nonpayment or late payment of such amounts, such charges should qualify as “rents from real property.” However, to the extent that late charges do not qualify as “rents from real property,” they instead will be treated as interest that qualifies for the 95% gross income test.
Prohibited Transactions
A REIT will incur a 100% tax on the net income (including foreign currency gain) derived from any sale or other disposition of property, other than foreclosure property, that the REIT holds primarily for sale to customers in the ordinary course of a trade or business. Any such income will be excluded from the application of the 75% and 95% gross income tests. Whether a REIT holds an asset “primarily for sale to customers in the ordinary course of a trade or business” depends on the facts and circumstances in effect from time to time, including those related to a particular asset. We believe that none of our assets will be held
primarily for sale to customers and that a sale of any of our assets will not be in the ordinary course of our business. No assurance, however, can be given that the IRS will not successfully assert a contrary position, in which case we would be subject to the prohibited transaction tax on the sale of those assets. To avoid the 100% prohibited transaction tax on the sale of dealer property by a REIT, we intend to dispose of any asset that may be treated as held “primarily for sale to customers in the ordinary course of a trade or business” by contributing or selling the asset to a TRS prior to marketing the asset for sale.
Foreclosure Property
We will be subject to tax at the maximum corporate rate on any income (including foreign currency gain) from foreclosure property, other than income that otherwise would be qualifying income for purposes of the 75% gross income test, less expenses directly connected with the production of that income. Gross income from foreclosure property will qualify, however, under the 75% and 95% gross income tests. Foreclosure property is any real property, including interests in real property, and any personal property incident to such real property:
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that is acquired by a REIT as the result of the REIT having bid on such property at foreclosure, or having otherwise reduced such property to ownership or possession by agreement or process of law, after there was a default or default was imminent on a lease of such property or on indebtedness that such property secured;
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for which the related loan or lease was acquired by the REIT at a time when the default was not imminent or anticipated; and
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for which the REIT makes a proper election to treat the property as foreclosure property.
A REIT will not be considered, however, to have foreclosed on a property where the REIT takes control of the property as a mortgagee-in-possession and cannot receive any profit or sustain any loss except as a creditor of the mortgagor. Property generally ceases to be foreclosure property at the end of the third taxable year following the taxable year in which the REIT acquired the property, or longer if an extension is granted by the Secretary of the U.S. Treasury. This grace period terminates and foreclosure property ceases to be foreclosure property on the first day:
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on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for purposes of the 75% gross income test (disregarding income from foreclosure property), or any amount is received or accrued, directly or indirectly, pursuant to a lease entered into on or after such day that will give rise to income that does not qualify for purposes of the 75% gross income test (disregarding income from foreclosure property);
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on which any construction takes place on the property, other than completion of a building or any other improvement, where more than 10% of the construction was completed before default became imminent; or
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which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business that is conducted by the REIT, other than through an independent contractor from whom the REIT itself does not derive or receive any income.
To the extent we foreclose or enter into a deed-in-lieu arrangement on any distressed mortgage loan that we acquire, we may not be able to make a foreclosure property election with respect to such property because we may be treated as having acquired the loan at a time when default on such loan was imminent or anticipated. If we anticipate selling a property shortly after foreclosure or deed-in-lieu of foreclosure, we expect that we will contribute or sell the property to a TRS, which will market and sell the property. See “— Taxable REIT Subsidiaries” and “— Gross Income Tests — Prohibited Transactions.”
Failure to Satisfy Gross Income Tests
If we fail to satisfy one or both of the gross income tests for any taxable year, we nevertheless may qualify as a REIT for that year if we are entitled to qualify for relief under certain provisions of the U.S. federal income tax laws. Those relief provisions generally will be available if:
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our failure to meet those tests is due to reasonable cause and not to willful neglect; and
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following such failure for any taxable year, a schedule of the sources of our income is filed with the IRS in accordance with regulations prescribed by the Secretary of the U.S. Treasury.
We cannot with certainty predict whether any failure to meet these tests will qualify for the relief provisions. If these relief provisions are inapplicable to a particular set of circumstances involving us, we will not qualify as a REIT. As discussed above in “— Taxation of Our Company,” even if the relief provisions apply, we would incur a 100% tax on the gross income attributable to the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, multiplied, in either case, by a fraction intended to reflect our profitability.
Asset Tests
To qualify as a REIT, we also must satisfy the following asset tests at the end of each quarter of each taxable year.
First, at least 75% of the value of our total assets must consist of (the “75% asset test”):
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cash or cash items, including certain receivables and investments in money market funds;
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government securities;
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interests in real property, including leaseholds and options to acquire real property and leaseholds, personal property to the extent such personal property is leased in connection with real property and rents attributable to such personal property are treated as “rents from real property” as a result of such rents not exceeding 15% of the total rent attributable to personal property and real property under such lease;
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interests in mortgage loans secured by real property or by interests in real property;
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stock in other REITs;
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personal property securing a mortgage secured by both real property and personal property if the fair market value of such personal property does not exceed 15% of the total fair market value of all such property;
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personal property leased in connection with a lease of real property for which the rent attributable to personal property is not greater than 15% of the total rent received under the lease;
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investments in stock or debt instruments during the one-year period following our receipt of new capital that we raise through equity offerings or public offerings of debt with at least a five-year term;
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regular or residual interests in a REMIC. However, if less than 95% of the assets of a REMIC consist of assets that are qualifying real estate-related assets under the U.S. federal income tax laws, determined as if we held such assets, we will be treated as holding directly our proportionate share of the assets of such REMIC; and
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debt instruments of “publicly offered REITs.”.
Second, of our investments not included in the 75% asset class, the value of our interest in any one issuer’s securities (other than any TRS we may own) may not exceed 5% of the value of our total assets (the “5% asset test”).
Third, of our investments not included in the 75% asset class, we may not own more than 10% of the total voting power or 10% of the total value of any one issuer’s outstanding securities, or the 10% vote test and the 10% value test, respectively.
Fourth, no more than 20% of the value of our total assets may consist of the securities of one or more TRSs.
Fifth, no more than 25% of the value of our total assets may be represented by securities, other than those in the 75% asset test (the “25% securities test”).
Sixth, not more than 25% of the value of our total assets may be represented by debt instruments of “publicly offered REITs” that are not secured by real property or interests in real property.
For purposes of these asset tests, we are treated as holding our proportionate share of our Operating Partnership’s assets. For purposes of the 5% asset test, the 10% vote test and the 10% value test, the term “securities” does not include stock in another REIT, equity or debt securities of a qualified REIT subsidiary or TRS, mortgage loans or mortgage-backed securities (“MBS”) that constitute real estate assets, or equity interests in a partnership. For purposes of the 10% value test, the term “securities” does not include:
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“straight debt” securities, which is defined as a written unconditional promise to pay on demand or on a specified date a sum certain in money if (i) the debt is not convertible, directly or indirectly, into stock, and (ii) the interest rate and interest payment dates are not contingent on profits, the borrower’s discretion, or similar factors. “Straight debt” securities do not include any securities issued by a partnership or a corporation in which we or any “controlled TRS” hold non-”straight” debt securities that have an aggregate value of more than 1% of the issuer’s outstanding securities. However, “straight debt” securities include debt subject to the following contingencies:
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a contingency relating to the time of payment of interest or principal, as long as either (i) there is no change to the effective yield of the debt obligation, other than a change to the annual yield that does not exceed the greater of 0.25% or 5% of the annual yield, or (ii) neither the aggregate issue price nor the aggregate face amount of the issuer’s debt obligations held by us exceeds $1 million and no more than twelve months of unaccrued interest on the debt obligations can be required to be prepaid; and
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a contingency relating to the time or amount of payment upon a default or prepayment of a debt obligation, as long as the contingency is consistent with customary commercial practice;
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any loan to an individual or an estate;
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any “section 467 rental agreement,” other than an agreement with a related party tenant;
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any obligation to pay “rents from real property;”
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certain securities issued by governmental entities that are not dependent in whole or in part on the profits of (or payments made by) a non-governmental entity;
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any security (including debt securities) issued by another REIT;
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any debt instrument of an entity treated as a partnership for U.S. federal income tax purposes in which we are a partner to the extent of our proportionate interest in the equity and certain debt securities issued by that partnership; or
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any debt instrument of an entity treated as a partnership for U.S. federal income tax purposes not described in the preceding bullet points if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test described above in “— Gross Income Tests.”
For purposes of the 10% value test, our proportionate share of the assets of a partnership is our proportionate interest in any securities issued by the partnership, without regard to the securities described in the last two bullet points above.
As discussed above under “— Gross Income Tests,” we intend to acquire re-performing and non-performing mortgage loans for substantially less than their face amount. Under the applicable Treasury Regulation (referred to as the “loan apportionment regulation”), if a mortgage loan is secured by real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property securing the loan as of (i) the date we agreed to acquire or originate the mortgage loan or (ii) in the event of a significant modification, the date we modified the loan, then a portion of the interest income from such a loan will not be qualifying income for purposes of the 75% gross income test but will be qualifying income for purposes of the 95% gross income test. Although the law is not entirely clear, a portion of the mortgage loan will also likely be a non-qualifying asset for purposes of the 75% asset test. Revenue Procedure 2014-51 provides a safe harbor under which the IRS has stated that it will not challenge a REIT’s treatment of a mortgage loan as being, in part, a qualifying real estate asset in an amount equal to the lesser of (i) the fair market value of the mortgage loan on the date of the relevant quarterly REIT asset testing date or (ii) the greater of (x) the fair market value of the real property securing the loan on the date of the relevant quarterly REIT asset testing date or (y) the fair market value
of the real property securing the loan determined as of the date the REIT committed to acquire the loan. Under the safe harbor, when the current value of a mortgage loan exceeds both the current fair market value of the real property that secures the loan and the fair market value of the real property that secures the loan, determined as of the date we committed to acquire or originate the loan, a portion of the mortgage loan will be treated as a nonqualifying asset. We do not anticipate that the value of our distressed mortgage loans will exceed the current value of the real property securing the loans.
We may in the future enter into repurchase agreements under which we nominally sell certain of our assets to a counterparty and simultaneously entered into an agreement to repurchase the sold assets in exchange for a purchase price that reflects a financing charge. Based on positions the IRS has taken in analogous situations, we believe that these transactions would be treated as secured debt and that we would be treated for REIT asset and income test purposes as the owner of the assets that would be the subject of such agreements notwithstanding that such agreements may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could assert that we did not own our assets subject to sale and repurchase agreements during the term of such agreements, in which case we could fail to qualify as a REIT.
Derivative instruments generally are not qualifying assets for purposes of the 75% asset test. Thus, interest rate swaps, futures contracts, and other similar instruments that are used in “hedging transactions” as defined in “— Hedging Transactions,” are non-qualifying assets for purposes of the 75% asset test.
As discussed above, we may invest opportunistically in other types of mortgage-related assets. To the extent we invest in such assets, we intend to do so in a manner that will enable us to satisfy each of the asset tests described above. However, we cannot assure you that we will be able to satisfy the asset tests described above.
We will monitor the status of our assets for purposes of the various asset tests and seek to manage our portfolio to comply at all times with such tests. No assurance, however, can be given that we will continue to be successful in this effort. In this regard, to determine our compliance with these requirements, we will have to value our investment in our assets to ensure compliance with the asset tests. Although we seek to be prudent in making these estimates, no assurances can be given that the IRS might not disagree with these determinations and assert that a different value is applicable, in which case we might not satisfy the 75% asset test and the other asset tests and, thus, would fail to qualify as a REIT.
If we fail to satisfy the asset tests at the end of a calendar quarter, we will not lose our REIT qualification so long as:
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we satisfied the asset tests at the end of the preceding calendar quarter; and
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the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of our assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets.
If we did not satisfy the condition described in the second item, above, we still could avoid disqualification by eliminating any discrepancy within 30 days after the close of the calendar quarter in which it arose.
If we violate the 5% asset test, the 10% vote test or the 10% value test described above at the end of any calendar quarter, we will not lose our REIT qualification if (i) the failure is de minimis (up to the lesser of 1% of the total value of our assets or $10 million) and (ii) we dispose of assets or otherwise comply with the asset tests within six months after the last day of the quarter in which we identified such failure. In the event of a more than de minimis failure of any of the asset tests, as long as the failure was due to reasonable cause and not to willful neglect, we will not lose our REIT qualification if we (i) dispose of assets or otherwise comply with the asset tests within six months after the last day of the quarter in which we identified such failure, (ii) file a schedule with the IRS describing the assets that caused such failure in accordance with regulations promulgated by the Secretary of the U.S. Treasury and (iii) pay a tax equal to the greater of $50,000 or the product of the highest U.S. federal corporate tax rate and the net income from the non- qualifying assets during the period in which we failed to satisfy the asset tests. If these relief provisions are inapplicable to a particular set of circumstances involving us, we will fail to qualify as a REIT.
We believe that the assets that we may hold will satisfy the foregoing asset test requirements. We will monitor the status of our assets and our future acquisition of assets to ensure that we comply with those requirements, but we cannot assure you that we will be successful in this effort. No independent appraisals will be obtained to support our estimates of and conclusions as to the value of our assets and securities, or in many cases, the real estate collateral for the mortgage loans that support our assets. Moreover, the values of some assets may not be susceptible to a precise determination. As a result, no assurance can be given that the IRS will not contend that our ownership of securities and other assets violates one or more of the asset tests applicable to REITs.
Distribution Requirements
Each taxable year, we must distribute dividends, other than capital gain dividends and deemed distributions of retained capital gain, to our stockholders in an aggregate amount at least equal to:
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the sum of
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90% of our “REIT taxable income,” computed without regard to the dividends paid deduction and our net capital gain, and
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90% of our after-tax net income, if any, from foreclosure property,
minus
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the sum of certain items of non-cash income.
We must make such distributions in the taxable year to which they relate, or in the following taxable year if either (i) we declare the distribution before we timely file our U.S. federal income tax return for the year and pay the distribution on or before the first regular dividend payment date after such declaration or (ii) we declare the distribution in October, November or December of the taxable year, payable to stockholders of record on a specified day in any such month, and we actually pay the dividend before the end of January of the following year. The distributions under clause (i) are taxable to the stockholders in the year in which paid, and the distributions in clause (ii) are treated as paid on December 31 of the prior taxable year. In both instances, these distributions relate to our prior taxable year for purposes of the 90% distribution requirement.
We will pay U.S. federal income tax on taxable income, including net capital gain, that we do not distribute to stockholders. Furthermore, if we fail to distribute during a calendar year, or by the end of January following the calendar year in the case of distributions with declaration and record dates falling in the last three months of the calendar year, at least the sum of:
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85% of our REIT ordinary income for such year,
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95% of our REIT capital gain income for such year, and
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any undistributed taxable income from prior periods, we will incur a 4% nondeductible excise tax on the excess of such required distribution over the amounts we actually distribute.
We may elect to retain and pay income tax on the net long term capital gain we recognize in a taxable year. See “— Taxation of U.S. Holders — Taxation of Taxable U.S. Holders on Distributions on Shares.” If we so elect, we will be treated as having distributed any such retained amount for purposes of the REIT distribution requirements and the 4% nondeductible excise tax described above.
We intend to make timely distributions in the future sufficient to satisfy the annual distribution requirements and to avoid corporate income tax and the 4% nondeductible excise tax.
It is possible that, from time to time, we may experience timing differences between the actual receipt of cash, including distributions from our subsidiaries, and actual payment of deductible expenses and the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income. Possible examples of those timing differences include the following:
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If we sell property at a loss to a related party, including a TRS, such loss may be suspended until the TRS disposes of the property to an unrelated buyer.
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Because we may deduct capital losses only to the extent of our capital gains, we may have taxable income that exceeds our economic income.
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We will recognize taxable income in advance of the related cash flow with respect to our investments that are deemed to have original issue discount. We generally must accrue original issue discount based on a constant yield method that takes into account projected prepayments but that defers taking into account credit losses until they are actually incurred.
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If we acquire distressed mortgage loans and significantly modify those loans, we would recognize gain, without the receipt of any cash, on the resulting deemed exchange equal to the difference between the adjusted issue price of the modified loan (which will generally be the face amount of the modified loan) and our adjusted tax basis in the original loan. Because we intend to acquire distressed mortgage loans at a significant discount, our adjusted tax basis in a distressed mortgage loan typically will be significantly lower than the adjusted issue price of the modified loan, which would result in our recognizing “phantom” income if we significantly modify the loan. We intend to significantly modify our distressed mortgage loans only on an opportunistic or selective basis.
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We expect to foreclose on a portion of our non-performing mortgage loans, and we may engage in foreclosures or other transactions that result in the conversion of such loans to real property. Such transactions could also give rise to taxable income without a corresponding receipt of cash.
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We may acquire investments that are treated as having “market discount” for U.S. federal income tax purposes, because the investments are debt instruments that we acquire for an amount less than their principal amount. We do not intend to elect to recognize market discount currently. Under the market discount rules, we may be required to treat portions of gains on sale of market discount bonds as ordinary income and may be required to include some amounts of principal payments received on market discount bonds as ordinary income. The recognition of market discount upon receipt of principal payments results in an acceleration of the recognition of taxable income to periods prior to the receipt of the related economic income. Further, to the extent that such an investment does not fully amortize according to its terms, we may never receive the economic income attributable to previously recognized market discount.
Although several types of non-cash income are excluded in determining the annual distribution requirement, we will incur corporate income tax and/or the 4% nondeductible excise tax with respect to those non-cash income items if we do not distribute those items on a current basis. As a result of the foregoing, we may have less cash than is necessary to distribute all of our taxable income and thereby avoid corporate income tax and the excise tax imposed on certain undistributed income. In such a situation, we may need to borrow funds, sell assets or make taxable distributions of our shares or debt securities.
We may satisfy the 90% distribution test with taxable distributions of our shares or debt securities. The IRS has issued a revenue procedure authorizing publicly offered REITs to treat certain distributions that are paid partly in cash and partly in shares as dividends that would satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for U.S. federal income tax purposes.
Under certain circumstances, we may be able to correct a failure to meet the distribution requirement for a year by paying “deficiency dividends” to our stockholders in a later year. We may include such deficiency dividends in our deduction for dividends paid for the earlier year. Although we may be able to avoid income tax on amounts distributed as deficiency dividends, we will be required to pay interest and may be required to pay a penalty to the IRS based upon the amount of any deduction we take for deficiency dividends.
Recordkeeping Requirements
We must maintain certain records in order to qualify as a REIT. In addition, to avoid a monetary penalty, we must request, on an annual basis, information from our stockholders designed to disclose the actual ownership of our outstanding shares. We intend to comply with these requirements.
Failure to Qualify
If we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, we could avoid disqualification if our failure is due to reasonable cause and not to willful
neglect and we pay a penalty of $50,000 for each such failure. In addition, there are relief provisions for a failure of the gross income tests and asset tests, as described in “— Gross Income Tests” and “— Asset Tests.”
If we fail to qualify as a REIT in any taxable year, and no relief provision applies, we would be subject to U.S. federal income tax on our taxable income at regular corporate rates. In calculating our taxable income in a year in which we fail to qualify as a REIT, we would not be able to deduct amounts paid out to stockholders. In fact, we would not be required to distribute any amounts to stockholders in that year. In such event, to the extent of our current or accumulated earnings and profits, all distributions to stockholders would be taxable as ordinary income.
Subject to certain limitations of the U.S. federal income tax laws, corporate stockholders might be eligible for the dividends received deduction and stockholders taxed at individual rates might be eligible for the reduced U.S. federal income tax rate of 20% on such dividends. Unless we qualified for relief under specific statutory provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. We cannot predict whether in all circumstances we would qualify for such statutory relief.
Taxable Mortgage Pools and Excess Inclusion Income
An entity, or a portion of an entity, may be classified as a TMP under the Code if (i) substantially all of its assets consist of debt obligations or interests in debt obligations, (ii) more than 50% of those debt obligations are real estate mortgages or interests in real estate mortgages as of specified testing dates, (iii) the entity has issued debt obligations (liabilities) that have two or more maturities, and (iv) the payments required to be made by the entity on its debt obligations (liabilities) “bear a relationship” to the payments to be received by the entity on the debt obligations that it holds as assets. Under Treasury Regulations, if less than 80% of the assets of an entity (or a portion of an entity) consist of debt obligations, these debt obligations are considered not to comprise “substantially all” of its assets, and therefore the entity would not be treated as a TMP. Our future financing and securitization arrangements may give rise to TMPs, with the consequences as described below.
Where an entity, or a portion of an entity, is classified as a TMP, it is generally treated as a taxable corporation for U.S. federal income tax purposes. In the case of a REIT, or a portion of a REIT, or a disregarded subsidiary of a REIT, that is a TMP, however, special rules apply. We may enter into transactions that could result in us or a portion of our assets being treated as a TMP for U.S. federal income tax purposes. Specifically, we may securitize our assets and such securitizations may result in us owning interests in a TMP. If we do not own 100% of the equity in our Operating Partnership, we would be precluded from holding equity interests in such a securitization through our Operating Partnership. Accordingly, we would likely enter into such transactions through a Subsidiary REIT owned by our Operating Partnership and will be precluded from selling to outside investors equity interests in such securitizations or from selling any debt securities issued in connection with such securitizations that might be considered to be equity interests for U.S. federal income tax purposes.
If a REIT owns, directly or indirectly through one or more qualified REIT subsidiaries or other entities that are disregarded as a separate entity for U.S. federal income tax purposes 100% of the equity interests in the TMP, the TMP will be a qualified REIT subsidiary and, therefore, ignored as an entity separate from the REIT for U.S. federal income tax purposes and would not generally affect the tax qualification of the REIT. Rather, the consequences of the TMP classification would generally, except as described below, be limited to the REIT’s stockholders.
The U.S. Treasury has not yet issued regulations to govern the treatment of stockholders of a REIT, a portion of which is a TMP, as described below. A portion of the REIT’s income from the TMP arrangement, which might be non-cash accrued income, however, will be treated as “excess inclusion income.”
The REIT’s excess inclusion income, including any excess inclusion income from a residual interest in a REMIC, would be allocated among its stockholders. A stockholder’s share of excess inclusion income (i) would not be allowed to be offset by any net operating losses otherwise available to the stockholder, (ii) would be subject to tax as unrelated business taxable income in the hands of most types of stockholders that are otherwise generally exempt from U.S. federal income tax, and (iii) would result in the application
of U.S. federal income tax withholding at the maximum rate (30%), without reduction under any otherwise applicable income tax treaty, to the extent allocable to most types of foreign stockholders. See “— Taxation of U.S. Holders” and “— Taxation of Non-U.S. Holders.” Under IRS guidance, to the extent that excess inclusion income is allocated from a TMP to a tax-exempt stockholder of a REIT that is not subject to unrelated business income tax (such as government entities), the REIT will be subject to tax on this income at the highest applicable corporate tax rate. In that case, the REIT could reduce distributions to such stockholder by the amount of such tax paid by the REIT attributable to such stockholder’s ownership. Treasury Regulations provide that such a reduction in distributions would not give rise to a preferential dividend that could adversely affect the REIT’s compliance with its distribution requirements. See “—Distribution Requirements.” Our charter contemplates that any tax imposed on us in these circumstances may to the extent feasible reduce distributions to the stockholder whose status caused that tax to be imposed, or we may bear such tax as a general corporate expense.
The manner in which excess inclusion income is calculated is not clear under current law. As required by IRS guidance, we intend to make such determinations based on what we believe to be a reasonable method. However, there can be no assurance that the IRS will not challenge our method of making any such determinations. If the IRS were to disagree with any such determinations made or with the method used by us, the amount of any excess inclusion income required to be taken into account by one or more stockholders (as described above) could be significantly increased. Tax-exempt investors, foreign investors and taxpayers with net operating losses should carefully consider the tax consequences described above, and are urged to consult their tax advisors.
Taxation of Our Operating Partnership
Our Operating Partnership currently is disregarded as a separate entity for tax purposes because it is wholly owned by Great Ajax Corp. We may issue interests in our Operating Partnership in the future to third party partners, at which time our Operating Partnership will be treated as a partnership for tax purposes.
Under the Code, a partnership generally is not subject to U.S. federal income tax, but is required to file a partnership tax information return each year. In general, the character of each partner’s share of each item of income, gain, loss, deduction, credit, and tax preference is determined at the partnership level. Each partner is then allocated a distributive share of such items in accordance with the partnership agreement and is required to take such items into account in determining such partner’s income. Each partner includes such amount in income for any taxable year of the partnership ending within or with the taxable year of the partner, without regard to whether the partner has received or will receive any cash distributions from the partnership. Cash distributions, if any, from a partnership to a partner generally are not taxable unless and to the extent they exceed the partner’s basis in its partnership interest immediately before the distribution. Any amounts in excess of such tax basis will generally be treated as a sale or exchange of such partner’s interest in the partnership.
As noted above, for purposes of the REIT income and asset tests, we are treated as receiving or holding our proportionate share of our Operating Partnership’s income and assets, respectively. We control, and intend to continue to control, our Operating Partnership and intend to operate it consistently with the requirements for our qualification as a REIT.
We may issue equity compensation to employees in the form of interests in our Operating Partnership that provide for capital gain treatment to the employees but do not generate a corresponding deduction for our Operating Partnership.
The discussion above assumes that our Operating Partnership is treated as a “partnership” for U.S. federal income tax purposes at such time as it is no longer disregarded as a separate entity for tax purposes. Generally, a domestic unincorporated entity with two or more partners is treated as a partnership for U.S. federal income tax purposes unless it affirmatively elects to be treated as a corporation. However, certain “publicly traded partnerships” are treated as corporations for U.S. federal income tax purposes. We intend to comply with one or more exceptions to treatment of our Operating Partnership as a corporation under the publicly traded partnership rules. Failure to qualify for such an exception would prevent us from qualifying as a REIT.
Taxation of U.S. Holders
The term “U.S. holder” means a beneficial owner of our Shares that, for U.S. federal income tax purposes, is:
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a citizen or resident of the United States;
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a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any of its States or the District of Columbia;
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an estate whose income is subject to U.S. federal income taxation regardless of its source; or
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any trust if (i) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) it has a valid election in place to be treated as a U.S. person.
If a partnership, entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our Shares, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership and certain determinations made at the partner level. If you are a partner in a partnership holding our Shares, you should consult your tax advisor regarding the consequences of the purchase, ownership and disposition of our Shares by the partnership.
Taxation of Taxable U.S. Holders on Distributions on Shares
As long as we qualify as a REIT, a taxable U.S. holder must generally take into account as ordinary income distributions made out of our current or accumulated earnings and profits that we do not designate as capital gain dividends or retained long-term capital gain. In addition, for taxable years beginning after December 31, 2017 and before January 1, 2026, U.S. holders that are individuals, trusts and estates generally will be entitled to up to a 20% pass-through deduction with respect to that ordinary dividend income for purposes of determining their U.S. federal income tax (but not for purposes of the 3.8% Medicare tax), provided that certain holding period requirements have been met. Corporate U.S. holders are not entitled to the pass-through deduction or the dividends-received deduction with respect to our distributions. A noncorporate U.S. holder’s ability to claim the deduction equal to 20% of qualifying dividends received may be limited by the U.S. holder’s particular circumstances. In addition, for any noncorporate U.S. holder that claims a deduction in respect of qualifying dividends, the maximum threshold for the accuracy-related penalty with respect to substantial understatements of income tax could be reduced from 10% to 5%.
The maximum tax rate for qualified dividend income received by taxpayers taxed at individual rates is 20%. Qualified dividend income generally includes dividends paid to U.S. holders taxed at individual rates by domestic C corporations and certain qualified foreign corporations. Because we are not generally subject to U.S. federal income tax on the portion of our REIT taxable income distributed to our stockholders (see “— Taxation of Our Company” above), our dividends generally will not be eligible for the 20% rate on qualified dividend income.
As a result, subject to the discussion above concerning the 20% pass-through deduction, our ordinary REIT dividends will be taxed at the higher tax rate applicable to ordinary income. For taxable years beginning after December 31, 2017 and before January 1, 2026, the highest marginal individual income tax rate on ordinary income is 37%. However, the 20% tax rate for qualified dividend income will apply to our ordinary REIT dividends (i) attributable to dividends received by us from certain non-REIT corporations (e.g., dividends from any domestic TRSs), (ii) to the extent attributable to income upon which we have paid corporate income tax (e.g., to the extent that we distribute less than 100% of our taxable income) and (iii) attributable to income in the prior taxable year from the sales of “built-in gain” property acquired by us from C corporations in carryover basis transactions (less the amount of corporate tax on such income). In general, to qualify for the reduced tax rate on qualified dividend income, a U.S. holder must hold our shares for more than 60 days during the 121-day period beginning on the date that is 60 days before the date on which our Shares become ex-dividend. Individuals, trusts and estates whose income exceeds certain thresholds are also subject to a 3.8% Medicare tax on dividends received from us.
A U.S. holder generally will take into account distributions that we properly designate as capital gain dividends as long-term capital gain, to the extent that they do not exceed our actual net capital gain for the
taxable year, without regard to the period for which the U.S. holder has held our Shares. Dividends designated as capital gain dividends may not exceed our dividends paid for the taxable year, including dividends paid the following year that are treated as paid in the current year. A corporate U.S. holder may, however, be required to treat up to 20% of certain capital gain dividends as ordinary income.
We may elect to retain and pay income tax on the net long-term capital gain that we recognize in a taxable year. In that case, to the extent we designate such amount on a timely notice to such stockholder, a U.S. holder would be taxed on its proportionate share of our undistributed long-term capital gain. The U.S. holder would receive a credit or refund for its proportionate share of the tax we paid. The U.S. holder would increase the basis in its Shares by the amount of its proportionate share of our undistributed long-term capital gain, minus its share of the tax we paid.
A U.S. holder will not incur tax on a distribution in excess of our current and accumulated earnings and profits if the distribution does not exceed the adjusted basis of the U.S. holder’s Shares. Instead, the distribution will reduce the adjusted basis of such Shares. A U.S. holder will recognize a distribution in excess of both our current and accumulated earnings and profits and the U.S. holder’s adjusted basis in his or her Shares as long-term capital gain, or short-term capital gain if the Shares have been held for one year or less, assuming the Shares are a capital asset in the hands of the U.S. holder. In addition, if we declare a distribution in October, November or December of any year that is payable to a U.S. holder of record on a specified date in any such month, such distribution shall be treated as both paid by us and received by the U.S. holder on December 31 of such year, provided that we actually pay the distribution during January of the following calendar year, as described in “— Distribution Requirements.”
Stockholders may not include in their individual income tax returns any of our net operating losses or capital losses. Instead, these losses are generally carried over by us for potential offset against our future income.
Taxable distributions from us and gain from the disposition of our Shares will not be treated as passive activity income and, therefore, a U.S. holder generally will not be able to apply any “passive activity losses,” such as losses from certain types of limited partnerships in which such U.S. holder is a limited partner, against such income. In addition, taxable distributions from us and gain from the disposition of our Shares generally will be treated as investment income for purposes of the investment interest limitations. We will notify stockholders after the close of our taxable year as to the portions of the distributions attributable to that year that constitute ordinary income, return of capital and capital gain.
We may recognize taxable income in excess of our economic income, known as phantom income, in the first years that we hold certain investments, and experience an offsetting excess of economic income over our taxable income in later years. As a result, U.S. holders at times may be required to pay U.S. federal income tax on distributions that economically represent a return of capital rather than a dividend. These distributions would be offset in later years by distributions representing economic income that would be treated as returns of capital for U.S. federal income tax purposes. Taking into account the time value of money, this acceleration of U.S. federal income tax liabilities may reduce a U.S. holder’s after-tax return on his or her investment to an amount less than the after-tax return on an investment with an identical before-tax rate of return that did not generate phantom income. For example, if an investor with a 30% tax rate purchases a taxable bond with an annual interest rate of 10% on its face value, the investor’s before-tax return on the investment would be 10% and the investor’s after-tax return would be 7%. However, if the same investor purchased our Shares at a time when the before-tax rate of return was 10%, the investor’s after-tax rate of return on such Shares might be somewhat less than 7% as a result of our phantom income. In general, as the ratio of our phantom income to our total income increases, the after-tax rate of return received by a taxable U.S. holder will decrease.
If excess inclusion income from a TMP or REMIC residual interest is allocated to any U.S. holder, that income will be taxable in the hands of the U.S. holder and would not be offset by any net operating losses of the U.S. holder that would otherwise be available. See “— Taxable Mortgage Pools and Excess Inclusion Income.”
Taxation of Taxable U.S. Holders on the Disposition of Shares
In general, a U.S. holder must treat any gain or loss realized upon a taxable disposition of our Shares as long-term capital gain or loss if the U.S. holder has held such Shares for more than one year and otherwise
as short-term capital gain or loss. In general, a U.S. holder will realize gain or loss in an amount equal to the difference between the sum of the fair market value of any property and the amount of cash received in such disposition and the U.S. holder’s adjusted tax basis. A holder’s adjusted tax basis generally will equal the U.S. holder’s acquisition cost, increased by the excess of net capital gains deemed distributed to the U.S. holder (discussed above) less tax deemed paid by such U.S. holder on such gains and reduced by any returns of capital. However, a U.S. holder must treat any loss upon a sale or exchange of Shares held by such holder for six months or less as a long-term capital loss to the extent of capital gain dividends and any other actual or deemed distributions from us that such U.S. holder treats as long term capital gain. All or a portion of any loss that a U.S. holder realizes upon a taxable disposition of our Shares may be disallowed if the U.S. holder purchases our Shares (or substantially similar shares) within 30 days before or after the disposition.
Capital Gains and Losses
A taxpayer generally must hold a capital asset for more than one year for gain or loss derived from its sale or exchange to be treated as long-term capital gain or loss. The maximum tax rate on long-term capital gain applicable to U.S. holders taxed at individual rates is 20% for sales and exchanges of assets held for more than one year. The maximum tax rate on long-term capital gain from the sale or exchange of “section 1250 property,” or depreciable real property, is 25%, which applies to the lesser of the total amount of the gains or the accumulated depreciation on the Section 1250 property. Individuals, trusts and estates whose income exceeds certain thresholds are also subject to a 3.8% Medicare tax on gain from the sale of our Shares.
With respect to distributions that we designate as capital gain dividends and any retained capital gain that we are deemed to distribute, we will designate whether such a distribution is taxable to U.S. holders taxed at individual rates at a 20% or 25% rate. For taxable years beginning after December 31, 2017 and before January 1, 2026, the maximum tax rate for U.S. holders taxed at individual rates is 37%. Thus, the tax rate differential between capital gain and ordinary income for those taxpayers may be significant. In addition, the characterization of income as capital gain or ordinary income may affect the deductibility of capital losses, including capital losses recognized upon the disposition of our shares. A non-corporate taxpayer may deduct capital losses not offset by capital gains against its ordinary income only up to a maximum annual amount of $3,000. A non-corporate taxpayer may carry forward unused capital losses indefinitely. A corporate taxpayer must pay tax on its net capital gain at ordinary corporate rates. A corporate taxpayer may deduct capital losses only to the extent of capital gains, with unused losses being carried back three years and forward five years.
Information Reporting Requirements and Withholding
We or the applicable withholding agent will report to U.S. holders and to the IRS the amount and the tax character of distributions we pay during each calendar year, and the amount of tax we withhold, if any. Under the backup withholding rules, a U.S. holder may be subject to backup withholding with respect to distributions unless such holder:
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is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or
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provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules.
A U.S. holder who does not provide the applicable withholding agent with its correct taxpayer identification number also may be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the U.S. holder’s income tax liability. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the U.S. holder’s U.S. federal income tax liability if certain required information is timely furnished to the IRS. U.S. holders are urged to consult their own tax advisors regarding application of backup withholding to them and the availability of, and procedure for obtaining an exemption from, backup
withholding. In addition, the applicable withholding agent may be required to withhold a portion of distributions to any U.S. holders who fail to certify their U.S. status.
Taxation of Non-U.S. Holders
The term “non-U.S. holder” means a beneficial owner of our Shares that is not a U.S. holder or a partnership (or an entity or arrangement treated as a partnership for U.S. federal income tax purposes). The rules governing U.S. federal income taxation of nonresident alien individuals, foreign corporations, foreign partnerships and other foreign holders are complex. This section is only a summary of such rules. We urge non-U.S. holders to consult their tax advisors to determine the impact of U.S. federal, state and local income tax laws on ownership of our Shares, including any reporting requirements.
For most non-U.S. holders, investment in a REIT that invests principally in mortgage loans and MBS is not the most tax-efficient way to invest in such assets. That is because receiving distributions of income derived from such assets in the form of REIT dividends subjects most non-U.S. holders to withholding taxes that direct investment in those asset classes, and the direct receipt of interest and principal payments with respect to them, would not.
A non-U.S. holder that receives a distribution from us that is not attributable to gain from our sale or exchange of “United States real property interests,” as defined below, and that we do not designate as a capital gain dividend or retained capital gain will recognize ordinary income to the extent that we pay the distribution out of our current or accumulated earnings and profits. A withholding tax equal to 30% of the gross amount of the distribution ordinarily will apply unless an applicable tax treaty reduces or eliminates the tax. Reduced treaty rates are not available to the extent that income is attributable to our excess inclusion income allocable to the non-U.S. holder. See “— Taxable Mortgage Pools and Excess Inclusion Income.” If a distribution is treated as effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business, the distribution will not incur the 30% withholding tax, but the non-U.S. holder generally will be subject to U.S. federal income tax on the distribution at graduated rates, in the same manner as U.S. holders are taxed on distributions and also may be subject to the 30% branch profits tax in the case of a corporate non-U.S. holder. In general, non-U.S. holders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of our Shares. It is expected that the applicable withholding agent will withhold U.S. income tax at the rate of 30% on the gross amount of any distribution that we do not designate as a capital gain distribution or retained capital gain and is paid to a non-U.S. holder unless either:
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a lower treaty rate applies and the non-U.S. holder files with the applicable withholding agent an IRS Form W-8BEN or IRS Form W-8BEN-E evidencing eligibility for that reduced rate, or
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the non-U.S. holder files with the applicable withholding agent an IRS Form W-8ECI claiming that the distribution is effectively connected income.
Capital gain dividends received or deemed received by a non-U.S. holder from us that are not attributable to gain from our sale or exchange of “United States real property interests,” as defined below, are generally not subject to U.S. federal income or withholding tax, unless either (1) the non-U.S. holder’s investment in our Shares is effectively connected with a U.S. trade or business conducted by such non-U.S. holder (in which case the non-U.S. holder will be subject to the same treatment as U.S. holders with respect to such gain) or (2) the non-U.S. holder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and has a “tax home” in the U.S. (in which case the non-U.S. holder will be subject to a 30% tax on the individual’s net capital gain for the year).
A non-U.S. holder will not incur tax on a distribution on the Shares in excess of our current and accumulated earnings and profits if the excess portion of the distribution does not exceed the adjusted tax basis of its Shares. Instead, the excess portion of the distribution will reduce such non-U.S. holder’s adjusted tax basis of its Shares. A non-U.S. holder will be subject to tax on a distribution that exceeds both our current and accumulated earnings and profits and the adjusted basis of its Shares, if the non-U.S. holder otherwise would be subject to tax on gain from the sale or disposition of its Shares, as described below. Because we generally cannot determine at the time we make a distribution whether the distribution will exceed our current and accumulated earnings and profits, it is expected that the applicable withholding agent normally will withhold tax on the entire amount of any distribution at the same rate applicable to withholding
on a dividend. However, a non-U.S. holder may obtain a refund of amounts that the applicable withholding agent withheld if we later determine that a distribution in fact exceeded our current and accumulated earnings and profits.
For any year in which we qualify as a REIT, a non-U.S. holder may incur tax on distributions that are attributable to gain from our sale or exchange of “United States real property interests” under special provisions of the U.S. federal income tax laws known as “FIRPTA.” The term “United States real property interests” includes interests in real property and shares in corporations at least 50% of whose assets consist of interests in real property. The term “United States real property interests” generally does not include mortgage loans or MBS. Under the FIRPTA rules, a non-U.S. holder is taxed on distributions attributable to gain from sales of United States real property interests as if the gain were effectively connected with a U.S. business of the non-U.S. holder. A non-U.S. holder thus would be taxed on such a distribution at the normal capital gain rates applicable to U.S. holders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of a nonresident alien individual. A non-U.S. corporate holder not entitled to treaty relief or exemption also may be subject to the 30% branch profits tax on such a distribution. Unless a non-U.S. holder qualifies for the exception described in the next paragraph, or is a qualified shareholder or a qualified foreign pension fund (both as defined below), the applicable withholding agent must withhold 21% of any such distribution that we could designate as a capital gain dividend. A non-U.S. holder may receive a credit against such holder’s tax liability for the amount withheld.
Capital gain distributions on our Shares that are attributable to our sale of real property will be treated as ordinary dividends, rather than as gain from the sale of a United States real property interest, if (i) such Shares are “regularly traded” on an established securities market in the United States and (ii) the non-U.S. holder does not own more than 10% of such Shares during the one-year period preceding the distribution date. As a result, non-U.S. holders generally would be subject to withholding tax on such capital gain distributions in the same manner as they are subject to withholding tax on ordinary dividends. If our Shares are not regularly traded on an established securities market in the United States or the non-U.S. holder owned more than 10% of such Shares at any time during the one-year period prior to the distribution, capital gain distributions that are attributable to our sale of real property would be subject to tax under FIRPTA. Moreover, if a non-U.S. holder disposes of our Shares during the 30-day period preceding a dividend payment, and such non-U.S. holder (or a person related to such non-U.S. holder) acquires or enters into a contract or option to acquire our Shares within 61 days of the 1st day of the 30 day period described above, and any portion of such dividend payment would, but for the disposition, be treated as a United States real property interest capital gain to such non-U.S. holder, then such non-U.S. holder will be treated as having United States real property interest capital gain in an amount that, but for the disposition, would have been treated as United States real property interest capital gain.
In addition, distributions to certain non-U.S. publicly traded shareholders that meet certain record-keeping and other requirements (“qualified shareholders”) are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. Furthermore, distributions to “qualified foreign pension funds” or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Distributions received by a “qualified foreign pension fund” that are exempt from FIRPTA withholding may still be subject to regular U.S. withholding tax. Non-U.S. holders should consult their tax advisors regarding the application of these rules.
A non-U.S. holder generally will not incur tax under FIRPTA with respect to gain realized upon a disposition of our Shares as long as we are not a United States real property holding corporation during a specified testing period. If at least 50% of a REIT’s assets are United States real property interests, then the REIT will be a United States real property holding corporation. We may be a United States real property holding corporation based on our investment strategy. In that case, gains from the sale of our Shares by a non-U.S. holder could be subject to a FIRPTA tax. However, a non-U.S. holder generally would not incur tax under FIRPTA on gain from the sale of our Shares if we were a “domestically controlled qualified investment entity.” A domestically controlled qualified investment entity includes a REIT in which, at all times during a specified testing period, less than 50% in value of its shares are held directly or indirectly by non-U.S. persons. For purposes of determining whether a REIT is a “domestically controlled qualified
investment entity,” a person who at all applicable times holds less than 5% of a class of stock that is “regularly traded” is treated as a U.S. person unless the REIT has actual knowledge that such person is not a U.S. person.
If our Shares are regularly traded on an established securities market, an additional exception to the tax under FIRPTA will be available with respect to such Shares, even if we do not qualify as a domestically controlled qualified investment entity at the time the non-U.S. holder sells such Shares. Under that exception, the gain from such a sale by such a non-U.S. holder will not be subject to tax under FIRPTA if (i) the Shares are treated as being regularly traded under applicable Treasury Regulations on an established securities market and (ii) the non-U.S. holder owned, actually or constructively, 10% or less of such Shares at all times during a specified testing period. If the gain on the sale of our Shares were taxed under FIRPTA, a non-U.S. holder would be taxed on that gain in the same manner as U.S. holders, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals.
In addition, dispositions of our Shares by qualified shareholders are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our capital stock. An actual or deemed disposition of our Shares by such shareholders may also be treated as a dividend. Furthermore, dispositions of our capital stock by “qualified foreign pension funds” or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA. Non-U.S. holders should consult their tax advisors regarding the application of these rules.
Backup withholding will generally not apply to payments of dividends made by us or our paying agents, in their capacities as such, to a non-U.S. holder provided that the non-U.S. holder furnishes to the applicable withholding agent the required certification as to its non-U.S. status, such as providing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if the applicable withholding agent has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient. Payments of the net proceeds from a disposition or a redemption effected outside the United States by a non-U.S. holder made by or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, information reporting (but not backup withholding) generally will apply to such a payment if the broker has certain connections with the U.S. unless the broker has documentary evidence in its records that the beneficial owner is a non-U.S. holder and specified conditions are met or an exemption is otherwise established. Payment of the net proceeds from a disposition by a non-U.S. holder of Shares made by or through the U.S. office of a broker is generally subject to information reporting and backup withholding unless the non-U.S. holder certifies under penalties of perjury that it is not a U.S. person and satisfies certain other requirements, or otherwise establishes an exemption from information reporting and backup withholding.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the non-U.S. holder’s U.S. federal income tax liability if certain required information is timely furnished to the IRS. Non-U.S. holders are urged to consult their own tax advisors regarding application of backup withholding to them and the availability of, and procedure for obtaining an exemption from, backup withholding.
Legislative or Other Actions Affecting REITs
The present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time. The REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury, which may result in statutory changes as well as revisions to regulations and interpretations. Additionally, several of the tax considerations described herein are currently under review and are subject to change. Prospective stockholders are urged to consult with their own tax advisors regarding the effect of potential changes to the U.S. federal tax laws on an investment in our Shares.
Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act (“FATCA”), imposes a 30% U.S. withholding tax on certain U.S. source payments, including interest (and original issue discount), dividends, other fixed or determinable
annual or periodical gain, profits, and income (“Withholdable Payments”), if paid to a foreign financial institution (including amounts paid to a foreign financial institution on behalf of a stockholder), unless such institution enters into an agreement with the U.S. Treasury to collect and provide to the U.S. Treasury certain information regarding U.S. financial account holders, including certain account holders that are foreign entities with U.S. owners, with such institution or otherwise complies with FATCA. FATCA also generally imposes a withholding tax of 30% on Withholdable Payments made to a non-financial foreign entity unless such entity provides the withholding agent with a certification that it does not have any substantial U.S. owners or a certification identifying the direct and indirect substantial U.S. owners of the entity. Under certain circumstances, a stockholder may be eligible for refunds or credits of such taxes.
Under proposed Treasury Regulations on which taxpayers may rely, FATCA withholding does not apply to gross proceeds from the sale or other disposition of our shares. If we determine withholding is appropriate with respect to a Withholdable Payment, we will withhold tax at the applicable statutory rate, and we will not pay any additional amounts in respect of such withholding. Foreign financial institutions and non-financial foreign entities located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. Prospective investors are urged to consult with their own tax advisors regarding the possible implications of FATCA on their investment in our Shares.
State, Local and Foreign Taxes
We and/or our subsidiaries and stockholders may be subject to taxation by various states, localities or foreign jurisdictions, including those in which we, our subsidiaries, or our stockholders transact business, own property or reside. We or our subsidiaries may own properties located in numerous jurisdictions and may be required to file tax returns in some or all of those jurisdictions. The state, local and foreign tax treatment of us and our stockholders may differ from the U.S. federal income tax treatment of us and our stockholders described above. Consequently, stockholders should consult their tax advisors regarding the application and effect of state, local and foreign income and other tax laws upon an investment in our Shares.
PLAN OF DISTRIBUTION
The shares of common stock listed in the table appearing under the heading “Selling Stockholder” are being registered to permit the resale of such shares by the selling stockholder, and its transferees, assignees and successors-in-interest, from time to time after the date of this prospectus. There can be no assurance that the selling stockholder will sell any or all of the shares of common stock offered hereby. We will not receive any of the proceeds from the sale of the shares of common stock by the selling stockholder. We will pay substantially all of the expenses incident to this offering of the shares by the selling stockholder to the public other than commissions and discounts of underwriters, brokers, dealers or agents, if any.
The selling stockholder may sell all or a portion of the shares of common stock beneficially owned by it and offered hereby from time to time directly to purchasers or through one or more underwriters, broker-dealers or agents, at market prices prevailing at the time of sale, at prices related to such market prices, at a fixed price or prices subject to change or at negotiated prices, by a variety of methods including the following:
•
on any national securities exchange or over-the-counter market on which the shares of common stock may be listed or quoted at the time of sale;
•
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
•
block trades in which a broker-dealer may attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
•
purchases by a broker-dealer, as principal, and a subsequent resale by the broker-dealer for its account;
•
in “at the market” offerings to or through market makers into an existing market for the shares;
•
privately negotiated transactions;
•
in transactions otherwise than on such exchanges or in the over-the-counter market;
•
through a combination of any such methods; or
•
through any other method permitted under applicable law.
In addition, the selling stockholder may enter into option, derivative or hedging transactions with respect to the shares of common stock beneficially owned by it and offered hereby from time to time, and any related offers or sales of shares may be made pursuant to this prospectus. For example, the selling stockholder may:
•
enter into transactions involving short sales of the shares by broker-dealers in the course of hedging the positions they assume with the selling stockholder;
•
sell shares of common stock short itself and deliver the shares registered hereby to settle such short sales or to close out stock loans incurred in connection with its short positions;
•
write call options, put options or other derivative instruments (including exchange-traded options or privately negotiated options) with respect to the shares, or which it settles through delivery of the shares;
•
enter into option transactions or other types of transactions that require the selling stockholder to deliver shares to a broker, dealer or other financial institution, who may then resell or transfer the shares under this prospectus; or
•
lend or pledge the shares to a broker, dealer or other financial institution, which may sell the shares under this prospectus.
In effecting sales, broker-dealers engaged by the selling stockholder may arrange for other broker-dealers to participate. If the selling stockholder effects such transactions by selling the shares to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive compensation in the form of discounts, concessions or commissions from the selling stockholder or commissions from purchasers of the shares for whom they may act as agent or to whom they may sell as principal. Underwriters
may sell securities to or through dealers, and dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agent.
The selling stockholder and any underwriters, brokers, dealers or agents that participate in such distribution may be deemed to be “underwriters” within the meaning of the Securities Act, and any discounts, commissions or concessions received by any underwriters, brokers, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. If the selling stockholder is an “underwriter” within the meaning of the Securities Act, it will be subject to the prospectus delivery requirements of the Securities Act and the provisions of the Exchange Act and the rules thereunder relating to stock manipulation.
In order to comply with the securities laws of some states, the shares sold in those jurisdictions may only be sold through registered or licensed brokers or dealers. In addition, in some states, the shares may not be sold unless the shares have been registered or qualified for sale in that state or an exemption from registration or qualification is available and is complied with.
Underwriters, dealers and agents who participate in the distribution of securities and their controlling persons may be entitled, under agreements that may be entered into with us, to indemnification by us and the selling stockholder against certain liabilities, including liabilities under the Securities Act, or to contribution with respect to payments that the underwriters, dealers or agents and their controlling persons may be required to make in respect of those liabilities.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference information into this document. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update, where applicable, and supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act made subsequent to the date of this prospectus until the termination of the offering of the securities described in this prospectus (other than information in such filings that was “furnished,” under applicable SEC rules, rather than “filed”).
We incorporate by reference the following documents or information that we have filed with the SEC:
•
•
•
our Current Reports on Form 8-K filed with the SEC on February 27, 2024 (first filing), February 27, 2024 (second filing), March 15, 2024, April 10, 2024, April 22, 2024 (first filing), April 22, 2024 (second filing), May 3, 2024, May 21, 2024 and June 11, 2024 (in each case, except for any information contained therein which is furnished rather than filed);
•
•
the description of our shares of common stock contained in Exhibit 10.13 to our Annual Report on Form 10-K filed with the SEC on March 4, 2020, including any amendments or reports filed for the purpose of updating such description.
Any statement contained in this prospectus or contained in a document incorporated or deemed to be incorporated by reference into this prospectus will be deemed to be modified or superseded to the extent that a statement contained in this prospectus or any subsequently filed supplement to this prospectus, or document deemed to be incorporated by reference into this prospectus, modifies or supersedes such statement.
We will provide copies of all documents incorporated into this prospectus by reference, without charge, upon oral request to our Secretary at the number listed below or in writing by first-class mail to the address listed below.
Lauren DeMasi
Great Ajax Corp.
c/o RCM GA Manager LLC
799 Broadway
New York, New York
(212) 850-7770
You should rely only on the information incorporated by reference or provided in this prospectus or in any prospectus supplement. We have not authorized anyone else to provide you with different or additional information. An offer of these securities is not being made in any jurisdiction where the offer or sale is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of those documents.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that we file electronically with the SEC at http://www.sec.gov. In addition, we maintain a website that contains information about us at www.greatajax.com. The information found on, or otherwise accessible through, our website is not incorporated by reference into, and does not form a part of, this prospectus or any accompanying prospectus supplement or any other report or document we file with or furnish to the SEC.
We have filed with the SEC a registration statement on Form S-3, of which this prospectus is a part, including exhibits, schedules and amendments filed with, or incorporated by reference into, the registration statement, under the Securities Act with respect to the securities registered hereby. This prospectus and any accompanying prospectus supplement do not contain all of the information set forth in the registration statement and exhibits and schedules to the registration statement. For further information with respect to our company and the securities registered hereby, reference is made to the registration statement, including the exhibits to the registration statement. Statements contained in this prospectus and any accompanying prospectus supplement as to the contents of any contract or other document referred to in, or incorporated by reference into, this prospectus and any accompanying prospectus supplement are not necessarily complete and, where such contract or other document is an exhibit to the registration statement, each statement is qualified in all respects by the exhibit to which the reference relates. The registration statement of which this prospectus is a part is available to you on the SEC’s website.
LEGAL MATTERS
The validity of the issuance of the common stock and the warrant shares and certain other legal matters will be passed upon for us by Mayer Brown LLP, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule of the Company as of December 31, 2023 and 2022 and for each of the three years in the period ended December 31, 2023, incorporated in this prospectus by reference from the Annual Report on Form 10-K of the Company for the year ended December 31, 2023, and the effectiveness of our internal control over financial reporting as of December 31, 2023, have been audited by Moss Adams LLP, an independent registered public accounting firm, as stated in their report, which is incorporated herein by reference. Such consolidated financial statements and financial statement schedule are incorporated in reliance upon the report of such firm given their authority as experts in accounting and auditing.
6,139,670 Shares of Common Stock
PROSPECTUS
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses payable by us in connection with the sale and distribution of the securities being registered. All of the amounts shown are estimates:
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Amount to
be paid
|
|
|
SEC registration fee
|
|
|
|
$ |
3,978.99 |
|
|
|
Printing expenses
|
|
|
|
|
5,000* |
|
|
|
Legal fees and expenses
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|
|
|
|
*
|
|
|
|
Accounting fees and expenses
|
|
|
|
|
*
|
|
|
|
Miscellaneous
|
|
|
|
|
— |
|
|
|
Total
|
|
|
|
$ |
*
|
|
|
*
To be provided by amendment.
Item 15. Indemnification of Directors and Officers.
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty that is established by a final judgment and is material to the cause of action. Our charter contains a provision which eliminates our directors’ and officers’ liability to the maximum extent permitted by Maryland law.
Maryland law requires a Maryland corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he or she is made or threatened to be made a party by reason of his or her service in that capacity. Maryland law permits a Maryland corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason of their service in those or other capacities unless it is established that: (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty; (b) the director or officer actually received an improper personal benefit in money, property or services; or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, if the proceeding was one by or in the right of the corporation, under Maryland law, indemnification may not be made in respect of any proceeding in which the director shall have been adjudged to be liable to the corporation, and in addition, a director may not be indemnified in respect of any proceeding charging improper personal benefit to the director, whether or not involving action in the director’s official capacity, in which the director was adjudged to be liable on the basis that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses. In addition, Maryland law permits a Maryland corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of (a) a written affirmation by the director or officer of his or her good-faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.
Our charter authorizes us, to the maximum extent permitted by Maryland law, to obligate ourselves and our bylaws obligate us, to indemnify any present or former director or officer or any individual who, while a director of our company and at our request, serves or has served as a director, officer, partner or trustee of another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit
plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity from and against any claim or liability to which that individual may become subject or which that individual may incur by reason of his or her service in any of the foregoing capacities and to pay or reimburse his or her reasonable expenses in advance of final disposition of a proceeding. Our charter and bylaws also permit us to indemnify and advance expenses to any individual who served a predecessor of our company in any of the capacities described above and any employees or agents of our company or a predecessor of our company.
We have entered into indemnification agreements with each of our executive officers and directors whereby we indemnify such executive officers and directors to the fullest extent permitted by Maryland law against all expenses and liabilities, subject to limited exceptions. These indemnification agreements also provide that upon an application for indemnity by an executive officer or director to a court of appropriate jurisdiction, such court may order us to indemnify such executive officer or director.
In addition, our directors and officers are indemnified for specified liabilities and expenses pursuant to the limited partnership agreement of our Operating Partnership.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Item 16. Exhibits.
The list of exhibits immediately preceding the signature page of this registration statement is incorporated by reference as if fully set forth herein.
Item 17. Undertakings.
(a)
The undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Filing Fee Tables” or “Calculation of Registration Fee” table, as applicable, in the effective registration statement;
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2)
That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(5)
That, for the purpose of determining liability under the Securities Act to any purchaser:
(i)
Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii)
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(6)
That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii)
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii)
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b)
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(i)
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
EXHIBIT INDEX
Exhibit
Number
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Description of Exhibit
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1.1*
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Form of Underwriting Agreement.
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3.1
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Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-11 confidentially submitted to the SEC on September 23, 2014 (File No. 333-00787)).
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3.2
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Articles Supplementary to the Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 7, 2020 (File No. 001-36844)).
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3.3
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Articles Supplementary to the Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 8, 2020 (File No. 001-36844)).
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3.4
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Articles of Amendment to the Articles Supplementary (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 8, 2020 (File No. 001-36844)).
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3.5
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Amended and Restated Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2024 (File No. 001-36844)).
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4.1**
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Warrant Agreement, dated as of April 23, 2024, by and between the Company and Equiniti Trust Company, LLC.
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5.1**
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Opinion of Mayer Brown LLP as to the validity of the securities registered hereunder.
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8.1**
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Opinion of Mayer Brown LLP regarding certain tax matters.
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10.1
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Securities Purchase Agreement, dated February 26, 2024, by and among the Company, Great Ajax Operating Partnership L.P., Thetis Asset Management LLC and Rithm (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on February 27, 2024 (File No. 001-36844)).
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10.2**
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Registration Rights Agreement, dated April 23, 2024, by and between the Company and Rithm.
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10.3
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Termination and Release Agreement, dated June 11, 2024, by and among the Company, Great Ajax Operating Partnership L.P. and Thetis Asset Management LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 11, 2024 (File No. 001-36844)).
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10.4†
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Management Agreement, dated June 11, 2024, by and among the Company, Great Ajax Operating Partnership L.P. and Rithm (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 11, 2024 (File No. 001-36844)).
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23.1**
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Consent of Moss Adams LLP.
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23.2**
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Consent of Mayer Brown LLP (included in Exhibit 5.1).
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23.3**
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Consent of Mayer Brown LLP (included in Exhibit 8.1)
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24.1**
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Power of Attorney (included on the signature page hereto).
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107**
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Filing Fee Table
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*
To be filed by an amendment or as an exhibit to a Current Report on Form 8-K and incorporated by reference herein.
**
Filed herewith.
†
Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the SEC upon request.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Tigard, Oregon on June 11, 2024.
GREAT AJAX CORP.
By:
/s/ Michael Nierenberg
Michael Nierenberg
Chief Executive Officer
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Nierenberg, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
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Name
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Capacity
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Date
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/s/ Michael Nierenberg
Michael Nierenberg
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Chief Executive Officer
(principal executive officer)
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June 11, 2024
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/s/ Paul Friedman
Paul Friedman
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Director
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June 11, 2024
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/s/ Mary Haggerty
Mary Haggerty
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Director
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June 11, 2024
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/s/ Daniel Hoffman
Daniel Hoffman
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Director
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June 11, 2024
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/s/ Michael Nierenberg
Michael Nierenberg
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Director
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June 11, 2024
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Exhibit 4.1
WARRANT AGREEMENT
WARRANT AGREEMENT, dated
as of April 23, 2024 (this “Agreement”), between Great Ajax Corp., a Maryland corporation (the “Company”),
and Equiniti Trust Company, a limited trust company organized under the laws of the State of New York (the “Warrant Agent”
or “Equiniti”).
WHEREAS, pursuant to the
Securities Purchase Agreement by and among the Company, Thetis Asset Management LLC and Rithm Capital Corp., dated February 26, 2024
(the “Securities Purchase Agreement”), the Company wishes to issue warrants (the “Warrants”) in
book-entry form entitling the holder of the Warrants (the “Holder,” which term shall include Holder’s transferees,
successors and assigns and “Holder” shall include, if the Warrants are held in “street name,” a Participant (as
defined below) or a designee appointed by such Participant) to purchase an aggregate of up to 6,529,851 shares of the Company’s
common stock, par value $0.01 per share (the “Common Stock”), underlying the Warrants (“Warrant Shares”);
WHEREAS, the Company wishes
the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing so to act, in connection with the issuance, registration,
transfer, exchange, exercise and replacement of the Warrants and, in the Warrant Agent’s capacity as the Company’s transfer
agent, the delivery of the Warrant Shares (as defined below).
NOW, THEREFORE, in consideration
of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain
Definitions. For purposes of this Agreement, the following terms have the meanings indicated:
| (a) | “Affiliate” has the meaning ascribed to it in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). |
| (b) | “Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United
States or any day on which the New York Stock Exchange is authorized or required by law or other governmental action to close. |
| (c) | “Close of Business” on any given date means 5:00 p.m., Eastern time, on such date; provided, however,
that if such date is not a Business Day it means 5:00 p.m., Eastern time, on the next succeeding Business Day. |
| (d) | “Person” means an individual, corporation, association, partnership, limited liability company, joint venture,
trust, unincorporated organization, government or political subdivision thereof or governmental agency or other entity. |
| (e) | “Warrant Certificate” means a certificate in substantially the form attached as Exhibit A hereto, representing
such number of Warrant Shares (as defined below) as is indicated therein, provided that any reference to the delivery of a Warrant
Certificate in this Agreement shall include delivery of notice from the Depository or a Participant (each as defined below) of the transfer
or exercise of Warrant in the form of a Book-Entry Warrant (as defined below). |
All other capitalized terms
used but not otherwise defined herein shall have the meaning ascribed to such terms in the Warrant Certificate.
Section 2. Appointment
of Warrant Agent. The Company hereby appoints the Warrant Agent to act as agent for the Company in accordance with the express terms
or conditions hereof (and no implied terms and conditions), and the Warrant Agent hereby accepts such appointment.
Section 3. Book-Entry
Warrants.
(a) The Warrants shall
be issued as of the date of issuance in book-entry form in the name of each holder and in such amounts as instructed by the Company in
writing (which may be by e-mail) (the “Book-Entry Warrants” and each, a “Book-Entry Warrant”). Ownership
of beneficial interests in the Warrants shall be shown on, and the transfer of such ownership shall be effected through, records maintained
by the Warrant Agent.
(b) A Holder has the
right to elect, at any time or from time to time, a Warrant Exchange (as defined below) pursuant to a Warrant Certificate Request Notice
(as defined below). Upon written notice by a Holder to the Warrant Agent for the exchange of some or all of such Holder’s Book-Entry
Warrants for a Warrant Certificate, evidencing the same number of Warrants, which request shall be in the form attached hereto as Annex
A (a “Warrant Certificate Request Notice” and the date of delivery of such Warrant Certificate Request Notice by
the Holder, the “Warrant Certificate Request Notice Date” and the deemed surrender upon delivery by the Holder of a
number of Book-Entry Warrants for the same number of Warrants evidenced by a Warrant Certificate, a “Warrant Exchange”),
the Warrant Agent shall promptly effect the Warrant Exchange and shall promptly issue and deliver to the Holder a Warrant Certificate
for such number of Warrants in the name set forth in the Warrant Certificate Request Notice. Such Warrant Certificate shall be dated the
original issue date of the Warrants, shall be executed by manual signature by an authorized signatory of the Company, shall be in the
form attached hereto as Exhibit A. In connection with a Warrant Exchange, the Company agrees to deliver, or to direct the
Warrant Agent to deliver, the Warrant Certificate to the Holder within three (3) Business Days of the Warrant Certificate Request
Notice pursuant to the delivery instructions in the Warrant Certificate Request Notice (“Warrant Certificate Delivery Date”).
The Company covenants and agrees that, upon the date of delivery of the Warrant Certificate Request Notice, the Holder shall be deemed
to be the holder of the Warrant Certificate. Notwithstanding anything to the contrary set forth herein, the Warrants shall be subject
to all of the terms and conditions of this Agreement and the Warrant Certificate (regardless of whether a Holder has elected a Warrant
Exchange); provided, that in the event of any conflict between this Agreement and the Warrant Certificate, this Agreement shall
control.
Section 4. Form of
Warrant Certificates. The Warrant Certificates, together with the form of election to purchase Common Stock (“Exercise Notice”)
and the form of assignment attached thereto, shall be in the form of Exhibit A hereto.
Section 5. Countersignature
and Registration. The Warrant Certificates shall be executed on behalf of the Company by its Chief Executive Officer or Chief Financial
Officer, either electronically or by facsimile signature. The Warrant Certificates may be countersigned by the Warrant Agent, either manually
or by facsimile signature. In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be
such officer of the Company before issuance and delivery by the Company, such Warrant Certificates, nevertheless, may be issued and delivered
with the same force and effect as though the person who signed such Warrant Certificate had not ceased to be such officer of the Company;
and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant
Certificate, shall be a proper officer of the Company to sign such Warrant Certificate, although at the date of the execution of this
Agreement any such person was not such an officer.
The Warrant Agent will keep
or cause to be kept, at its office designated for such purposes, books for registration and transfer of the Warrant Certificates issued
hereunder. Such books shall show the names and addresses of the respective Holder of the Warrant Certificates, the number of warrants
evidenced on the face of each of such Warrant Certificate and the date of each of such Warrant Certificate. The Warrant Agent will create
a special account for the issuance of Warrant Certificates.
Section 6. Transfer,
Split Up, Combination and Exchange of Warrant Certificates; Mutilated, Destroyed, Lost or Stolen Warrant Certificates. Subject to
the provisions of the Warrant Certificate and the last sentence of this first paragraph of Section 6, and subject to applicable law,
rules or regulations, or any “stop transfer” instructions the Company may give to the Warrant Agent, at any time after
the original issuance dates of the Warrants, and at or prior to the Close of Business on the Expiration Date, any Warrant Certificate
or Warrant Certificates or Book-Entry Warrant or Book-Entry Warrants may be transferred, split up, combined or exchanged for another Warrant
Certificate or Warrant Certificates or Book-Entry Warrant or Book-Entry Warrants, entitling the Holder to purchase a like number of shares
of Common Stock as the Warrant Certificate or Warrant Certificates or Book-Entry Warrant or Book-Entry Warrants covered by the applicable
request of such Holder then entitled such Holder to purchase. Any Holder desiring to transfer, split up, combine or exchange any Warrant
Certificate or Book-Entry Warrant shall make such request in writing delivered to the Warrant Agent, and shall surrender the Warrant Certificate
or Warrant Certificates, together with the required form of assignment and certificate duly executed and properly completed and such other
documentation as the Warrant Agent may reasonably request, to be transferred, split up, combined or exchanged at the office of the Warrant
Agent designated for such purpose, provided that no such surrender is applicable to the Holder of a Book-Entry Warrant. Any requested
transfer of Warrants, whether in book-entry form or certificate form, shall be accompanied by evidence of authority of the party making
such request that may be reasonably required by the Warrant Agent. Thereupon the Warrant Agent shall, other than with respect to any Book-Entry
Warrant, subject to the last sentence of this first paragraph of Section 6, deliver to the Person entitled thereto a Warrant Certificate
or Warrant Certificates, as the case may be, as so requested. The Company may require payment from the Holder of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Warrant Certificates.
The Warrant Agent shall not have any duty or obligation to take any action under any section of this Agreement that requires the payment
of taxes and/or charges unless and until it is satisfied that all such payments have been made.
Upon receipt by the Warrant
Agent of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of a Warrant Certificate, which evidence
shall include an affidavit of loss, or in the case of mutilated certificates, the certificate or portion thereof remaining, and, in case
of loss, theft or destruction, of indemnity or security reasonably acceptable to the Company and the Warrant Agent and reimbursement to
the Company and the Warrant Agent of all reasonable expenses incidental thereto, and upon surrender to the Warrant Agent and cancellation
of the Warrant Certificate if mutilated, the Company or the Warrant Agent will make and deliver a new Warrant Certificate of like tenor
to the Warrant Agent for delivery to the Holder in lieu of the Warrant Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise
of Warrants; Exercise Price; Expiration Date.
(a) The Warrants shall
be exercisable commencing on the initial exercise date set forth in the Warrant Certificate. The Warrants shall cease to be exercisable
and shall terminate and become void, and all rights thereunder and under this Agreement shall cease, at or prior to the Close of Business
on the Expiration Date. Subject to the foregoing and to Sections 7(b) and 7(f) below, the Holder may exercise the Warrants in
whole or in part upon (i) surrender of the Warrant Certificate, if applicable, and (ii) delivery of the properly completed and
duly executed Exercise Notice and, except in the case of a Net Exercise, payment of the Exercise Price, which may be made, at the option
of the Holder, by wire transfer or by certified or official bank check in U.S. dollars, to the Warrant Agent at the office of the Warrant
Agent designated for such purposes. The Exercise Notice for a Net Exercise shall be delivered to the Company. The Company acknowledges
that the bank accounts maintained by the Warrant Agent in connection with the services provided under this Agreement will be in the Company’s
name and that the Warrant Agent may receive investment earnings in connection with the investment at Warrant Agent risk and for its benefit
of funds held in those accounts from time to time. Neither the Company nor the Holder will receive interest on any deposits or Exercise
Price. No ink-original Exercise Notice shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization)
of any Exercise Notice be required.
(b) An Exercise Notice
for a Net Exercise shall be delivered by the Company to the Warrant Agent along with the number of Warrant Shares issuable in connection
with such Net Exercise. The Warrant Agent shall have no obligation under this Agreement to calculate, the number of Warrant Shares issuable
in connection with a Net Exercise, nor shall the Warrant agent have any duty or obligation to investigate or confirm whether the Company’s
determination of the number of Warrant Shares issuable upon such exercise, pursuant to this Section 7, is accurate or correct.
(c) Upon the Warrant
Agent’s receipt of a Warrant Certificate, if applicable, at or prior to the Close of Business on the Expiration Date set forth in
such Warrant Certificate with the executed Exercise Notice and payment of the Exercise Price for the Warrant Shares to be purchased (other
than in the case of a Net Exercise) and an amount equal to any applicable tax, or governmental charge referred to in Section 6 by
wire transfer, or by certified check or bank draft payable to the order of the Warrant Agent, the Warrant Agent shall cause the Warrant
Shares underlying such Warrant Certificate or Book-Entry Warrant to be delivered to or upon the order of the Holder of such Warrant Certificate
or Book-Entry Warrant registered in such name or names as may be designated by such Holder, no later than the Warrant Share Delivery Date
or Share Delivery Date. If the Company is then a participant in the DWAC system of the Depository Trust Company (the “Depository”)
and there is either (i) an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant
Shares by Holder or (ii) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant
to Rule 144, then the Warrant Shares shall be transmitted by the Warrant Agent to the Holder by crediting the account of the Holder’s
broker with the Depository through its DWAC system. Notwithstanding anything else to the contrary in this Agreement, except in the case
of a Net Exercise, if any Holder fails to duly deliver payment to the Warrant Agent of an amount equal to the aggregate Exercise Price
of the Warrant Shares to be purchased upon exercise of such Holder’s Warrant as set forth in Section 7(a) hereof by the
Warrant Share Delivery Date, the Warrant Agent will not obligated to deliver such Warrant Shares (via DWAC or otherwise) until following
receipt of such payment, and the applicable Warrant Share Delivery Date shall be deemed extended by one day for each day (or part thereof)
until such payment is delivered to the Warrant Agent. With respect to the exercise of any Book-Entry Warrants, the Warrant Agent shall,
as promptly as practicable following any exercise, execute and deliver a written confirmation evidencing the book-entry registration of
the Warrant Shares in the Holder’s name, and if the Book-Entry Warrants shall not have been exercised in full, a new book-entry
position for the number of Warrants Shares as to which the Book-Entry Warrants shall not have been exercised.
(d) The Warrant Agent
shall deposit all funds received by it in payment of the Exercise Price for all Warrants in the account of the Company maintained with
the Warrant Agent for such purpose (or to such other account as directed by the Company in writing) and shall advise the Company via email
at the end of each day on which Exercise Notices are received or funds for the exercise of any Warrant are received of the amount so deposited
to its account.
(e) In case the Holder
shall exercise fewer than all Warrants evidenced by any Warrant Certificate (if applicable), upon the request of the Holder, a new Warrant
Certificate evidencing the number of Warrants equivalent to the number of Warrants remaining unexercised may be issued by the Warrant
Agent to such or to its duly authorized assigns in accordance with Section 11 of the Warrant Certificate, subject to the provisions
of Section 6 hereof.
(f) The Holder may not
exercise the Warrants in whole or in part prior to the earlier of (i) the date of effectiveness of the Resale Registration Statement
(as such term is defined in the Securities Purchase Agreement) and (ii) October 23, 2024.
(g) To the extent the
Warrant Agent requires the Company to provide the Warrant Agent any instruction, confirmation or information prior to effecting any request
of the Holder pursuant to this Agreement, including, for the avoidance of doubt, in order to effect the issuance of any Warrant, effect
the exercise of any Warrant or provide ownership or other information with respect to any Warrant, the Company shall promptly provide
such instruction, confirmation or information to the Warrant Agent.
Section 8. Cancellation
and Destruction of Warrant Certificates. All Warrant Certificates surrendered for the purpose of exercise, transfer, split up, combination
or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Warrant Agent for cancellation or in canceled
form, or, if surrendered to the Warrant Agent, shall be canceled by it, and no Warrant Certificates shall be issued in lieu thereof except
as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Warrant Agent for cancellation and
retirement, and the Warrant Agent shall so cancel and retire, any other Warrant Certificate purchased or acquired by the Company otherwise
than upon the exercise thereof. The Warrant Agent shall deliver all canceled Warrant Certificates to the Company, or shall, at the written
request of the Company, destroy such canceled Warrant Certificates, and in such case shall deliver a certificate of destruction thereof
to the Company, subject to any applicable law, rule or regulation requiring the Warrant Agent to retain such canceled Certificates.
Section 9. Certain
Covenants; Reservation and Availability of Shares of Common Stock or Cash.
(a) The Company covenants
and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Common Stock or its authorized
and issued shares of Common Stock held in its treasury, free from preemptive rights, the number of shares of Common Stock that will be
sufficient to permit the exercise in full of all outstanding Warrants.
(b) The Warrant Agent
will create a special account for the issuance of Common Stock upon the exercise of Warrants.
(c) The Company further
covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable
in respect of the original issuance or delivery of the Warrant Certificates or certificates evidencing Common Stock upon exercise of the
Warrants. The Company shall not, however, be required to pay any tax or governmental charge which may be payable in respect of any transfer
involved in the transfer or delivery of Warrant Certificates or the issuance or delivery of certificates for Common Stock in a name other
than that of the Holder of the Warrant Certificate evidencing Warrants surrendered for exercise or to issue or deliver any certificate
for shares of Common Stock upon the exercise of any Warrants until any such tax or governmental charge shall have been paid (any such
tax or governmental charge being payable by the Holder of such Warrant Certificate at the time of surrender) or until it has been established
to the Company’s reasonable satisfaction that no such tax or governmental charge is due.
Section 10. Common
Stock Record Date. Each Person in whose name any certificate for shares of Common Stock is issued upon the exercise of Warrants shall
for all purposes be deemed to have become the holder of record for the Common Stock represented thereby on, and such certificate shall
be dated, the date on which submission of the Exercise Notice was made, provided that any Warrant Certificate evidencing such Warrant
was duly surrendered (if applicable) and, except in the case of a Net Exercise, payment of the Exercise Price (and any applicable transfer
taxes) was received on or prior to the Warrant Share Delivery Date; provided, further, however, that, if the date
of submission of the Exercise Notice is a date upon which the Common Stock transfer books of the Company are closed, such Person shall
be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding day on which the
Common Stock transfer books of the Company are open.
Section 11. Adjustment
of Exercise Price, Number of Shares of Common Stock or Number of the Company Warrants. The Exercise Price, the number of shares of
Common Stock covered by each Warrant and the number of Warrants outstanding are subject to adjustment from time to time as provided in
Section 2 of the Warrant Certificate.
Section 12. Fractional
Shares of Common Stock.
(a) The Company shall
not issue fractions of Warrants or distribute Warrant Certificates which evidence fractional Warrants. Whenever any fractional Warrant
would otherwise be required to be issued or distributed, the actual issuance or distribution shall reflect a rounding of such fraction
to the nearest whole Warrant (rounded down).
(b) The Company shall
not issue fractions of shares of Common Stock upon exercise of Warrants or distribute stock certificates which evidence fractional shares
of Common Stock. Whenever any fraction of a share of Common Stock would otherwise be required to be issued or distributed, the actual
issuance or distribution in respect thereof shall be made in accordance with Section 3 of the Warrant Certificate.
Section 13. Concerning the Warrant Agent.
(a) The Company covenants
and agrees to indemnify and to hold the Warrant Agent harmless against any costs, expenses (including reasonable fees and expenses of
its legal counsel), losses or damages, which may be paid, incurred or suffered by or to which it may become subject, arising from or out
of, directly or indirectly, any claims or liability resulting from its actions or omissions as Warrant Agent pursuant hereto; provided,
that such covenant and agreement does not extend to, and the Warrant Agent shall not be indemnified with respect to, such costs, expenses,
losses and damages incurred or suffered by the Warrant Agent as a result of, or arising out of, its fraud, gross negligence, bad faith,
or willful misconduct (each as determined by a final non-appealable court of competent jurisdiction). The costs and reasonable expenses
incurred by the Warrant Agent in enforcing this right of indemnification shall be paid by the Company.
(b) Upon the assertion
of a claim for which the Company may be required to indemnify the Warrant Agent, the Warrant Agent shall promptly notify the Company of
such assertion, and shall keep the other party reasonably advised with respect to material developments concerning such claim. However,
failure to give such notice shall not affect the Warrant Agent’s right to and the Company’s obligations for indemnification
hereunder, except to the extent the Company is actually prejudiced thereby.
(c) Neither party to this Agreement shall
be liable to the other party for any consequential, indirect, punitive, special or incidental damages under any provisions of this Agreement
or for any consequential, indirect, punitive, special or incidental damages arising out of any act or failure to act hereunder even if
that party has been advised of or has foreseen the possibility of such damages.
(d) Notwithstanding anything contained herein
to the contrary, the rights and obligations of the parties set forth in this Section 13 shall survive termination of this Agreement,
the expiration of the Warrants or the resignation, removal or replacement of the Warrant Agent.
Section 14. Purchase
or Consolidation or Change of Name of Warrant Agent. Any Person into which the Warrant Agent or any successor Warrant Agent may be
merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Warrant Agent or any
successor Warrant Agent shall be party, or any Person succeeding to the stock transfer or other shareholder services business of the Warrant
Agent or any successor Warrant Agent, shall be the successor to the Warrant Agent under this Agreement without the execution or filing
of any paper or any further act on the part of any of the parties hereto, provided that such Person would be eligible for appointment
as a successor Warrant Agent under the provisions of Section 16. In case at the time such successor Warrant Agent shall succeed to
the agency created by this Agreement any of the Warrant Certificates shall have been countersigned but not delivered, any such successor
Warrant Agent may adopt the countersignature of the predecessor Warrant Agent and deliver such Warrant Certificates so countersigned;
and in case at that time any of the Warrant Certificates shall not have been countersigned, any successor Warrant Agent may countersign
such Warrant Certificates either in the name of the predecessor Warrant Agent or in the name of the successor Warrant Agent; and in all
such cases such Warrant Certificates shall have the full force provided in the Warrant Certificates and in this Agreement.
In case at any time the name
of the Warrant Agent shall be changed and at such time any of the Warrant Certificates shall have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and deliver Warrant Certificates so countersigned; and in case at
that time any of the Warrant Certificates shall not have been countersigned, the Warrant Agent may countersign such Warrant Certificates
either in its prior name or in its changed name; and in all such cases such Warrant Certificates shall have the full force provided in
the Warrant Certificates and in this Agreement.
Section 15. Duties
of Warrant Agent. The Warrant Agent undertakes the duties and obligations imposed by this Agreement upon the following express terms
and conditions (and no implied terms and conditions), by all of which the Company, by its acceptance hereof, shall be bound and shall
not assume any obligations or relationship of agency or trust with the Holder or any other Person:
(a) The Warrant Agent
may consult with legal counsel selected by it (who may be legal counsel for the Company).
(b) Whenever in the performance
of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established
by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chief Executive Officer,
Chief Financial Officer or any Vice President of the Company; and such certificate shall be full authorization and protection to the Warrant
Agent and the Warrant Agent shall incur no liability for or in respect of any action taken, suffered or omitted to be taken by it under
the provisions of this Agreement in reliance upon such certificate.
(c) Subject to the limitations
set forth in Section 13, the Warrant Agent shall be liable hereunder only for its own fraud, gross negligence, bad faith or willful
misconduct, or for a breach by it of this Agreement.
(d) The Warrant Agent
shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Warrant Certificates
(except its countersignature thereof) by the Company or be required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Company only.
(e) The Warrant Agent
shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due
execution hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any
Warrant Certificate; nor shall it be responsible for the adjustment of the Exercise Price or the making of any change in the number of
shares of Common Stock required under the provisions of Section 11 or 12 or responsible for the manner, method or amount of any such
change or adjustment or the ascertaining of the existence of facts that would require any such adjustment or change (except with respect
to the exercise of Warrants evidenced by Warrant Certificates after actual notice of any adjustment of the Exercise Price); nor shall
it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common
Stock to be issued pursuant to this Agreement or any Warrant Certificate or as to whether any shares of Common Stock will, when issued,
be duly authorized, validly issued, fully paid and nonassessable.
(f) The Warrant Agent
is hereby authorized to accept instructions with respect to the performance of its duties hereunder from the Chief Executive Officer,
Chief Financial Officer or any Vice President of the Company, and to apply to such officers for advice or instructions in connection with
its duties, and it shall not be liable and shall be indemnified and held harmless for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer, provided the Warrant Agent carries out such instructions without fraud,
gross negligence, bad faith or willful misconduct.
(g) The Warrant Agent
and any shareholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities
of the Company (subject to federal securities laws) or become pecuniarily interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other Person.
(h) The Warrant Agent
may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through
its attorney or agents, and the Warrant Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any
such attorney or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable
care was exercised in the selection and continued employment thereof
(i) The Warrant Agent
shall not be obligated to expend or risk its own funds or to take any action that it believes would expose or subject it to expense or
liability or to a risk of incurring expense or liability, unless it has been furnished with assurances of repayment or indemnity satisfactory
to it.
(j) The Warrant Agent shall not be liable
or responsible for any failure of the Company to comply with any of its obligations relating to any registration statement filed with
the Securities and Exchange Commission or this Agreement, including without limitation obligations under applicable regulation or law.
(k) The Warrant Agent may rely on and be fully
authorized and protected in acting or failing to act upon (a) any guaranty of signature by an “eligible guarantor institution”
that is a member or participant in the Securities Transfer Agents Medallion Program or other comparable “signature guarantee program”
or insurance program in addition to, or in substitution for, the foregoing; or (b) any law, act, regulation or any interpretation
of the same even though such law, act, or regulation may thereafter have been altered, changed, amended or repealed.
(l) In the event the Warrant Agent believes
any ambiguity or uncertainty exists hereunder or in any notice, instruction, direction, request or other communication, paper or document
received by the Warrant Agent hereunder and the Warrant Agent immediately notifies the Company of such ambiguity or uncertainty, the Warrant
Agent, may, in its sole discretion, refrain from taking any action, and shall be fully protected and shall not be liable in any way to
Company, the Holder or any other Person for refraining from taking such action, unless the Warrant Agent receives written instructions
signed by the Company which eliminates such ambiguity or uncertainty to the satisfaction of Warrant Agent.
This Section 15 shall survive the expiration
of the Warrants, the termination of this Agreement and the resignation, replacement or removal of the Warrant Agent.
Section 16. Change
of Warrant Agent. The Warrant Agent may resign and be discharged from its duties under this Agreement upon sixty (60) days’
notice in writing sent to the Company and to each transfer agent of the Common Stock, and to the Holder. The Company may remove the Warrant
Agent or any successor Warrant Agent upon notice in writing, sent to the Warrant Agent or successor Warrant Agent, as the case may be,
and, in the event that the Warrant Agent or one of its affiliates is not also the transfer agent for the Company, to each transfer agent
of the Common Stock, and to the Holder. If the Warrant Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of thirty
(30) days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated
Warrant Agent or by the Holder, then the Holder may apply to any court of competent jurisdiction for the appointment of a new Warrant
Agent, provided that, for purposes of this Agreement, the Company shall be deemed to be the Warrant Agent until a new warrant agent
is appointed. Any successor Warrant Agent, whether appointed by the Company or by such a court, shall be a Person, other than a natural
person, organized and doing business under the laws of the United States or of a state thereof, in good standing, which is authorized
under such laws to exercise stock transfer powers and is subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Warrant Agent a combined capital and surplus of at least $50,000,000. After appointment, the successor
Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant
Agent without further act or deed, but the predecessor Warrant Agent shall deliver and transfer to the successor Warrant Agent any property
at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose, but
such predecessor Warrant Agent shall not be required to make any additional expenditure (without prompt reimbursement by the Company)
or assume any additional liability in connection with the foregoing. Not later than the effective date of any such appointment, the Company
shall file notice thereof in writing with the predecessor Warrant Agent and, in the event that the Warrant Agent or one of its affiliates
is not also the transfer agent for the Company, to each transfer agent of the Common Stock, and mail a notice thereof in writing to the
Holder. However, failure to give any notice provided for in this Section 16, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be.
Section 17. Issuance
of New Warrant Certificates. Notwithstanding any of the provisions of this Agreement or of the Warrants to the contrary, the Company
may, at its option, issue new Warrant Certificates evidencing Warrants in such form as may be approved by its Board of Directors to reflect
any adjustment or change in the Exercise Price per share and the number or kind or class of shares of stock or other securities or property
purchasable under the several Warrant Certificates made in accordance with the provisions of this Agreement.
Section 18. Notices.
Notices or demands authorized by this Agreement to be given or made (i) by the Warrant Agent or by the Holder to or on the Company,
(ii) by the Company or by the Holder to or on the Warrant Agent or (iii) by the Company or the Warrant Agent to the Holder,
shall be deemed given when in writing (a) on the date delivered, if delivered personally, (b) on the first Business Day following
the deposit thereof with Federal Express or another recognized overnight courier, if sent by Federal Express or another recognized overnight
courier, (c) on the fourth Business Day following the mailing thereof with postage prepaid, if mailed by registered or certified
mail (return receipt requested), and (d) the date of transmission, if such notice or communication is delivered via facsimile or
e-mail attachment at or prior to 5:30 p.m. (Eastern time) on a Business Day and (e) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile or e-mail attachment on a day that is not a Business Day or later
than 5:30 p.m. (Eastern time) on any Business Day, in each case to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
| (a) | If to the Company, to: |
Great Ajax Corp.
13190 SW 68th Parkway
Suite 110
Tigard, OR 97223
Attention: Lawrence Mendelsohn
Email: Larry@aspencapital.com
With a copy to:
Mayer Brown LLP
1221 Avenue of the Americas
Attention: Anna T. Pinedo
E-mail: apinedo@mayerbrown.com
| (b) | If to the Warrant Agent, to: |
Equiniti Trust
Company, LLC
48 Wall Street,
22nd Floor
New York, NY 10005
Attention: Reorg
Department
Email ReorgWarrants@equiniti.com
With a copy to:
Equiniti Trust
Company, LLC
48 Wall Street,
22nd Floor
New York, NY 10005
Attention: Legal
Department
Email: legalteamUS@equiniti.com
(c) If to the Holder,
to the address of such Holder as shown on the registry books of the Company. Any notice required to be delivered by the Company to the
Holder may be given by the Warrant Agent on behalf of the Company. Notwithstanding any other provision of this Agreement, where this Agreement
provides for notice of any event to a Holder, such notice shall be sufficiently given if given to the Depository (or its designee) pursuant
to the procedures of the Depository or its designee.
Section 19. Supplements
and Amendments. The Company and the Warrant Agent may not supplement or amend this Agreement without the approval of the Holder.
Section 20. Further
Assurances. Each party hereto agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged
and delivered all such further and other acts, instruments and assurances as may reasonably be required by the other party hereto for
the carrying out or performing by any party of the provisions of this Agreement.
Section 21. Successors.
All covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit
of their respective successors and permitted assigns hereunder.
Section 22. Benefits
of this Agreement. Nothing in this Agreement or the Warrant Certificate shall be construed to give any Person other than the Company,
the Holder and the Warrant Agent any legal or equitable right, remedy or claim under this Agreement or the Warrant Certificate; but this
Agreement and the Warrant Certificate shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the Holder.
Section 23. Governing
Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without
giving effect to the conflicts of law principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising
out of or relating in any way to this Agreement shall be brought and enforced in the courts of the State of New York or the United States
District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum.
Section 24. Waiver
of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 24.
Section 25. Counterparts.
This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and the same instrument. A signature to this Agreement transmitted electronically
shall have the same authority, effect and enforceability as an original signature.
Section 26. Severability.
Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of
this Agreement and the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to
such invalid or unenforceable provision as may be possible and be valid and enforceable.
Section 27. Force
Majeure. Notwithstanding anything to the contrary contained herein, the Warrant Agent will not be liable for any delays or failures
in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, terrorist acts, shortage
of supply, breakdowns or malfunctions, interruptions or malfunction of computer facilities, or loss of data due to power failures or mechanical
difficulties with information storage or retrieval systems, labor difficulties, war, or civil unrest, it being understood that the Warrant
Agent shall use reasonable best efforts which are consistent with accepted practices in the banking industry to resume performance as
soon as practicable under the circumstances.
Section 28. Entire
Agreement. The parties hereto acknowledge that there are no agreements or understandings, written or oral, between them with respect
to matters contemplated hereunder other than as set forth herein and the Warrant Certificates, and that this Agreement and the Warrant
Certificates contain the entire agreement between them with respect to the subject matter hereof and thereof.
Section 29. Fees;
Expenses.
As consideration for the
services provided by Equiniti (the “Services”), the Company shall pay to Equiniti the fees set forth on Schedule 1
hereto (the “Fees”). If the Company requests that Equiniti provide additional services not contemplated hereby, the
Company shall pay to Equiniti fees for such services at Equiniti’s reasonable and customary rates, such fees to be governed by the
terms of a separate agreement to be mutually agreed to and entered into by the parties hereto at such time (the “Additional Service
Fee”; together with the Fees, the “Service Fees”).
(a) The Company shall
reimburse Equiniti for all reasonable and documented expenses incurred by Equiniti (including, without limitation, reasonable and documented
fees and disbursements of counsel) in connection with the Services (the “Expenses”); provided, however,
that Equiniti reserves the right to request advance payment for any out-of-pocket expenses. The Company agrees to pay all Service Fees
and Expenses within thirty (30) days following receipt of an invoice from Equiniti. Equiniti may adjust the Service Fees by up to the
annual percentage of change in the latest Consumer Price Index of All Urban Consumers United States City Average, as published by the
U.S. Department of Labor, Bureau of Labor Statistics, plus three percent (3%). Further, Equiniti may adjust the Service Fees to reflect
cost increases due to (i) changes mandated by legal or regulatory requirements, or (ii) additional services requested by the
Company that are not ordinarily provided by Equiniti to its customers generally without charging fees.
(b) Upon termination
of this Agreement for any reason, Equiniti shall assist the Company with the transfer of records of the Company held by Equiniti. Equiniti
shall be entitled to reasonable additional compensation as may be agreed with the Company and reimbursement of any Expenses for the preparation
and delivery of such records to the successor agent or to the Company, and for maintaining records and/or Stock Certificates that are
received after the termination of this Agreement.
IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be duly executed as of the day and year first above written.
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GREAT AJAX CORP. |
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By: |
/s/ Lawrence Mendelsohn |
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Name: |
Lawrence Mendelsohn |
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Title: |
Chief Executive Officer |
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EQUINITI TRUST COMPANY |
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By: |
/s/ Michael Legregin |
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Name: |
Michael Legregin |
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Title: |
Senior Vice President, Corporate Actions Relationship
Management & Operations |
Exhibit 5.1
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Mayer Brown LLP
1221 Avenue of the Americas
New York, NY 10020-1001
United States of America |
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T: +1 212 506 2500
F:
+1 212 262 1910
mayerbrown.com |
June 11, 2024
Great Ajax Corp.
13190 SW 69th Parkway, Suite 110
Tigard, Oregon 97223
Re: Great Ajax Corp. – Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Great Ajax Corp., a
Maryland corporation (the “Company”), in connection with the preparation and filing with the Securities and Exchange
Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”),
of a registration statement on Form S-3 (the “Registration Statement”) relating to the offer and resale, from
time to time, by Rithm Capital Corp., or its transferees, assignees or successors-in-interest (the “selling stockholder”),
of up to an aggregate of 6,139,670 shares of the Company’s common stock, par value $0.01 per share (“common stock”)
consisting of (i) 2,874,744 shares of common stock (the “Shares”) held by the selling stockholder and (ii) 3,264,926
shares of common stock (the “warrant shares”) issuable upon exercise of the warrants to purchase shares of common stock
at an initial exercise price of $5.36 per share held by the selling stockholder (the “Warrants”). The Shares and warrant
shares being registered under the Registration Statement may be offered by the selling stockholders from time to time as permitted under
the provisions of Rule 415 under the Securities Act.
The Shares and Warrants were issued to the selling
stockholders in a private placement pursuant to a securities purchase agreement, dated February 26, 2024, by and among the Company,
its operating partnership, its manager and Rithm Capital Corp. (the “Purchase Agreement”).
In connection with this opinion, we have examined
such corporate records, documents, instruments, certificates of public officials and of the Company, its operating partnership and its
manager and such questions of law as we have deemed necessary for the purpose of rendering the opinions set forth herein. We also have
examined the Registration Statement and the Purchase Agreement.
In such examination, we have assumed the genuineness
of all signatures and the authenticity of all items submitted to us as originals and the conformity with originals of all items submitted
to copies. As to all parties other than the Company, its operating partnership and its manager, we have assumed the due authorization,
execution and delivery of all documents and the validity and enforceability thereof against all parties thereto in accordance with their
respective terms.
Mayer Brown is a
global services provider comprising an association of legal practices that are separate entities including Mayer Brown LLP (Illinois,
USA), Mayer Brown International LLP (England & Wales), Mayer Brown (a Hong Kong partnership) and Tauil & Chequer Advogados
(a Brazilian law partnership).
| Mayer
Brown LLP |
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| Great
Ajax Corp. |
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| June 11,
2024 |
| Page 2 |
Based on the foregoing, and subject to the further
assumptions and qualifications set forth below, it is our opinion that:
| 1. | The Shares have been duly authorized and validly issued and are fully paid and non-assessable; |
| 2. | The warrant shares have been duly authorized and reserved for issuance upon exercise and, upon due exercise
of the Warrants, payment of the exercise price thereof and issuance and delivery in accordance with the terms of the Warrants, will be
validly issued, fully paid and non-assessable. |
This opinion letter has been prepared for use in
connection with the Registration Statement. We are opining only as to the matters expressly set forth herein and that no opinion should
be inferred as to any other matter. Our opinion herein is expressed solely with respect to the Maryland General Corporation Law. Our opinion
is based on these laws as in effect on the date hereof and we disclaim any obligation to advise you of any change in any of these sources
of law or subsequent legal or factual developments which might affect any matters or opinions set forth herein. We express no opinion
to the extent that any other laws are applicable to the subject matter hereof and express no opinion and provide no assurance as to compliance
with any federal or state securities law, rule or regulation.
We hereby consent to the filing of this opinion
with the Commission as Exhibit 5.1 to the Registration Statement and to the reference to us under the caption “Legal Matters”
in the prospectus included in the Registration Statement. In giving such consent, we do not hereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Securities Act or the rules or regulations of the Commission
thereunder.
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Very truly yours, |
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/s/ Mayer Brown LLP |
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AP |
Exhibit 8.1
| Mayer Brown LLP
1221 Avenue of the Americas
New York, NY 10020-1001
Main
Tel + 1 212 506 2500
Main Fax + 1 212 262 1910
www.mayerbrown.com
|
June 11, 2024
Great Ajax Corp.
13190 SW 69th Parkway, Suite 110
Tigard, Oregon 97223
| Re: | Great Ajax Corp.—Status as a Real Estate Investment Trust; Information in Prospectus under
Heading Material U.S. Federal Income Tax Consequences |
Ladies and Gentlemen:
We have acted as counsel to
Great Ajax Corp., a Maryland corporation (the “Company”), in connection with the preparation and filing with the Securities
and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”),
of a registration statement on Form S-3 (the “Registration Statement”) relating to the offer and resale, from
time to time, by Rithm Capital Corp., or its transferees, assignees or successors-in-interest (the “selling stockholder”),
of up to an aggregate of 6,139,670 shares of the Company’s common stock, par value $0.01 per share (“common stock”)
consisting of (i) 2,874,744 shares of common stock (the “Shares”) held by the selling stockholder and (ii) 3,264,926
shares of common stock (the “warrant shares”) issuable upon exercise of the warrants to purchase shares of common stock
at an initial exercise price of $5.36 per share held by the selling stockholder. The Shares and warrant shares being registered under
the Registration Statement may be offered by the selling stockholders from time to time as permitted under the provisions of Rule 415
under the Securities Act. Capitalized terms not defined herein shall have the meanings ascribed to them in the Registration Statement.
You have requested our opinion
as to certain federal income tax matters regarding the Company. Although you may disclose to any and all persons, without limitation of
any kind, the federal tax treatment and federal tax structure of the Company and all materials of any kind that were provided to you by
us relating to such tax treatment and tax structure, you may not authorize any other person or entity to rely on this opinion, or otherwise
make this opinion available for the benefit of any other person or entity, without our prior written consent.
In our capacity as counsel
to the Company and for purposes of rendering this opinion, we have examined and relied upon the following, with your consent: (i) the
Registration Statement and (ii) a certificate executed by duly appointed officers of the Company (the “Officer’s Certificate”)
setting forth certain factual representations, dated June 11, 2024. We have also relied on the conclusion reached in the private letter
ruling, dated February 9, 2016, that the Company received from the Internal Revenue Service. In addition, we have examined and relied
upon such other documents as we have considered relevant to our analysis. In our examination of such documents, we have assumed the authenticity
of original documents, the accuracy of copies, the genuineness of signatures, and the legal capacity of signatories. We have also assumed
that all parties to such documents have acted, and will act, in accordance with the terms of such documents.
Our opinion is based on (a) our
understanding of the facts as represented to us in the Officer’s Certificate and (b) the assumption that (i) the Company
and its subsidiaries have valid legal existences under the laws of the states in which they were formed and have operated in accordance
with the laws of such states, (ii) the Company is operated, and will continue to be operated, in the manner described in the Officer’s
Certificate, (iii) the facts contained in the Registration Statement are true and complete in all material respects, (iv) all
representations of fact contained in the Officer’s Certificate are true and complete and (v) any representation of fact in
the Officer’s Certificate that is made “to the knowledge of” or similarly qualified is correct without such qualification.
While we have made such inquiries and investigations as we have deemed necessary, we have not undertaken an independent inquiry into or
verification of all such facts either in the course of our representation of the Company or for the purpose of rendering this opinion.
While we have reviewed all representations made to us to determine their reasonableness, and nothing has come to our attention that would
cause us to question the accuracy of such representations, there is no assurance that they are or will ultimately prove to be accurate.
We note that the tax consequences
addressed herein depend upon the actual occurrence of events in the future, which events may or may not be consistent with any representations
made to us for purposes of this opinion. In particular, the qualification and taxation of the Company as a “real estate investment
trust” (“REIT”) for federal income tax purposes depends upon the Company’s ability to meet on a continuing
basis certain distribution levels, diversity of stock ownership, and the various qualification tests imposed by the Internal Revenue Code
of 1986, as amended (the “Code”). To the extent that the facts differ from those represented to or assumed by us herein,
our opinion should not be relied upon.
Our opinion herein is based
on existing law as contained in the Code, final and temporary Treasury Regulations promulgated thereunder, administrative pronouncements
of the Internal Revenue Service (the “IRS”) and court decisions as of the date hereof. The provisions of the Code and
the Treasury Regulations, IRS administrative pronouncements and case law upon which this opinion is based could be changed at any
time, perhaps with retroactive effect. In addition, some of the issues under existing law that could significantly affect our opinion
have not yet been authoritatively addressed by the IRS or the courts, and our opinion is not binding on the IRS or the courts. Hence,
there can be no assurance that the IRS will not challenge, or that the courts will agree with, our conclusions.
Based upon, and subject to,
the foregoing and the following paragraph below, we are of the opinion that, as of the date hereof:
1. Commencing
with its taxable year ended December 31, 2014, the Company has been organized and has operated in conformity with the requirements
for qualification and taxation as a REIT under the Code, and its current and proposed method of operation will enable it to continue to
meet the requirements for qualification and taxation as a REIT for its taxable year ending December 31, 2024 and future years.
2. We
have reviewed the statements included or incorporated by reference in the Registration Statement under the heading “Material U.S.
Federal Income Tax Consequences” and, insofar as such statements pertain to matters of law or legal conclusions, they are correct
in all material respects.
This opinion is furnished
to you solely for use in connection with the Registration Statement. The foregoing opinion is limited to the federal income tax matters
addressed herein, and no other opinion is rendered with respect to other federal tax matters or to any issues arising under the tax laws
of any other country, or any state or locality. This opinion letter is solely for the information and use of the addressees in connection
with the transactions described above and it speaks only as of the date hereof. We undertake no obligation to update this opinion, or
to ascertain after the date hereof whether circumstances occurring after such date may affect the conclusions set forth herein. This opinion
letter may not be distributed, quoted in whole or in part or relied upon for any purpose by any other person, or otherwise reproduced
in any document, or filed with any governmental agency without our express prior written consent.
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Very truly yours, |
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/s/ Mayer Brown LLP |
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
BETWEEN
GREAT AJAX CORP.
AND
RITHM CAPITAL CORP.
This REGISTRATION RIGHTS AGREEMENT
(this “Agreement”) is made and entered into as of April 23, 2024 between Great Ajax Corp., a Maryland corporation
(the “Company”), and Rithm Capital Corp., a Delaware corporation (the “Purchaser”).
WHEREAS, this Agreement is
entered into in connection with the issuance and sale of the Common Stock (as defined below) and the Warrants (as defined below) to the
Purchaser pursuant to the Securities Purchase Agreement, dated as of February 26, 2024 (the “Securities Purchase Agreement”),
by and among the Company, Great Ajax Operating Partnership L.P., Thetis Asset Management LLC and the Purchaser;
WHEREAS, the Company has agreed
to provide the registration and other rights set forth in this Agreement for the benefit of the Purchaser pursuant to the Securities Purchase
Agreement; and
WHEREAS, it is a condition
to the funding obligations in favor of the Company under the Credit Agreement, dated as of February 26, 2024, by and among the Company
and the Lenders, Administrative Agent and Collateral Agent identified therein, that this Agreement be executed and delivered.
NOW THEREFORE, in consideration
of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by each party hereto, the parties hereby agree as follows:
Article I
DEFINITIONS
Section 1.01 Definitions.
Capitalized terms used herein without definition shall have the meanings given to them in the Securities Purchase Agreement. The terms
set forth below are used herein as so defined:
“Affiliate”
means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled
by or is under common control with, the Person in question. As used herein, the term “control” means the possession,
direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
“Agreement”
has the meaning specified therefor in the introductory paragraph of this Agreement.
“Business Day”
means any day other than a Saturday, Sunday, any federal legal holiday or day on which banking institutions in the State of New York are
authorized or required by law or other governmental action to close.
“Closing Date”
has the meaning specified therefor in the Securities Purchase Agreement.
“Common Stock”
means the Company’s common stock, par value $0.01 per share.
“Company”
has the meaning specified therefor in the introductory paragraph of this Agreement.
“Effective Date”
means, with respect to a particular Shelf Registration Statement, the date of effectiveness of such Shelf Registration Statement.
“Effectiveness Deadline”
means the date which is four Business Days after (i) the Company receives written notification from the Staff of the SEC (the “SEC
Staff”) that a Registration Statement will not become subject to any review or comment process by the SEC Staff or (ii) the
date that the SEC Staff provides verbal or written indication to the Company that it has completed its review of a Registration Statement.
“Effectiveness Period”
means the period beginning on the Effective Date for the Registration Statement and ending at the time all Registrable Securities covered
by such Registration Statement have ceased to be Registrable Securities.
“Electing Holders”
has the meaning specified therefor in Section 2.04 of this Agreement.
“Exchange Act”
means the Securities Exchange Act of 1934, as amended.
“Governmental Authority”
means any federal, state, local or foreign government, or other governmental, regulatory or administrative authority, agency or commission
or any court, tribunal, or judicial or arbitral body.
“Holder”
means the record holder of any Registrable Securities.
“Included Registrable
Securities” has the meaning specified therefor in Section 2.02(a) of this Agreement.
“Launch”
has the meaning specified therefor in Section 2.04 of this Agreement.
“Law” means
any statute, law, ordinance, regulation, rule, order, code, governmental restriction, decree, injunction or other requirement of law,
or any judicial or administrative interpretation thereof, of any Governmental Authority.
“Losses”
has the meaning specified therefor in Section 2.08(a) of this Agreement.
“Managing Underwriter”
means, with respect to any Underwritten Offering, the book-running lead manager of such Underwritten Offering.
“NYSE”
means The New York Stock Exchange, Inc.
“Opt-Out Notice”
has the meaning specified therefor in Section 2.02(a) of this Agreement.
“Person”
means an individual or a corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.
“Post-Launch Withdrawing
Selling Holders” has the meaning specified therefor in Section 2.04 of this Agreement.
“Purchaser”
has the meaning specified therefor in the introductory paragraph of this Agreement.
“Registrable Securities”
means (i) the Common Stock issued to the Purchaser pursuant to the Securities Purchase Agreement and (ii) the Common Stock issued
or issuable to the Purchaser upon the due exercise of the Warrants.
“Registration Expenses”
has the meaning specified therefor in Section 2.07(b) of this Agreement.
“Registration Statement”
has the meaning specified therefor in Section 2.01 of this Agreement.
“SEC” means
the U.S. Securities and Exchange Commission.
“Securities Act”
means the Securities Act of 1933, as amended.
“Securities Purchase
Agreement” has the meaning specified therefor in the introductory paragraph of this Agreement.
“Selling Expenses”
has the meaning specified therefor in Section 2.07(b) of this Agreement.
“Selling Holder”
means a Holder who is selling Registrable Securities under a Registration Statement pursuant to the terms of this Agreement.
“Selling Holder Indemnified
Persons” has the meaning specified therefor in Section 2.08(a) of this Agreement.
“Shelf Registration
Statement” means a registration statement under the Securities Act to permit the public resale of the Registrable Securities
from time to time as permitted by Rule 415 under the Securities Act (or any successor or similar provision adopted by the SEC then
in effect).
“Underwritten Offering”
means an offering (including an offering pursuant to a Shelf Registration Statement) in which Registrable Securities are sold to one or
more underwriters on a firm commitment basis for reoffering to the public or an offering that is a “bought deal” with one
or more investment banks.
“Underwritten Offering
Notice” has the meaning specified therefor in Section 2.04 of this Agreement.
“VWAP Price”
means, for each such period of measurement, the volume weighted average closing price of a share of Common Stock on the national securities
exchange on which the Common Stock is then listed (or admitted to trading).
“Warrants”
means the Warrants to be issued pursuant to the Securities Purchase Agreement and the Warrant Agreement, dated April 23, 2024, by
and between the Company and Equiniti Trust Company.
Section 1.02 Registrable
Securities. Any Registrable Security shall cease to be a Registrable Security at the earliest of the following: (a) when a registration
statement covering such Registrable Security becomes or has been declared effective by the SEC and such Registrable Security has been
sold or disposed of pursuant to such effective registration statement; (b) when such Registrable Security has been sold or disposed
of (excluding transfers or assignments by a Holder to an Affiliate) pursuant to Rule 144 under the Securities Act (or any successor
or similar provision adopted by the SEC then in effect) under circumstances in which all of the applicable conditions of Rule 144
(as then in effect) are met; (c) when such Registrable Security is held by the Company or one of its direct or indirect subsidiaries;
or (d) when such Registrable Security has been sold or disposed of in a private transaction in which the transferor’s rights
under this Agreement are not assigned to the transferee of such securities pursuant to Section 2.09 hereof.
Article II
REGISTRATION RIGHTS
Section 2.01 Shelf
Registration.
As
soon as practicable, but in any event on or prior to the earlier of (a) the closing of the transactions contemplated by the Securities
Purchase Agreement and (ii) any termination of the Securities Purchase Agreement in accordance with its terms, the Company shall
use commercially reasonable efforts to prepare and file a Shelf Registration Statement with the SEC to permit the public resale of all
Registrable Securities on the terms and conditions specified in this Section 2.01 (a “Registration Statement”).
The Registration Statement filed with the SEC pursuant to this Section 2.01 shall be on Form S-3 or, if Form S-3
is not then available to the Company, on Form S-1 or such other form of registration statement as is then available to effect a registration
for resale of the Registrable Securities, covering the Registrable Securities, and shall contain a prospectus in such form as to permit
any Selling Holder covered by such Registration Statement to sell such Registrable Securities pursuant to Rule 415 under the Securities
Act (or any successor or similar provision adopted by the SEC then in effect) at any time beginning on the Effective Date for such Registration
Statement. The Company shall use commercially reasonable efforts to cause a Registration Statement filed pursuant to this Section 2.01
to be declared effective as soon as practicable, but in any event no later than the Effectiveness Deadline, and shall respond as promptly
as practicable to any comments received from the SEC or the SEC Staff in connection therewith. A
Registration Statement shall provide for the resale pursuant to any method or combination of methods legally available to, and requested
by, the Selling Holders, including by way of an Underwritten Offering, if such an election has been made pursuant to Section 2.04
of this Agreement. During the Effectiveness Period, the Company shall use commercially reasonable efforts to cause a Registration Statement
filed pursuant to this Section 2.01 to remain effective, and to be supplemented and amended to the extent necessary to ensure
that such Registration Statement is available or, if not available, that another registration statement is available for the resale of
the Registrable Securities until the date on which all Registrable Securities have ceased to be Registrable Securities. The Company shall
prepare and file a supplemental listing application with the NYSE (or such other national securities exchange on which the Registrable
Securities are then listed and traded) to list the Registrable Securities covered by a Registration Statement and shall use commercially
reasonable efforts to have such Registrable Securities approved for listing on the NYSE (or such other national securities exchange on
which the Registrable Securities are then listed and traded) by the Effective Date of such Registration Statement, subject only to official
notice of issuance. Within two Business Days of the Effective Date of a Registration Statement, the Company shall notify the Selling Holders
of the effectiveness of such Registration Statement.
When
effective, a Registration Statement (including the documents incorporated therein by reference) will comply as to form in all material
respects with all applicable requirements of the Securities Act and the Exchange Act and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (in the
case of any prospectus contained in such Registration Statement, in the light of the circumstances under which a statement is made). If
the Managing Underwriter of any proposed Underwritten Offering of Registrable Securities (other than an Underwritten Offering of Included
Registrable Securities pursuant to Section 2.02) advises the Company that the inclusion of all of the Selling Holders’
Registrable Securities that the Selling Holders intend to include in such Underwritten Offering exceeds the number that can be sold in
such Underwritten Offering without being likely to have an adverse effect on the price, timing or distribution of the Registrable Securities
offered or the market for the Registrable Securities, then the Registrable Securities to be included in such Underwritten Offering shall
include the number of Registrable Securities that such Managing Underwriter advises the Company can be sold without having such adverse
effect, with such number to be allocated (i) first, to the Selling Holders, allocated among such Selling Holders pro rata on the
basis of the number of Registrable Securities held by each such Selling Holder or in such other manner as such Selling Holders may agree,
and (ii) second, to any other holder of securities of the Company having rights of registration that are neither expressly senior
nor subordinated to the Holders in respect of the Registrable Securities. The Company has received the necessary consents, or otherwise
obtained a waiver, from each applicable holder who has existing rights pursuant to any registration rights agreement with the Company
that would otherwise be violated by the rights granted hereunder.
Section 2.02 Piggyback
Rights.
(a) Participation.
So long as a Holder has Registrable Securities, if the Company proposes to file (i) a shelf registration statement other than a Registration
Statement contemplated by Section 2.01, (ii) a prospectus supplement to an effective shelf registration statement relating
to the sale of equity securities of the Company for its own account or that of another Person, or both, other than a Registration Statement
contemplated by Section 2.01, and Holders may be included without the filing of a post-effective amendment thereto, or (iii) a
registration statement, other than a shelf registration statement, in each case, for the sale of shares of Common Stock in an Underwritten
Offering for its own account or that of another Person, or both, then promptly following the selection of the Managing Underwriter for
such Underwritten Offering, the Company shall give written notice of such Underwritten Offering to the Holders of the then-outstanding
Registrable Securities and such notice shall offer such Holders the opportunity to include in such Underwritten Offering such number of
Registrable Securities (the “Included Registrable Securities”) as each such Holder may request in writing; provided,
however, that if the Company has been advised by the Managing Underwriter that the inclusion of Registrable Securities for sale for
the benefit of the Holders will have an adverse effect on the price, timing or distribution of the shares of Common Stock in the Underwritten
Offering, then (x) if no Registrable Securities can be included in the Underwritten Offering in the opinion of the Managing Underwriter,
the Company shall not be required to offer such opportunity to the Holders, or (y) if any Registrable Securities can be included
in the Underwritten Offering in the opinion of the Managing Underwriter, then the amount of Registrable Securities to be offered for the
accounts of Holders shall be determined based on the provisions of Section 2.02(b). Any notice required to be provided in
this Section 2.02(a) to Holders shall be provided on a Business Day and receipt of such notice shall be confirmed by
the Holder. Each such Holder shall then have five Business Days after notice has been delivered to request in writing the inclusion of
Registrable Securities in the Underwritten Offering. If no written request for inclusion from a Holder is received within the specified
time, each such Holder shall have no further right to participate in such Underwritten Offering. If, at any time after giving written
notice of its intention to undertake an Underwritten Offering and prior to the closing of such Underwritten Offering, the Company shall
determine for any reason not to undertake or to delay such Underwritten Offering, the Company may, at its election, give written notice
of such determination to the Selling Holders and, (1) in the case of a determination not to undertake such Underwritten Offering,
shall be relieved of its obligation to sell any Included Registrable Securities in connection with such terminated Underwritten Offering,
and (2) in the case of a determination to delay such Underwritten Offering, shall be permitted to delay offering any Included Registrable
Securities as part of such Underwritten Offering for the same period as the delay in the Underwritten Offering. Any Selling Holder shall
have the right to withdraw such Selling Holder’s request for inclusion of such Selling Holder’s Registrable Securities in
such Underwritten Offering by giving written notice to the Company of such withdrawal at or prior to the time of pricing of such Underwritten
Offering. Any Holder may deliver written notice (an “Opt-Out Notice”) to the Company requesting that such Holder not
receive notice from the Company of any proposed Underwritten Offering; provided, however, that such Holder may later revoke any
such Opt-Out Notice in writing. Following receipt of an Opt-Out Notice from a Holder (unless subsequently revoked), the Company shall
not be required to deliver any notice to such Holder pursuant to this Section 2.02(a) and such Holder shall no longer
be entitled to participate in Underwritten Offerings by the Company pursuant to this Section 2.02(a).
(b) Priority.
If the Managing Underwriter of any proposed Underwritten Offering of shares of Common Stock included in an Underwritten Offering involving
Included Registrable Securities pursuant to this Section 2.02 advises the Company and the Selling Holders that the total number
of shares of Common Stock that the Selling Holders and any other Persons intend to include in such Underwritten Offering exceeds the number
of shares of Common Stock that can be sold in such Underwritten Offering without being likely to have an adverse effect on the price,
timing or distribution of shares of the Common Stock offered or the market for the shares of Common Stock, then the shares of Common Stock
to be included in such Underwritten Offering shall include the number of Registrable Securities that such Managing Underwriter advises
the Company can be sold without having such adverse effect, with such number to be allocated (i) first, to the Company or other party
or parties requesting or initiating such registration or to any other holder of securities of the Company having rights of registration
pursuant to an existing registration rights agreement and (ii) second, by the Selling Holders who have requested participation in
such Underwritten Offering and by the other holders of shares of Common Stock (other than holders of Registrable Securities) with registration
rights entitling them to participate in such Underwritten Offering, allocated among such Selling Holders and other holders pro rata on
the basis of the number of Registrable Securities or shares of Common Stock proposed to be sold by each applicable Selling Holder or other
holder in such Underwritten Offering (based, for each such participant, on the percentage derived by dividing (x) the number of shares
of Common Stock proposed to be sold by such participant in such Underwritten Offering by (y) the aggregate number of shares of Common
Stock proposed to be sold by all participants in such Underwritten Offering) or in such manner as they may agree. The allocation of shares
of Common Stock to be included in any Underwritten Offering, other than an Underwritten Offering involving Included Registrable Securities
pursuant to this Section 2.02, shall be governed by Section 2.01.
Section 2.03 Delay
Rights.
Notwithstanding anything to
the contrary contained herein, the Company may, upon written notice to (i) all Holders, delay the filing of a Registration Statement
required under Section 2.01, or (ii) any Selling Holder whose Registrable Securities are included in a Registration Statement
or other registration statement contemplated by this Agreement, suspend such Selling Holder’s use of any prospectus that is a part
of such Registration Statement or other registration statement (in which event the Selling Holder shall discontinue sales of the Registrable
Securities pursuant to such Registration Statement or other registration statement contemplated by this Agreement but may settle any previously
made sales of Registrable Securities) if the Company (x) is pursuing an acquisition, merger, reorganization, disposition or other
similar transaction and the Company determines in good faith that the Company’s ability to pursue or consummate such a transaction
would be materially adversely affected by any required disclosure of such transaction in such Registration Statement or other registration
statement or (y) has experienced some other material non-public event the disclosure of which at such time, in the good faith judgment
of the Company, would materially adversely affect the Company; provided, however, in no event shall (A) filing of such Registration
Statement be delayed under clauses (x) or (y) of this Section 2.03 for a period that exceeds 90 calendar days or
(B) such Selling Holders be suspended under clauses (x) or (y) of this Section 2.03 from selling Registrable
Securities pursuant to such Registration Statement or other registration statement for a period that exceeds an aggregate of 60 calendar
days in any 180 calendar-day period or 120 calendar days in any 365 calendar-day period, in each case, exclusive of days covered by any
lock-up agreement executed by a Selling Holder in connection with any Underwritten Offering. Upon disclosure of such information or the
termination of the condition described above, the Company shall provide prompt written notice, but in any event within one Business Day
of such disclosure or termination, to the Selling Holders whose Registrable Securities are included in such Registration Statement and
shall promptly terminate any suspension of sales it has put into effect and shall take such other reasonable actions to permit registered
sales of Registrable Securities as contemplated in this Agreement.
Section 2.04 Underwritten
Offerings.
In the event that any Holder
(the “Electing Holder”) elects to include, other than pursuant to Section 2.02 of this Agreement, at least
the lesser of (i) $5.0 million of Registrable Securities in the aggregate (calculated based on the expected gross proceeds of the
Underwritten Offering of such Registrable Securities) and (ii) 100% of the then outstanding Registrable Securities held by such Electing
Holder under a Registration Statement pursuant to an Underwritten Offering, the Company shall, upon request by the Electing Holders (such
request, an “Underwritten Offering Notice”), retain underwriters to permit the Electing Holders to effect such sale
through an Underwritten Offering; provided, however, that each Holder, together with its Affiliates, shall have the option and
right to require the Company to effect not more than four Underwritten Offerings in the aggregate, subject to a maximum of one Underwritten
Offering during any 90-day period. Upon delivery of such Underwritten Offering Notice to the Company, the Company shall as soon as practicable
(but in no event later than one Business Day following the date of delivery of the Underwritten Offering Notice to the Company) deliver
notice of such Underwritten Offering Notice to all other Holders, who shall then have two Business Days from the date that such notice
is given to them to notify the Company in writing of the number of Registrable Securities held by such Holder that they want to be included
in such Underwritten Offering. In connection with any Underwritten Offering under this Agreement, the Holders of a majority of the Registrable
Securities being sold in such Underwritten Offering shall be entitled to select the Managing Underwriter or Underwriters, but only with
the consent of the Company, which shall not be unreasonably withheld, delayed or conditioned. In connection with an Underwritten Offering
contemplated by this Agreement in which a Selling Holder participates, such Selling Holder and the Company shall be obligated to enter
into an underwriting agreement that contains such representations, covenants, indemnities and other rights and obligations as are customary
in underwriting agreements for firm commitment offerings of securities. No Selling Holder may participate in such Underwritten Offering
unless such Selling Holder agrees to sell its Registrable Securities on the basis provided in such underwriting agreement and completes
and executes all questionnaires, powers of attorney, indemnities and other documents reasonably required under the terms of such underwriting
agreement. Each Selling Holder may, at its option, require that any or all of the representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such underwriters also be made to and for such Selling Holder’s benefit and
that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also be conditions
precedent to its obligations. The Selling Holder shall not be required to (a) make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or agreements regarding such Selling Holder, its authority
to enter into such underwriting agreement and to sell, and its ownership of, the securities whose offer and resale will be registered,
on its behalf, its intended method of distribution and any other representation required by Law, or (b) to undertake any indemnification
obligations to the Company or the underwriters with respect thereto, except as otherwise provided in Section 2.08. If a Selling
Holder disapproves of the terms of an underwriting, such Selling Holder may elect to withdraw therefrom by notice to the Company, the
Electing Holders and the Managing Underwriter; provided, however, that any such withdrawal must be made no later than the time
of pricing of such Underwritten Offering. No such withdrawal or abandonment shall affect the Company’s obligation to pay Registration
Expenses pursuant to Section 2.07; provided, however, that if (A) certain Selling Holders withdraw from an Underwritten
Offering after the public announcement at launch (the “Launch”) of such Underwritten Offering (such Selling Holders,
the “Post-Launch Withdrawing Selling Holders”), and (B) all Selling Holders withdraw from such Underwritten Offering
prior to pricing, other than in either clause (A) or (B) as a result of the occurrence of any event that would reasonably be
expected to permit the Company to exercise its rights to suspend the use of a Registration Statement or other registration statement pursuant
to Section 2.03, then the Post-Launch Withdrawing Selling Holders shall pay for all reasonable Registration Expenses incurred
by the Company during the period from the Launch of such Underwritten Offering until the time all Selling Holders withdraw from such Underwritten
Offering.
Section 2.05 Sale
Procedures.
In connection with its obligations
under this Article II, the Company shall, as expeditiously as possible:
(a) use its reasonable
best efforts to prepare and file with the SEC such amendments and supplements to a Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for the Effectiveness Period and as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Registration Statement;
(b) if a prospectus supplement
will be used in connection with the marketing of an Underwritten Offering from a Registration Statement and the Managing Underwriter at
any time shall notify the Company in writing that, in the sole judgment of such Managing Underwriter, inclusion of detailed information
to be used in such prospectus supplement is of material importance to the success of the Underwritten Offering of such Registrable Securities,
the Company shall use its reasonable best efforts to include such information in such prospectus supplement;
(c) furnish to each Selling
Holder (i) as far in advance as reasonably practicable before filing a Registration Statement or any other registration statement
contemplated by this Agreement or any supplement or amendment thereto, upon request, copies of reasonably complete drafts of all such
documents proposed to be filed (including exhibits and each document incorporated by reference therein to the extent then required by
the rules and regulations of the SEC), and provide each such Selling Holder the opportunity to object to any information pertaining
to such Selling Holder and its plan of distribution that is contained therein and make the corrections reasonably requested by such Selling
Holder with respect to such information prior to filing a Registration Statement or such other registration statement or supplement or
amendment thereto, and (ii) such number of copies of such Registration Statement or such other registration statement and the prospectus
included therein and any supplements and amendments thereto as such Selling Holder may reasonably request in order to facilitate the sale
or other disposition of the Registrable Securities covered by such Registration Statement or other registration statement;
(d) if applicable, use
its reasonable best efforts to register or qualify the Registrable Securities covered by a Registration Statement or any other registration
statement contemplated by this Agreement under the securities or blue sky laws of such jurisdictions as the Selling Holders or, in the
case of an Underwritten Offering, the Managing Underwriter, shall reasonably request; provided, however, that the Company shall
not be required to qualify generally to transact business in any jurisdiction where it is not then required to so qualify or to take any
action that would subject it to general service of process in any such jurisdiction where it is not then so subject;
(e) promptly notify each
Selling Holder, at any time when a prospectus relating thereto is required to be delivered by any of them under the Securities Act, of
(i) the filing of a Registration Statement or any other registration statement contemplated by this Agreement or any prospectus or
prospectus supplement to be used in connection therewith, or any amendment or supplement thereto, and, with respect to such Registration
Statement or any other registration statement or any post-effective amendment thereto, when the same has become effective; and (ii) the
receipt of any written comments from the SEC with respect to any filing referred to in clause (i) and any written request by the
SEC for amendments or supplements to such Registration Statement or any other registration statement or any prospectus or prospectus supplement
thereto;
(f) promptly notify each
Selling Holder, at any time when a prospectus relating thereto is required to be delivered by such Selling Holder under the Securities
Act, of (i) the happening of any event as a result of which the prospectus or prospectus supplement contained in a Registration Statement
or any other registration statement contemplated by this Agreement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading (in the case
of any prospectus contained therein, in the light of the circumstances under which a statement is made); (ii) the issuance or express
threat of issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or any other registration
statement contemplated by this Agreement, or the initiation of any proceedings for that purpose; or (iii) the receipt by the Company
of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities
or blue sky laws of any jurisdiction. Following the provision of such notice, the Company agrees to as promptly as practicable amend or
supplement the prospectus or prospectus supplement or take other appropriate action so that the prospectus or prospectus supplement does
not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances then existing and to take such other commercially reasonable action
as is necessary to remove a stop order, suspension, threat thereof or proceedings related thereto;
(g) upon request and
subject to appropriate confidentiality obligations, furnish to each Selling Holder copies of any and all transmittal letters or other
correspondence with the SEC or any other governmental agency or self-regulatory body or other body having jurisdiction (including any
domestic or foreign securities exchange) relating to such offering of Registrable Securities;
(h) in the case of an
Underwritten Offering, furnish, or use its reasonable best efforts to cause to be furnished, to the underwriters upon request, (i) an
opinion of counsel for the Company dated the date of the closing under the underwriting agreement and (ii) a “comfort”
letter, dated the pricing date of such Underwritten Offering and a letter of like kind dated the date of the closing under the underwriting
agreement, in each case, signed by the independent public accountants who have certified the Company’s financial statements included
or incorporated by reference into the applicable registration statement, and each of the opinion and the “comfort” letter
shall be in customary form and covering substantially the same matters with respect to such registration statement (and the prospectus
and any prospectus supplement included therein) as have been customarily covered in opinions of issuer’s counsel and in accountants’
letters delivered to the underwriters in Underwritten Offerings of securities by the Company and such other matters as such underwriters
and Selling Holders may reasonably request;
(i) otherwise use its
reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders,
as soon as reasonably practicable, an earnings statement, covering a period of twelve months beginning within three months after the Effective
Date of such Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities
Act and Rule 158 promulgated thereunder;
(j) make available to
the appropriate representatives of the Managing Underwriter and Selling Holders access to such information and the Company personnel as
is reasonable and customary to enable such parties to establish a due diligence defense under the Securities Act; provided, that
the Company need not disclose any non-public information to any such representative unless and until such representative has entered into
a confidentiality agreement with the Company;
(k) if the minimum listing
standards of the NYSE are satisfied, use its reasonable best efforts to cause all Registrable Securities registered pursuant to this Agreement
to be listed on each securities exchange or nationally recognized quotation system on which the Common Stock are then listed or quoted;
(l) use its reasonable
best efforts to cause the Registrable Securities to be registered with or approved by such other governmental agencies or authorities
as may be necessary by virtue of the business and operations of the Company to enable the Selling Holders to consummate the disposition
of such Registrable Securities;
(m) provide a transfer
agent and registrar for all Registrable Securities covered by such registration statement not later than the Effective Date of such registration
statement;
(n) enter into customary
agreements and take such other actions as are reasonably requested by the Selling Holders or the underwriters, if any, in order to expedite
or facilitate the disposition of Registrable Securities (including, making appropriate officers of the Company available to participate
in any “road show” presentations before analysts, and other customary marketing activities), provided, however, that
in the event the Company, using reasonable best efforts, is unable to make such appropriate officers of the Company available to participate
in connection with any “road show” presentations and other customary marketing activities (whether in person or otherwise),
the Company shall make such appropriate officers available to participate via conference call or other means of communication in connection
with no more than one “road show” presentation per Underwritten Offering;
(o) if requested by a
Selling Holder, (i) incorporate in a prospectus supplement or post-effective amendment such information as such Selling Holder reasonably
requests to be included therein relating to the sale and distribution of Registrable Securities, including information with respect to
the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering
of the Registrable Securities to be sold in such offering, and (ii) make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment;
(p) if reasonably required
by the Company’s transfer agent, the Company shall promptly deliver any authorizations, certificates, opinions or directions required
by the transfer agent which authorize and direct the transfer agent to transfer Registrable Securities without legend upon sale by the
Holder of such Registrable Securities under a Registration Statement; and
Notwithstanding anything to
the contrary in this Section 2.05, the Company shall not name a Holder as an underwriter as defined in Section 2(a)(11)
of the Securities Act in any Registration Statement without such Holder’s consent. If the staff of the SEC requires the Company
to name any Holder as an underwriter as defined in Section 2(a)(11) of the Securities Act, and such Holder does not consent thereto,
then such Holder’s Registrable Securities shall not be included on such Registration Statement and the Company shall have no further
obligations hereunder with respect to Registrable Securities held by such Holder, unless such Holder has not had an opportunity to conduct
customary underwriter’s due diligence with respect to the Company at the time such Holder’s consent is sought.
Each Selling Holder, upon
receipt of notice from the Company of the happening of any event of the kind described in Section 2.05(f), shall forthwith
discontinue offers and sales of the Registrable Securities by means of a prospectus or prospectus supplement until such Selling Holder’s
receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.05(f) or until it is advised
in writing by the Company that the use of the prospectus may be resumed and has received copies of any additional or supplemental filings
incorporated by reference in the prospectus, and, if so directed by the Company, such Selling Holder shall, or shall request the Managing
Underwriter, if any, to deliver to the Company (at the Company’s expense) all copies in their possession or control, other than
permanent file copies then in such Selling Holder’s possession, of the prospectus covering such Registrable Securities current at
the time of receipt of such notice.
Section 2.06 Cooperation
by Holders.
The Company shall have no
obligation to include Registrable Securities of a Holder in a Registration Statement or in an Underwritten Offering who has failed to
timely furnish after receipt of a written request from the Company such information that the Company determines, after consultation with
its counsel, is reasonably required in order for the registration statement or prospectus supplement, as applicable, to comply with the
Securities Act.
Section 2.07 Expenses.
(a) Expenses.
The Company shall pay all reasonable Registration Expenses as determined in good faith by the Company, including, in the case of an Underwritten
Offering, the reasonable Registration Expenses of an Underwritten Offering, regardless of whether any sale is made pursuant to such Underwritten
Offering. Each Selling Holder shall pay its pro rata share of all Selling Expenses in connection with any sale of its Registrable
Securities hereunder. Each Selling Holder’s pro rata allocation of Selling Expenses shall be the percentage derived by dividing
(i) the number of Registrable Securities sold by such Selling Holder in connection with such sale by (ii) the aggregate number
of Registrable Securities sold by all Selling Holders in connection with such sale. In addition, except as otherwise provided in Section 2.08
hereof, the Company shall not be responsible for legal fees incurred by Holders in connection with the exercise of such Holders’
rights hereunder.
(b) Certain Definitions.
“Registration Expenses” means all expenses incident to the Company’s performance under or compliance with this
Agreement to effect the registration of Registrable Securities on a Registration Statement pursuant to Section 2.01 or an
Underwritten Offering covered under this Agreement, and the disposition of such Registrable Securities, including, without limitation,
all registration, filing, securities exchange listing and NYSE fees, all registration, filing, qualification and other fees and expenses
of complying with securities or blue sky laws, fees of the Financial Industry Regulatory Authority, Inc., fees of transfer agents
and registrars, all word processing, duplicating and printing expenses, any transfer taxes, and the fees and disbursements of counsel
and independent public accountants for the Company, including the expenses of any special audits or “comfort” letters required
by or incident to such performance and compliance, and the reasonable fees and disbursements of one counsel for the Selling Holders participating
in such Registration Statement or Underwritten Offering to effect the disposition of such Registrable Securities, selected by the Holders
of a majority of the Registrable Securities initially being registered under such Registration Statement or other registration statement
as contemplated by this Agreement. “Selling Expenses” means all underwriting discounts and selling commissions or similar
fees or arrangements allocable to the sale of the Registrable Securities, and fees and disbursements of counsel to the Selling Holders,
except for the reasonable fees and disbursements of counsel for the Selling Holders required to be paid by the Company pursuant to Section 2.08.
Section 2.08 Indemnification.
(a) By the Company.
The Company shall indemnify and hold harmless each Selling Holder thereunder, its directors, officers, managers, stockholders, members,
partners, employees and agents, and their respective successors and assigns, and each Person, if any, who controls such Selling Holder
within the meaning of the Securities Act and the Exchange Act, and its directors, officers, managers, stockholders, members, partners,
employees or agents, and their respective successors and assigns (collectively, the “Selling Holder Indemnified Persons”),
against any losses, claims, damages, expenses or liabilities (including reasonable attorneys’ fees and expenses) (collectively,
“Losses”), joint or several, to which such Selling Holder Indemnified Person may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement of any material fact (in the case of any prospectus, in
light of the circumstances under which such statement is made) contained in (which includes documents incorporated by reference in) a
Registration Statement or any other registration statement contemplated by this Agreement, any preliminary prospectus, prospectus supplement
or final prospectus contained therein, or any amendment or supplement thereof, or any free writing prospectus relating thereto or arise
out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary
to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading,
or any violation or alleged violation by the Company of the Securities Act or any other similar federal or state securities laws or any
rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and shall reimburse each such Selling Holder Indemnified Person for
any legal or other expenses reasonably incurred by them in connection with investigating, defending or resolving any such Loss or actions
or proceedings; provided, however, that the Company shall not be liable in any such case if and to the extent that any such Loss
arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with
information furnished by such Selling Holder Indemnified Person in writing specifically for use in such Registration Statement or such
other registration statement, or prospectus supplement, as applicable. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such Selling Holder Indemnified Person, and shall survive the transfer of such securities
by such Selling Holder.
(b) By Each Selling
Holder. Each Selling Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, officers,
employees and agents and each Person, if any, who controls the Company within the meaning of the Securities Act or of the Exchange Act,
and its directors, officers, employees and agents, to the same extent as the foregoing indemnity from the Company to the Selling Holders,
but only with respect to information regarding such Selling Holder furnished in writing by or on behalf of such Selling Holder expressly
for inclusion in such Registration Statement or any other registration statement contemplated by this Agreement, any preliminary prospectus,
prospectus supplement or final prospectus contained therein, or any amendment or supplement thereof, or any free writing prospectus relating
thereto; provided, however, that the liability of each Selling Holder shall not be greater in amount than the dollar amount of
the proceeds (net of any Selling Expenses) received by such Selling Holder from the sale of the Registrable Securities giving rise to
such indemnification.
(c) Notice. Promptly
after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission
to so notify the indemnifying party shall not relieve it from any liability that it may have to any indemnified party. The indemnifying
party shall be entitled to participate in and, to the extent it so desires, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party and, after written notice from the indemnifying party to such indemnified party of its election
so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 2.08
for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs
of investigation and of liaison with counsel so selected; provided, however, that, (i) if the indemnifying party has failed
to timely assume the defense or employ counsel reasonably acceptable to the indemnified party or (ii) if the defendants in any such
action include both the indemnified party and the indemnifying party and counsel to the indemnified party shall have concluded that there
may be reasonable defenses available to the indemnified party that are different from or additional to those available to the indemnifying
party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party,
then the indemnified party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such separate counsel and other reasonable expenses related to
such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding any other provision of this Agreement, no indemnifying
party shall settle any action brought against any indemnified party with respect to which such indemnified party is entitled to indemnification
hereunder without the consent of the indemnified party, unless the settlement thereof imposes no liability or obligation on, and includes
a complete and unconditional release from all liability of, and does not contain any admission of wrongdoing by, the indemnified party.
(d) Contribution.
If the indemnification provided for in this Section 2.08 is held by a court or government agency of competent jurisdiction
to be unavailable to any indemnified party or is insufficient to hold them harmless in respect of any Losses, then each such indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result
of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of such
indemnified party, on the other hand, in connection with the statements or omissions that resulted in such Losses, as well as any other
relevant equitable considerations; provided, however, that in no event shall such Selling Holder be required to contribute an aggregate
amount in excess of the dollar amount of proceeds (net of Selling Expenses) received by such Selling Holder from the sale of Registrable
Securities giving rise to such indemnification. The relative fault of the indemnifying party on the one hand and the indemnified party
on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact has been made by, or relates to, information supplied by such party, and
the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by
pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to herein.
The amount paid by an indemnified party as a result of the Losses referred to in the first sentence of this paragraph shall be deemed
to include any legal and other expenses reasonably incurred by such indemnified party in connection with investigating, defending or resolving
any Loss that is the subject of this paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who is not guilty of such fraudulent misrepresentation.
(e) Other Indemnification.
The provisions of this Section 2.08 shall be in addition to any other rights to indemnification or contribution that an indemnified
party may have pursuant to law, equity, contract or otherwise.
Section 2.09 Rule 144
Reporting.
With a view to making available
the benefits of certain rules and regulations of the SEC that may permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its reasonable best efforts to:
(a) make and keep public
information regarding the Company available, as those terms are understood and defined in Rule 144 under the Securities Act (or any
successor or similar provision adopted by the SEC then in effect), at all times from and after the date hereof;
(b) file with the SEC
in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at all times
from and after the date hereof; and
(c) so long as a Holder
owns any Registrable Securities, furnish, unless otherwise available electronically at no additional charge via the SEC’s EDGAR
system, to such Holder forthwith upon request a copy of the most recent annual or quarterly report of the Company, and such other reports
and documents as such Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing such Holder
to sell any such securities without registration.
Section 2.10 Transfer
or Assignment of Registration Rights.
The rights to cause the Company
to register Registrable Securities granted to the Purchaser by the Company under this Article II may be transferred or assigned
by the Purchaser to one or more transferees or assignees of Registrable Securities, subject to the transfer restrictions provided in the
Securities Purchase Agreement, provided, however, that (a) the Company is given written notice prior to any said transfer
or assignment, stating the name and address of each of the transferee or assignee and identifying the Registrable Securities with respect
to which such registration rights are being transferred or assigned and (b) each such transferee or assignee assumes in writing responsibility
for its portion of the obligations of the Purchaser under this Agreement.
Section 2.11 Limitation
on Subsequent Registration Rights.
From and after the date hereof,
the Company shall not, without the prior written consent of the Holders of a majority of the then outstanding Registrable Securities,
enter into any agreement with any current or future holder of any equity securities of the Company that (a) is inconsistent with
or grants registration rights that are superior in any respect to the rights granted to the Purchaser in this Agreement or otherwise conflicts
with the provisions hereof or (b) limits the number of Registrable Shares that would otherwise be included pursuant to this Agreement.
From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the
then outstanding Registrable Securities file or have declared effective a registration statement for equity securities before the initial
Registration Statement required pursuant to Section 2.01 is declared effective
Article III
MISCELLANEOUS
Section 3.01 Communications.
All notices and other communications
provided for or permitted hereunder shall be made in writing by electronic mail, courier service or personal delivery:
(a) if to the Purchaser:
Rithm Capital Corp.
799 Broadway
New York, New York
10003
Attention: Philip
Sivin
Email: psivin@rithmcap.com
with a copy to (which
shall not constitute notice):
Sidley Austin LLP
2021 McKinney Avenue
Suite 2000
Dallas, TX 75201
Attention: William
D. Howell; Courtney J. Gilberg
Email: bhowell@sidley.com;
cgilberg@sidley.com
and (b) if to the Company:
Great Ajax Corp.
9400 SW Beaverton-Hillsdale Hwy
Suite 131
Beaverton, Oregon 97005
Attention: Lawrence Mendelsohn
Email: larry@aspencapital.com
with a copy to (which
shall not constitute notice):
Mayer Brown LLP
1221 Avenue of the Americas
New York, NY 10020
Attention: Anna Pinedo
Telephone: (212) 506-2275
Email: apinedo@mayerbrown.com
All such notices and communications
shall be deemed to have been received at the time delivered by hand, if personally delivered; when transmitted (without any error notice
or notice of non-delivery generated), if sent via electronic mail; and when actually received, if sent by courier service.
Section 3.02 Successors
and Assigns.
This
Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties, including subsequent
Holders of Registrable Securities, to the extent permitted herein. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement; provided, however, the parties
hereto hereby acknowledge that the persons set forth in Section 2.08 are express third-party beneficiaries of the obligations
of the parties hereto set forth in Section 2.08.
Section 3.03 Aggregation
of Registrable Securities.
All Registrable Securities
held or acquired by Persons who are Affiliates of one another shall be aggregated together for the purpose of determining the availability
of any rights and applicability of any obligations under this Agreement.
Section 3.04 Recapitalization,
Exchanges, Etc. Affecting the Common Stock.
The provisions of this Agreement
shall apply to the full extent set forth herein with respect to any and all capital stock or other securities of the Company or any successor
or assign of the Company (whether by merger, acquisition, consolidation, reorganization, sale of assets or otherwise) that may be issued
in respect of, in exchange for or in substitution of, the Registrable Securities, and shall be appropriately adjusted for combinations,
unit splits, recapitalizations, pro rata distributions of units and the like occurring after the date of this Agreement.
Section 3.05 Specific
Performance.
Damages in the event of breach
of this Agreement by a party hereto may be difficult, if not impossible, to ascertain, and it is therefore agreed that each such Person,
in addition to and without limiting any other remedy or right it may have, shall have the right to an injunction or other equitable relief
in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof, and each
of the parties hereto hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court
to grant such an injunction or other equitable relief. The existence of this right shall not preclude any such Person from pursuing any
other rights and remedies at law or in equity that such Person may have.
Section 3.06 Counterparts.
This Agreement may be executed
in any number of counterparts and by different parties hereto in separate counterparts, including facsimile or .pdf counterparts, each
of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together,
shall constitute one and the same Agreement.
Section 3.07 Headings.
The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
Section 3.08 Governing
Law; Jurisdiction; Waiver of Jury Trial.
This Agreement, including
all issues and questions concerning its application, construction, validity, interpretation and enforcement, shall be construed in accordance
with, and governed by, the laws of the State of New York without regard to the choice of law principles thereof. Each of the parties hereto
irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States
federal courts in New York County (and the appellate courts thereof) for the purpose of any suit, action, proceeding or judgment relating
to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action
or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices
under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or
proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any
such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY
IN ANY LITIGATION WITH RESPECT TO OR ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 3.09 Severability
of Provisions.
Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof or affecting or impairing the validity or enforceability of such
provision in any other jurisdiction.
Section 3.10 Entire
Agreement.
This Agreement is intended
by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding
of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings,
other than those set forth or referred to herein with respect to the rights granted by the Company set forth herein. This Agreement and
the Securities Purchase Agreement supersede all prior agreements and understandings between the parties with respect to such subject matter.
Section 3.11 Amendment.
This Agreement may be amended
only by means of a written amendment signed by the Company and the Holders of a majority of the then outstanding Registrable Securities,
and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company
shall have obtained the written consent to such amendment, action or omission to act, of the Holders of a majority of the then outstanding
Registrable Securities; provided, however, that, in any case, no such amendment or waiver shall materially and adversely affect
the rights of any Holder hereunder without the consent of such Holder.
Section 3.12 No Presumption.
If any claim is made by a
party relating to any conflict, omission or ambiguity in this Agreement, no presumption or burden of proof or persuasion shall be implied
by virtue of the fact that this Agreement was prepared by or at the request of a particular party or its counsel.
Section 3.13 Obligations
Limited to Parties to Agreement.
Each of the parties hereto
covenants, agrees and acknowledges that no Person other than the Purchaser (and its permitted transferees and assignees) and the Company
shall have any obligation hereunder. No recourse under this Agreement or under any documents or instruments delivered in connection herewith
or therewith shall be had against any former, current or future director, officer, employee, agent, general or limited partner, manager,
member, stockholder or Affiliate of the Purchaser or any former, current or future director, officer, employee, agent, general or limited
partner, manager, member, stockholder or Affiliate thereof, whether by the enforcement of any assessment or by any legal or equitable
proceeding, or by virtue of any applicable Law, it being expressly agreed and acknowledged that no personal liability whatsoever shall
attach to, be imposed on or otherwise be incurred by any former, current or future director, officer, employee, agent, general or limited
partner, manager, member, stockholder or Affiliate of any of the Purchaser or any former, current or future director, officer, employee,
agent, general or limited partner, manager, member, stockholder or Affiliate thereof, as such, for any obligations of the Purchaser under
this Agreement or any documents or instruments delivered in connection herewith or therewith or for any claim based on, in respect of
or by reason of such obligation or its creation, except in each case for any transferee or assignee of the Purchaser hereunder.
Section 3.14
Assignments and Transfers by the Company.
This
Agreement may not be assigned by the Company (whether by operation of law or otherwise) without the prior written consent of the Holders
of a majority of the then outstanding Registrable Securities; provided, however, that the Company may assign its rights and delegate
its duties hereunder to any surviving or successor entity in connection with a merger or consolidation of the Company with another entity,
or a sale, transfer or other disposition of all or substantially all of the Company’s assets to another entity, without the prior
written consent of such Holders, after notice duly given by the Company to each Holder.
Section 3.15
Further Assurances.
The parties hereto shall execute
and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the
transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.
Section 3.16 Interpretation.
Article and Section references
are to this Agreement, unless otherwise specified. All references to instruments, documents, contracts and agreements are references to
such instruments, documents, contracts and agreements as the same may be amended, supplemented and otherwise modified from time to time,
unless otherwise specified. The words “include,” “includes” and “including” or words of similar import
shall be deemed to be followed by the words “without limitation.” Whenever any determination, consent or approval is to be
made or given by the Purchaser or another Holder under this Agreement, such action shall be in the Purchaser’s or such other Holder’s
sole discretion unless otherwise specified. Unless expressly set forth or qualified otherwise (e.g., by “Business”
or “trading”), all references herein to a “day” are deemed to be a reference to a calendar day.
(Signature pages follow)
IN WITNESS WHEREOF, the parties
hereto execute this Agreement, effective as of the date first above written.
| |
GREAT AJAX CORP. |
| |
|
|
| |
By: |
/s/ Lawrence Mendelsohn |
| |
Name: |
Lawrence Mendelsohn |
| |
Title: |
Chief Executive Officer |
[Signature
Page to Registration Rights Agreement]
| |
PURCHASER: |
| |
|
|
| |
RITHM CAPITAL CORP. |
| |
|
|
| |
By: |
/s/ Nicola Santoro, Jr. |
| |
Name: |
Nicola Santoro, Jr. |
| |
Title: |
Chief Financial Officer |
[Signature
Page to Registration Rights Agreement]
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in this Registration Statement on
Form S-3 of our report dated February 28, 2024, relating to the consolidated financial statements and schedule of Great Ajax Corp. and
Subsidiaries (the “Company”) and the effectiveness of internal control over financial reporting of the Company, appearing
in the Annual Report on Form 10-K of the Company for the year ended December 31, 2023, filed with the Securities and Exchange Commission.
We also consent to the reference to us under the heading “Experts” in such Registration Statement.
/s/ Moss Adams LLP
San
Francisco, California
June 11, 2024
Exhibit 107
Calculation of Filing Fee Tables
Form S-3
(Form Type)
Great Ajax Corp.
(Exact Name of Registrant as Specified in its
Charter)
Table 1: Newly Registered and Carry Forward
Securities
| | |
Security
Type | |
Security
Class Title | |
Fee
Calculation
or Carry
Forward
Rule | |
Amount
Registered | | |
Proposed
Maximum
Offering
Price Per
Unit | |
Maximum
Aggregate
Offering
Price | |
Fee Rate | |
Amount of
Registration
Fee | |
| Newly Registered Securities |
| | |
| |
| |
| |
| | |
| | |
| | |
| |
| | |
Fees to Be
Paid | |
Equity | |
Common
stock, par value $0.01 per share(1) | |
457(c),
457(o) | |
2,874,744 | | |
$ | 3.29 | (3) |
$ | 9,457,907.76 | |
.00014760 | |
$ | 1,395.99 | |
| | |
Equity | |
Common
stock, par value $0.01 per share, issuable upon the exercise of Warrants(1) | |
457(g),
457(o) | |
3,264,926 | (2) | |
$ | 5.36
| (4) |
$ | 17,500,003.36 | |
.00014760 | |
$ | 2,583.00 | |
| Fees Previously Paid | |
— | |
— | |
— | |
— | | |
| — | |
| — | |
— | |
$ | — | |
| Carry Forward Securities |
| Carry Forward Securities | |
— | |
— | |
— | |
— | | |
| | |
| — | |
| |
$ | — | |
| Total Offering Amounts |
|
|
$ | 26,957,910.12 | |
| |
$ | 3,978.99 | |
| Total Fees Previously Paid |
|
|
| | |
| |
| | |
| Total Fee Offsets |
|
|
| | |
| |
$ | — | |
| Net Fees Due |
|
|
| | |
| |
$ | 3,978.99 | |
| (1) | The shares of common stock, par value $0.01
per share (“common stock”) will be offered for resale by
the selling stockholders pursuant to the prospectus contained herein. Pursuant to
Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”),
the shares of common stock being registered hereunder include such indeterminate number of
shares of common stock as may be issuable with respect to the shares of common stock being
registered hereunder as a result of stock splits, stock dividends or similar transactions. |
| (2) | Consists of 3,264,926 shares of common stock
issuable upon the exercise of warrants held by Rithm Capital Corp. with an exercise price
of $5.36 per share (the “Warrants”). |
| (3) | Estimated solely for purposes of calculating
the registration fee, based on the average of the $3.34 (high) and $3.24 (low) prices for
our common stock as quoted on the New York Stock Exchange (the “NYSE”)
on June 7, 2024, in accordance with Rule 457(c) under the Securities Act. |
| (4) | The exercise price for the Warrants of $5.36
per share is being used to calculate the registration fee in accordance with Rule 457(g) under
the Securities Act. |
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