As filed with the Securities and Exchange Commission on August 2, 2023

Registration No. 333-      ​

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549​

FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Ellington Financial Inc.

(Exact Name of Registrant as Specified in its Charter)​

53 Forest Avenue
Old Greenwich, Connecticut 06870
(203) 698-1200

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)​

Laurence Penn, Chief Executive Officer and President
53 Forest Avenue
Old Greenwich, Connecticut 06870
(203) 698-1200

(Address, including zip code, and telephone number, including area code, of agent for service)​

Copies to:

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement is declared effective and upon the satisfaction or waiver of all other conditions to consummation of the merger described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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, 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(d) 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. ☐

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.

Large accelerated filer ☒Accelerated filer ☐Non-accelerated filer ☐Smaller reporting company ☐

Emerging growth company ☐​

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 the Securities Act. ☐

If applicable, please an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐

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 which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this proxy statement/prospectus is subject to completion and amendment. A registration statement relating to the securities described in this proxy statement/prospectus has been filed with the U.S. Securities and Exchange Commission. These securities may not be sold nor may offers to buy these securities be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities law of any such jurisdiction.

PRELIMINARY — SUBJECT TO COMPLETION

DATED August 2, 2023

PROXY STATEMENT/PROSPECTUS

MERGER PROPOSED — YOUR VOTE IS VERY IMPORTANT

[•], 2023

To the stockholders of Great Ajax Corp.,

The board of directors (the “Great Ajax Board”) of Great Ajax Corp., a Maryland corporation (“Great Ajax”), has approved an Agreement and Plan of Merger, dated as of June 30, 2023 (as such agreement may be amended or modified from time to time, the “Merger Agreement”), by and among Ellington Financial Inc. (“EFC”), EF Acquisition I LLC, a Maryland limited liability company and a direct, wholly-owned subsidiary of EFC (“Merger Sub”), and Great Ajax, pursuant to which Great Ajax will merge with and into Merger Sub, with Merger Sub continuing as the surviving company (the “Merger”). Immediately following the Merger, the surviving company will be contributed to Ellington Financial Operating Partnership LLC, a Delaware limited liability company and EFC’s operating partnership subsidiary (the “EFC Operating Partnership”), in exchange for limited liability company interests in the EFC Operating Partnership (“EFC OP Units”). As a result of the contribution, the surviving company will become a wholly-owned subsidiary of the EFC Operating Partnership. The closing of the Merger will occur as promptly as practicable following satisfaction of all closing conditions set forth in the Merger Agreement, but, under certain circumstances, either EFC or Great Ajax may terminate the Merger Agreement if the closing has not occurred on or before 5:00 p.m. Eastern Time on January 31, 2024. Upon completion of the Merger, EFC will continue to operate under the “Ellington Financial Inc.” name and its shares of common stock, par value $0.001 per share (“EFC Common Stock”), will continue to trade on the New York Stock Exchange under the symbol “EFC.”

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each outstanding share of common stock, par value $0.01 per share, of Great Ajax (“Great Ajax Common Stock”) (other than shares held by EFC, Merger Sub or any wholly-owned subsidiary of EFC, Merger Sub or Great Ajax (such shares, the “Cancelled Shares”)), will automatically be converted into the right to receive from EFC (i) 0.5308 shares of EFC Common Stock (the “Exchange Ratio”), plus (ii) to the extent that Great Ajax effectuates the repurchase of certain securities on the terms set forth in the Great Ajax Disclosure Letter, an amount in cash as set forth in the Great Ajax Disclosure Letter (the “Contingent Cash Purchase Price”), in each case, subject to adjustment as provided in the Merger Agreement (collectively, the “Merger Consideration”). The Cancelled Shares will automatically be cancelled and retired, and no consideration will be delivered in exchange thereof. Cash will be paid in lieu of any fractional shares of EFC Common Stock that would have been received as a result of the Merger.

Each share of Great Ajax Common Stock issued by Great Ajax under its 2014 Director Equity Plan or 2016 Equity Incentive Plan that is issued and outstanding as of immediately prior to the effective time of the Merger will, at the effective time of the Merger, automatically become fully vested and then immediately cancelled in exchange for the right to receive the Merger Consideration.

The Merger Agreement provides that Great Ajax will, to the extent necessary, declare and pay an additional dividend in cash on the last business day prior to the closing of the Merger with a record date that is three business days before the payment date. The additional per share dividend payable by Great Ajax will be an amount (the “Great Ajax Additional Dividend Amount”), if any, necessary so that the aggregate dividend payable is equal to the amount necessary for Great Ajax to maintain its REIT qualification under the Internal Revenue Code of 1986, as amended (the “Code”), and avoid the imposition of income tax or excise tax under the Code. The Merger Agreement provides that EFC may declare and pay an additional dividend in cash on the last business day prior to the closing of the Merger with a record date that is three

business days before the payment date. If such an additional dividend is declared, the additional per share dividend payable by EFC will be an amount equal to (i) the per share amount of EFC’s then-most recent monthly dividend, multiplied by the number of days elapsed since the last dividend record date through and including the day prior to the Closing Date, and divided by the actual number of days in the calendar month in which such dividend is declared, plus (ii) an additional amount equal to the quotient obtained by dividing (A) the Great Ajax Additional Dividend Amount, if any, by (B) the Exchange Ratio.

EFC has also entered into an Agreement and Plan of Merger, dated May 29, 2023 (the “Arlington Merger Agreement”), with Arlington Asset Investment Corp., a Virginia corporation (“Arlington”), EF Merger Sub Inc., a Virginia corporation and a direct wholly owned subsidiary of EFC (“Arlington Merger Sub”), and, solely for the limited purposes set forth in the Arlington Merger Agreement, Ellington Financial Management LLC, a Delaware limited liability company (“EFC Manager”), pursuant to which, subject to the terms and conditions of the Arlington Merger Agreement, Arlington will merge with and into Arlington Merger Sub (the “Arlington Merger”), with Arlington Merger Sub continuing as the surviving corporation of the Arlington Merger. Immediately following the Arlington Merger, the surviving corporation of the Arlington Merger will be contributed to the EFC Operating Partnership, in exchange for limited liability company interests in the EFC Operating Partnership. As a result of the contribution, the surviving corporation of the Arlington Merger will become a wholly owned subsidiary of the EFC Operating Partnership.

Pursuant to the terms and subject to the conditions of the Arlington Merger Agreement, at the effective time of the Arlington Merger, each issued and outstanding share of Class A common stock, par value $0.01 per share, of Arlington (“Arlington Common Stock”) (other than shares held by EFC, Arlington Merger Sub or any wholly owned subsidiary of EFC, Arlington Merger Sub or Arlington) will automatically be converted into the right to receive: (i) from EFC, 0.3619 (the “Arlington Exchange Ratio”) shares of EFC Common Stock, subject to adjustment as provided in the Arlington Merger Agreement; and (ii) from EFC Manager, $0.09 in cash.

If the Arlington Merger is completed, upon completion of the later to occur of the Merger and the Arlington Merger, we estimate that former holders of Great Ajax Common Stock will own approximately 14% of the issued and outstanding shares of EFC Common Stock, using the Exchange Ratio of 0.5308 and the Arlington Exchange Ratio of 0.3619. If, however, the Arlington Merger is not completed, upon completion of the Merger, we estimate that former holders of Great Ajax Common Stock will own approximately 16% of the issued and outstanding shares of EFC Common Stock, using the Exchange Ratio of 0.5308.

Great Ajax will hold a special meeting (the “Great Ajax Special Meeting”) of the holders of Great Ajax Common Stock (the “Great Ajax Stockholders”). The Great Ajax Special Meeting will be held solely by means of remote communication live over the Internet on [•], 2023, at [•] a.m. Eastern Time.

At the Great Ajax Special Meeting, the Great Ajax Stockholders will be asked to (i) consider and vote on a proposal (the “Great Ajax Merger Proposal”) to approve the Merger and the other transactions contemplated by the Merger Agreement, and (ii) approve the adjournment of the Great Ajax Special Meeting, if necessary or appropriate, including to solicit additional proxies for the approval of the Great Ajax Merger Proposal (the “Great Ajax Adjournment Proposal”). The Great Ajax Board has unanimously (i) determined that the Merger Agreement and the transactions contemplated therein, including the Merger, are in the best interests of Great Ajax and its stockholders, (ii) approved the Merger Agreement, the Merger, and the other transactions contemplated by the Merger Agreement, and declared that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, (iii) directed that the Great Ajax Merger Proposal be submitted to the holders of Great Ajax Common Stock for consideration at the Great Ajax Special Meeting, and (iv) resolved to recommend, in accordance with and subject to the provisions of the Merger Agreement, that the holders of Great Ajax Common Stock approve the Great Ajax Merger Proposal. The Great Ajax Board unanimously recommends that the holders of Great Ajax Common Stock vote “FOR” the Great Ajax Merger Proposal and “FOR” the Great Ajax Adjournment Proposal. Only those matters included in the notice of the Great Ajax Special Meeting (“Notice of Special Meeting of Great Ajax”) may be considered and voted upon at the Great Ajax Special Meeting.

This proxy statement/prospectus provides detailed information about the Great Ajax Special Meeting, the Merger Agreement, the Merger and other related matters. A copy of the Merger Agreement is included as Annex A to this proxy statement/prospectus. We encourage you to read this proxy statement/prospectus, the Merger Agreement and the other annexes to this proxy statement/prospectus carefully and in their entirety. In particular, you should carefully consider the discussion in the section of this proxy statement/prospectus

entitled “Risk Factors” beginning on page 31. You may also obtain more information about each company from the documents they file with the Securities and Exchange Commission (the “SEC”).

Whether or not you plan to attend the Great Ajax Special Meeting virtually, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope. You may also authorize a proxy to vote your shares over the Internet using the Internet address on the enclosed proxy card or by telephone using the toll-free number on the enclosed proxy card. If you authorize a proxy to vote your shares through the Internet or by telephone, you will be asked to provide the company number and control number from the enclosed proxy card. If you attend and vote at the Great Ajax Special Meeting virtually over the Internet, your vote by ballot will revoke any proxy previously submitted.

Your vote is very important, regardless of the number of shares of Great Ajax Common Stock you own. Whether or not you plan to attend the Great Ajax Special Meeting virtually, please authorize a proxy to vote your shares of Great Ajax Common Stock as promptly as possible to make sure that your shares of Great Ajax Common Stock are represented at the Great Ajax Special Meeting. Please note that the failure to vote, or authorize a proxy to vote, your shares of Great Ajax Common Stock is the equivalent of a vote against the Great Ajax Merger Proposal.

Thank you in advance for your continued support.

Sincerely,

Lawrence Mendelsohn
Chairman and Chief Executive Officer
Great Ajax Corp.

Neither the SEC nor any state securities regulatory agency has approved or disapproved of the securities to be issued in connection with the Merger or passed upon the adequacy or accuracy of this proxy statement/​prospectus. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated [•], 2023, and is first being mailed to the Great Ajax Stockholders on or about [•], 2023.

 

Great Ajax Corp.
13190 SW 68th Parkway, Suite 110
Tigard, Oregon 97223
(503) 505-5670

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [•], 2023

NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the “Great Ajax Special Meeting”) of Great Ajax Corp., a Maryland corporation (“Great Ajax”), will be held solely by means of remote communication live over the Internet at [•] on [•], 2023 at [•] a.m., Eastern Time, for the following purposes:

1.

to consider and vote on a proposal (the “Great Ajax Merger Proposal”) to approve the merger of Great Ajax with and into EF Acquisition I LLC, a Maryland limited liability company (“Merger Sub”), with Merger Sub continuing as the surviving entity, and the other transactions contemplated in connection therewith (collectively, the “Merger”), pursuant to that certain Agreement and Plan of Merger, dated as of June 30, 2023, by and among Ellington Financial Inc., a Delaware corporation (“EFC”), Merger Sub, a wholly-owned subsidiary of EFC, and Great Ajax (the “Merger Agreement”), as it may be amended from time to time, a copy of which is attached as Annex A to the proxy statement/prospectus accompanying this notice; and

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2.

to consider and vote on a proposal to adjourn the Great Ajax Special Meeting, if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes to approve the Great Ajax Merger Proposal (the “Great Ajax Adjournment Proposal”).

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Great Ajax will transact no other business at the Great Ajax Special Meeting or any postponement or adjournment thereof. Please refer to the attached proxy statement/prospectus for further information with respect to the business to be transacted at the Great Ajax Special Meeting. The board of directors of Great Ajax (the “Great Ajax Board”) has fixed the close of business on [•], 2023 as the record date (the “Great Ajax Record Date”) for the determination of the holders of shares of common stock, par value $0.01 per share, of Great Ajax (the “Great Ajax Common Stock”) entitled to notice of, and to vote at, the Great Ajax Special Meeting or any postponement or adjournment thereof. Accordingly, only holders of Great Ajax Common Stock (“Great Ajax Stockholders”) at the close of business on the Great Ajax Record Date are entitled to notice of, and to vote at, the Great Ajax Special Meeting and any postponement or adjournment thereof.

The Great Ajax Board has unanimously (i) determined that the Merger Agreement and the transactions contemplated therein, including the Merger, are in the best interests of Great Ajax and the Great Ajax Stockholders, (ii) approved the Merger Agreement, the Merger, and the other transactions contemplated by the Merger Agreement, and declared that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, (iii) directed that the Great Ajax Merger Proposal be submitted to Great Ajax Stockholders for consideration at the Great Ajax Special Meeting, and (iv) resolved to recommend, in accordance with and subject to the provisions of the Merger Agreement, that the Great Ajax Stockholders approve the Great Ajax Merger Proposal. The Great Ajax Board unanimously recommends that the Great Ajax Stockholders vote “FOR” the Great Ajax Merger Proposal and “FOR” the Great Ajax Adjournment Proposal.

Your vote is very important, regardless of the number of shares of Great Ajax Common Stock you own. Whether or not you plan to attend the Great Ajax Special Meeting virtually, please authorize a proxy to vote your shares of Great Ajax Common Stock as promptly as possible to make sure that your shares of Great Ajax Common Stock are represented at the Great Ajax Special Meeting. Properly executed proxy cards with no

 

 

instructions indicated on the proxy card will be voted “FOR” the Great Ajax Merger Proposal and “FOR” the Great Ajax Adjournment Proposal.

To ensure your representation at the Great Ajax Special Meeting, you are urged to authorize a proxy to vote your shares of Great Ajax Common Stock: (1) by phone; (2) via the Internet, before the meeting or during the meeting; or (3) by marking, signing, dating, and promptly returning the proxy card in the enclosed postage-paid envelope for that purpose. Whether or not you plan to attend the virtual Great Ajax Special Meeting, we urge you to authorize a proxy to vote your shares of Great Ajax Common Stock in advance of the Great Ajax Special Meeting by one of the methods described above. If you attend the Great Ajax Special Meeting virtually over the Internet, you may revoke your proxy and vote electronically at the Great Ajax Special Meeting, even if you have previously returned your proxy card or authorized, through the Internet or by telephone, a proxy to vote your shares of Great Ajax Common Stock.

Please note that if you hold shares of Great Ajax Common Stock in different accounts, it is important that you vote or authorize a proxy to vote the shares of Great Ajax Common Stock represented by each account.

You can virtually attend the Great Ajax Special Meeting on [•], 2023 at [•] a.m. Eastern Time by accessing the online virtual meeting platform at [•], but you are only entitled to participate, vote, and/or ask questions at the Great Ajax Special Meeting if you were a stockholder of record or beneficial owner as of the Great Ajax Record Date.

To participate in the Great Ajax Special Meeting by voting and/or asking questions, you will need the [•]-digit control number included on your proxy card or on the instructions that accompanied your proxy materials. If you are a stockholder as of the Great Ajax Record Date, you may vote your shares electronically during the Great Ajax Special Meeting through the online virtual meeting platform by following the instructions provided when you log in to the online virtual meeting platform. On the day of the Great Ajax Special Meeting, Great Ajax Stockholders may begin to log in to the online virtual meeting platform beginning at [•] a.m. Eastern Time, and the meeting will begin promptly at [•] a.m. Eastern Time. Please allow ample time for online login.

We will have technicians ready to assist you with any technical difficulties you may have accessing the Great Ajax Special Meeting. If you encounter any difficulties accessing or logging in to the Great Ajax Special Meeting, please call the technical support number displayed on the login page of the online virtual meeting platform.

This notice and the enclosed proxy statement/prospectus are first being mailed to Great Ajax Stockholders on or about [•], 2023.

By Order of the Board of Directors,

Lauren DeMasi
Secretary
Great Ajax Corp.
Tigard, Oregon
[•], 2023

 

 

ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about EFC and Great Ajax from other documents that EFC and Great Ajax have publicly filed with the SEC and that are not included in or delivered with this proxy statement/prospectus. For a listing of documents incorporated by reference herein and additional information on how you can obtain copies of these documents free of charge from EFC or Great Ajax, please see the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 191 of this proxy statement/prospectus. This information is also available for you to review free of charge through the SEC’s website at www.sec.gov.

You may request copies of this proxy statement/prospectus and any of the documents incorporated by reference herein or other information concerning EFC or Great Ajax, without charge, upon written or oral request to the applicable company’s executive offices. The respective addresses and telephone numbers of such executive offices are listed below.

Investors may also consult the websites of EFC or Great Ajax for more information concerning the Merger and the other related transactions described in this proxy statement/prospectus. The website of EFC is www.ellingtonfinancial.com and the website of Great Ajax is www.greatajax.com. Information included on these websites is not incorporated by reference into this proxy statement/prospectus. The references to these websites are intended to be inactive textual references only.

If you would like to request any documents, please do so by [•], 2023 (which is five business days before the date of the Great Ajax Special Meeting), in order to receive them before the Great Ajax Special Meeting.

In addition, if you have questions about the Merger or the accompanying proxy statement/prospectus, would like additional copies of the proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, please contact:

Great Ajax Corp.
13190 SW 68th Parkway, Suite 110
Tigard, OR 97223
(503) 505-5670
Attention: Secretary

or

Georgeson LLC
1290 Avenue of the Americas, 9th Floor
New York, NY 10104
Phone: (877) 847-1383 (toll-free within the United States)
or (781) 575-2137 (outside of the United States)

For a more detailed description of the information incorporated by reference in this proxy statement/​prospectus and how you may obtain it, see the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 191 of this proxy statement/prospectus.

 

 

ABOUT THIS DOCUMENT

This proxy statement/prospectus, which forms part of a registration statement on Form S-4 (Registration Statement No. 333-[•]) filed by EFC with the SEC, constitutes a prospectus of EFC for purposes of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of EFC Common Stock to be issued to Great Ajax Stockholders in exchange for shares of Great Ajax Common Stock pursuant to the Merger Agreement. This proxy statement/prospectus also constitutes a proxy statement for Great Ajax for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, it constitutes a notice of special meeting with respect to the Great Ajax Special Meeting.

No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated [•], 2023, and you should not assume that the information contained in, or incorporated by reference into, this proxy statement/prospectus is accurate as of any date other than that date (or, in the case of documents incorporated by reference, their respective dates). Neither the mailing of this proxy statement/​prospectus to Great Ajax Stockholders nor the issuance of EFC Common Stock to Great Ajax Stockholders in the Merger pursuant to the Merger Agreement will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or to any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in or incorporated by reference into this proxy statement/prospectus regarding EFC has been provided by EFC and information contained in or incorporated by reference into this proxy statement/prospectus regarding Great Ajax has been provided by Great Ajax. EFC and Great Ajax have both contributed to the information relating to the Merger contained in this proxy statement/prospectus.

 

 

TABLE OF CONTENTS

 

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iii

 

FREQUENTLY USED TERMS

Certain terms that are defined in and frequently used throughout this proxy statement/prospectus may be helpful for you to have in mind at the outset. Unless otherwise specified or if the context so requires, the following terms have the meanings set forth below for purposes of this proxy statement/prospectus:

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“Acceptable Non-Disclosure Agreement” refers to a non-disclosure agreement that is not less favorable in the aggregate to Great Ajax as the non-disclosure agreement, dated as of May 19, 2023 entered into between Great Ajax and Ellington Management Group, L.L.C., as determined by the Great Ajax Board (or any committee thereof) in good faith, after consultation with its outside legal counsel; provided, that a non-disclosure agreement is not required to contain standstill provisions in order to be an Acceptable Non-Disclosure Agreement and will not in any way restrict Great Ajax from complying with the non-solicitation provisions of the Merger Agreement.

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•

“Affiliate” refers to, with respect to any Person, any other Person directly or indirectly, controlling, controlled by, or under common control with, such Person, through one or more intermediaries or otherwise. For the avoidance of doubt, the term “Affiliate” does not include the Great Ajax Manager, Great Ajax FS LLC, a Delaware limited liability company, or Gregory.

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•

“Agency RMBS” refers to RMBS for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity.

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“Arlington” refers to Arlington Asset Investment Corp., a Virginia corporation.

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“Arlington Common Stock” refers to the Class A common stock, par value $0.01 per share, of Arlington.

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“Arlington Equity-Based Awards” refers to any of the restricted shares of Arlington, Arlington deferred stock units, Arlington performance restricted stock units and Arlington stock price performance restricted stock units.

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“Arlington Exchange Ratio” refers to 0.3619 shares of EFC Common Stock, subject to adjustment for certain events as provided in the Arlington Merger Agreement.

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•

“Arlington Merger” refers to the merger of Arlington with and into Arlington Merger Sub, with Arlington Merger Sub continuing as the surviving corporation of the Arlington Merger, pursuant to the Arlington Merger Agreement.

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•

“Arlington Merger Agreement” refers to the Agreement and Plan of Merger, dated as of May 29, 2023, by and among EFC, Arlington Merger Sub, Arlington and, solely for the limited purposes set forth in such merger agreement, EFC Manager.

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•

“Arlington Merger Sub” refers to EF Merger Sub Inc., a Virginia corporation and a wholly-owned subsidiary of EFC.

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•

“Arlington Series B Preferred Stock” refers to Arlington’s 7.00% Series B Cumulative Perpetual Redeemable Preferred Stock, $0.01 par value per share.

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•

“Arlington Series C Preferred Stock” refers to Arlington’s 8.250% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share.

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•

“Aspen” refers to Aspen ML LLC, an Oregon limited liability company.

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•

“Beneficial ownership,” including the correlative term “beneficially owning,” refers to the meaning ascribed to such term in Section 13(d) of the Exchange Act.

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•

“BTIG” refers to BTIG, LLC.

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•

“Business Employees” refers to employees of (i) Great Ajax or any of its subsidiaries, (ii) Gregory, (iii) the Great Ajax Manager and (iv) Aspen, in each case, with respect to its employees that provide services for Great Ajax or any of its subsidiaries, as of the date of the Merger Agreement.

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•

“Cancelled Shares” refers to all shares of Great Ajax Common Stock held by EFC or Merger Sub or by any wholly-owned subsidiary of EFC, Merger Sub or Great Ajax immediately prior to the effective time of the Merger.

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1

 

•

“Closing” refers to the closing of the Merger.

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“CMBS” refers to commercial mortgage-backed securities.

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“Code” refers to the Internal Revenue Code of 1986, as amended.

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•

“Combined Company” refers to EFC and its subsidiaries, including the surviving company of the Merger, after the Closing.

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•

“Contingent Cash Purchase Price” refers to, to the extent Great Ajax effectuates the repurchase of certain securities on the terms set forth in the Great Ajax Disclosure Letter prior to the Closing, an amount of cash as set forth on the Great Ajax Disclosure Letter that EFC shall deliver to the Great Ajax Stockholders as part of the Merger Consideration at the Closing.

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•

“DGCL” refers to the General Corporation Law of the State of Delaware.

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“EFC” refers to Ellington Financial Inc., a Delaware corporation.

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“EFC Board” refers to the board of directors of EFC.

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“EFC Bylaws” refers to EFC’s Amended and Restated Bylaws, as amended from time to time.

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“EFC Charter” refers to the certificate of incorporation of EFC, as amended from time to time.

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“EFC Common Stock” refers to the common stock, par value $0.001 per share, of EFC.

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“EFC Common Stock Issuance” refers to the issuance of shares of EFC Common Stock to Great Ajax Stockholders and holders of Great Ajax Equity Awards, as contemplated by the Merger Agreement.

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“EFC Disclosure Letter” refers to the disclosure letter delivered by EFC and Merger Sub to Great Ajax on or prior to the date of the Merger Agreement.

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“EFC Management Agreement” refers to the Seventh Amended and Restated Management Agreement, by and among EFC, EFC Operating Partnership and EFC Manager, dated as of March 13, 2018.

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“EFC Manager” refers to Ellington Financial Management LLC, a Delaware limited liability company and EFC’s external manager.

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“EFC OP Units” refers to common units of the EFC Operating Partnership.

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“EFC Operating Partnership” refers to Ellington Financial Operating Partnership LLC, a Delaware limited liability company and EFC’s operating partnership subsidiary.

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“EFC Preferred Stock” refers to EFC Series A Preferred Stock, EFC Series B Preferred Stock, and EFC Series C Preferred Stock, collectively.

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“EFC Series A Preferred Stock” refers to EFC’s 6.750% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.001 par value per share.

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“EFC Series B Preferred Stock” refers to EFC’s 6.250% Series B Fixed-Rate Reset Cumulative Redeemable Preferred Stock, $0.001 par value per share.

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“EFC Series C Preferred Stock” refers to EFC’s 8.625% Series C Fixed-Rate Reset Cumulative Redeemable Preferred Stock, $0.001 par value per share.

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“EFC Series D Preferred Stock” refers to EFC’s to be classified 7.00% Series D Cumulative Perpetual Redeemable Preferred Stock, $0.001 par value per share, which would be newly issued in connection with the Arlington Merger.

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•

“EFC Series E Preferred Stock” refers to EFC’s to be classified 8.250% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.001 par value per share, which would be newly issued in connection with the Arlington Merger.

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•

“EFC Stock Issuance” refers to the issuance of shares of EFC Common Stock pursuant to the Merger Agreement.

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2

 

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“EMG” refers to Ellington Management Group, L.L.C. and its affiliated investment advisory firms.

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“Exchange Ratio” refers to 0.5308, subject to certain adjustments as provided in the Merger Agreement.

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“GAAP” refers to the accounting principles generally accepted in the United States of America.

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“Gaea” refers to Gaea Real Estate Corp., a Maryland corporation.

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“Great Ajax” refers to Great Ajax Corp., a Maryland corporation.

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“Great Ajax 2014 Plan” refers to the Great Ajax Corp. 2014 Director Equity Plan, as amended from time to time.

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•

“Great Ajax 2016 Plan” refers to the Great Ajax Corp. 2016 Equity Incentive Plan, as amended from time to time.

​

•

“Great Ajax Adjournment Proposal” refers to the proposal to adjourn the Great Ajax Special Meeting, if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes to approve the Great Ajax Merger Proposal.

​

•

“Great Ajax Articles Supplementary” refers to the Articles Supplementary, effective as of April 6, 2020 (as amended and supplemented from time to time), establishing and fixing the rights and preferences of the Great Ajax Series A Preferred Stock and the Great Ajax Series B Preferred Stock.

​

•

“Great Ajax Board” refers to the board of directors of Great Ajax.

​

•

“Great Ajax Bylaws” refers to Great Ajax’s Amended and Restated Bylaws, as amended from time to time.

​

•

“Great Ajax Capital Stock” refers to the Great Ajax Common Stock and the Great Ajax Preferred Stock.

​

•

“Great Ajax Charter” refers to the Articles of Amendment and Restatement of Great Ajax, as amended and supplemented from time to time.

​

•

“Great Ajax Common Stock” refers to the common stock, par value $0.01 per share, of Great Ajax.

​

•

“Great Ajax Convertible Notes” refers to Great Ajax’s 7.25% Convertible Senior Notes due 2024.

​

•

“Great Ajax Disclosure Letter” refers to the disclosure letter delivered by Great Ajax to EFC and Merger Sub on or prior to the date of the Merger Agreement.

​

•

“Great Ajax Equity Awards” refers to any award of Great Ajax Restricted Shares under any of the Great Ajax Equity Plans.

​

•

“Great Ajax Equity Plans” refers to any of the Great Ajax 2016 Plan and the Great Ajax 2014 Plan.

​

•

“Great Ajax Management Agreement” refers to that certain Third Amended and Restated Management Agreement, dated as of April 28, 2020, by and among Great Ajax, Great Ajax Operating Partnership, and Great Ajax Manager (as amended from time to time, including by the First Amendment to the Third Amended and Restated Management Agreement, dated as of March 1, 2023).

​

•

“Great Ajax Manager” refers to Thetis Asset Management LLC, a Delaware limited liability company.

​

•

“Great Ajax Merger Proposal” refers to the proposal to approve the Merger and the other transactions contemplated in connection therewith pursuant to the Merger Agreement.

​

•

“Great Ajax Notes” refers to, collectively, (a) the Great Ajax Convertible Notes and (b) the Great Ajax Unsecured Notes.

​

•

“Great Ajax Notes Indentures” refers to, collectively, (a) that certain Indenture, dated as of April 19, 2017 between Great Ajax, as issuer, and Wilmington Savings Fund Society, FSB, as trustee, as supplemented by the First Supplemental Indenture dated as of April 25, 2017 between Great Ajax, as issuer, and Wilmington Savings Fund Society, FSB, as trustee and as otherwise modified or

​

 

3

 

supplemented prior to the date of the Merger Agreement, and (b) that certain Indenture dated as of August 26, 2022 between Great Ajax Operating Partnership, as issuer, Great Ajax, Great Ajax Operating LLC and Great Ajax II Operating Partnership L.P. as guarantors and Wilmington Savings Fund Society, FSB, as trustee and as otherwise modified or supplemented prior to the date of the Merger Agreement.

•

“Great Ajax Operating Partnership” refers to Great Ajax Operating Partnership L.P., a Delaware limited partnership.

​

•

“Great Ajax Portfolio Securities” refers to assets constituting loans or securities (other than in connection with the acquisition of a joint venture or other minority equity interest, agency-backed mortgage-backed securities, treasury securities or money market securities) in an amount that exceeds $50,000,000 in the aggregate.

​

•

“Great Ajax Preferred Stock” refers to the Great Ajax Series A Preferred Stock and Great Ajax Series B Preferred Stock.

​

•

“Great Ajax Projections” refers to certain non-public and unaudited prospective financial information and operating data relating to Great Ajax for the fiscal years ending December 31, 2023 through December 31, 2025 prepared by Great Ajax’s management in connection with the Merger.

​

•

“Great Ajax Record Date” refers to the close of business on [•], 2023.

​

•

“Great Ajax Restricted Shares” refers to each share of Great Ajax Common Stock issued by Great Ajax under a Great Ajax Equity Plan that is unvested and/or is subject to a repurchase option or obligation, risk of forfeiture or other lapse restriction.

​

•

“Great Ajax Series A Preferred Stock” refers to Great Ajax’s 7.25% Series A Preferred Stock, $0.01 par value per share.

​

•

“Great Ajax Series B Preferred Stock” refers to Great Ajax’s 5.00% Series B Preferred Stock, $0.01 par value per share.

​

•

“Great Ajax Special Committee” refers to the special committee of independent directors of the Great Ajax Board.

​

•

“Great Ajax Special Meeting” refers to the special meeting of Great Ajax’s Stockholders to be held virtually on [•], 2023, at [•], Eastern Time.

​

•

“Great Ajax Stockholder Approval” refers to the approval of the transactions, including the Merger, contemplated by the Merger Agreement by the affirmative vote of holders of at least a majority of outstanding shares of Great Ajax Common Stock entitled to vote thereon at the Great Ajax Stockholders Meeting in accordance with the MGCL and the organizational documents of Great Ajax.

​

•

“Great Ajax Stockholders” refers to the holders of Great Ajax Common Stock.

​

•

“Great Ajax Termination Fee” refers to a cash amount equal to $6,867,000.

​

•

“Great Ajax Unsecured Notes” refers to the Great Ajax Operating Partnership’s 8.875% Senior Unsecured Notes due 2027.

​

•

“Great Ajax Warrants” refers to all warrants representing the right to purchase shares of Great Ajax Common Stock.

​

•

“Gregory” refers to Gregory Funding LLC, a Delaware limited liability company, Great Ajax’s servicer.

​

•

“Investment Company Act” refers to the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder.

​

•

“Maryland Department” refers to the State Department of Assessments and Taxation of Maryland.

​

•

“MBS” refers to CMBS and RMBS, collectively.

​

 

4

 

•

“Merger” refers to the merger of Great Ajax with and into Merger Sub, with Merger Sub continuing as the surviving company of the Merger, pursuant to the Merger Agreement.

​

•

“Merger Agreement” refers to the Agreement and Plan of Merger, dated as of June 30, 2023, by and among EFC, Merger Sub and Great Ajax, as amended from time to time, a copy of which is attached as Annex A to this proxy statement/prospectus.

​

•

“Merger Consideration” refers to (A) that number of newly and validly issued, fully-paid and nonassessable shares of EFC Common Stock equal to the Exchange Ratio and (B) if applicable, an amount of cash equal to the Contingent Cash Purchase Price divided by the aggregate number of shares of Great Ajax Common Stock and Great Ajax Restricted Shares entitled to receive Merger Consideration.

​

•

“Merger Sub” refers to EF Acquisition I LLC, a Maryland limited liability company and a wholly-owned subsidiary of EFC.

​

•

“MGCL” refers to the Maryland General Corporation Law, as amended.

​

•

“MLLC Act” refers to the Maryland Limited Liability Company Act, as amended.

​

•

“MSRs” refers to mortgage servicing rights.

​

•

“Non-Agency RMBS” refers to RMBS backed by U.S. residential mortgage loans for which the principal and interest payments are not guaranteed by a U.S. government agency or a U.S. government-sponsored entity.

​

•

“NYSE” refers to the New York Stock Exchange and any successor stock exchange or quotation system operated by the New York Stock Exchange or any successor thereto.

​

•

“ordinary course of business” means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency).

​

•

“Person” refers to any individual, corporation, partnership, limited partnership, limited liability company, group (including a “person” as defined in Section 13(d)(3) of the Exchange Act), trust, association or other entity or organization (including any governmental entity or a political subdivision, agency or instrumentality of a governmental entity).

​

•

“Piper Sandler” refers to Piper Sandler & Co.

​

•

“REIT” refers to a real estate investment trust as defined in Section 856 of the Code.

​

•

“RMBS” refers to residential mortgage-backed securities.

​

•

“Servicing Agreement” means the Servicing Agreement, dated as of July 8, 2014, among Gregory, Great Ajax, Great Ajax Operating Partnership and Little Ajax II LLC (as amended from time to time).

​

•

“Specified Incentive Equity Issuance” refers to, collectively, (i) the annual issuance of up to 40,000 Great Ajax Restricted Shares in the aggregate under the Great Ajax 2016 Plan in the ordinary course of business, and/or (ii) the quarterly issuance of Great Ajax Restricted Shares under the Great Ajax 2014 Plan in the ordinary course of business, each subject to the adjustment provisions of the Merger Agreement.

​

•

“TBAs” refers to To-Be-Announced mortgage pass-through certificates.

​

 

5

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers are intended to address certain commonly asked questions regarding the Merger Agreement, the Merger and the Great Ajax Special Meeting. These questions and answers do not address all questions that may be important to you as a Great Ajax Stockholder. Please refer to the “Summary” beginning on page 17 and the more detailed information contained elsewhere in this proxy statement/prospectus, the annexes to this proxy statement/prospectus and the documents incorporated by reference in this proxy statement/prospectus, which you should read carefully.

Q:

What is the Merger?

​

A:

EFC, Merger Sub and Great Ajax have entered into the Merger Agreement pursuant to which, and subject to the terms and conditions of the Merger Agreement, Great Ajax will merge with and into Merger Sub, with Merger Sub continuing as the surviving company of the Merger and, following its contribution to the EFC Operating Partnership immediately following the Merger, as a wholly-owned subsidiary of the EFC Operating Partnership. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus. In order to complete the Merger, among other conditions described in the Merger Agreement and this proxy statement/prospectus, Great Ajax Stockholders must approve the Great Ajax Merger Proposal.

​

Q:

Why are EFC and Great Ajax proposing the Merger?

​

A:

The EFC Board and the Great Ajax Board have determined that the Merger will provide a number of significant strategic opportunities and benefits and will be in the best interest of EFC, with respect to the EFC Board, and Great Ajax and Great Ajax Stockholders, with respect to the Great Ajax Board. At the Closing, the Combined Company will have a larger capital base, which is expected to support continued growth across EFC’s targeted asset classes and position EFC to capitalize on an opportunistic investment environment post-Closing. The Combined Company is expected to provide improved scale, liquidity and capital alternatives for EFC stockholders as a result of the increased equity capitalization and the increased stockholder base of the Combined Company. To review the Great Ajax Board’s reasons for the Merger in greater detail, see “The Merger — Recommendation of the Great Ajax Board and Its Reasons for the Merger” beginning on page 69. To review the EFC Board’s reasons for the Merger in greater detail, see “The Merger — The EFC Board’s Reasons for the Merger” beginning on page 72.

​

Q:

What happens if the market price of EFC Common Stock or Great Ajax Common Stock changes before the Closing?

​

A:

Changes in the market price of EFC Common Stock or Great Ajax Common Stock at or prior to the effective time of the Merger will not change the number of shares of EFC Common Stock that Great Ajax Stockholders will receive in the Merger because the Exchange Ratio is not based on the market price of EFC Common Stock or Great Ajax Common Stock.

​

Q:

Are there any conditions to completion of the Merger?

​

A:

Yes. In addition to the approval of the Great Ajax Merger Proposal by the Great Ajax Stockholders, there are a number of conditions that must be satisfied or waived for the Merger to be consummated. For a description of all of the conditions to the Merger, see “The Merger Agreement — Conditions to Complete the Merger” beginning on page 117.

​

Q:

When is the Merger expected to be consummated?

​

A:

The Merger is expected to be consummated by the end of 2023. Because the Merger is subject to a number of conditions, including the approval of the Great Ajax Merger Proposal by the requisite vote of the Great Ajax Stockholders, the exact timing of the Merger cannot be determined at this time and EFC and Great Ajax cannot guarantee that the Merger will be completed at all. The Merger Agreement may be terminated under certain circumstances if the Merger has not been consummated on or before 5:00 p.m. Eastern Time on January 31, 2024 (the “End Date”).

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6

 

Q:   How does the Merger relate to EFC’s proposed merger with Arlington?

A:

On May 29, 2023, EFC, Arlington, Arlington Merger Sub and, solely for the limited purposes set forth in the Arlington Merger Agreement, EFC Manager, entered into the Arlington Merger Agreement, pursuant to which, subject to the terms and conditions thereof, Arlington will be merged with and into Arlington Merger Sub, with Arlington Merger Sub continuing as the surviving corporation of the Arlington Merger. Immediately following the Arlington Merger, the surviving corporation of the Arlington Merger will be contributed to the EFC Operating Partnership, in exchange for EFC OP Units. As a result of the contribution, the surviving corporation of the Arlington Merger will become a wholly-owned subsidiary of the EFC Operating Partnership.

​

Pursuant to the terms and subject to the conditions of the Arlington Merger Agreement, at the effective time of the Arlington Merger, each issued and outstanding share of Arlington Common Stock (other than shares held by EFC or Arlington Merger Sub or by any wholly-owned subsidiary of EFC, Arlington Merger Sub or Arlington) will automatically be converted into the right to receive (i) from EFC, a number of shares of EFC Common Stock equal to the Arlington Exchange Ratio and (ii) from EFC Manager, $0.09 in cash.

A proxy statement/prospectus will be mailed to Arlington shareholders in connection with the Arlington Merger. The Arlington Merger is subject to approval by Arlington shareholders and other conditions set forth in the Arlington Merger Agreement. The Arlington Merger is a transaction separate and apart from the Merger, and the completion of the Arlington Merger is not a condition to the completion of the Merger, and the completion of the Merger is not a condition to the completion of the Arlington Merger.

EFC and Merger Sub have acknowledged and agreed that the consummation of the transactions contemplated by the Merger Agreement, including the Merger, shall not be materially delayed or expressly or implicitly conditioned on the consummation of the transactions or the satisfaction or waiver of any of the conditions to the consummation of Arlington Merger set forth in the Arlington Merger Agreement.

Each of the Merger and the Arlington Merger is independent of the other and neither is conditioned on the occurrence of the other. Although EFC believes that both the Merger and the Arlington Merger will be consummated as planned, EFC cannot provide any assurance that the Merger and/or the Arlington Merger will be consummated as planned.

Q:

What are the material U.S. federal income tax consequences of the Merger to Great Ajax Stockholders and EFC stockholders?

​

A:

The Merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Code, and the Closing is conditioned on the receipt by each of Great Ajax and EFC of an opinion from its respective tax counsel to that effect. Assuming that the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, U.S. holders (as defined in “Material U.S. Federal Income Tax Considerations” beginning on page 122) of shares of Great Ajax Common Stock will recognize gain (but not loss) in an amount equal to the lesser of (i) the amount by which the sum of the fair market value of the shares of EFC Common Stock and cash (other than cash received in lieu of a fractional share of EFC Common Stock) received by such holder in exchange for its Great Ajax Common Stock (such cash including such holder’s share of the aggregate Contingent Cash Purchase Price) exceeds such holder’s adjusted basis in its shares of Great Ajax Common Stock and (ii) the amount of cash (other than the cash received in lieu of a fractional share of EFC Common Stock) received in exchange for its shares of Great Ajax Common Stock (such cash including such holder’s share of the aggregate Contingent Cash Purchase Price). A U.S. holder will also recognize gain or loss with respect to cash received in lieu of fractional shares of EFC Common Stock equal to the difference, if any, between the amount of cash received for such fractional share and the holder’s tax basis in such fractional share. Generally, any gain or loss recognized on the exchange will be capital gain or loss, and any such capital gain or loss will be long-term capital gain or loss if the holding period for such shares is more than one year. The holders of EFC Common Stock generally will not recognize any gain or loss for U.S. federal income tax purposes.

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7

 

The tax consequences to you of the Merger will depend on your own situation. You should consult your tax advisor for a full understanding of the tax consequences to you of the Merger. For more information regarding the tax consequences of the Merger to Great Ajax Stockholders, please see “Material U.S. Federal Income Tax Considerations — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 122.

Q:

Following the Merger, what percentage of EFC Common Stock will current EFC stockholders and Great Ajax Stockholders own?

​

A:

Immediately following the completion of the Merger, based on the number of issued and outstanding shares of EFC Common Stock and Great Ajax Common Stock (excluding Cancelled Shares) and outstanding Great Ajax Equity Awards as of June 30, 2023 and the Exchange Ratio of 0.5308 (which is subject to certain adjustments as provided in the Merger Agreement and not assuming the prior completion of the Arlington Merger):

​

•

the shares of EFC Common Stock held by the EFC common stockholders as of immediately prior to the effective time of the Merger are expected to represent in the aggregate approximately 84% of the Combined Company’s outstanding shares of common stock; and

​

•

Great Ajax Stockholders and holders of Great Ajax Equity Awards as of immediately prior to the effective time of the Merger are expected to own in the aggregate the remaining approximately 16% of the Combined Company’s outstanding shares of common stock.

​

If the Arlington Merger is completed prior to the effective time of the Merger, based on the number of issued and outstanding shares of Arlington Common Stock as of June 30, 2023 and the Arlington Exchange Ratio of 0.3619 (which is subject to certain adjustments as provided in the Arlington Merger Agreement):

•

the shares of EFC Common Stock held by the EFC common stockholders (including the former holders of Arlington Common Stock) as of immediately prior to the effective time of the Merger are expected to represent in the aggregate approximately 86% of the Combined Company’s outstanding shares of common stock; and

​

•

Great Ajax Stockholders and holders of Great Ajax Equity Awards as of immediately prior to the effective time of the Merger are expected to own in the aggregate the remaining approximately 14% of the Combined Company’s outstanding shares of common stock.

​

The exact equity stake of EFC common stockholders and Great Ajax Stockholders in the Combined Company immediately following the effective time of the Merger will depend on the number of shares of EFC Common Stock (including shares of EFC Common Stock that may be issued to holders of Arlington Common Stock in connection with the pending Arlington Merger) and Great Ajax Common Stock issued and outstanding immediately prior to the effective time of the Merger.

Q:

What happens if the Merger is not completed?

​

A:

If the Merger is not completed for any reason, including if the Great Ajax Merger Proposal is not approved by the Great Ajax Stockholders, Great Ajax Stockholders will not have their Great Ajax Common Stock exchanged for the Merger Consideration. Instead, Great Ajax and EFC would remain separate companies. Under certain circumstances, Great Ajax may be required to pay EFC the Great Ajax Termination Fee as described under “The Merger Agreement — Termination Fee and Expenses” beginning on page 120.

​

Q:

Are Great Ajax Stockholders entitled to exercise appraisal or dissenters’ rights?

​

A:

No. No appraisal or dissenters’ rights or other rights of objecting Great Ajax Stockholders will be available with respect to the Merger or the other transactions contemplated by the Merger Agreement. For additional information, see “The Merger — Appraisal Rights” beginning on page 96.

​

Q:

Will the Combined Company have the same business strategy as Great Ajax following the Merger?

​

A:

No. Upon the Closing, the Combined Company will follow EFC’s strategy of pursuing value across

​

 

8

 

various types of mortgage-related, consumer-related, corporate-related, and other financial assets. Some, but not all, of these investment strategies encompass Great Ajax’s investment strategies. EFC’s targeted assets currently include residential and commercial mortgage loans, reverse mortgage loans, MBS, consumer loans and asset-backed securities backed by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, debt and equity investments in loan origination companies, and other strategic investments.

EFC’s strategy is adaptable to changing market environments, and the deployment of capital by EFC and its targeted asset classes may vary over time in response to market conditions. While EFC has no present intention to change or modify its strategy or investment policies, EFC’s strategy and investment policies may be changed without a vote of EFC’s stockholders.

EFC and Great Ajax expect that Gregory will continue its mortgage servicing business after the Closing. Great Ajax and EFC have agreed to cooperate and negotiate in good faith to enter into an assignment agreement, in form and substance reasonably satisfactory to Great Ajax and EFC, assigning the rights and obligations of Great Ajax under the Servicing Agreement to EFC, in order for Gregory to continue as the mortgage servicer for each of the mortgage loans owned by Great Ajax and any of its subsidiaries immediately prior to the Closing and serviced by Gregory immediately prior to the date of the Closing, for so long as EFC or any of its affiliates maintains an ownership interest in such loan. The entry of Great Ajax, EFC and Gregory into such assignment agreement is one of the conditions upon which the obligation of Great Ajax to consummate the Merger is conditioned upon. Great Ajax also expects that the business of Gaea will continue in the ordinary course after the Closing.

For more information on EFC’s targeted assets and business strategy, see “Description of Policies of EFC” beginning on page 175.

Q:

Will I receive dividend payments after the Merger?

​

A:

Following completion of the Merger, holders of EFC Common Stock will be entitled to receive dividends or other distributions when, as and if authorized by the EFC Board and declared by EFC out of funds legally available therefor.

​

Q:

Are there risks associated with the Merger that I should consider in deciding how to vote?

​

A:

Yes. There are a number of risks related to the Merger that are discussed in this proxy statement/​prospectus in the section entitled “Risk Factors” beginning on page 31.

​

Q:

How can I obtain additional information about EFC and Great Ajax?

​

A:

EFC and Great Ajax each file annual, quarterly and current reports, proxy statements and other information with the SEC. EFC’s and Great Ajax’s SEC filings are available to the public at the website maintained by the SEC at http://www.sec.gov. Copies of the documents filed by EFC with the SEC will be available free of charge on EFC’s website at www.ellingtonfinancial.com or by contacting EFC’s Secretary at (203) 409-3585. Copies of the documents filed by Great Ajax with the SEC will be available free of charge on Great Ajax’s website at www.greatajax.com or by contacting Great Ajax’s Investor Relations at (503) 505-5670. EFC’s and Great Ajax’s website addresses are provided as inactive textual references only. In addition, the information provided on each company’s website is not part of this proxy statement/prospectus and is not incorporated by reference into this proxy statement/prospectus. For a more detailed description of the information available and information incorporated by reference, please see “Where You Can Find More Information and Incorporation by Reference” on page 191.

​

The following questions and answers apply to EFC stockholders only:

Q:

How will EFC common stockholders be affected by the Merger and the EFC Common Stock Issuance?

​

A:

Immediately following the Merger, each EFC common stockholder will continue to own the same number of shares of EFC Common Stock that such stockholder held immediately prior to the Merger. As a result, each EFC common stockholder will continue to own common stock in the Combined Company, which will be a larger company with more assets and equity. Because EFC will be issuing new shares of EFC Common Stock to Great Ajax Stockholders in the Merger, each outstanding share

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9

 

of EFC Common Stock immediately prior to the Merger will represent a smaller percentage of the aggregate number of shares of EFC Common Stock outstanding after the Merger.

Q:

Do the EFC directors and executive officers and EFC Manager have any interests in the Merger?

​

A:

Yes. The Combined Company will continue to be managed by EFC Manager under the terms of the EFC Management Agreement. Under the EFC Management Agreement, EFC Manager provides the day-to-day management of EFC’s operations, including providing EFC with a management team and all other personnel necessary to support its operations. In exchange for its services, EFC pays EFC Manager a management fee and reimburses it for certain expenses incurred by it and its affiliates in rendering management services to EFC. Currently, each of EFC’s executive officers and one of its directors serves as an officer of EFC Manager and is an employee of EMG.

​

Pursuant to the EFC Management Agreement, EFC pays EFC Manager a quarterly management fee, which includes a “base” component and “incentive” component. The “base” component of the management fee is paid quarterly in arrears in an amount equal to 1.50% per annum of the equity of the EFC Operating Partnership, as calculated pursuant to the EFC Management Agreement. As a result of the Merger and contribution of the surviving company of the Merger to the EFC Operating Partnership in exchange for EFC OP Units, the equity of the EFC Operating Partnership will effectively include the additional equity attributable to the acquisition of Great Ajax; thus, the amount of the management fees payable to EFC Manager will also increase, which gives EFC Manager (and therefore, EFC’s management), an incentive, not shared by EFC stockholders, to negotiate and effect the Merger, possibly on terms less favorable to EFC than would otherwise have been achieved.

The EFC Management Agreement was negotiated between related parties, and the terms, including fees and other amounts payable, may not be as favorable to EFC as if they had been negotiated with an unaffiliated third party.

Q:

What regular dividends will EFC be permitted to pay prior to the Closing?

​

A:

The Merger Agreement permits EFC and its subsidiaries, from the date of the Merger Agreement until the earlier of the effective time of the Merger and the termination of the Merger Agreement, to continue to pay (i) regular monthly dividends with respect to the EFC Common Stock consistent with past practice at a rate not to exceed $0.15 per share, (ii) (a) regular quarterly dividends payable with respect to any EFC Preferred Stock and preferred shares of beneficial interest of Ellington Financial REIT consistent with past practice and the terms of such EFC Preferred Stock and preferred shares of beneficial interest of Ellington Financial REIT and (b) regular quarterly dividends payable in respect of the EFC Series D Preferred Stock or the EFC Series E Preferred Stock consistent with the terms thereof; (iii) dividends or other distributions to EFC by any directly or indirectly wholly-owned subsidiary of EFC or the EFC Operating Partnership and (iv) without duplication of the amounts described in clauses (i) through (iii), any dividends or other distributions necessary to maintain EFC’s or its subsidiaries (as applicable) REIT qualification under the Code, including to avoid the imposition of any corporate level tax or excise tax under the Code or required under the organizational documents of EFC or such subsidiary.

​

Q:

What additional dividends will EFC be permitted to pay prior to the Closing?

​

A:

Pursuant to the Merger Agreement, prior to the effective time of the Merger, EFC is permitted to declare an interim dividend to its stockholders. The per share additional dividend payable by EFC is limited to an amount equal to (i) EFC’s then-most recent monthly dividend (on a per share basis), multiplied by the number of days elapsed since the last dividend record date through and including the day prior to the date of the Closing, and divided by the actual number of days in the calendar month in which such dividend is declared, plus (ii) an additional amount equal to the quotient obtained by dividing (A) the Great Ajax Special Dividend Amount (as defined below), if any, by (B) the Exchange Ratio. The payment date for this additional dividend, if any, will be the close of business on the last business day prior to the date of the Closing, subject to funds being legally available therefor, and the record date for which will be three business days before the payment date.

​

 

10

 

The following questions and answers apply to Great Ajax Stockholders only:

Q:

What will I receive for my Great Ajax Common Stock in the Merger?

​

A:

Under the terms of the Merger Agreement, each share of Great Ajax Common Stock (other than the Cancelled Shares) will automatically be converted into the right to receive (i) a number of shares of EFC Common Stock based on the Exchange Ratio, plus (ii) if applicable, an amount of cash equal to the Contingent Cash Purchase Price divided by the aggregate number of shares of Great Ajax Common Stock and Great Ajax Restricted Shares entitled to receive Merger Consideration, each as subject to adjustment as provided in the Merger Agreement, with cash being paid in lieu of fractional shares of EFC Common Stock that would have been received as a result of the Merger.

​

Q:

How will I receive the Merger Consideration if the Merger is completed?

​

A:

If you hold physical stock certificates of Great Ajax Common Stock, you will be sent a letter of transmittal promptly after the Closing describing how you may exchange your shares for the Merger Consideration, and the exchange agent will forward to you the Merger Consideration to which you are entitled after receiving the proper documentation from you. If you hold your shares of Great Ajax Common Stock in uncertificated book-entry form, you will be sent a letter of transmittal promptly after the Closing describing how you may exchange your shares for the Merger Consideration, and the exchange agent will forward to you the Merger Consideration to which you are entitled after receiving the proper documentation from you. For more information, see the section entitled “The Merger Agreement - Exchange Procedures” beginning on page 100.

​

Q:

When and where is the Great Ajax Special Meeting, and how do I attend?

​

A:

The special meeting of Great Ajax Stockholders will be held solely by means of remote communication virtually over the Internet on [•], 2023 at [•] a.m. Eastern Time. On the date of the Great Ajax Special Meeting, you can virtually attend the Great Ajax Special Meeting by accessing the online virtual meeting platform at [•]. However, you are only entitled to vote and/or ask questions at the Great Ajax Special Meeting if you were a stockholder of record or a valid proxy holder from a stockholder of record as of the Great Ajax Record Date.

​

Q:

What matters will be voted on at the Great Ajax Special Meeting?

​

A:

You will be asked to consider and vote on the Great Ajax Merger Proposal and the Great Ajax Adjournment Proposal. Great Ajax will transact no other business at the Great Ajax Special Meeting or any postponement or adjournment thereof.

​

Q:

How does the Great Ajax Board recommend that I vote on the proposals?

​

A:

The Great Ajax Board has unanimously (i) determined that the Merger Agreement and the transactions contemplated therein, including the Merger, are in the best interests of Great Ajax and its stockholders, (ii) approved the Merger Agreement, the Merger, and the other transactions contemplated by the Merger Agreement, and declared that the transactions contemplated by the Merger Agreement, including the Merger, are advisable, (iii) directed that the Great Ajax Merger Proposal be submitted to the Great Ajax Stockholders for consideration at the Great Ajax Special Meeting, and (iv) resolved to recommend, in accordance with and subject to the provisions of the Merger Agreement, that the Great Ajax Stockholders approve the Great Ajax Merger Proposal. The Great Ajax Board unanimously recommends that the Great Ajax Stockholders vote “FOR” the Great Ajax Merger Proposal and “FOR” the Great Ajax Adjournment Proposal. For a more complete description of the recommendation of the Great Ajax Board, see “The Merger — Recommendation of the Great Ajax Board and Its Reasons for the Merger” beginning on page 69.

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Q:

How do I vote at the Great Ajax Special Meeting?

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A:

You can authorize a proxy to vote using the following the methods:

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•

By Telephone — By telephone by calling [•] and following the instructions on the proxy card;

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By Internet — Over the Internet:

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•

Before the Great Ajax Special Meeting by visiting www.proxyvote.com; or

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During the Great Ajax Special Meeting by visiting [•]; or

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By Mail — By mail by completing, signing, dating, and mailing the enclosed proxy card.

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If you authorize a proxy to vote, the individuals named on the proxy card will vote your shares in the manner you indicate. You may specify whether your shares should be voted for or against each of the proposals. You may also specify that you would like to abstain from voting for or against a proposal. Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote your shares of Great Ajax Common Stock in accordance with the recommendations of the Great Ajax Board. Proxies authorized by telephone or via the Internet must be received by 11:59 p.m. Eastern Time, on [•], 2023.

If your shares of Great Ajax Common Stock are held in “street name” by a broker, bank or other nominee, please refer to the instructions provided by your broker, bank or other nominee to vote your shares of Great Ajax Common Stock.

Q:

How can I revoke my proxy or change my vote?

​

A:

You may revoke your proxy at any time before the vote is taken at the Great Ajax Special Meeting by:

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•

authorizing a later proxy by telephone or through the Internet prior to 11:59 p.m. Eastern Time, on [•], 2023;

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•

timely delivering a valid, later-dated proxy;

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•

timely delivering a written notice that you are revoking your proxy to the Secretary of Great Ajax; or

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•

voting electronically at the Great Ajax Special Meeting.

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Your attendance at the Great Ajax Special Meeting does not automatically revoke your previously submitted proxy.

If your shares of Great Ajax Common Stock are held in “street name” by a broker, bank or other nominee, please refer to the instructions provided by your broker, bank or other nominee to revoke your proxy or change your vote before the vote is taken at the Great Ajax Special Meeting.

Q:

Do the Great Ajax directors and executive officers have any interests in the Merger?

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A:

Yes. In considering the Great Ajax Board’s recommendation for Great Ajax Stockholders to approve the Great Ajax Merger Proposal, Great Ajax Stockholders should be aware that the directors and executive officers of Great Ajax have interests in the Merger that may be different from, or in addition to, the interests of Great Ajax Stockholders generally and that may present actual or potential conflicts of interests. These interests include:

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•

Three of the members of the Great Ajax Board, Lawrence A. Mendelsohn, Russell A. Schaub and Steven L. Begleiter, indirectly own interests in the Great Ajax Manager, and therefore will receive a part of the payments that will be due to the Great Ajax Manager in connection with the termination of the Great Ajax Management Agreement;

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•

Three of the members of the Great Ajax Board, Lawrence A. Mendelsohn, Russell A. Schaub and Steven L. Begleiter, indirectly own interests in Gregory, which is expected to continue as the mortgage servicer for each of the mortgage loans owned by Great Ajax and any of its subsidiaries immediately prior to the Closing and serviced by Gregory immediately prior to the date of the Closing, for so long as EFC or any of its affiliates maintains an ownership interest in such loans;

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•

Each of Great Ajax’s executive officers and all but one of the members of the Great Ajax Board hold Great Ajax Restricted Shares, as described under “The Merger — Interests of Great Ajax’s Directors and Executive Officers in the Merger;” and

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•

Continued indemnification and insurance coverage for the directors and executive officers of Great Ajax in accordance with the Merger Agreement.

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The Great Ajax Board was aware of these interests and considered them, among other matters, when approving the Merger Agreement and the transactions contemplated thereby, including the Merger. The Great Ajax Board approved the Merger Agreement and the transactions contemplated thereby, including the Merger, as was recommended by the Great Ajax Special Committee. For additional information, see “The Merger — Interests of Great Ajax’s Directors and Executive Officers in the Merger” beginning on page 93.

Q:

What constitutes a quorum for the Great Ajax Special Meeting?

​

A:

The Great Ajax Bylaws provide that the presence in person or by proxy of Great Ajax Stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting constitutes a quorum at each meeting of Great Ajax Stockholders. Abstentions will be counted for the purpose of determining a quorum.

​

Q:

What vote is required for Great Ajax Stockholders to approve the Great Ajax Merger Proposal?

​

A:

Approval of the Great Ajax Merger Proposal will require, provided a quorum is present, the affirmative vote, at the Great Ajax’s Shareholder Meeting either in person or by proxy, of holders of at least a majority of outstanding shares of Great Ajax Common Stock entitled to vote thereon. Holders of Great Ajax Preferred Stock are not entitled to vote on the Great Ajax Merger Proposal.

​

Q:

What vote is required for Great Ajax Stockholders to approve the Great Ajax Adjournment Proposal?

​

A:

Approval of the Great Ajax Adjournment Proposal will require, provided a quorum is present, the affirmative vote of a majority of the votes cast on the matter by holders of shares of Great Ajax Common Stock. Holders of Great Ajax Preferred Stock are not entitled to vote on the Great Ajax Adjournment Proposal.

​

Q:

How are votes counted?

​

A:

For the Great Ajax Merger Proposal, Great Ajax Stockholders may vote “FOR”, “AGAINST” or “ABSTAIN”. Abstaining and failing to vote will have the same effect as a vote “AGAINST” the Great Ajax Merger Proposal. For the Great Ajax Adjournment Proposal, Great Ajax Stockholders may vote “FOR”, “AGAINST” or “ABSTAIN”. Abstaining and failing to vote will not have an effect on the Great Ajax Adjournment Proposal provided that a quorum is otherwise present. Properly executed proxy cards with no instructions indicated on the proxy card will be voted “FOR” the Great Ajax Merger Proposal and “FOR” the Great Ajax Adjournment Proposal. In addition, banks, brokers and other nominees that hold their customers’ shares of Great Ajax Common Stock in street name may not vote their customers’ shares on “non-routine” matters without instructions from their customers. As each of the proposals to be voted upon at the Great Ajax Special Meeting is considered “non-routine,” such organizations do not have discretion to vote on any of the proposals. As a result, if you hold your shares in “street name” and you fail to provide your broker, bank or other nominee with any instructions regarding how to vote your shares of Great Ajax Common Stock, your shares of Great Ajax Common Stock will not be considered present at the Great Ajax Special Meeting and will not be voted on any of the proposals. In other words, since each of the proposals to be voted upon at the Great Ajax Special Meeting is considered “non-routine,” there will be no broker non-votes in connection with the Great Ajax Special Meeting because brokers may not submit votes on either of such proposals without instructions from their customers.

​

Q:

Who is entitled to vote at the Great Ajax Special Meeting?

​

A:

All Great Ajax Stockholders as of the close of business on [•], 2023, the Great Ajax Record Date for the Great Ajax Special Meeting, are entitled to vote at the Great Ajax Special Meeting. As of the Great Ajax Record Date, there were [•] issued and outstanding shares of Great Ajax Common Stock. Each Great Ajax Stockholder on the Great Ajax Record Date is entitled to one vote per share.

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Q:

Will Great Ajax be required to submit the Great Ajax Merger Proposal to the Great Ajax Stockholders even if the Great Ajax Board has withdrawn, modified, or qualified its recommendation?

​

A:

Yes. Unless the Merger Agreement is terminated before the Great Ajax Special Meeting, Great Ajax is required to submit the Great Ajax Merger Proposal to its stockholders even if the Great Ajax Board has withdrawn, modified or qualified its recommendation that Great Ajax Stockholders approve the Merger.

​

Q:

How will Great Ajax Stockholders be affected by the Merger?

​

A:

Under the terms of the Merger Agreement, each share of Great Ajax Common Stock (other than the Cancelled Shares) will automatically be converted into the right to receive (i) a number of shares of EFC Common Stock based on the Exchange Ratio, plus (ii) if applicable, an amount of cash equal to the Contingent Cash Purchase Price divided by the aggregate number of shares of Great Ajax Common Stock and Great Ajax Restricted Shares entitled to receive Merger Consideration, each as subject to adjustment as provided in the Merger Agreement, with cash being paid in lieu of fractional shares of EFC Common Stock that would have been received as a result of the Merger. As such, after the Merger is completed, Great Ajax Common Stock will no longer be listed on the NYSE and will be deregistered under the Exchange Act, and Great Ajax Stockholders as of immediately prior to the Closing are expected to own in the aggregate approximately 16% of the Combined Company’s outstanding shares of common stock (or, if the Arlington Merger is completed prior to the completion of the Merger, approximately 14% of the Combined Company’s outstanding shares of common stock, based on the Arlington Exchange Ratio of 0.3619) immediately following the effective time of the Merger, based on the number of issued and outstanding shares of EFC Common Stock and Great Ajax Common Stock (excluding Cancelled Shares) and outstanding Great Ajax Equity Awards as of June 30, 2023, and the Exchange Ratio of 0.5308 (which is subject to certain adjustments as provided in the Merger Agreement and not assuming the prior completion of the Arlington Merger). Additionally, under the terms of the Merger Agreement, Great Ajax will use commercially reasonably efforts to effect the redemption of each outstanding share of the Great Ajax Series A Preferred Stock and the Great Ajax Series B Preferred Stock, or take such other action to cause each share of the Great Ajax Preferred Stock to no longer be outstanding immediately prior to the Closing.

​

Q:

Have any Great Ajax Stockholders already agreed to vote in favor of the proposal?

​

A:

No Great Ajax stockholder has entered into any agreement to vote any of their shares of Great Ajax Common Stock either in favor or against any proposal at the Great Ajax Special Meeting.

​

Q:

What happens if I sell my stock before the Great Ajax Special Meeting?

​

A:

The Great Ajax Record Date is earlier than the date of the Great Ajax Special Meeting and the date that the Merger is expected to be completed. If you sell your stock after the Great Ajax Record Date but before the date of the Great Ajax Special Meeting, you will retain any right to vote at the Great Ajax Special Meeting, but you will have transferred your right to receive the Merger Consideration. In order to receive the Merger Consideration, you must hold your stock through completion of the Merger.

​

Q:

What is the difference between a stockholder of record and a beneficial owner?

​

A:

If your shares of Great Ajax Common Stock are registered directly in your name with Great Ajax’s transfer agent, you are considered the stockholder of record with respect to those shares. If your shares of Great Ajax Common Stock are held in a stock brokerage account, or by a broker, bank or other nominee, you are considered the beneficial owner of shares held in “street name.” As the beneficial owner, you have the right to direct your broker, bank or nominee on how to vote the shares that you beneficially own and you are also invited to attend the Great Ajax Special Meeting. However, beneficial owners generally cannot vote their shares directly because they are not the stockholder of record; instead, beneficial owners must instruct the broker, bank or other nominee how to vote their shares.

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Q:

What happens if I am both an EFC stockholder and a Great Ajax Stockholder?

​

A:

If you are both an EFC stockholder and a Great Ajax stockholder on the Great Ajax Record Date, you are entitled to vote at the Great Ajax Special Meeting by virtue of your ownership of Great Ajax Common Stock on the Great Ajax Record Date. However, the approval of the EFC stockholders is not required for the Merger and as such, EFC will not hold a special meeting for that purpose. You will receive a proxy card for the Great Ajax Special Meeting only and must complete, sign and date the proxy card and return it in the appropriate preaddressed postage-paid envelope or, if available, by authorizing a proxy to vote your shares by one of the other methods specified in your proxy card or voting instruction card.

​

Q:

If I am a beneficial owner of Great Ajax Common Stock, will my broker, bank or other nominee vote my shares for me?

​

A:

No. If you hold your shares of Great Ajax Common Stock in a stock brokerage account or if your shares are held by a bank or other nominee (that is, in “street name”), you must provide your broker, bank or other nominee with instructions on how to vote your shares. Unless you instruct your broker, bank or other nominee to vote your shares held in street name, your shares will NOT be voted. You should follow the procedures provided by your bank, broker or other nominee regarding the voting of your shares.

​

Q:

When is the Merger expected to be consummated?

​

A:

The Merger is expected to be consummated by the end of the fourth quarter of 2023, although EFC and Great Ajax cannot assure completion by any particular date, if at all. Because the Merger is subject to a number of conditions, including the approval of the Great Ajax Merger Proposal by the requisite vote of the Great Ajax Stockholders, the exact timing of the Merger cannot be determined at this time and EFC and Great Ajax cannot guarantee that the Merger will be completed at all.

​

Q:

What happens if the Merger is not completed?

​

A:

If the Great Ajax Merger Proposal is not approved by Great Ajax Stockholders, or if the Merger is not completed for any other reason, Great Ajax Stockholders will not have their Great Ajax Common Stock exchanged for EFC Common Stock in connection with the Merger. Instead, Great Ajax and EFC would remain separate companies. Under certain circumstances, Great Ajax may be required to pay EFC the Great Ajax Termination Fee or expense amount, as described under “The Merger Agreement — Termination Fee and Expenses” beginning on page 120.

​

Q:

Am I entitled to exercise appraisal rights?

​

A:

No. Great Ajax Stockholders will not be entitled to appraisal rights. The Great Ajax Charter provides that Great Ajax Stockholders generally have no appraisal rights unless the Great Ajax Board determines that appraisal rights apply, with respect to all or any classes or series of stock, to one or more transactions occurring after the date of such determination in connection with which stockholders would otherwise be entitled to exercise appraisal rights. The Great Ajax Board has not made any such determination with respect to the Great Ajax Common Stock and with respect to the Merger.

​

Q:

What regular dividends will Great Ajax be permitted to pay prior to the Closing?

​

A:

The Merger Agreement permits Great Ajax to pay (i) quarterly dividends with respect to Great Ajax Common Stock of up to $0.20 per share, (ii) regular quarterly dividends with respect to Great Ajax Preferred Stock, or (iii) without duplication of the amounts described in clauses (i) and (ii), dividends or other distributions necessary for Great Ajax or its subsidiaries (as applicable) to maintain its REIT qualification under the Code, including to avoid or reduce the imposition of corporate level tax or excise tax under the Code.

​

Q:

What additional dividends is Great Ajax required to pay?

​

A:

Pursuant to the Merger Agreement, prior to the date of the Closing, Great Ajax will, to the extent necessary, declare and pay an interim dividend to the Great Ajax Stockholders. The per share dividend

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payable by Great Ajax will be an amount (the “Great Ajax Additional Dividend Amount”), if any, necessary so that the aggregate dividend payable is equal to the amount necessary for Great Ajax to maintain its REIT qualification under the Code and avoid the imposition of income tax or excise tax under the Code. The payment date for the interim dividend will be the close of business on the last business day prior to the date of the Closing, subject to funds being legally available therefor, and the record date for which will be three business days before the payment date.

Q:

Are there risks associated with the Merger that I should consider in deciding how to vote?

​

A:

Yes. There are a number of risks related to the Merger that are discussed in this proxy statement/ prospectus described in the section entitled “Risk Factors” beginning on page 31.

​

Q:

Where can I find the voting results of the Great Ajax Special Meeting?

​

A:

The preliminary voting results will be announced at the Great Ajax Special Meeting. In addition, within four business days following certification of the final voting results, Great Ajax will file the final voting results with the SEC on a Current Report on Form 8-K.

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Q:

What else do I need to do now?

​

A:

You are urged to read this proxy statement/prospectus carefully and in its entirety, including its annexes and the information incorporated by reference herein, and to consider how the Merger affects you. For Great Ajax Stockholders, even if you plan to attend the Great Ajax Special Meeting virtually, please authorize a proxy to vote your shares by voting via the Internet, telephone or by completing, signing, dating and returning the enclosed proxy card, and you can also attend the Great Ajax Special Meeting virtually over the Internet and vote, or change your prior proxy authorization. If you hold your shares in “street name” through a bank, broker or other nominee, then you should have received this proxy statement/prospectus from that nominee, along with that nominee’s voting instruction form which includes voting instructions and instructions on how to change your vote. Please see the question “How do I vote at the Great Ajax Special Meeting?” on page 11.

​

Q:

Will a proxy solicitor be used?

​

A:

Great Ajax has engaged Georgeson LLC (“Georgeson”) to assist in the solicitation of proxies for the Great Ajax Special Meeting, and Great Ajax estimates it will pay Georgeson a fee of approximately $16,500. Great Ajax has also agreed to reimburse Georgeson for reasonable out-of-pocket expenses and disbursements incurred in connection with the proxy solicitation and to indemnify Georgeson against certain losses, costs and expenses. In addition to mailing proxy solicitation materials, proxies may be solicited from Great Ajax Stockholders by the directors, officers and employees of Great Ajax or the Great Ajax Manager by telephone or by any other appropriate means of communications. No additional compensation, except for reimbursement of reasonable out-of-pocket expenses, will be paid to the directors, officers and employees of Great Ajax or the Great Ajax Manager in connection with such solicitation services.

​

Q:

Who can answer my questions?

​

A:

If you have any questions about the Merger or the other matters to be voted on at the Great Ajax Special Meeting, how to submit your proxy, or need additional copies of this proxy statement/​prospectus, the enclosed proxy card or voting instructions, you should contact:

​

Georgeson LLC
1290 Avenue of the Americas, 9th Floor
New York, NY 10104
Phone: (877) 847-1383 (toll-free within the United States)
or (781) 575-2137 (outside of the United States)

 

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RISK FACTORS

In addition to other information included elsewhere in this proxy statement/prospectus and in the annexes to this proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 49, you should carefully consider the following risk factors in deciding whether to vote for the Great Ajax Merger Proposal and the other related matters described in this proxy statement/prospectus. In addition, you should read and consider the risks associated with the businesses of each of EFC and Great Ajax. The risks associated with the business of EFC can be found in its Annual Report on Form 10-K for the year ended December 31, 2022 and other reports of EFC, which are incorporated by reference into this proxy statement/prospectus, including particularly the sections therein titled “Risk Factors.” The risks associated with the business of Great Ajax can be found in its Annual Report on Form 10-K for the year ended December 31, 2022 and other reports of Great Ajax, which are incorporated by reference into this proxy statement/prospectus, including particularly the sections therein titled “Risk Factors.” You should also read and consider the other information in this proxy statement/prospectus. Please also see “Where You Can Find More Information and Incorporation by Reference” on page 191.

Risks Related to the Merger

The Merger is subject to a number of conditions which, if not satisfied or waived in a timely manner, would delay the Merger or adversely impact EFC’s and Great Ajax’s ability to complete the Merger.

The completion of the Merger is subject to the satisfaction or waiver of a number of conditions. In addition, under circumstances specified in the Merger Agreement, EFC or Great Ajax may terminate the Merger Agreement. In particular, completion of the Merger requires the approval of the Great Ajax Merger Proposal by the Great Ajax Stockholders. While it is currently anticipated that the Merger will be completed shortly after the Great Ajax Special Meeting to approve the Great Ajax Merger Proposal, there can be no assurance that the conditions to the Closing will be satisfied in a timely manner or at all, or that an effect, event, circumstance, occurrence, development or change will not transpire that could delay or prevent these conditions from being satisfied. Accordingly, EFC and Great Ajax cannot provide any assurances with respect to the timing of the Closing, whether the Merger will be completed or when the Great Ajax Stockholders would receive the consideration for the Merger, if at all.

Failure to consummate the Merger as currently contemplated or at all could adversely affect the price of EFC Common Stock and/or Great Ajax Common Stock and the future business and financial results of EFC and/or Great Ajax.

The Merger may be consummated on terms different than those contemplated by the Merger Agreement, or the Merger may not be consummated at all. If the Merger is not completed, or is completed on different terms than as contemplated by the Merger Agreement, EFC and Great Ajax could be adversely affected and subject to a variety of risks associated with the failure to consummate the Merger, or to consummate the Merger as contemplated by the Merger Agreement, including the following:

•

the EFC stockholders and the Great Ajax Stockholders may be prevented from realizing the anticipated benefits of the Merger;

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•

the market price of EFC Common Stock and/or Great Ajax Common Stock could decline significantly;

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•

reputational harm due to the adverse perception of any failure to successfully consummate the Merger;

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•

Great Ajax being required, under certain circumstances, to pay to EFC a termination fee;

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•

incurrence of substantial costs relating to the Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees without the Merger being consummated as contemplated by the Merger Agreement; and

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•

the attention of EFC’s and Great Ajax’s management may be diverted from their day-to-day business and operational matters as a result of efforts relating to attempting to consummate the Merger.

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Any delay in the consummation of the Merger or any uncertainty about the consummation of the Merger on terms other than those contemplated by the Merger Agreement, or the failure to complete the Merger, could materially adversely affect the business and financial results of EFC and Great Ajax, and/or the stock price of EFC and/or Great Ajax.

The Merger Agreement contains provisions that could discourage a potential competing acquirer of Great Ajax or could result in any competing acquisition proposal being at a lower price than it might otherwise be.

The Merger Agreement contains provisions that, subject to limited exceptions, restrict the ability of Great Ajax to initiate, solicit or knowingly encourage or facilitate any Great Ajax Competing Proposal. With respect to any written, bona fide Great Ajax Competing Proposal received by Great Ajax, EFC generally has an opportunity to offer to modify the terms of the Merger Agreement in response to such proposal before the Great Ajax Board may withdraw or modify the Great Ajax Board’s recommendation to the Great Ajax Stockholders in response to such Great Ajax Competing Proposal or terminate the Merger Agreement in order to enter into a definitive agreement implementing a Great Ajax Superior Proposal. In the event that the Great Ajax Board withdraws or modifies the Great Ajax Board’s recommendation, EFC may terminate the Merger Agreement, in which case Great Ajax is required to pay EFC the Great Ajax Termination Fee of $6,867,000. In addition, if Great Ajax terminates the Merger Agreement in connection with a Great Ajax Superior Proposal, it would be required to pay EFC the Great Ajax Termination Fee of $6,867,000. See “The Merger Agreement — No Solicitation; Change in Recommendation” beginning on page 112, “The Merger Agreement — Termination of the Merger Agreement” beginning on page 119 and “The Merger Agreement — Termination Fee and Expenses” beginning on page 120.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Great Ajax from considering or proposing a competing acquisition, even if the potential competing acquirer was prepared to pay consideration with a higher per share value than the value proposed to be received or realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances under the Merger Agreement.

The pendency of the Merger and, with respect to EFC, the pendency of the Arlington Merger, could adversely affect EFC’s and Great Ajax’s business and operations.

In connection with the pending Merger, some of the parties with whom EFC or Great Ajax does business may delay or defer decisions, which could negatively impact EFC’s or Great Ajax’s revenues, earnings, cash flows and expenses, regardless of whether the Merger is completed. In addition, under the Merger Agreement, EFC and Great Ajax are each subject to certain restrictions on the conduct of its respective business prior to completing the Merger and under the terms of the Arlington Merger Agreement, EFC is subject to restrictions on the conduct of its business prior to completing the Arlington Merger. These restrictions may prevent EFC or Great Ajax from pursuing certain strategic transactions, acquiring and/or disposing of assets, undertaking certain capital projects, undertaking certain financing transactions and otherwise pursuing other actions that are not in the ordinary course of business, even if such actions could prove beneficial. These restrictions may impede EFC’s or Great Ajax’s growth which could negatively impact its respective revenue, earnings and cash flows. Additionally, the pendency of the Merger and, with respect to EFC, the pendency of the Arlington Merger may make it more difficult for EFC or Great Ajax to effectively retain and incentivize key personnel. Furthermore, the process of planning to integrate three businesses for the post-Merger and post-Arlington Merger period can divert management attention and resources and could ultimately have an adverse effect on each party.

The market value of EFC Common Stock received by Great Ajax Stockholders will fluctuate based on the trading price of EFC Common Stock.

The number of shares of EFC Common Stock to be received by Great Ajax Stockholders will be based on the Exchange Ratio of 0.5308, subject to certain adjustments as provided in the Merger Agreement. The market value of EFC Common Stock received by Great Ajax Stockholders will fluctuate based on the trading price of EFC Common Stock. Therefore, Great Ajax Stockholders cannot be sure of the final market value of the consideration they will receive upon completion of the Merger. Neither EFC nor Great Ajax

 

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has the right to terminate the Merger Agreement based on an increase or decrease in the market price of EFC Common Stock or Great Ajax Common Stock or on increases or decreases in the value of EFC’s portfolio or Great Ajax’s portfolio. See “The Merger Agreement may be terminated under certain circumstances” and “Neither EFC nor Great Ajax may terminate the Merger Agreement or adjust the Exchange Ratio solely due to changes in the market price of EFC Common Stock or Great Ajax Common Stock or changes in the value of EFC’s portfolio or Great Ajax’s portfolio” below.

The Merger and related transactions are subject to the Great Ajax Stockholder Approval.

The Merger cannot be completed unless the Great Ajax Stockholders approve the Great Ajax Merger Proposal by the affirmative vote of holders of at least a majority of outstanding shares entitled to be vote thereon at the Great Ajax Special Meeting in accordance with the MGCL and the governing documents of Great Ajax, provided a quorum is present. If the Great Ajax Stockholder Approval is not obtained from the Great Ajax Stockholders, the Merger and related transactions cannot be completed.

The voting power of Great Ajax Stockholders will be diluted by the Merger and, if completed, the Arlington Merger.

The Merger will result in Great Ajax Stockholders having an ownership stake in the Combined Company that is smaller than their current stake in Great Ajax. EFC and Great Ajax estimate that immediately following the completion of the Merger, based on the Exchange Ratio of 0.5308 (which is subject to certain adjustments as provided in the Merger Agreement) and not assuming the prior completion of the Arlington Merger, Great Ajax Stockholders and holders of Great Ajax Equity Awards as of immediately prior to the effective time of the Merger will own in the aggregate approximately 16% of the outstanding shares of common stock of the Combined Company, based on the number of issued and outstanding shares of EFC Common Stock and Great Ajax Common Stock (excluding Cancelled Shares) and outstanding Great Ajax Equity Awards as of June 30, 2023. Consequently, Great Ajax Stockholders, as a general matter, will have significantly less influence over the Combined Company’s management and policies after the effective time of the Merger than they currently exercise over the management and policies of Great Ajax. In addition, if the Arlington Merger is completed, the Great Ajax Stockholders’ ownership percentage and influence over the Combined Company’s management and policies will decline further. Assuming the completion of the Arlington Merger prior to the effective time of the Merger, the Great Ajax Stockholders and holders of Great Ajax Equity Awards as of immediately prior to the effective time of the Merger will own in the aggregate approximately 14% of the outstanding shares of common stock of the Combined Company, based on the number of issued and outstanding shares of EFC Common Stock and Great Ajax Common Stock (excluding Cancelled Shares) and outstanding Great Ajax Equity Awards as of June 30, 2023.

The Merger Agreement may be terminated under certain circumstances.

Either EFC or Great Ajax may terminate the Merger Agreement under certain circumstances, including, but not limited to, (a) if the other party breaches certain covenants or other agreements contained in the Merger Agreement, (b) if any governmental entity of competent jurisdiction issues a final and non-appealable order, decree, ruling or injunction or takes any other action permanently restraining, enjoining or otherwise prohibiting the consummation of the Merger, and (c) if the Merger has not been consummated by 5:00 p.m., New York, New York time on the End Date; provided that, the termination right described in this clause (c) will not be available to a party whose breach of any representation, warranty, covenant or agreement contained in the Merger Agreement has been a primary cause of, or resulted in, the failure to consummate the Merger on or before the End Date. EFC may also terminate the Merger Agreement under certain circumstances, including (a) if the Great Ajax Board issues a Great Ajax Change of Recommendation, and (b) if the Great Ajax Stockholders fail to approve the Great Ajax Merger Proposal at the Great Ajax Special Meeting. See “The Merger Agreement — Termination of the Merger Agreement” beginning on page 119.

Neither EFC nor Great Ajax may terminate the Merger Agreement or adjust the Exchange Ratio solely due to changes in the market price of EFC Common Stock or Great Ajax Common Stock or changes in the value of EFC’s portfolio or Great Ajax’s portfolio.

While the market price of EFC Common Stock and Great Ajax Common Stock and the value of EFC’s and Great Ajax’s portfolio have fluctuated since the date of the Merger Agreement and will continue

 

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to fluctuate until the Closing (which could be a significant period of time), neither EFC nor Great Ajax may terminate the Merger Agreement or adjust the Exchange Ratio solely based on changes in the market price of EFC Common Stock or Great Ajax Common Stock or a reduction in the value of EFC’s portfolio or Great Ajax’s portfolio.

The market price of EFC Common Stock after the consummation of the Merger may be affected by factors different from those affecting the price of EFC Common Stock or Great Ajax Common Stock before the Merger.

The market price of EFC Common Stock may decline as a result of the Merger if the Combined Company does not achieve the perceived benefits of the Merger or the effect of the Merger on the Combined Company’s financial results is not consistent with the expectations of financial or industry analysts.

In addition, upon consummation of the Merger, EFC stockholders and Great Ajax Stockholders will own interests in the Combined Company operating an expanded business with a different mix of assets, risks and liabilities. EFC’s current stockholders and Great Ajax’s current stockholders may not wish to continue to invest in the Combined Company, or for other reasons may wish to dispose of some or all of their shares of EFC Common Stock. If, following the effective time of the Merger, a large amount of EFC Common Stock is sold, the price of EFC Common Stock could decline.

Further, the Combined Company’s results of operations, as well as the market price of EFC Common Stock after the Merger may be affected by factors in addition to those currently affecting EFC’s or Great Ajax’s results of operations and the market prices of EFC Common Stock and Great Ajax Common Stock, including differences in assets and capitalization, and factors related to the pending Arlington Merger. Accordingly, EFC’s and Great Ajax’s historical market prices and financial results may not be indicative of these matters for the Combined Company after the Merger.

Shares of EFC Common Stock received by Great Ajax Stockholders as a result of the Merger will have different rights from shares of Great Ajax Common Stock.

Upon the completion of the Merger, Great Ajax Stockholders will no longer be stockholders of Great Ajax and will become stockholders of EFC. There will be important differences between the current rights of Great Ajax Stockholders and the rights to which such stockholders will be entitled as stockholders of EFC, including differences that result from Great Ajax being incorporated in Maryland and EFC being incorporated in Delaware and differences between the governing documents of Great Ajax and EFC. See the section entitled “Comparison of Rights of EFC Stockholders and Great Ajax Stockholders” beginning on page 163 for a discussion on the different rights associated with the shares of EFC Common Stock.

Directors and executive officers of each of EFC and Great Ajax may have interests in the Merger that are different from, or in addition to, the interests of EFC stockholders and Great Ajax Stockholders, respectively.

Directors and executive officers of EFC and Great Ajax may have interests in the Merger that are different from, or in addition to, the interests of EFC stockholders and Great Ajax Stockholders generally. Following the consummation of the Merger, all five of the current directors of the EFC Board are expected to continue as directors of the board of directors of the Combined Company and the executive officers of EFC are expected to continue as the executive officers of the Combined Company. The Combined Company will continue to be managed by EFC Manager under the terms of the EFC Management Agreement, pursuant to which EFC Manager receives a management fee, which includes a “base” component and “incentive” component, and reimbursement for certain expenses incurred by it and its affiliates in rendering management services to EFC. As a result of the Merger and contribution of the surviving company of the Merger to the EFC Operating Partnership in exchange for EFC OP Units, the equity of the EFC Operating Partnership will effectively include the additional equity attributable to the acquisition of Great Ajax. As a result, following the Merger, the amount of the management fees payable by EFC to EFC Manager will also increase, which gives EMG and EFC Manager (and therefore, EFC’s management), an incentive, not shared by EFC stockholders, to negotiate and effect the Merger, possibly on terms less favorable to EFC than would otherwise have been achieved. Each of EFC’s executive officers and one of its directors serves as an officer of EFC Manager and is an employee of EMG. In connection with the Merger, the Great Ajax Management Agreement will be terminated and the Great Ajax Manager will be paid a termination fee, which will be reduced by the percentage of Great Ajax’s ownership of the limited liability company interests

 

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of the Great Ajax Manager. Three of Great Ajax’s directors may be deemed beneficial owners and/or are employees of the Great Ajax Manager, and will receive a portion of this fee. Three of Great Ajax’s directors also indirectly own interests in Gregory, which is expected to continue as the mortgage servicer for the mortgage loans serviced by Gregory and owned by Great Ajax and its subsidiaries immediately prior to the Closing, for so long as EFC or its affiliates maintains an ownership interest in such loans. In addition, each of Great Ajax’s executive officers and all but one of the members of the Great Ajax Board (in addition to the individuals serving as the General Counsel and Chief Technology Officer of Aspen) holds Great Ajax Restricted Shares, which will vest in full in connection with the consummation of the Merger in accordance with the terms of the Merger Agreement. Further, directors and executive officers of Great Ajax will receive continued indemnification and insurance coverage in accordance with the terms of the Merger Agreement. For more information, see the sections entitled “The Merger — Interests of EFC’s Directors and Executive Officers in the Merger” beginning on page 95 and “The Merger — Interests of Great Ajax’s Directors and Executive Officers in the Merger” beginning on page 93.

Completion of the Merger may trigger change in control or other provisions in certain agreements to which Great Ajax is a party.

The completion of the Merger may trigger change in control or other provisions in certain agreements to which Great Ajax is a party. If EFC and Great Ajax are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if EFC and Great Ajax are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Great Ajax.

An adverse judgment in any litigation challenging the Merger or the Arlington Merger may prevent the Merger or the Arlington Merger, respectively, from becoming effective or from becoming effective within the expected timeframe.

It is possible that EFC stockholders or Great Ajax Stockholders may file lawsuits challenging the Merger or the other transactions contemplated by the Merger Agreement, which may name EFC, Great Ajax, the EFC Board and/or the Great Ajax Board as defendants. In addition, EFC stockholders or Arlington shareholders may file lawsuits challenging the Arlington Merger or the other transactions contemplated by the Arlington Merger Agreement, which may name EFC, the EFC Board and/or other parties as defendants. The outcome of such lawsuits cannot be assured, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the applicable parties from completing the Merger or the Arlington Merger on the agreed-upon terms, such an injunction may delay the consummation of the Merger or the Arlington Merger, as applicable, in the expected timeframe, or may prevent the Merger or the Arlington Merger, as applicable, from being consummated altogether. Whether or not any plaintiff’s claim is successful, this type of litigation may result in significant costs and divert management’s attention and resources, which could adversely affect the operation of EFC’s business and/or Great Ajax’s business.

If the Merger does not qualify as a reorganization, Great Ajax Stockholders may recognize additional taxable gain.

The Merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Code, and it is a condition to the completion of the Merger that Great Ajax and EFC each receive an opinion from its respective tax counsel to the effect that the Merger will constitute a reorganization within the meaning of Section 368(a) of the Code. Assuming that the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, U.S. Great Ajax Stockholders will recognize gain (but not loss) in an amount equal to the lesser of (i) the amount by which the sum of the fair market value of the shares of EFC Common Stock and cash (other than cash received in lieu of a fractional share of EFC Common Stock) received by such holder in exchange for its Great Ajax Common Stock (such cash including such holder’s share of the Contingent Cash Purchase Price, if any) exceeds such holder’s adjusted basis in its shares of Great Ajax Common Stock and (ii) the amount of cash (other than the cash received in lieu of a fractional share of EFC Common Stock) received in exchange for its shares of Great Ajax Common Stock (such cash including

 

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such holder’s share of the Contingent Cash Purchase Price, if any). If the Merger were to fail to qualify as a reorganization within the meaning of Section 368(a) of the Code, a U.S. holder would recognize gain or loss equal to the difference, if any, between (i) the sum of the fair market value of EFC Common Stock, such holder’s share of the Contingent Cash Purchase Price and cash in lieu of fractional shares of EFC Common Stock received by the Great Ajax Stockholder in the Merger and (ii) the Great Ajax Stockholder’s adjusted tax basis in its Great Ajax Common Stock. See “Material U.S. Federal Income Tax Considerations — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 122.

Risks Related to the Combined Company Following the Merger

Following the Merger, the Combined Company may be unable to realize the anticipated benefits of the Merger and the Arlington Merger within the anticipated timeframe or at all.

The Merger involves the combination of two companies that currently operate as independent public companies. To the extent that EFC management overestimated the value of, and/or projected net income to be generated by, Great Ajax’s or Alington’s assets, and/or underestimated Great Ajax’s or Arlington’s liabilities or was otherwise incorrect in its assumptions, the Combined Company may be unable to realize the anticipated benefits of either or both Mergers. The Combined Company expects to benefit from certain operating expense efficiencies relating to the elimination of duplicative costs associated with supporting a public company platform and operating the businesses of EFC and Great Ajax and the spread of fixed costs across a larger equity base. EFC anticipates similar operating efficiencies and cost savings in connection with the proposed Arlington Merger. The Combined Company will be required to devote significant management attention and resources to the integration of EFC’s, Great Ajax’s and, if the Arlington Merger is completed, Arlington’s businesses. The potential difficulties the Combined Company may encounter in combining the companies include, but are not limited to, the following:

•

the inability to successfully combine EFC’s, Great Ajax’s and, if the Arlington Merger is completed, Arlington’s businesses in a manner that permits the Combined Company to achieve the expense efficiencies expected to result from the Merger and the Arlington Merger, which would result in the anticipated benefits of the Merger and the Arlington Merger not being realized in the timeframe currently anticipated or at all;

​

•

the inability of the Combined Company to successfully redeploy any capital acquired in connection with the Merger and, if completed, the Arlington Merger into EFC’s targeted asset classes at investment returns EFC expects or in the expected timetable;

​

•

the complexities of combining two, or, if the Arlington Merger is completed, three companies with different histories and portfolio assets;

​

•

potential unknown liabilities and unforeseen increased expenses, delays or conditions associated with the Merger and the Arlington Merger; and

​

•

performance shortfalls as a result of the diversion of management’s attention caused by completing the Merger and the Arlington Merger and integrating the companies’ operations (including, if the Arlington Merger is completed, the operations of Arlington).

​

For all these reasons, you should be aware that it is possible that the combination process could result in the distraction of the Combined Company’s management, the disruption of the Combined Company’s ongoing business or inconsistencies in its operations, services, standards, controls, policies and procedures, any of which could adversely affect the Combined Company’s ability to deliver investment returns to stockholders, to maintain relationships with its key stakeholders or to achieve the anticipated benefits of the Merger and the Arlington Merger, or could otherwise materially and adversely affect the Combined Company’s business and financial results.

Following the Merger, the Combined Company may not pay dividends at or above the rate currently paid by EFC.

Following the Merger, the Combined Company’s stockholders may not receive any dividends (or may not receive them at the same rate that EFC stockholders received dividends prior to the Merger) for various reasons, including the following:

 

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•

the Combined Company may not have enough cash to pay such dividends due to changes in its cash requirements, capital spending plans, cash flow or financial position;

​

•

decisions on whether, when and in what amounts to make any future dividends will remain at all times entirely at the discretion of the Combined Company’s board of directors, which reserves the right to change its dividend practices at any time and for any reason;

​

•

the ability of the Combined Company to declare and pay dividends on its common stock will be subject to the preferential rights of the EFC Preferred Stock and the preferential rights, if any, of holders of any other class or series of the Combined Company’s capital stock, such as the EFC Series D Preferred Stock and EFC Series E Preferred Stock, if then outstanding; and

​

•

the amount of dividends that the Combined Company’s subsidiaries may distribute to the Combined Company may be subject to restrictions imposed by state law and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.

​

The Combined Company’s common stockholders will have no contractual or other legal right to dividends that have not been authorized by its board of directors and declared by the Combined Company.

The Combined Company will have a significant amount of indebtedness and may need to incur more in the future.

The Combined Company will have substantial indebtedness following completion of the Merger. In addition, in connection with executing its business strategies following the Merger, the Combined Company expects to evaluate the possibility of investing in additional target assets and making other strategic investments, and it may elect to finance these endeavors by incurring additional indebtedness. The amount of such indebtedness could have material adverse consequences for the Combined Company, including:

•

hindering its ability to adjust to changing market, industry or economic conditions;

​

•

limiting its ability to access the capital markets to raise additional equity or refinance maturing debt on favorable terms or to fund acquisitions or emerging businesses;

​

•

limiting the amount of cash flow available for future operations, acquisitions, dividends, stock repurchases or other uses;

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•

limiting its ability to deduct interest under Section 163(j) of the Code;

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•

making it more vulnerable to economic or industry downturns, including interest rate increases; and

​

•

placing it at a competitive disadvantage compared to less leveraged competitors.

​

Moreover, the Combined Company may be required to raise substantial additional capital to execute its business strategy. The Combined Company’s ability to arrange additional financing will depend on, among other factors, its financial position and performance, as well as prevailing market conditions and other factors beyond its control. If the Combined Company is unable to obtain additional financing, its credit ratings could be adversely affected, which could raise its borrowing costs and limit its future access to capital and its ability to satisfy its obligations under its indebtedness.

The Combined Company is expected to incur substantial expenses related to the Merger and, if completed, to the Arlington Merger.

EFC and Great Ajax have incurred substantial legal, accounting, financial advisory and other costs, and the management teams of EFC and Great Ajax have devoted considerable time and effort in connection with the Merger. EFC and Great Ajax may incur significant additional costs in connection with the completion of the Merger or in connection with any delay in completing the Merger or termination of the Merger Agreement, in addition to the other costs already incurred. If the Merger is not completed, EFC and Great Ajax will separately bear certain fees and expenses associated with the Merger without realizing the benefits of the Merger. If the Merger is completed, the fees and expenses may be significant and could have an adverse impact on the Combined Company’s results of operations.

Although EFC and Great Ajax have assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond the control of either EFC or Great Ajax

 

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that could affect the total amount or the timing of the integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, the transaction and integration expenses associated with the Merger could, particularly in the near term, exceed the savings that the Combined Company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the businesses following the completion of the Merger.

In addition, EFC has incurred similar fees and transaction expenses in connection with the Arlington Merger and expects to incur additional costs related to such transaction that are difficult to estimate accurately at this time. If the Arlington Merger is not consummated, EFC (or, if the Merger is completed, the Combined Company) would bear certain transaction expenses associated with the Arlington Merger without realizing the anticipated benefits of the Arlington Merger. If the Arlington Merger is completed, the transaction expenses and the costs related to the integration of Arlington could be substantial, have an adverse impact on EFC’s (or, if the Merger is completed, the Combined Company’s) results of operations and exceed, particularly in the near term, the cost savings EFC expects to achieve in connection with the Arlington Merger.

The unaudited pro forma condensed combined financial information included elsewhere in this proxy statement/​prospectus may not be representative of the Combined Company’s results after the Merger and, if completed, the Arlington Merger, and accordingly, you have limited financial information on which to evaluate the Combined Company following the Merger.

The unaudited pro forma condensed combined financial information included elsewhere in this proxy statement/prospectus has been presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that actually would have occurred had the Merger and the Arlington Merger been completed as of the date indicated, nor is it indicative of the future operating results or financial position of the Combined Company following the Merger and, if completed, the Arlington Merger. The unaudited pro forma condensed combined financial information does not reflect future events that may occur after the Merger and, if completed, the Arlington Merger. The unaudited pro forma condensed combined financial information presented elsewhere in this proxy statement/prospectus is based in part on certain assumptions regarding the Merger and the Arlington Merger that EFC believes are reasonable under the circumstances. However, such certain assumptions are based on values for mortgage assets in a market environment that is highly volatile and undue reliance should not be placed on such assumptions. EFC and Great Ajax cannot assure you that the assumptions will prove to be accurate over time.

The Combined Company may incur adverse tax consequences if Great Ajax, Great Ajax II REIT, Inc. or any other entity intended to be treated as a REIT owned by Great Ajax failed to qualify as a REIT for U.S. federal income tax purposes.

Great Ajax has operated in a manner that it believes has allowed it to qualify as a REIT for U.S. federal income tax purposes under the Code and intends to continue to do so up to the time of the Merger. Great Ajax believes that Great Ajax II REIT, Inc. (such REIT, a “Subsidiary REIT”) has qualified as a REIT for U.S. federal income tax purposes and intends for the Subsidiary REIT to continue to do so. Great Ajax has neither requested nor currently plans to request a ruling from the U.S. Internal Revenue Service (the “IRS”) that it qualified and qualifies, or that each Subsidiary REIT qualified and qualifies, as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within the control of Great Ajax may affect its, or its Subsidiary REIT’s, ability to qualify as a REIT. In order to qualify as a REIT, Great Ajax must have satisfied and continue to satisfy, and its Subsidiary REIT must satisfy and must have satisfied, a number of requirements, including requirements regarding the ownership of its stock and the composition of its gross income and assets. Also, a REIT must make distributions to stockholders aggregating annually to at least 90% of its net taxable income, excluding any net capital gains.

If Great Ajax has failed or fails (or its Subsidiary REIT failed or fails) to qualify as a REIT and the Merger is completed, the Combined Company may inherit significant tax liabilities, because the Combined Company, as the successor by Merger to Great Ajax and its Subsidiary REIT, would be subject to any

 

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corporate income tax liabilities of Great Ajax and its Subsidiary REIT, including penalties and interest, attributable to the years and the period prior to the Merger that Great Ajax or its Subsidiary REIT failed to qualify as a REIT. If any other entity intended to be treated as a REIT owned by Great Ajax failed to qualify as a REIT for U.S. federal income tax purposes, such entity would also be subject to corporate income tax liabilities and the amount available to be distributed to the Combined Company would be reduced.

EFC may not be able to complete the pending Arlington Merger in a timely manner or at all, which could adversely affect EFC’s business.

Completion of the Arlington Merger is subject to, among other things, the approval of Arlington shareholders and other closing conditions set forth in the Arlington Merger Agreement. It is possible that Arlington shareholder approval may not be received in a timely manner or at all, or that one or more other closing conditions may not be satisfied or, if not satisfied, that such conditions may not be waived in accordance with the terms of the Arlington Merger Agreement. The Arlington Merger is a transaction separate and apart from the Merger and the completion of the Arlington Merger is not a condition to the completion of the Merger, and the completion of the Merger is not a condition to the completion of the Arlington Merger. Therefore, it is possible that the Merger will be consummated but the Arlington Merger will not be consummated. If EFC is unable to complete the Arlington Merger, EFC will not fully realize the anticipated benefits of the Arlington Merger.

General Tax Risks

EFC’s failure to maintain its qualification as a REIT would subject it to U.S. federal, state and local income taxes, which could adversely affect the value of EFC Common Stock and would substantially reduce the cash available for distribution to EFC stockholders.

EFC elected to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2019. While EFC believes that it has operated and intends to continue to operate in a manner that will enable it to meet the requirements for taxation as a REIT commencing with its taxable year ended January 1, 2019, EFC cannot assure you that it will remain qualified as a REIT.

The U.S. federal income tax laws governing REITs are complex, and interpretations of the U.S. federal income tax laws governing qualification as a REIT are limited. Qualifying as a REIT requires EFC to meet various tests regarding the nature of its assets, its income and its earnings and profits, or “E&P” ​(calculated pursuant to Sections 316 and 857(d) of the Code and the regulations thereunder), the ownership of its outstanding stock, and the amount of its distributions on an ongoing basis. EFC’s ability to satisfy the asset tests depends upon the characterization and fair market values of its assets, some of which are not precisely determinable, and for which it may not obtain independent appraisals. EFC’s compliance with the REIT income and asset tests and the accuracy of its tax reporting to stockholders also depends upon its ability to successfully manage the calculation and composition of its gross and net taxable income, its E&P and its assets on an ongoing basis. Even a technical or inadvertent mistake could jeopardize EFC’s REIT status. In addition, EFC’s ability to satisfy the requirements to maintain its qualification as a REIT depends in part on the actions of third parties over which it has no control or only limited influence, including in cases where it owns an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes. Although EFC believes that it has operated and intends to continue to operate so as to maintain its qualification as a REIT, given the complex nature of the rules governing REITs, the ongoing importance of factual determinations, including the potential tax treatment of the investments its makes, and the possibility of future changes in its circumstances, no assurance can be given that its actual results of operations for any particular taxable year will satisfy such requirements.

EFC also owns a Subsidiary REIT that has elected to be taxed as a REIT under the U.S. federal income tax laws. EFC’s Subsidiary REIT is subject to the same REIT qualification requirements that are applicable to EFC. If EFC’s Subsidiary REIT were to fail to maintain its qualification as a REIT, then (i) that Subsidiary REIT would become subject to regular U.S. federal, state and local corporate income tax, (ii) EFC’s interest in such Subsidiary REIT would cease to be a qualifying asset for purposes of the REIT asset tests, and (iii) it is possible that EFC would fail certain of the REIT asset and/or income tests, in which event EFC also would fail to maintain its qualification as a REIT unless it could avail itself of certain

 

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relief provisions. While EFC believes that the Subsidiary REIT has qualified as a REIT under the Code, EFC has joined the Subsidiary REIT in filing a “protective” TRS election under Section 856(l) of the Code for each taxable year in which it has owned an interest in the Subsidiary REIT. EFC cannot assure you that such “protective” TRS election would be effective to avoid adverse consequences to it. Moreover, even if the “protective” election were to be effective, the Subsidiary REIT would be subject to regular corporate income tax, dividends EFC receives from the Subsidiary REIT would not qualify as good income for purposes of the 75% gross income test, and EFC cannot assure you that it would not fail to satisfy the requirement that not more than 20% of the value of its total assets may be represented by the securities of one or more TRSs. See “EFC’s ownership of and relationship with its TRSs will be limited, and a failure to comply with the limits would jeopardize its REIT status and may result in the application of a 100% excise tax,” below.

If EFC fails to maintain its qualification as a REIT in any calendar year, and does not qualify for certain statutory relief provisions, it would be required to pay U.S. federal income tax (and any applicable state and local taxes) on its taxable income at regular corporate rates, and dividends paid to its stockholders would not be deductible by it in computing its taxable income (although such dividends received by certain non-corporate U.S. taxpayers generally would be subject to a preferential rate of taxation). Further, if EFC fails to maintain its qualification as a REIT, it might need to borrow money or sell assets in order to pay any resulting tax. EFC’s payment of income tax would decrease the amount of its income available for distribution to its stockholders. Furthermore, if EFC fails to maintain its qualification as a REIT, it no longer would be required under U.S. federal tax laws to distribute substantially all of its REIT taxable income to its stockholders. Unless EFC’s failure to maintain its qualification as a REIT was subject to relief under the U.S. federal tax laws, EFC could not re-elect to qualify as a REIT until the fifth calendar year following the year in which it failed to qualify.

Complying with REIT requirements may cause EFC to forego or liquidate otherwise attractive investments.

To qualify as a REIT, EFC must continually satisfy various tests regarding the sources of its income, the nature and diversification of its assets, the amounts it distributes to its stockholders and the ownership of its shares. In order to meet these tests, EFC may be required to forego investments it might otherwise make. Thus, EFC may choose not to make certain types of investments that it made in prior years or pursue certain strategies that it pursued in prior years, which could include certain hedges that would otherwise reduce certain investment risks, or it could make such investments or pursue such strategies in a TRS. EFC’s domestic TRSs will be subject to regular U.S. federal, state and local corporate income tax, which may reduce the cash available to be distributed to EFC’s stockholders.

As a REIT, EFC may be required to pay dividends to stockholders at disadvantageous times or when it does not have funds readily available for distribution, and may be unable to pursue investments that would be otherwise advantageous to it in order to satisfy the source of income or asset diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder EFC’s investment performance.

In particular, EFC must ensure that at the end of each calendar quarter, it satisfies the REIT 75% asset test, which requires that at least 75% of the value of its total assets consist of cash, cash items, government securities and qualified REIT real estate assets, including RMBS. The remainder of its investments in securities (other than government securities, TRS securities and qualified REIT real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of its total assets (other than government securities, TRS securities and qualified REIT real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of its total assets can be represented by securities of one or more TRSs. EFC’s acquisition of Arlington into a TRS (if the Arlington Merger is completed) and the acquisition of TRSs in the Great Ajax Merger may affect EFC’s ability to maintain the value of its TRSs below 20% of its total assets. Generally, if EFC fails to comply with these requirements at the end of any calendar quarter, it must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing its REIT qualification and becoming subject to U.S. federal income tax and any applicable state and local taxes on all of its income.

 

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In addition, EFC must also ensure that each taxable year it satisfies the REIT 75% and 95% gross income tests, which require that, in general, 75% of its gross income comes from certain real estate-related sources and 95% of its gross income consists of gross income that qualifies for the 75% gross income test or certain other passive income sources. As a result of the requirement that EFC satisfies both the REIT 75% asset test and the REIT 75% and 95% gross income tests, it may be required to liquidate from its portfolio otherwise attractive investments or contribute such investments to a TRS, in which event they would become subject to regular corporate U.S. federal, state and local taxes assuming that the TRS is organized in the United States. These actions could have the effect of reducing EFC’s income and amounts available for distribution to its stockholders. Generally, if EFC fails to comply with these requirements at the end of any calendar year, it will lose its REIT qualification and may be subject to U.S. federal income tax and any applicable state and local taxes on all of its income.

Failure to make required distributions would subject EFC to tax, which would reduce the cash available for distribution to its stockholders.

To qualify as a REIT, EFC must distribute to its stockholders each calendar year at least 90% of its REIT taxable income (including certain items of non-cash income), determined excluding any net capital gains and without regard to the deduction for dividends paid. Distributions of EFC’s taxable income must generally occur in the taxable year to which they relate, or in the following taxable year if declared before EFC timely files its tax return for the year and if paid with or before the first regular dividend payment after such declaration. To the extent that EFC satisfies the 90% distribution requirement, but distributes less than 100% of its taxable income, it will be subject to U.S. federal corporate income tax on its undistributed income. In addition, EFC will incur a 4% nondeductible excise tax on the amount, if any, by which its distributions in any calendar year (subject to specific timing rules for certain dividends paid in January) are less than the sum of:

•

85% of its REIT ordinary income for that year;

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•

95% of its REIT capital gain net income for that year; and

​

•

any undistributed taxable income from prior years.

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EFC intends to distribute its taxable income to its stockholders in a manner intended to satisfy the 90% distribution requirement and to avoid the corporate income tax. These distributions will limit its ability to retain earnings and thereby replenish or increase capital from operations. However, there is no requirement that TRSs distribute their after-tax net income to their parent REIT.

EFC’s taxable income may substantially exceed its net income as determined based on GAAP, because, for example, realized capital losses will be deducted in determining its GAAP net income, but may not be deductible in computing its taxable income. The EFC Operating Partnership and certain of its subsidiaries have made an election under Section 475(f) of the Code to mark their securities to market, which may cause EFC to recognize taxable gains for a taxable year with respect to such securities without the receipt of any cash corresponding to such gains. Additionally, E&P in EFC’s foreign TRSs are taxable to EFC, regardless of whether such earnings are distributed. Losses in EFC’s TRSs will not reduce EFC’s taxable income, and generally will not provide any tax benefit to EFC, except that a net operating loss in the TRS may be carried forward against future TRS taxable income in the case of a domestic TRS. EFC’s domestic TRSs may also have taxable income on which U.S. federal income tax is due even if EFC is in a loss position. Also, EFC’s ability, or the ability of its subsidiaries, to deduct interest may be limited under Section 163(j) of the Code. In addition, EFC may invest in assets that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets, or EFC may modify assets in a way that produces taxable income prior to or in excess of economic income. As a result of the foregoing, EFC may generate less cash flow than taxable income in a particular year. To the extent that EFC generates such non-cash taxable income in a taxable year or has limitations on its deductions, it may incur corporate income tax and the 4% nondeductible excise tax on that income if it does not distribute such income to stockholders in that year. In that event, EFC may be required to use cash reserves, incur debt, sell assets, make taxable distributions of its shares or debt securities or liquidate non-cash assets at rates, at terms or at times that it regards as unfavorable, in order to satisfy the distribution requirement and to avoid corporate income tax and the 4% nondeductible excise tax in that year.

 

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Determination of EFC’s REIT taxable income involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. If the IRS disagrees with EFC’s determination, it could affect its satisfaction of the distribution requirement. Under certain circumstances, EFC may be able to correct a failure to meet the distribution requirement for a year by paying “deficiency dividends” to its stockholders in a later year. EFC may include such deficiency dividends in its deduction for dividends paid for the earlier year. Although EFC may be able to avoid income tax on amounts distributed as deficiency dividends, it will be required to pay interest and a penalty to the IRS based upon the amount of any deduction it takes for deficiency dividends.

Even if EFC qualifies as a REIT, it may face other tax liabilities that reduce its cash flows.

Even if EFC qualifies for taxation as a REIT, it may be subject to certain U.S. federal, state and local taxes on its income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. In addition, its domestic TRSs will be subject to regular corporate U.S. federal, state and local taxes. Any of these taxes would decrease cash available for distributions to stockholders.

The failure of MBS subject to a repurchase agreement to qualify as real estate assets would adversely affect EFC’s ability to maintain its qualification as a REIT.

EFC has entered into repurchase agreements under which it nominally sells certain of its MBS to a counterparty and simultaneously enters into an agreement to repurchase the sold assets. EFC believes that, for U.S. federal income tax purposes, these transactions will be treated as secured debt and it will be treated as the tax owner of the MBS that are the subject of any such repurchase agreement, notwithstanding that such agreements may transfer record ownership of such assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could successfully assert that EFC does not own the MBS during the term of the repurchase agreement, in which case it could fail to maintain its qualification as a REIT.

Uncertainty exists with respect to the treatment of EFC’s TBAs for purposes of the REIT asset and income tests.

EFC purchases and sells Agency RMBS through TBAs and recognizes income or gains from the disposition of those TBAs, through dollar roll transactions or otherwise, and may continue to do so in the future. While there is no direct authority with respect to the qualification of TBAs as real estate assets or U.S. government securities for purposes of the REIT 75% asset test or the qualification of income or gains from dispositions of TBAs as gains from the sale of real property or other qualifying income for purposes of the REIT 75% gross income test, EFC treats the GAAP value of its TBAs under which it contracts to purchase to-be-announced Agency RMBS (“long TBAs”) as qualifying assets for purposes of the REIT 75% asset test, and it treats income and gains from its long TBAs as qualifying income for purposes of the REIT 75% gross income test, based on an opinion of Hunton Andrews Kurth LLP substantially to the effect that (i) for purposes of the REIT asset tests, its ownership of a long TBA should be treated as ownership of real estate assets, and (ii) for purposes of the REIT 75% gross income test, any gain recognized by it in connection with the settlement of its long TBAs should be treated as gain from the sale or disposition of an interest in mortgages on real property. Opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not successfully challenge the conclusions set forth in such opinions. In addition, it must be emphasized that the opinion of counsel is based on various assumptions relating to EFC’s TBAs and is conditioned upon fact-based representations and covenants made by EFC’s management regarding its TBAs. No assurance can be given that the IRS would not assert that such assets or income are not qualifying assets or income. If the IRS were to successfully challenge the opinion of counsel, EFC could be subject to a penalty tax or it could fail to remain qualified as a REIT if a sufficient portion of its assets consists of TBAs or a sufficient portion of its income consists of income or gains from the disposition of TBAs.

Complying with REIT requirements may limit EFC’s ability to hedge effectively.

The REIT provisions of the Code substantially limit EFC’s ability to hedge. Under these provisions, any income that EFC generates from transactions intended to hedge its interest rate or foreign currency

 

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risks will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges (i) interest rate risk on liabilities incurred to carry or acquire real estate or (ii) risk of foreign currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests, and such instrument is properly identified under applicable U.S. Treasury Regulations (the “Treasury Regulations”). The requirements in the Treasury Regulations related to identifying hedging transactions are highly technical and complex for which only limited judicial and administrative authorities exist, and the IRS could disagree with and successfully challenge EFC’s treatment and identifications of such hedging transactions. Income from hedging transactions that are not properly identified or hedge different risks will generally constitute non-qualifying income for purposes of both the REIT 75% and 95% gross income tests and could cause EFC to fail to maintain its qualification as a REIT. EFC’s aggregate gross income from such transactions, along with other gross income that does not qualify for the 95% gross income test, cannot exceed 5% of its annual gross income. As a result, EFC might have to limit its use of advantageous hedging techniques, and it has implemented and may in the future implement certain hedges through a TRS. Any hedging income earned by a domestic TRS would be subject to U.S. federal, state and local income tax at regular corporate rates. This could increase the cost of EFC’s hedging activities or expose it to greater risks associated with interest rate changes or other changes than it would otherwise want to bear. In addition, any hedging losses in EFC’s TRSs will offset any income of such TRSs, but generally will not provide any tax benefit to EFC, except that a net operating loss in the TRS may be carried forward against future TRS taxable income in the case of a domestic TRS. Even if the income from certain of EFC’s hedging transactions is excluded from gross income for purposes of the REIT 75% and 95% gross income tests, such income and any loss will be taken into account in determining its REIT taxable income and its distribution requirement. If the IRS disagrees with EFC’s calculation of the amount or timing of recognition of gain or loss with respect to its hedging transactions, including the impact of its elections under Section 475(f) of the Code and the treatment of hedging expense and losses under Section 163(j) of the Code and Treasury Regulation Section 1.446-4, its distribution requirement could increase, which could require that it correct any shortfall in distributions by paying deficiency dividends to its stockholders in a later year.

EFC’s ownership of and relationship with its TRSs will be limited, and a failure to comply with the limits would jeopardize its REIT status and may result in the application of a 100% excise tax.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income for purposes of the REIT 75% or 95% gross income tests if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation (other than a REIT) of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s total assets may consist of stock or securities of one or more TRSs. Many of the investments that EFC made and activities it undertook prior to its REIT election have been contributed to or will be made in one of its TRSs, there are TRSs in the Great Ajax structure, and certain of the historic Arlington assets will be held in a TRS (if the Arlington Merger is completed); thus, EFC has held and will hold a significant portion of its assets through, and derive a significant portion of its taxable income and gains in, TRSs. While EFC intends to manage its affairs so as to satisfy the requirement that no more than 20% of the value of its total assets consists of stock or securities of TRSs, as well as the requirements that no more than 25% of the value of its total assets consist of stock or securities of its TRSs and other assets not qualifying for the 75% asset test and that dividends from its TRSs plus other non-qualifying gross income not exceed 25% of its total gross income, there can be no assurance that it will be able to do so in all market circumstances. Even if EFC is able to do so, compliance with these rules may reduce its flexibility in operating its business. In addition, the two rules may conflict with each other in that EFC’s ability to reduce the value of its TRSs below 20% of its total assets by causing a TRS to distribute a dividend to it may be limited by its need to comply with the REIT 75% gross income test, which requires that, in general, 75% of its gross income come from certain real estate-related sources (and TRS dividends are not qualifying income for such test). There can be no assurance that EFC will be able to comply with either or both of these tests in all market conditions. EFC’s inability to comply with both of these tests could have a material adverse effect on its business, financial condition, liquidity, results of operations, qualification as a REIT and ability to make distributions to its stockholders.

 

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The TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. EFC’s domestic TRSs will pay U.S. federal, state and local income tax on their taxable income (net of deductible interest expense) at regular corporate tax rates, and their after-tax net income will be available for distribution to EFC but is not required to be distributed to it. In certain circumstances, the ability to deduct interest expense by any TRS could be limited. In addition, losses in EFC’s domestic TRSs generally will not provide any tax benefit prior to liquidation, except that a net operating loss in the TRS may be carried forward against future TRS taxable income.

EFC generally structures its foreign TRSs with the intent that their income and operations will not be subject to U.S. federal, state and local income tax. For example, the Code and the Treasury Regulations promulgated thereunder specifically provide that a non-U.S. corporation is not engaged in a U.S. trade or business and therefore is not subject to U.S. federal income tax if it restricts its activities in the United States to trading in stock and securities (or any activity closely related thereto) for its own account irrespective of whether such trading (or such other activity) is conducted by such a non-U.S. corporation or its employees through a resident broker, commission agent, custodian or other agent. However, there is no assurance that EFC’s foreign TRSs will successfully operate so that they are not subject to U.S. federal, state and local income tax. If the IRS successfully challenged the tax treatment of EFC’s foreign TRSs, it would reduce the amount that those foreign TRSs would have available to distribute to EFC. E&P in EFC’s foreign TRSs, including gains from securities marked to market for tax purposes, are taxable to EFC, and are not qualifying income for the purposes of the REIT 75% gross income test, regardless of whether such earnings are distributed to EFC. In addition, losses in EFC’s foreign TRSs generally will not provide any tax benefit prior to liquidation.

EFC intends to monitor the value of and the income from its respective investments in its domestic and foreign TRSs for the purpose of ensuring compliance with TRS ownership limitations and the REIT 75% gross income test. In addition, EFC will review all of its transactions with its TRSs to ensure that they are entered into on arm’s-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that EFC will be able to comply with the 20% limitation, the REIT 75% gross income test or avoid application of the 100% excise tax discussed above.

EFC’s ownership limitation may restrict change of control or business combination opportunities in which its stockholders might receive a premium for their EFC Common Stock.

In order for EFC to maintain its qualification as a REIT, no more than 50% in value of its outstanding shares may be owned, directly or indirectly, by five or fewer individuals during the last half of any calendar year. “Individuals” for this purpose include natural persons, private foundations, some employee benefit plans and trusts, and some charitable trusts. In order to help EFC qualify as a REIT, among other purposes, its certificate of incorporation provides that no person may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.8%, in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of EFC’s capital stock.

The ownership limitation and other restrictions could have the effect of discouraging a takeover or other transaction in which holders of EFC Common Stock might receive a premium for their EFC Common Stock over the then-prevailing market price or which holders might believe to be otherwise in their best interests.

Dividends payable by REITs do not qualify for the reduced tax rates available for “qualified dividend income.”

Qualified dividend income payable to U.S. investors that are individuals, trusts, and estates is subject to the reduced maximum tax rate applicable to long-term capital gains. Common and preferred dividends payable by REITs, however, generally are not eligible for the reduced rates on qualified dividend income. Rather, for taxable years beginning prior to January 1, 2026, non-corporate taxpayers may deduct up to 20% of certain pass-through business income, including “qualified REIT dividends” ​(generally, dividends received by a REIT stockholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations. To qualify for this deduction, the shareholder receiving such dividend must hold the dividend-paying REIT shares for at least 46 days (taking into account certain special

 

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holding period rules) of the 91-day period beginning 45 days before the shares become ex-dividend, and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property. However, even if a domestic stockholder qualifies for this deduction, the effective rate for such REIT dividends still remains higher than the top marginal rate applicable to “qualified dividend income” received by U.S. individuals. Although the reduced U.S. federal income tax rate applicable to qualified dividend income does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends and the reduction in the corporate tax rate could cause investors who are taxed at individual rates and regulated investment companies to perceive investments in the stocks of REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends treated as qualified dividend income, which could adversely affect the value of the stock of REITs, including EFC Common Stock.

EFC may be subject to adverse legislative or regulatory tax changes that could reduce the market price of EFC Common Stock.

At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. EFC cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. Changes to the tax laws, with or without retroactive application, could significantly and negatively affect EFC or its stockholders. Several recent proposals have been made that would make substantial changes to the U.S. federal income tax laws. EFC cannot predict the long-term effect of any future changes on REITs or assure its stockholders that any such changes will not adversely affect the taxation of a stockholder. EFC and its stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.

EFC’s recognition of “phantom” income may reduce a stockholder’s after-tax return on an investment in EFC stock.

EFC may recognize phantom income, which is taxable income in excess of its economic income, in the earlier years that EFC holds certain investments or in the year that it modifies certain loan investments, and EFC may only experience an offsetting excess of economic income over its taxable income in later years, if at all. As a result, stockholders at times may be required to pay U.S. federal income tax on distributions taxable as dividends that economically represent a return of capital rather than a dividend. Taking into account the time value of money, this acceleration or increase of U.S. federal income tax liabilities may reduce a stockholder’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.

Liquidation of EFC’s assets may jeopardize its REIT qualification or may be subject to a 100% tax.

To maintain its qualification as a REIT, EFC must comply with requirements regarding its assets and its sources of income. If EFC is compelled to liquidate its assets to repay obligations to its lenders or for other reasons, it may be unable to comply with these requirements, thereby jeopardizing its qualification as a REIT, or it may be subject to a 100% tax on any resultant gain if it sells assets that are treated as inventory or property held primarily for sale to customers in the ordinary course of business.

The tax on prohibited transactions will limit EFC’s ability to engage in transactions, including certain methods of securitizing MBS, that would be treated as sales of dealer property for U.S. federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% tax with no offset for losses. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, but including mortgage loans, held primarily for sale to customers in the ordinary course of business. EFC might be subject to this tax if it disposes of or securitizes mortgage loans or MBS in a manner that was treated as dealer activity for U.S. federal income tax purposes. Therefore, in order to avoid the prohibited transactions tax, EFC may choose not to engage in certain sales or securitization structures, even though

 

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the transactions might otherwise be beneficial to it. Alternatively, in order to avoid the prohibited transactions tax, EFC may choose to implement certain transactions through a TRS, including by contributing or selling the assets to a TRS.

Although EFC expects to avoid the prohibited transactions tax by conducting the sale of property that may be characterized as dealer property through a TRS, such TRS will be subject to U.S. federal, state and local corporate income tax and may incur a significant tax liability as a result of those sales conducted through the TRS. No assurance can be given that any property that EFC sells will not be treated as property held for sale to customers, or that EFC can satisfy certain safe-harbor provisions of the Code that would prevent such treatment. Moreover, no assurance can be given that the IRS will respect the transaction by which property that may be characterized as dealer property is contributed to the TRS. If any property sold is treated as property held for sale to customers or if the contribution of property is not respected, then EFC may be treated as having engaged in a prohibited transaction, and its net income therefrom would be subject to a 100% tax.

The EFC Operating Partnership and certain other subsidiaries have made a mark-to-market election under Section 475(f) of the Code. If the IRS challenges their application of that election, it may jeopardize EFC’s REIT qualification.

The EFC Operating Partnership, EFC’s subsidiary REIT and certain other subsidiaries of EFC have made elections under Section 475(f) of the Code to mark their securities to market. There are limited authorities under Section 475(f) of the Code as to what constitutes a trader for U.S. federal income tax purposes. Under other sections of the Code, the status of a trader in securities depends on all of the facts and circumstances, including the nature of the income derived from the taxpayer’s activities, the frequency, extent and regularity of the taxpayer’s securities transactions, and the taxpayer’s investment intent. There can be no assurance that the EFC Operating Partnership and these subsidiaries will continue to qualify as a trader in securities eligible to make the mark-to-market election. EFC has not received, nor is it seeking, an opinion from counsel or a ruling from the IRS regarding its or its subsidiaries’ qualification as a trader. If the qualification for, or EFC’s application of, the mark-to-market election were successfully challenged by the IRS, in whole or in part, it could, depending on the circumstances, result in retroactive (or prospective) changes in the amount or timing of gross income EFC recognizes. Furthermore, the law is unclear as to the treatment of mark-to-market gains and losses under the various REIT tax rules, including, among others, the prohibited transaction and qualified liability hedging rules. While there is limited analogous authority, EFC treats any mark-to-market gains as qualifying income for purposes of the 75% gross income test to the extent that the gain is recognized with respect to a qualifying real estate asset, based on an opinion of Hunton Andrews Kurth LLP substantially to the effect that any such gains recognized with respect to assets that would produce qualifying income for purposes of the 75% and/or 95% gross income test, as applicable, if they were actually sold should be treated as qualifying income to the same extent for purposes of the 75% and/or 95% gross income test, as applicable, and any such gains should not be subject to the prohibited transaction tax. If the IRS were to successfully treat EFC’s mark-to-market gains as subject to the prohibited transaction tax or to successfully challenge the treatment or timing of recognition of its mark-to-market gains or losses with respect to its qualified liability hedges, it could owe material U.S. federal income or penalty tax or, in some circumstances, even fail to maintain its qualification as a REIT. Finally, mark-to-market gains and losses could cause volatility in the amount of EFC’s taxable income. For instance, the mark-to-market election could generate losses in one taxable year that EFC is unable to use to offset taxable income, followed by mark-to-market gains in a subsequent taxable year that force it to make additional distributions to its stockholders. Hence, the mark-to-market gains and losses could cause EFC to distribute more dividends to its stockholders in a particular period than would otherwise be desirable from a business perspective.

The interest apportionment rules may affect EFC’s ability to comply with the REIT asset and gross income tests.

Most of the distressed mortgage loans that EFC has acquired were acquired by it at a discount from their outstanding principal amount, because its pricing was generally based on the value of the underlying real estate that secures those mortgage loans. Treasury Regulations Section 1.856-5(c) (the “interest apportionment regulation”) provides that if a mortgage is secured by both real property and other property, a REIT is required to apportion its annual interest income to the real property security based on a fraction, the numerator of which is the value of the real property securing the loan, determined when the REIT commits

 

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to acquire the loan, and the denominator of which is the highest “principal amount” of the loan during the year. If a mortgage is secured by both real property and personal property and the value of the personal property does not exceed 15% of the aggregate value of the property securing the mortgage, the mortgage is treated as secured solely by real property for this purpose. Revenue Procedure 2014-51 interprets the “principal amount” of the loan to be the face amount of the loan, despite the Code requiring taxpayers to treat any market discount, that is the difference between the purchase price of the loan and its face amount, for all purposes (other than certain withholding and information reporting purposes) as interest rather than principal.

The interest apportionment regulation applies only if the debt in question is secured both by real property and personal property. EFC believes that most of the mortgage loans that it acquired at a discount under the circumstances contemplated by Revenue Procedure 2014-51 are secured only by real property (including mortgage loans secured by both real property and personal property where the value of the personal property does not exceed 15% of the aggregate value of the property securing the mortgage). Accordingly, EFC believes that the interest apportionment regulation generally does not apply to its loans.

Nevertheless, if the IRS were to assert successfully that such mortgage loans were secured by property other than real estate, that the interest apportionment regulation applied for purposes of EFC’s REIT testing, and that the position taken in Revenue Procedure 2014-51 should be applied to its portfolio, then depending upon the value of the real property securing its loans and their face amount, and the sources of its gross income generally, EFC might not be able to satisfy the REIT 75% gross income test, and possibly the asset tests applicable to REITs. If EFC did not meet these tests, it could potentially either lose its REIT status or be required to pay a tax penalty to the IRS. With respect to the REIT 75% asset test, Revenue Procedure 2014-51 provides a safe harbor under which the IRS will not challenge a REIT’s treatment of a loan as being a real estate asset in an amount equal to the lesser of (1) the greater of (a) the current value of the real property securing the loan or (b) the fair market value of the real property securing the loan determined as of the date the REIT committed to acquire the loan or (2) the fair market value of the loan on the date of the relevant quarterly REIT asset testing date. This safe harbor, if it applied to EFC, would help it comply with the REIT asset tests following the acquisition of distressed debt if the value of the real property securing the loan were to subsequently decline. If EFC did not meet one or more of the REIT asset tests, then it could potentially either lose its REIT status or be required to pay a tax penalty to the IRS.

Generally, EFC’s investments in residential transition loans, or “RTLs,” and occasionally, its investments in small balance commercial mortgage loans, or “SBCs,” will require it to make estimates about the fair value of land improvements that may be challenged by the IRS.

Generally, EFC’s investments in RTLs, and occasionally its investments in SBCs, are short term loans secured by a mortgage on real estate assets where the proceeds of the loan will be used, in part, to renovate the property. The interest from these investments will be qualifying income for purposes of the REIT income tests, provided that the loan value of the real property securing the investment is equal to or greater than the highest outstanding principal amount of the loan during any taxable year. Under the REIT provisions, where improvements will be constructed with the proceeds of the loan, the loan value of the real property is the fair value of the land and existing real property improvements plus the reasonably estimated cost of the improvements or developments (other than personal property) that will secure the loan and that are to be constructed from the proceeds of the loan. There can be no assurance that the IRS would not challenge EFC’s estimate of the loan value of the real property.

The failure of a mezzanine loan or similar debt to qualify as a real estate asset could adversely affect EFC’s ability to maintain its qualification as a REIT.

EFC may invest in mezzanine loans or similar debt. The IRS has provided a safe harbor for mezzanine loans but not rules of substantive law. Pursuant to the safe harbor, if a mezzanine loan meets certain requirements, it will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying income for purposes of the REIT 75% gross income test. EFC may acquire mezzanine loans or similar debt that meet most but do not meet all of the requirements of this safe harbor, and it may treat such loans as real estate assets for purposes of the REIT asset and income tests. In the event that EFC owns a mezzanine loan or similar debt that does not meet

 

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the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and income tests and, if such a challenge were sustained, EFC could fail to maintain its qualification as a REIT.

EFC’s qualification as a REIT and exemption from U.S. federal income tax with respect to certain assets may be dependent on the accuracy of legal opinions or advice rendered or given or statements by the issuers of assets that its acquires, and the inaccuracy of any such opinions, advice or statements may adversely affect EFC’s REIT qualification and result in significant corporate-level tax.

When purchasing securities, EFC may rely on opinions or advice of counsel for the issuer of such securities, or statements made in related offering documents, for purposes of determining whether such securities represent debt or equity securities for U.S. federal income tax purposes, the value of such securities, and also to what extent those securities constitute qualified real estate assets for purposes of the REIT asset tests and produce income which qualifies under the REIT 75% gross income test. The inaccuracy of any such opinions, advice or statements may adversely affect EFC’s REIT qualification and result in significant corporate-level tax. Additionally, counsel is generally under no obligation to update any such opinions after they are issued. Hence, subsequent changes to the purchased securities or in the applicable law may cause such opinions to become inaccurate or outdated despite being accurate when issued and may also adversely affect EFC’s REIT qualification and result in significant corporate-level tax.

The failure of Excess MSRs held by EFC to qualify as real estate assets, or the failure of the income from Excess MSRs to qualify as interest from mortgages, could adversely affect EFC’s ability to qualify as a REIT.

EFC may invest in Excess MSRs (as defined below), including as a result of transactions related to the Arlington Merger (if the Arlington Merger is completed). In certain private letter rulings, the IRS ruled that Excess MSRs meeting certain requirements would be treated as an interest in mortgages on real property and thus a real estate asset for purposes of the 75% REIT asset test, and interest received by a REIT from such Excess MSRs will be considered interest on obligations secured by mortgages on real property for purposes of the 75% gross income test. A private letter ruling may be relied upon only by the taxpayer to whom it is issued, and the IRS may revoke a private letter ruling. Consistent with the analysis adopted by the IRS in such private letter rulings and based on advice of counsel, EFC intends to treat any Excess MSRs that meet the requirements provided in the private letter rulings as qualifying assets for purposes of the 75% gross asset test, and it intends to treat income from such Excess MSRs as qualifying income for purposes of the 75% and 95% gross income tests. Notwithstanding the IRS’s determination in the private letter rulings described above, it is possible that the IRS could successfully assert that any Excess MSRs that EFC holds do not qualify for purposes of the 75% REIT asset test and income from such MSRs does not qualify for purposes of the 75% and/or 95% gross income tests, which could cause EFC to be subject to a penalty tax and could adversely impact its ability to qualify as a REIT.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the annexes to this proxy statement/prospectus contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act.

These forward-looking statements are predictions and generally can be identified by use of statements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “likely,” or other words, phrases or expressions of similar import, or the negative or other words or expressions of similar meaning, and statements regarding the benefits of the Merger or the other transactions contemplated by the Merger Agreement or the future financial condition, results of operations and business of EFC, Great Ajax or the Combined Company. Without limiting the generality of the preceding sentence, certain information contained in the sections “The Merger  —  Background of the Merger,” “The Merger  —  Recommendation of the Great Ajax Board and Its Reasons for the Merger,” “The Merger  —   The EFC Board’s Reasons for the Merger” and “The Merger —  Certain Great Ajax Unaudited Prospective Financial Information” constitute forward-looking statements.

EFC and Great Ajax base these forward-looking statements on particular assumptions that they have made in light of their industry experience, as well as their perception of historical trends, current conditions, expected future developments and other factors that they believe are appropriate under the circumstances. The forward-looking statements are necessarily estimates reflecting the judgment of EFC’s and Great Ajax’s respective management and involve a number of known and unknown risks, uncertainties and other factors which may cause actual results, performance, or achievements of EFC, Great Ajax or the Combined Company to be materially different from those expressed or implied by the forward-looking statements. In addition to other factors and matters contained in this proxy statement/prospectus, including those disclosed under “Risk Factors” beginning on page 31, these forward-looking statements are subject to risks, uncertainties and other factors, including, among others:

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the ability of Great Ajax to obtain the Great Ajax Stockholder Approval required to consummate the Merger;

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•

the satisfaction or waiver of other conditions in the Merger Agreement;

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•

the risk that the Merger or the other transactions contemplated by the Merger Agreement or that the Arlington Merger or the other transactions contemplated by the Arlington Merger Agreement may not be completed in the time frame expected or at all;

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•

the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement or the Arlington Merger Agreement and that a termination of the Merger Agreement under certain circumstances could require Great Ajax to pay EFC the Great Ajax Termination Fee, as described under “The Merger Agreement  —  Termination Fee and Expenses” beginning on page 120;

​

•

significant transaction costs and/or unknown or inestimable liabilities;

​

•

the ability of EFC to successfully and efficiently integrate Great Ajax and, if the proposed Arlington Merger is completed, Arlington and implement the operating strategy of each company;

​

•

risks related to the disruption of management’s attention from ongoing business operations due to the proposed Merger and the proposed Arlington Merger;

​

•

the effect of the announcement of the proposed Merger or any other proposed strategic transaction on the operating results and businesses generally of EFC, Great Ajax or Arlington;

​

•

the outcome of litigation, including any legal proceedings that may be instituted against EFC, Great Ajax or others related to the Merger Agreement or the Arlington Merger Agreement;

​

•

changes in interest rates or the market value of EFC’s, Great Ajax’s or Arlington’s investments and/or portfolio;

​

•

market volatility;

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•

changes in mortgage default rates and prepayment rates;

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•

increased rates of default and/or decreased recovery rates on EFC’s, Great Ajax’s or Arlington’s assets;

​

•

the availability and terms of financing;

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•

regulatory proceedings or inquiries;

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•

changes in government regulations affecting the business of EFC, Great Ajax or Arlington;

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•

the ability of EFC and Great Ajax to maintain their exclusion from registration under the Investment Company Act;

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•

the ability of EFC and Great Ajax (through the effective time of the Merger) to maintain their qualifications as REITs;

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•

changes in market conditions and economic trends, such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations; and

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•

other risks detailed in the “Risk Factors” section of this proxy statement/prospectus and/or in filings made by each of EFC and Great Ajax with the SEC, including the Annual Report on Form 10-K for the year ended December 31, 2022, and other reports filed by EFC with the SEC and incorporated herein by reference, and the Annual Report on Form 10-K for the year ended December 31, 2022, and other reports filed by Great Ajax with the SEC and incorporated herein by reference. See also “Where You Can Find More Information and Incorporation by Reference” on page 191 of this proxy statement/prospectus.

​

Although EFC and Great Ajax believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this proxy statement/prospectus will prove to be accurate. As you read and consider the information in this proxy statement/prospectus, you are cautioned to not place undue reliance on these forward-looking statements. These statements are not guarantees of performance or results and speak only as of the date of this proxy statement/prospectus, in the case of forward-looking statements contained in this proxy statement/prospectus, or the dates of the documents incorporated by reference or attached as annexes to this proxy statement/prospectus, in the case of forward-looking statements made in those documents. Neither EFC nor Great Ajax undertakes any obligation to update or revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information or developments, future events, or otherwise, and each expressly disclaims any obligation to do so, except as required by law.

In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by EFC, Great Ajax or any other person that the results or conditions described in such statements or the objectives and plans of EFC or Great Ajax will be achieved. In addition, EFC’s and Great Ajax’s qualifications as REITs involve the application of highly technical and complex provisions of the Code.

All forward-looking statements, expressed or implied, included in this proxy statement/prospectus are expressly qualified in their entirety by this cautionary statement and the factors discussed under the heading “Risk Factors” herein. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that EFC, Great Ajax or persons acting on their behalf may issue.

 

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THE COMPANIES

Ellington Financial Inc.

EFC is a Delaware corporation that acquires and manages mortgage-related, consumer-related, corporate-related and other financial assets, through investments primarily in securities and loans. EFC’s primary objective is to generate attractive, risk-adjusted total returns for its stockholders by making investments that EFC believes compensate it appropriately for the risks associated with such investments. EFC’s targeted asset classes include residential and commercial mortgage loans, reverse mortgage loans, MBS, consumer loans and asset-backed securities backed by consumer loans, collateralized loan obligations, mortgage-related and non-mortgage-related derivatives, debt and equity investments in loan origination companies, and other strategic investments.

EFC was formed as a Delaware limited liability company in July 2007, commenced operations in August 2007 and completed its conversion to a Delaware corporation on March 1, 2019. EFC elected to be treated as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2019. EFC believes that, commencing with such taxable year, it has been organized and operated in a manner so as to remain qualified as a REIT under the U.S. federal income tax laws, and it intends to continue to operate in such a manner. All of EFC’s operations and business activities are conducted through the EFC Operating Partnership. EFC has control of the EFC Operating Partnership and intends to operate the EFC Operating Partnership in a manner consistent with the requirements for EFC’s qualification as a REIT. In general, as a REIT, EFC is not subject to U.S. federal income tax on its REIT taxable income that it distributes to its stockholders. However, EFC’s TRSs are subject to U.S. federal, state and local income taxes. EFC also operates its business in a manner that permits it to maintain an exclusion from registration under the Investment Company Act.

EFC is externally managed and advised by EFC Manager pursuant to the EFC Management Agreement. EFC Manager is responsible for administering EFC’s business activities and day-to-day operations in conformity with the policies and investment guidelines that are approved and monitored by the EFC Board. Pursuant to a services agreement between EFC Manager and EMG, EFC Manager relies on the resources of EMG to support EFC’s operations. EMG is an investment management firm and registered investment advisor with a 28-year history of investing in a broad spectrum of mortgage-backed securities and related derivatives.

On May 29, 2023, EFC, Arlington, Arlington Merger Sub and, solely for the limited purposes set forth in the Arlington Merger Agreement, EFC Manager, entered into the Arlington Merger Agreement pursuant to which, subject to the terms and conditions thereof, Arlington will be merged with and into Arlington Merger Sub, with Arlington Merger Sub continuing as the surviving corporation of the Arlington Merger. Immediately following the Arlington Merger, the surviving corporation of the Arlington Merger will be contributed to the EFC Operating Partnership, in exchange for EFC OP Units.

EFC Common Stock is traded on the NYSE under the symbol “EFC.” EFC’s website is www.ellingtonfinancial.com.

EFC’s principal executive offices are located at 53 Forest Avenue, Old Greenwich, Connecticut 06870, and its telephone number is (203) 698-1200.

EF Acquisition I LLC

Merger Sub is a Maryland limited liability company that was formed on June 23, 2023, solely for the purpose of effecting the Merger. Upon the Closing, the Merger will be consummated whereby Great Ajax will be merged with and into Merger Sub, with Merger Sub continuing as the surviving company of the Merger. Merger Sub has not conducted any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement.

Merger Sub’s principal executive offices are located at 53 Forest Avenue, Old Greenwich, Connecticut 06870, and its telephone number is (203) 698-1200.

 

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Great Ajax Corp.

Great Ajax Corp. is a REIT that focuses primarily on acquiring, investing in and managing residential re-performing loans (“RPLs”) and non-performing loans (“NPLs”) secured by single-family residences and commercial properties. Great Ajax may acquire RPLs and NPLs either directly or in joint ventures with institutional accredited investors. Such joint ventures are structured as securitization trusts, of which Great Ajax acquires debt securities and beneficial interests. In addition to its focus on RPLs and NPLs, Great Ajax also originates and acquires small balance commercial mortgage (“SBC”) loans secured by multi-family retail/residential and mixed use properties. Additionally, Great Ajax invests in single-family and smaller commercial properties directly either through a foreclosure event of a loan in Great Ajax’s mortgage portfolio, or, less frequently, through a direct acquisition.

Great Ajax elected to be taxed as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2014. Great Ajax’s qualification as a REIT depends upon its ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of Great Ajax’s gross income, the composition and values of Great Ajax’s assets, Great Ajax’s distribution levels and the diversity of ownership of Great Ajax’s capital stock. Great Ajax believes that it is organized in conformity with the requirements for qualification as a REIT under the Code, and that Great Ajax’s current and intended manner of operation enables Great Ajax to meet the requirements for taxation as a REIT for U.S. federal income tax purposes.

Great Ajax is externally managed by the Great Ajax Manager, an affiliated entity, pursuant to the Great Ajax Management Agreement. Great Ajax’s day-to-day operations are being conducted by the Great Ajax Manager through the authority delegated to it under the Great Ajax Management Agreement and pursuant to the policies established by, and under the supervision of, the Great Ajax Board. In addition to administering Great Ajax’s day-to-day operations, the Great Ajax Manager is responsible for (i) the selection, purchase, and sale of Great Ajax’s investment portfolio; (ii) Great Ajax’s financing and hedging activities; and (iii) providing Great Ajax with portfolio management, administrative, and other services relating to Great Ajax’s assets and operations as may be appropriate. As of June 30, 2023, Great Ajax owned 19.8% of the limited liability company interests of the Great Ajax Manager.

Great Ajax’s mortgage loans and other real estate assets are serviced by Gregory, an affiliated entity. Gregory was formed by the members of the Great Ajax Manager’s management team to service “high-touch” assets, which are loans that require substantial and active interaction with the borrower for modification or other resolution. Gregory is licensed to service loans in all states where such license is required to conduct its business, and currently has mortgage loan origination staff who are licensed in 15 states. Gregory also holds mortgage lending, debt collection or similar licenses in the states in which such licenses are required. Gregory is a Freddie Mac authorized servicer, a Home Affordable Modification Program registered servicer, a Veterans Administration Servicer and has unsupervised Title II Mortgage authorization from the Federal Housing Administration (“FHA”).

The Great Ajax Common Stock is traded on the New York Stock Exchange under the symbol “AJX.” Great Ajax’s principal executive offices are located at 13190 SW 68th Parkway, Suite 110, Tigard, Oregon, 97223, and its telephone number is (503) 505-5670. Great Ajax’s website is www.greatajax.com. The reference to Great Ajax’s website is intended to be an inactive textual reference only. Information included on Great Ajax’s website is not incorporated by reference into this proxy statement/prospectus.

The Combined Company

Upon completion of the Merger, the Combined Company will remain a publicly traded corporation focused on acquiring and managing mortgage-related, consumer-related, corporate-related and other financial assets. The Combined Company will continue to be externally managed by EFC Manager.

Upon completion of the Merger, the Combined Company is expected to have a pro forma total stockholders’ equity capitalization of approximately $1,531.4 million, comprised of $1.195.9 million of common stock and $335.5 million of EFC Preferred Stock (which does not take into account the completion of the Arlington Merger). The common equity capitalization of approximately $1,195.9 million is based

 

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on the book values of EFC Common Stock and Great Ajax Common Stock, which is calculated as total stockholders’ equity less the aggregate liquidation preference of outstanding preferred stock, as of March 31, 2023.

The business of the Combined Company will be operated through EFC and its subsidiaries, which will include the surviving company of the Merger and its subsidiaries.

The common stock of the Combined Company will continue to be listed on the NYSE, trading under the symbol “EFC.”

The Combined Company’s principal executive offices will remain at EFC’s location at 53 Forest Avenue, Old Greenwich, Connecticut 06870, and its telephone number will remain (203) 698-1200.

 

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THE GREAT AJAX SPECIAL MEETING

This proxy statement/prospectus is being furnished in connection with the solicitation of proxies from Great Ajax Stockholders for exercise at the Great Ajax Special Meeting. This proxy statement/prospectus and accompanying form of proxy are first being mailed to Great Ajax Stockholders on or about [•], 2023.

Purpose of the Great Ajax Special Meeting

The Great Ajax Special Meeting will be held solely by means of remote communication live over the Internet on [•], 2023 at [•] [a.m.], Eastern Time, for the following purposes:

•

to consider and vote on the Great Ajax Merger Proposal; and

​

•

to consider and vote on the Great Ajax Adjournment Proposal.

​

Only business within the purposes described in the Notice of Special Meeting of Great Ajax Stockholders may be conducted at the Great Ajax Special Meeting. Any action may be taken on the items of business described above at the Great Ajax Special Meeting on the date specified above, or on any date or dates to which the Great Ajax Special Meeting may be postponed or adjourned.

Record Date; Voting Rights; Proxies

Great Ajax has fixed the close of business on [•], 2023 as the record date for determining Great Ajax Stockholders entitled to the notice of, and to vote at, the Great Ajax Special Meeting. Great Ajax Stockholders at the close of business on the Great Ajax Record Date will be entitled to notice of the Great Ajax Special Meeting. As of the Great Ajax Record Date, there were [•] issued and outstanding shares of Great Ajax Common Stock. Each holder of record of Great Ajax Common Stock on the Great Ajax Record Date is entitled to one vote per share of Great Ajax Common Stock with respect to each proposal. Votes may be cast either electronically or by properly authorized proxy at the Great Ajax Special Meeting.

Voting; Proxies.   You may have your shares of Great Ajax Common Stock voted on the matters to be presented at the Great Ajax Special Meeting in any of the following ways:

•

By Telephone — You can authorize a proxy to vote your shares by telephone by calling [•] and following the instructions on the proxy card;

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•

By Internet — You can authorize a proxy to vote your shares over the Internet:

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•

Before the Great Ajax Special Meeting by visiting [•]; or

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•

During the Great Ajax Special Meeting by visiting [•]; or

​

•

By Mail — You can authorize a proxy to vote your shares by mail by completing, signing, dating, and mailing the enclosed proxy card.

​

If you authorize a proxy to vote your shares, the individuals named on the proxy card will vote your shares in the manner you indicate. You may specify whether your shares should be voted for or against each of the proposals. You may also specify you would like to abstain from voting for or against a proposal. Proxies authorized by telephone or via the Internet must be received by 11:59 p.m., Eastern Time, on [•], 2023.

All shares of Great Ajax Common Stock that are entitled to vote and are represented at the Great Ajax Special Meeting by properly authorized proxies received before or at the Great Ajax Special Meeting and not revoked will be voted at the Great Ajax Special Meeting in accordance with the instructions indicated on the proxies. If no instructions are given on a timely and properly executed proxy card, your shares of Great Ajax Common Stock will be voted:

•

“FOR” the Great Ajax Merger Proposal; and

​

•

“FOR” the Great Ajax Adjournment Proposal.

​

Votes cast by proxy or electronically at the Great Ajax Special Meeting will be tabulated by one or more inspectors appointed by the Great Ajax Board for the Great Ajax Special Meeting. The chairman of the Great Ajax Special Meeting will determine whether or not a quorum is present.

 

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Any proxy given by a stockholder of record pursuant to this solicitation may be revoked at any time before the vote is taken at the Great Ajax Special Meeting in any of the following ways:

•

authorizing a later proxy by telephone or through the Internet prior to 11:59 p.m., Eastern Time, on [•], 2023;

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•

timely delivering a valid, later-dated proxy;

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•

timely delivering a written notice that you are revoking your proxy to the Secretary of Great Ajax; or

​

•

voting electronically at the Great Ajax Special Meeting, although attendance at the Great Ajax Special Meeting alone will not by itself constitute a revocation of a proxy.

​

Your attendance at the Great Ajax Special Meeting does not automatically revoke your previously submitted proxy.

If your shares of Great Ajax Common Stock are held in “street name” by a broker, bank or other nominee, please refer to the instructions provided by your broker, bank or other nominee to revoke your proxy or change your vote before the vote is taken at the Great Ajax Special Meeting.

Solicitation of Proxies

Great Ajax will bear the costs of soliciting proxies. In addition to the solicitation of proxies by use of the mails, proxies may be solicited from Great Ajax Stockholders by directors, officers and employees of Great Ajax in person, by telephone, on the Internet, or using any other appropriate means of communications. No additional compensation, except for reimbursement of reasonable out-of-pocket expenses, will be paid to directors, officers and employees of Great Ajax in connection with this solicitation.

Additionally, Great Ajax has retained Georgeson to solicit, and for advice and assistance in connection with the solicitation of, proxies for the Great Ajax Special Meeting at a cost of $16,500, plus out-of-pocket expenses. No portion of the amount that Great Ajax has agreed to pay to Georgeson is contingent upon the Closing. Great Ajax has agreed to indemnify Georgeson against any loss, damage, expense, liability or claim relating to or arising out of Georgeson’s rendering of services with certain exceptions. Any questions or requests for assistance regarding this proxy statement/prospectus and related proxy materials may be directed to Georgeson by telephone at (877) 847-1383 (toll free) in North America or +1 (781) 575-2137 outside of North America.

Attending the Virtual Great Ajax Special Meeting

On the date of the Great Ajax Special Meeting, you can virtually attend the Great Ajax Special Meeting by accessing the online virtual meeting platform at [•]. However, you are only entitled to vote and/or ask questions at the Great Ajax Special Meeting if you were a stockholder of record or a valid proxy holder of a stockholder of record as of the Great Ajax Record Date.

Participation at the Virtual Great Ajax Special Meeting

If you wish to participate in the Great Ajax Special Meeting by voting your shares electronically and/or asking questions, you can do so by following the instructions provided when you log in to the online virtual meeting platform. You will need the [•]-digit control number included on your proxy card.

Even if you plan to attend the Great Ajax Special Meeting virtually, we encourage you to authorize a proxy to vote your shares in advance by phone, Internet, or mail so that your vote will be counted even if you later decide not to attend the virtual Great Ajax Special Meeting.

Quorum; Abstentions

The presence virtually or by proxy of the holders of shares of Great Ajax Common Stock entitled to cast a majority of all the votes entitled to be cast at the Great Ajax Special Meeting will constitute a quorum at the Great Ajax Special Meeting. Shares that abstain from voting will be treated as shares that are present and entitled to vote at the Great Ajax Special Meeting for purposes of determining whether a

 

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quorum exists. Because approval of the Great Ajax Merger Proposal requires the affirmative vote, at the Great Ajax’s Shareholder Meeting either in person or by proxy, of holders of at least a majority of outstanding shares of Great Ajax Common Stock entitled to vote on the matter, abstentions and failing to vote will have the same effect as votes “AGAINST” approval of the Great Ajax Merger Proposal.

For the Great Ajax Adjournment Proposal, abstentions and failing to vote will have no effect, assuming a quorum is present.

Banks, brokers and other nominees that hold their customers’ shares in street name may not vote their customers’ shares on “non-routine” matters without instructions from their customers. As each of the proposals to be voted upon at the Great Ajax Special Meeting is considered “non-routine,” such organizations do not have discretion to vote on any of the proposals. As a result, if you hold your shares in “street name” and you fail to provide your broker, bank or other nominee with any instructions regarding how to vote your shares of Great Ajax Common Stock, your shares of Great Ajax Common Stock will not be considered present at the Great Ajax Special Meeting and will not be voted on any of the proposals. In other words, since each of the proposals to be voted upon at the Great Ajax Special Meeting is considered “non-routine,” there will be no broker non-votes in connection with the Great Ajax Special Meeting because brokers may not submit votes on either of such proposals without instructions from their customers.

Required Vote

Approval of the Great Ajax Merger Proposal requires the affirmative vote, at the Great Ajax’s Shareholder Meeting either in person or by proxy, of holders of at least a majority of outstanding shares of Great Ajax Common Stock entitled to vote on the matter.

Approval of the Great Ajax Adjournment Proposal requires, provided a quorum is present, the affirmative vote of a majority of the votes cast on the Great Ajax Adjournment Proposal by holders of shares of Great Ajax Common Stock present virtually or by proxy at the Great Ajax Special Meeting.

Regardless of the number of shares of Great Ajax Common Stock you own, your vote is important. Please complete, sign, date and promptly return the enclosed proxy card today or authorize a proxy to vote your shares by telephone or on the Internet.

 

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PROPOSALS SUBMITTED TO THE GREAT AJAX STOCKHOLDERS

Proposal 1: Great Ajax Merger Proposal

Great Ajax Stockholders are asked to consider and vote upon the approval of the Great Ajax Merger Proposal as contemplated by the Merger Agreement. For a summary and detailed information regarding the Great Ajax Merger Proposal, see the information about the Merger Agreement throughout this proxy statement/prospectus, including the information set forth in sections entitled “The Merger” beginning on page 58 and “The Merger Agreement” beginning on page 99. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus.

Pursuant to the Merger Agreement, approval of the Great Ajax Merger Proposal is a condition to the consummation of the Merger. If the Great Ajax Merger Proposal is not approved, the Merger will not be completed.

Approval of the Great Ajax Merger Proposal requires the affirmative vote, at the Great Ajax’s Shareholder Meeting either in person or by proxy, of holders of at least a majority of outstanding shares of Great Ajax Common Stock entitled to vote on the matter.

Recommendation of the Great Ajax Board

The Great Ajax Board unanimously recommends that the Great Ajax Stockholders vote “FOR” the Great Ajax Merger Proposal.

Proposal 2: Great Ajax Adjournment Proposal

The Great Ajax Stockholders are being asked to consider and vote upon the approval of a proposal that will give Great Ajax the authority to adjourn the Great Ajax Special Meeting, if necessary or appropriate, including to solicit additional votes for the approval of the Great Ajax Merger Proposal if there are not sufficient votes at the time of the Great Ajax Special Meeting to approve the Great Ajax Merger Proposal. If, at the Great Ajax Special Meeting, the number of shares of Great Ajax Common Stock present or represented by proxy and voting for the approval of the Great Ajax Merger Proposal is insufficient to approve such proposal, Great Ajax intends to move to adjourn the Great Ajax Special Meeting to another date or time in order to enable the Great Ajax Board to solicit additional proxies for approval of the proposal. Great Ajax does not intend to call a vote on the Great Ajax Adjournment Proposal if the Great Ajax Merger Proposal is considered and approved at the Great Ajax Special Meeting. If the Great Ajax Special Meeting is adjourned for the purpose of soliciting additional proxies, Great Ajax Stockholders who have already submitted their proxies will be able to revoke them at any time prior to their exercise. In addition, pursuant to the Great Ajax Bylaws, the chair of the Great Ajax Special Meeting may adjourn the Great Ajax Special Meeting to a later date or dates, for any reason deemed necessary by the chair, without Great Ajax stockholder approval.

Approval of the Great Ajax Adjournment Proposal requires, provided a quorum is present, the affirmative vote of a majority of the votes cast on the matter by holders of outstanding shares of Great Ajax Common Stock.

Recommendation of the Great Ajax Board

The Great Ajax Board unanimously recommends that the Great Ajax Stockholders vote “FOR” the Great Ajax Adjournment Proposal to adjourn the Great Ajax Special Meeting, if necessary or appropriate, including to solicit additional proxies if there are not sufficient votes to approve the Great Ajax Merger Proposal.

Other Business

Pursuant to the Great Ajax Bylaws and Maryland law, no other matters will be transacted at the Great Ajax Special Meeting.

 

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THE MERGER

The following is a summary of the material terms of the Merger. This summary does not purport to be complete and may not contain all of the information about the Merger that is important to you. The summary of the material terms of the Merger below and elsewhere in this proxy statement/prospectus is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement/​prospectus as Annex A, and is incorporated by reference into this proxy statement/prospectus. You are urged to read this proxy statement/prospectus, including the Merger Agreement, carefully and in its entirety for a more complete understanding of the Merger.

General

The EFC Board has unanimously approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger and the EFC Stock Issuance, and the Great Ajax Board has unanimously approved the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, and declared that the transactions contemplated by the Merger Agreement, including the Merger, are advisable and in the best interests of Great Ajax and Great Ajax Stockholders. Subject to the terms and conditions of the Merger Agreement, including the approval of the Great Ajax Stockholders of the Great Ajax Merger Proposal, Great Ajax will merge with and into Merger Sub, with Merger Sub continuing as the surviving company of the Merger. Immediately following the Merger, the surviving company of the Merger will be contributed to the EFC Operating Partnership in exchange for EFC OP Units. As a result of the contribution transaction, the surviving company of the Merger will become a wholly-owned subsidiary of the EFC Operating Partnership. Great Ajax Stockholders will receive the Merger Consideration described below under “The Merger Agreement  —  Consideration for the Merger” beginning on page 99.

Background of the Merger

The following chronology summarizes the key meetings and events that led to the signing of the Merger Agreement. The following chronology does not purport to catalogue every such meeting or event, or every conversation among the Great Ajax Board, the EFC Board, the members of Great Ajax’s management, the members of EFC’s management or representatives of Great Ajax and EFC and other parties.

The Great Ajax Board regularly evaluates and considers Great Ajax’s strategic direction and objectives, succession plans and its ongoing business with a view to maximizing long-term value for Great Ajax Stockholders. In this context, Great Ajax has from time to time considered potential monetization opportunities related to its interests in an affiliated REIT, Gaea, and in an affiliated servicer, Gregory. Great Ajax also regularly considers capital raising alternatives, including potential equity, equity-linked, and debt offerings, as well as securitization transactions and joint ventures. Great Ajax and the Great Ajax Board closely monitor market conditions, including the recent widening of securitization bond spreads, interest rate volatility, diminished supply of residential loans, and slowing prepayment rates that were extending loan duration. As a result of interest rate movements, concerns regarding additional interest rate movements, equity market volatility, disruptions in the mortgage markets and related factors, Great Ajax considered various potential investments and other transactions with third parties intended to further Great Ajax’s strategic objectives and enhance stockholder value. The Great Ajax Board also reviewed specific asset sales, although these were weighed against covenant maintenance constraints, liquidity requirements, and tax friction. As part of these discussions, Great Ajax’s management held several meetings arranged by Piper Sandler with private equity investors, private credit funds, insurance related entities, and strategic sector investors. A number of these discussions related to potential investments in, or transactions involving, Gaea and/or Gregory. During the course of these discussions, several parties held meetings with Great Ajax’s management and conducted diligence sessions. Mr. Mendelsohn also was approached by another investment bank with an inquiry from a public residential mortgage REIT related to Gregory. In early March 2023, Mr. Mendelsohn had a meeting with the management team of this public mortgage REIT to discuss their potential interest and, during the meeting, they expressed interest in a broader transaction that might involve Great Ajax. However, ultimately these discussions did not advance because the public mortgage REIT was undergoing management transitions. Great Ajax also was approached through a banker with an inquiry from a private mortgage REIT. A nondisclosure agreement, which did not contain a

 

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standstill, was entered into in April 2023 with this private mortgage REIT relating to Gregory; however, discussions did not advance following execution of the agreement. Additionally, Great Ajax was approached through an investment bank by a public mortgage REIT with a request for a meeting; however, the meeting was unable to be scheduled prior to the EFC meetings described below having taken place. The Great Ajax Board also preliminarily began to evaluate a potential internalization of the Great Ajax Manager. After this preliminary evaluation, the Great Ajax Board decided against proceeding at that time with the internalization due to Great Ajax’s and its affiliates’ scale and costs, as it would not have been economical and therefore would not have been beneficial to Great Ajax Stockholders.

The EFC Board has set a strategic goal to achieve sensible growth in EFC’s capital and asset base in order to increase operating expense efficiencies, enhance EFC’s access to the capital markets and improve the liquidity of the EFC Common Stock. In furtherance of this strategic goal, EFC has regularly evaluated and executed on a range of capital raising alternatives, including public equity offerings and secured and unsecured borrowings. In addition, following EFC entering into the Arlington Merger Agreement to consummate the Arlington Merger in accordance with EFC’s strategic goals, EFC has remained interested in exploring corporate acquisitions, including acquisitions of other businesses or assets where the consideration to be issued by EFC in such transactions includes EFC Common Stock.

As a result of Great Ajax’s ongoing conversations with multiple parties, and through Piper Sandler’s introduction, on May 22, 2023, principals of Great Ajax met with principals of EFC. EFC already had a relationship with Great Ajax given that funds affiliated with EFC participated in a mortgage loan joint venture with Great Ajax and other financial investors. On Great Ajax’s behalf, Piper Sandler discussed with EFC a potential strategic opportunity involving Great Ajax. On May 19, 2023, Great Ajax and EFC executed a mutual non-disclosure agreement. The non-disclosure agreement did not include a standstill provision, other than a provision prohibiting each party from engaging in purchase or sale transactions in the securities of the other party and its publicly held affiliates until August 19, 2023.

On May 19, 2023, EFC requested an in-person meeting with Mr. Mendelsohn and other members of Great Ajax’s management team. Before agreeing to the meeting, Mr. Mendelsohn discussed the matter with Paul M. Friedman, a member of the Great Ajax Board.

On May 22, 2023, Mr. Mendelsohn met at EFC’s offices with Michael W. Vranos, Chief Executive Officer of EMG and Co-Chief Investment Officer of EFC; Laurence E. Penn, Chief Executive Officer, President and a member of the board of directors of EFC; and Mark Tecotzky, Co-Chief Investment Officer of EFC. Representatives of Piper Sandler were also present at the meeting. At the meeting, EFC proposed a transaction that would be priced based on a book value valuation with Great Ajax’s book value adjusted for any mark to market differences in fair value to book value and for the termination or acquisition costs of the Great Ajax Manager (the “EFC Proposed Transaction”). Based on their initial estimated calculations, EFC suggested that Great Ajax Stockholders would receive, relative to the then-current market price for Great Ajax Common Stock, a significant premium per share in EFC Common Stock as consideration in the transaction. EFC requested information from Great Ajax regarding, among other things, Great Ajax’s loan portfolio, employee allocations and health and retirement plans.

Following that meeting, during the remainder of the week of May 22, 2023, Mr. Mendelsohn had several discussions with Mr. Friedman and other independent members of the Great Ajax Board regarding the EFC Proposed Transaction and discussed the potential transaction with counsel.

On May 25, 2023, Mr. Mendelsohn discussed the proposed terms of the EFC Proposed Transaction with the Great Ajax Board and asked for their approval to continue engaging with EFC on behalf of Great Ajax and its stockholders. The Great Ajax Board members agreed that Mr. Mendelsohn should continue pursuing this opportunity.

Also on May 25, 2023, the EFC Board held a special telephonic meeting relating to the Arlington Merger at which representatives of EFC’s management, EFC’s legal counsel, Vinson & Elkins L.L.P. (“V&E”), and EFC’s financial advisor, Keefe, Bruyette & Woods (“KBW”), were present. Prior to the conclusion of that meeting, Mr. Penn informed the EFC Board of EFC management’s discussions with Great Ajax, including the process by which EFC was informed of this opportunity. EFC management and the EFC Board then discussed the strategic rationale for a proposed transaction, with EFC management providing an overview of Great Ajax’s business and capital structure to the EFC Board.

 

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Following its May 25, 2023 meeting and in connection with the EFC Proposed Transaction, and because some of the Great Ajax Board members have conflicts of interests regarding the EFC Proposed Transaction, as described in greater detail in “The Merger — Interests of Great Ajax’s Directors and Executive Officers in the Merger,” the Great Ajax Board memorialized the establishment of the Great Ajax Special Committee, comprised of John C. Condas, Mr. Friedman, Mary Haggerty and J. Kirk Ogren, Jr., each an independent director of the Great Ajax Board. The Great Ajax Special Committee was already in existence to review and evaluate the strategic opportunities mentioned above, but in memorializing the establishment of the Great Ajax Special Committee, the Great Ajax Board specifically tasked the Great Ajax Special Committee with (i) reviewing and evaluating the negotiated terms and conditions of the EFC Proposed Transaction and determining its advisability (taking into account its negotiated terms and conditions); (ii) determining whether the EFC Proposed Transaction (taking into account its negotiated terms and conditions) is fair to, and in the best interest of, Great Ajax and Great Ajax Stockholders; and (iii) recommending to the Great Ajax Board what action, if any, should be taken by the Great Ajax Board with respect to the EFC Proposed Transaction, including, if applicable, the rejection of the EFC Proposed Transaction. The Great Ajax Board also authorized the Great Ajax Special Committee to retain financial and legal advisors in connection with discharging its duties, with the fees and expenses of such advisors to be paid by Great Ajax.

On May 26, 2023, Piper Sandler sent the Great Ajax Board a proposed engagement letter pursuant to which Great Ajax would retain Piper Sandler as financial advisor to Great Ajax and the Great Ajax Board in connection with the EFC Proposed Transaction.

That day, in connection with establishing a virtual due diligence data room, representatives of Piper Sandler provided a due diligence request list to Great Ajax and Mayer Brown LLP, Great Ajax’s legal advisor (“Mayer Brown”). Great Ajax, with the assistance of representatives of Piper Sandler and Mayer Brown, assembled the requested diligence materials over the next several days.

Later that day, Piper Sandler assisted Great Ajax in establishing Great Ajax’s virtual data room in order to respond to initial diligence requests made by EFC and Piper Sandler.

On May 30, 2023, representatives of KBW provided a due diligence request list to Great Ajax, Piper Sandler and Mayer Brown.

On May 30 and May 31, 2023, Piper Sandler requested additional due diligence materials for EFC and KBW from Great Ajax.

On May 30 and May 31, 2023, representatives of Great Ajax, Piper Sandler and Mayer Brown shared various diligence materials in response to requests received from Piper Sandler, EFC and KBW.

On May 31, 2023, representatives of KBW received access to Great Ajax’s virtual data room for purposes of conducting additional due diligence. On June 1, 2023, representatives of EFC and V&E received access to Great Ajax’s virtual data room for purposes of conducting additional due diligence. On June 7, 2023, representatives of PricewaterhouseCoopers (“PwC”), EFC’s auditors, received access to Great Ajax’s virtual data room for purposes of conducting additional due diligence. Thereafter and until signing, EFC and its advisors requested additional diligence materials and Great Ajax, with the assistance of representatives of Piper Sandler and Mayer Brown, provided the requested diligence materials.

On June 3, 2023, at the request of Great Ajax and Mayer Brown, representatives of Piper Sandler sent a memorandum to representatives of Great Ajax and Mayer Brown, which was shared with the Great Ajax Special Committee and the Great Ajax Board, disclosing certain relationships between Piper Sandler, on the one hand, and EFC and its affiliates, on the other hand.

On June 5, 2023, following a request from Mayer Brown for further information, representatives of Piper Sandler supplemented their conflicts disclosure previously provided to the Great Ajax Special Committee and the Great Ajax Board on June 3, 2023.

Also on June 5, 2023, the Great Ajax Special Committee held a video meeting. All members of the Great Ajax Special Committee were present and at the invitation of the Great Ajax Special Committee, also present was Great Ajax’s corporate secretary (the “Great Ajax Secretary”). Mr. Friedman provided the

 

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members of the committee with a summary of his call with Sheppard, Mullin, Richter & Hampton, LLP, the Great Ajax Special Committee’s legal advisor (“Sheppard Mullin”). Each member of the Great Ajax Special Committee confirmed that he or she had an opportunity to review the fee proposals of the four firms that the Great Ajax Special Committee was considering to engage as financial advisor to the committee, discussed the levels of involvement proposed by each firm, as well as their knowledge of Great Ajax, their sector and M&A experience, cost and other relevant considerations. The members decided to reconvene after receiving feedback from Great Ajax’s management following its meeting with EFC later that day.

Later that day, representatives of Great Ajax and Piper Sandler met with representatives of EFC and KBW in New York City to discuss the proposed terms of the EFC Proposed Transaction. Among the matters discussed, Great Ajax’s management explained to EFC the importance of preserving Great Ajax’s ability to continue its usual business operations throughout the EFC Proposed Transaction. Great Ajax discussed, among other things, its mortgage loan portfolio, its outstanding debt securities, its repurchase facilities, and servicing related matters. Great Ajax conveyed its need for a limited exclusivity period.

Also on that day, representatives of Piper Sandler, Great Ajax and Mayer Brown held a telephonic meeting to discuss the potential process and timeline for the EFC Proposed Transaction.

On June 6, 2023, EFC engaged Hunton Andrews Kurth LLP (“Hunton”) to provide tax advice and to conduct due diligence on certain of Great Ajax’s assets.

On June 7, 2023, representatives of Mayer Brown spoke with Mr. Friedman, and discussed the potential process and timeline for the EFC Proposed Transaction.

Also on June 7, 2023, the EFC Board held a special telephonic meeting at which representatives of EFC’s management, KBW and V&E were present. Representatives of EFC’s management and KBW summarized the then-current discussions they were having with Great Ajax and their representatives. Representatives from KBW then followed with their own summary of Great Ajax’s capitalization and overview of the market generally. Next, EFC management presented an overview of the proposed transaction, including a review of Great Ajax’s current business and financial position. EFC management then presented the results of EFC’s initial review of Great Ajax and its portfolio, including issues related to Great Ajax’s then-current capitalization, areas of risk in the portfolio and any potential corresponding mitigants. EFC management and the EFC Board then provided an overview of next steps regarding the transaction.

Later that day, the Great Ajax Special Committee held a video meeting. All members were present and at the invitation of the Great Ajax Special Committee, also present was the Great Ajax Secretary. Mr. Friedman relayed to the members of Great Ajax Special Committee his conversation with Mayer Brown. Upon Mr. Friedman’s request, each of the members confirmed they did not have any personal or financial interest in EFC that would create a conflict of interest. Mr. Friedman provided an overview of the status of the EFC Proposed Transaction. The members discussed the potential advisors and agreed that Mr. Friedman should discuss the EFC Proposed Transaction with one of the financial advisors and solicit a revised proposal.

On June 8, 2023, after negotiations and exchanging drafts, and consultation, and approval by the Great Ajax Board, Great Ajax executed a letter agreement engaging Piper Sandler to act as its financial advisor in connection with the EFC Proposed Transaction.

Later that day, Great Ajax and Piper Sandler received a letter from representatives of EFC that contained, among other terms, a non-binding proposal to acquire Great Ajax in a stock transaction using an adjusted-book-for-adjusted-book exchange ratio (where their respective book values would be adjusted by accounting for, among other things, each party’s transaction expenses and, with respect to Great Ajax, the termination fee that would be payable to the Great Ajax Manager) pursuant to which EFC would issue shares to Great Ajax Stockholders with an adjusted mark-to-market book value per share equal to 95% of Great Ajax’s adjusted diluted mark-to-market book value per share (“MTM-BVPS”). Under the terms of the proposal and based on closing price of the EFC Common Stock and the Great Ajax Common Stock on the NYSE on June 7, 2023 and assuming no mark-to-market adjustments, a Great Ajax Stockholder would receive an approximate 75% premium, pro forma annual dividends of $1.36 per share of Great Ajax Common Stock, as compared to Great Ajax’s annualized dividends per share of Great Ajax Common Stock of $0.99, and approximately 21% ownership by Great Ajax Stockholders in the Combined Company (without giving effect to completion of the Arlington Merger). The letter also included a proposed

 

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exclusivity period beginning on June 8, 2023, and ending on June 23, 2023, with an extension to June 27, 2023, if needed, assuming that the parties were continuing to negotiate in good faith as of June 23, 2023. Representatives of EFC simultaneously delivered a draft exclusivity agreement (the “Exclusivity Agreement”) to Great Ajax and Piper Sandler.

That afternoon, representatives of Mayer Brown reached out to Piper Sandler, on behalf of Great Ajax, and requested that Piper Sandler discuss with EFC and KBW a revised proposal to contemplate a transaction at par on an adjusted book value basis. Piper Sandler, in turn, reached out to EFC and KBW to discuss the terms of such a revised proposal.

That evening, EFC and KBW provided Great Ajax, Piper Sandler and Mayer Brown a revised letter that contained, among other terms, a proposal to acquire Great Ajax with an adjusted MTM-BVPS equal to 100% of Great Ajax’s MTM-BVPS. Under the terms of the revised proposal and based on the closing price of the EFC Common Stock and the Great Ajax Common Stock on the NYSE on June 7, 2023 and assuming no mark-to-market adjustments, a Great Ajax Stockholder would receive an approximate 84% premium, pro forma annual dividends of $1.43 per share of Great Ajax Common Stock, as compared to Great Ajax’s annualized dividends per share of Great Ajax Common Stock of $0.99, and approximately 22% ownership by Great Ajax Stockholders in the Combined Company (without giving effect to the Arlington Merger) (the “EFC Letter Proposal”).

On June 9, 2023, members of the Great Ajax management team, Mayer Brown, and Mr. Friedman held a video meeting to discuss the EFC Letter Proposal and draft Exclusivity Agreement. During the video meeting, the participants discussed a number of issues, including financial projections that included the effect of the Arlington Merger, which was announced in late May, employment considerations, and licensing matters.

Later that day, Mayer Brown sent revised versions of the EFC Letter Proposal and draft Exclusivity Agreement to Piper Sandler, that in turn sent them to EFC.

That night, V&E responded by accepting the revisions proposed by Mayer Brown to the EFC Letter Proposal (other than updating the commencement date of the exclusivity period to June 9, 2023) and returning a draft with additional revisions to the Exclusivity Agreement. Members of the Great Ajax management team discussed the proposed revisions to the Exclusivity Agreement with Mr. Friedman. The Great Ajax Special Committee subsequently approved the EFC Letter Proposal and the Exclusivity Agreement (with the revisions proposed by Vinson & Elkins). After additional discussion, EFC and Great Ajax executed both the EFC Letter Proposal and the Exclusivity Agreement (with the revisions proposed by Vinson & Elkins). Pursuant to the executed Exclusivity Agreement, the parties agreed to an exclusivity period beginning on June 9, 2023, and ending on June 23, 2023, with an extension to June 27, 2023, if needed, assuming that the parties were continuing to negotiate in good faith as of June 23, 2023 (the “Exclusivity Period”).

On June 10, 2023, Great Ajax’s management authorized PwC to engage with Great Ajax’s auditor Moss Adams LLP (“Moss Adams”), and tax advisor, Deloitte LLP (“Deloitte”), for purposes of conducting additional due diligence. Such authorization was communicated to KBW by a representative of Piper Sandler.

On June 12, 2023, EFC engaged PwC to conduct financial and tax due diligence on Great Ajax and the proposed transaction with Great Ajax.

On June 13, 2023, the Great Ajax Special Committee held a video meeting, at which all members of the Great Ajax Special Committee were present. At the invitation of the Great Ajax Special Committee, also present was the Great Ajax Secretary. The members of the Great Ajax Special Committee continued discussing the selection of the Great Ajax Special Committee’s financial advisor. The members of the Great Ajax Special Committee came to a consensus that BTIG would be the best suited based on the expertise and experience of the team proposed by BTIG. The members of the Great Ajax Special Committee instructed Mr. Friedman to solicit a proposal and engagement letter from BTIG. The members of the Great Ajax Special Committee also discussed the terms of the executed EFC Letter Proposal and Exclusivity Agreement relating to the EFC Proposed Transaction and next steps in the process with EFC.

 

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On June 14, EFC and Great Ajax held a telephonic meeting regarding valuation, with particular focus on servicing advances.

On June 15, 2023, representatives of V&E delivered an initial draft of a merger agreement (the “Draft Merger Agreement”) to representatives of Mayer Brown. The Merger Agreement draft included (i) merger consideration payable to Great Ajax Stockholders upon the closing of the merger in shares of EFC Common Stock, with such number of shares of EFC Common Stock to be determined based upon a floating exchange ratio to be determined a certain number of days before the Great Ajax Special Meeting; (ii) mutual covenants restricting Great Ajax and EFC from soliciting or negotiating acquisition offers from or with third parties, subject to customary exceptions; (iii) mutual covenants restricting each of the EFC Board and the Great Ajax Board from changing its recommendation to vote for the transaction, subject to customary exceptions; (iv) conditions precedent to the consummation of the transactions contemplated by the Draft Merger Agreement, including: (a) approval of each of the holders of the EFC Common Stock and the Great Ajax Stockholders; (b) Great Ajax’s redemption of the Great Ajax Preferred Stock and purchase of the Great Ajax Warrants; and (c) the termination of the Great Ajax Management Agreement; and (v) provisions providing for the payment of a termination fee under specified circumstances.

On June 19, 2023, at the request of Mayer Brown, representatives of Piper Sandler reached out to EFC and KBW to discuss certain necessary changes to the Draft Merger Agreement.

Also that day, KBW reached out to Piper Sandler, on behalf of Hunton Andrews Kurth LLP, EFC’s tax counsel, with additional due diligence requests. The requests were communicated to Great Ajax which, with the assistance of representatives of Piper Sandler and Mayer Brown, provided the requested materials to the Great Ajax virtual data room shortly thereafter.

That afternoon, representatives of Mayer Brown and Great Ajax management held a telephonic meeting to discuss the Draft Merger Agreement. Representatives of Mayer Brown updated Great Ajax management on the communications between Piper Sandler and EFC and KBW regarding the Draft Merger Agreement. The participants reviewed the Draft Merger Agreement and discussed the terms.

On June 20, 2023, representatives of Mayer Brown and Great Ajax management held a telephonic meeting to discuss the exchange ratio proposed in the Draft Merger Agreement and potential alternatives to the calculation of the exchange ratio included in the Draft Merger Agreement. The participants in the telephonic meeting discussed the various structure options and Great Ajax management decided to propose a fixed exchange ratio with limited adjustments that would not be based on or be affected by, or as a result of, a change in the trading price or mark-to-market book value of the Great Ajax Common Stock following the date that a merger agreement is executed.

That day, representatives of KBW, PwC and EFC held a telephonic meeting with Great Ajax, Piper Sandler, Moss Adams and Mayer Brown, regarding financial due diligence. The call included an overview of Great Ajax and a detailed walkthrough of Great Ajax’s balance sheet, as well as a discussion regarding financial reporting, accounting policies and audits.

Later that day, representatives of KBW, PwC and EFC held a telephonic meeting with Great Ajax, Piper Sandler, Deloitte, Hunton and Mayer Brown regarding tax due diligence. The call included a discussion of the business operations and organizational structure and history of Great Ajax, as well as GA-TRS LLC and GAJX Real Estate Corp., Great Ajax’s two taxable REIT subsidiaries, their REIT qualifications, significant related party transactions and transfer pricing, and other general federal, state and local tax matters.

That evening, representatives of Mayer Brown circulated a revised draft of the Draft Merger Agreement.

On June 21, 2023, Great Ajax, EFC and Piper Sandler held a telephonic meeting call to discuss asset level valuation issues.

Also on June 21, 2023, the EFC Board held a special telephonic meeting at which representatives of EFC’s management, KBW and V&E were present. The purpose of the meeting was to provide an update on and to discuss the current status of the proposed transaction. EFC management provided a detailed overview of the currently proposed transaction, including a detailed review of the results of the then-ongoing due diligence work that the EFC team was performing in connection with its valuation of the assets

 

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held by Great Ajax and Great Ajax’s financial position. The overview also included EFC management’s views regarding the merits of the proposed transaction to EFC stockholders and a detailed analysis of the risks associated with Great Ajax’s portfolio. EFC management noted to the EFC Board that additional negotiation of the Draft Merger Agreement would be required to ensure that Great Ajax’s portfolio and overall business would be properly managed during the interim period between signing of the Merger Agreement and Closing. After a thorough discussion, including EFC management answering numerous questions raised by the EFC Board, the EFC Board decided to authorize EFC management to continue negotiating the proposed transaction with Great Ajax and its legal and financial advisors.

On June 22, 2023, Mayer Brown and V&E held a video meeting to discuss open points in the Draft Merger Agreement, including the interim operating covenants, timing of the filing of the joint proxy statement, the timing and process of Great Ajax’s redemption of Great Ajax Preferred Stock and purchase of outstanding Great Ajax Warrants prior to closing, the non-contingency of the Merger on the consummation of the Arlington Merger, and inclusion of knowledge qualifiers for certain representations regarding Gregory and Gaea.

That day, the Great Ajax Board memorialized the establishment of the Great Ajax Special Committee with the intention of ratifying its actions until that date.

That evening, Mayer Brown shared with V&E an initial draft of the Great Ajax Disclosure Letter.

On June 23, 2023, representatives of V&E circulated a revised draft of the Merger Agreement, as well as an initial draft of the EFC Disclosure Letter.

Also that morning, representatives of KBW and Piper Sandler held a telephonic meeting to discuss pricing and other details, and KBW informed Piper Sandler that EFC intended to confirm the automatic extension of the Exclusivity Period, as agreed in the executed Exclusivity Agreement.

That afternoon, the Great Ajax Special Committee held a video meeting at which all members other than Ms. Haggerty were present. At the invitation of the Great Ajax Special Committee, also present was the Great Ajax Secretary. Mr. Friedman provided an update on the current status of the EFC Proposed Transaction and negotiations between EFC and Great Ajax.

Also that day, representatives of Great Ajax, Mayer Brown and Piper Sandler held a telephonic meeting in which Piper Sandler updated the participants on the ongoing meetings with EFC and KBW and the process as a whole.

Later that day, a representative of EFC reached out to Great Ajax and Piper Sandler and confirmed that each of EFC and Great Ajax agreed that the parties are continuing to negotiate in good faith to reach definitive documentation with respect to the proposed transaction, and therefore, the Exclusivity Period has been automatically extended for four additional days, through and including June 27, 2023. EFC and Great Ajax held a telephonic meeting on the same day to discuss valuation.

On June 24, 2023, representatives of Piper Sandler spoke with KBW to relay Great Ajax’s preference for a fixed exchange ratio. Representatives of Piper Sandler informed representatives of BTIG of this proposed change and related discussions.

On June 25, 2023, representatives of Mayer Brown and Great Ajax management held a video meeting to discuss the revised version of the Draft Merger Agreement distributed by V&E on June 23, 2023. Representatives of Mayer Brown reviewed the open points in the Draft Merger Agreement and the participants in the video meeting discussed such open points, including the following: exchange ratio/determination date, the extent of the disclosure required by the real property representation in the revised Draft Merger Agreement, and changes necessary to the interim operating covenants to allow Great Ajax to continue conducting its business in the ordinary course in the time between signing of the Merger Agreement and closing of the Merger.

That day, Mayer Brown returned a revised draft of the Merger Agreement to V&E, which included (i) proposing a fixed exchange ratio, in light of the extensive discussions between the parties regarding asset values and the desire to minimize uncertainty, (ii) conforming the liquidity maintenance requirement to Great Ajax’s existing requirement under the senior notes issued by the Great Ajax Operating Partnership,

 

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(iii) providing Great Ajax the right to use its at-the-market equity issuance program and (iv) revising the interim operating covenants to allow Great Ajax to continue operating its business in the ordinary course during the period between signing of the Merger Agreement and the closing of the Merger.

On June 26, 2023, representatives of Piper Sandler held a telephonic meeting with representatives of EFC. EFC requested an additional extension of the Exclusivity Period, from June 27, 2023 to June 29, 2023, as EFC was continuing to work on EFC’s valuation of Great Ajax’s assets.

That day, a representative of Piper Sandler shared the details of the telephonic meeting with EFC with Mr. Mendelsohn and representatives of Mayer Brown and noted he believed EFC continued to work in good faith. Great Ajax agreed to an extension of the Exclusivity Period until June 29, 2023, at 12:00 p.m. Eastern Time.

Subsequently, EFC reached out to Great Ajax and Piper Sandler to confirm the extension of the Exclusivity Period until 12:00 p.m. Eastern Time on June 29, 2023. Piper Sandler was instructed to confirm the extension.

Also that day, after negotiating the terms and conditions of BTIG’s engagement letter, the Great Ajax Special Committee executed BTIG’s engagement letter.

That afternoon, the Great Ajax Special Committee held a video meeting, at which all of the members of the Great Ajax Special Committee were present. Also present at the telephonic meeting, at the invitation of the Great Ajax Special Committee, were Mr. Mendelsohn, Mr. Handley, a member of the Great Ajax Board, and the Great Ajax Secretary. Mr. Mendelsohn provided an update on the expected process and timeline through signing the Merger Agreement. Mr. Mendelsohn reviewed the status of negotiations on valuation, as well as the status of the negotiations on the Draft Merger Agreement. Mr. Mendelsohn explained key provisions of the Draft Merger Agreement and answered several questions. The members of the Great Ajax Special Committee discussed various provisions of the Draft Merger Agreement, including the conduct of Great Ajax pending the Merger, the conditions to closing and the termination provisions.

On June 27, 2023, the Great Ajax Special Committee held a video meeting, at which all of the members of the Great Ajax Special Committee were present. Also present at the invitation of the Great Ajax Special Committee, were Mr. Mendelsohn, Mr. Handley and the Great Ajax Secretary. Mr. Mendelsohn reviewed the expected timeline through the closing of the EFC Proposed Transaction. The members of the Great Ajax Special Committee discussed the timeline. Mr. Mendelsohn reviewed the status of the negotiations and the key terms of the Draft Merger Agreement. Mr. Mendelsohn reviewed the status of valuation discussions. The members of the Great Ajax Special Committee discussed and provided Mr. Mendelsohn with their preferences and insights. The members of the Great Ajax Special Committee also discussed exclusivity and closing conditions.

That evening, representatives of Great Ajax, Mayer Brown and Piper Sandler held a telephonic meeting in which the representatives of Piper Sandler updated the participants in the telephonic meeting on the process, including Piper Sandler’s ongoing meetings with EFC and KBW, discussions with BTIG regarding BTIG’s financial and market conditions analysis and the ongoing due diligence process. At that meeting, a representative of Mayer Brown discussed the process moving forward and outlined the potential approval and signing timeline.

On June 28, 2023, representatives of EFC, KBW, V&E, Great Ajax, Piper Sandler and Mayer Brown held a video meeting to discuss the remaining open points in the Draft Merger Agreement. During the meeting, the meeting participants discussed Great Ajax’s preference for a fixed exchange ratio, certain tax matters, qualifiers and other matters with respect to certain of the representations and warranties, and additional matters regarding interim operating covenants. The meeting participants negotiated a number of points in the Draft Merger Agreement, including with respect to terms that would allow Great Ajax to continue operating in the ordinary course of its business between signing of the Merger Agreement and closing of the Merger.

Following this meeting, a representative of Piper Sandler discussed with representatives of EFC and KBW Great Ajax’s preference for a fixed exchange ratio in the Merger Agreement. In response, EFC confirmed its agreement to a fixed exchange ratio structure.

 

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Later that afternoon, the Great Ajax Board convened for a telephonic meeting. All of the members of the Great Ajax Board were in attendance. Also attending, at the invitation of the Great Ajax Board, were Great Ajax’s Chief Financial Officer, the Great Ajax Secretary, as well as representatives of Mayer Brown, Piper Sandler and Venable, Great Ajax’s Maryland counsel. A representative of Venable provided an overview of the Great Ajax Board members’ fiduciary duties under Maryland law in connection with the EFC Proposed Transaction. A discussion ensued and the directors asked questions, which the representative of Venable answered. After confirming the directors did not have further questions, the Venable representatives left the meeting. Piper Sandler’s representatives joined the meeting and provided an update on the status of the EFC Proposed Transaction. Then, a representative of Mayer Brown provided a review of the material terms of the Draft Merger Agreement, which was followed by a discussion during which the directors asked questions of the representative of Mayer Brown, which such representative answered. Finally, members of the Great Ajax Board discussed process and timing of the next steps.

That day, representatives of Mayer Brown and Deloitte held a video meeting to discuss the potential application of Rule 280G in the context of the transaction. The meeting and the preliminary analysis performed determined that no excess parachute payments would be anticipated.

On the morning of June 29, 2023, representatives of EFC, KBW and Piper Sandler held a telephonic meeting regarding valuation issues. During this meeting, the participants in the meeting reviewed fair value estimates for a number of mortgage loan assets held by Great Ajax, as well as the terms of certain outstanding Great Ajax securities.

Also that morning, representatives of EFC discussed with Piper Sandler an extension of the Exclusivity Period until June 30, 2023. With the approval of Great Ajax, Piper Sandler confirmed the extension. Representatives of Great Ajax management discussed these developments with Mr. Friedman. the Great Ajax Special Committee subsequently approved the extension.

That afternoon, representatives of V&E circulated to Mayer Brown a revised draft of the Draft Merger Agreement and comments to the draft of the Great Ajax Disclosure Letter. The revised draft of the Draft Merger Agreement added the Great Ajax Manager as a party to the Draft Merger Agreement. After further correspondence and a call, EFC agreed to remove the Great Ajax Manager as a party in the Draft Merger Agreement, and instead include a covenant that before the Closing, the Great Ajax Manager shall execute an amendment to the Great Ajax Management Agreement providing for (a) the termination of the Great Ajax Management Agreement prior to Closing, (b) the payment of the termination fee and reimbursement of all reimbursable expenses thereunder to the Great Ajax Manager prior to the Closing, (c) the Great Ajax Manager to deliver, or cause its affiliates deliver, to Great Ajax or EFC prior to the Closing, all material contracts and material records pertaining to the business or operations of Great Ajax and in Great Ajax Manager’s or any of its affiliates’ possession or control, (d) a customary release of claims, and (e) certain other matters.

Also that afternoon, EFC and KBW discussed with Piper Sandler EFC’s proposed fixed exchange ratio of 0.5308, which, with an EFC share price of $13.74 as of June 29, 2023, implied a value to Great Ajax Stockholders of $7.29 per share.

Later that day, the Great Ajax Board convened for another telephonic meeting. All of the members of the Great Ajax Board were in attendance. Also attending the telephonic meeting, at the invitation of the Great Ajax Board, were Great Ajax’s Chief Financial Officer and the Great Ajax Secretary, as well as representatives of Mayer Brown and Piper Sandler. Mr. Mendelsohn provided an update on the status of the negotiations relating to the proposed transaction with EFC, including EFC’s latest proposals regarding valuation and the exchange ratio.

That evening, the EFC Board held a special telephonic meeting at which representatives of EFC’s management, KBW, V&E, Hunton and PwC were present. At the meeting, representatives of each of V&E, Hunton and PwC summarized their respective due diligence findings and responded to inquiries from members of the EFC Board. Following this discussion, representatives of EFC’s management provided the EFC Board with an update on the open issues in the Draft Merger Agreement and their proposed resolutions, including the interim operating covenants that EFC management believed were critical to ensure that Great Ajax’s portfolio and business would be properly managed during the interim period between

 

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signing of the Merger Agreement and Closing. Next, representatives of V&E provided a summary of the terms of the proposed merger agreement, and reviewed with the EFC Board the duties of directors in connection with transactions of the type contemplated by the final Draft Merger Agreement (assuming the final issues were to be resolved). KBW next reviewed with the EFC Board the financial aspects of the proposed transaction. After discussion, and after taking into consideration all of the information presented and discussed in the several prior communications and meetings among representatives of EFC’s management, the EFC Board and EFC’s advisors that occurred during the course of the negotiations between EFC and Great Ajax, the EFC Board unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the EFC Stock Issuance, were in the best interests of EFC and its stockholders and (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger and the EFC Stock Issuance.

Representatives of Piper Sandler reviewed EFC’s proposals regarding valuation and the exchange ratio and discussed valuation methodologies of Piper Sandler’s fairness assessment. Representatives of Mayer Brown reviewed the recent changes made in the Draft Merger Agreement. A discussion ensued. The directors discussed whether they were prepared to move forward with the EFC Proposed Transaction given the proposed exchange ratio. The Great Ajax Board concluded that the proposed exchange ratio was preferable to the alternatives but instructed Mr. Mendelsohn and Piper Sandler to continue negotiating to find paths to increase the proposed valuation.

Later that evening, Piper Sandler acted on the Great Ajax Board’s instruction and continued negotiating with EFC and KBW to increase the proposed valuation. Ultimately, the valuation remained the same, but EFC agreed to pay Great Ajax Stockholders certain contingent cash consideration that would be based on the outcome of certain transactions that were anticipated to be completed by Great Ajax prior to the Closing.

That night, representatives of Mayer Brown circulated to V&E a revised draft of the Draft Merger Agreement, including a contingent cash consideration provision, and a revised version of the Great Ajax Disclosure Letter responding to comments received from V&E.

On the morning of June 30, 2023, a representative of V&E reached out to Mayer Brown to note two points that would be reflected in forthcoming changes in the Draft Merger Agreement: (i) EFC’s request to ensure that Great Ajax’s liquidity maintenance covenant will be required to be maintained on a daily basis and (ii) in light of the proposed exchange ratio, consummation of the transaction would not require a vote of EFC shareholders.

Great Ajax agreed to the proposed changes to the Draft Merger Agreement, provided that the liquidity maintenance covenant was made subject to a five-day cure period.

Later that morning, the Great Ajax Special Committee held a video meeting, attended by all of the members of the Great Ajax Special Committee. Also in attendance, at the invitation of the Great Ajax Special Committee, were representatives of BTIG, Sheppard Mullin and the Great Ajax Secretary. Representatives of BTIG presented materials prepared by BTIG that were previously circulated to the Great Ajax Special Committee. BTIG’s presentation included an overview of the key terms of the EFC Proposed Transaction, including the merger consideration, a sensitivity analysis of the merger consideration based on various EFC stock prices, an analysis of premiums paid in selected acquisitions transactions, a review of Great Ajax and EFC historical stock prices, trading trends and relative valuation levels and BTIG’s financial analysis of each of Great Ajax and EFC. Following this presentation, at the request of the Great Ajax Special Committee, BTIG delivered to the Great Ajax Special Committee its oral opinion, subsequently confirmed by delivery of a written opinion dated as of June 30, 2023, to the effect that, based on and subject to the assumptions made, procedures followed, factors considered, limitations of the review undertaken and qualifications contained in such opinion, as of the date of such opinion the Merger Consideration to be received by the Great Ajax Stockholders pursuant to the Merger Agreement was fair, from a financial point of view, to the Great Ajax Stockholders (other than holders of Cancelled Shares). BTIG then answered questions from the members of the Great Ajax Special Committee.

Also on June 30, 2023, Great Ajax and EFC held a telephonic meeting regarding valuation.

Mr. Friedman confirmed the members of the Great Ajax Special Committee had no further questions for the BTIG representatives and the BTIG representatives then left the meeting. Following the departure of

 

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the BTIG representatives, the members of the Great Ajax Special Committee discussed the fairness of the Merger Agreement, and the relevant conflicts of interest within the Great Ajax Board. After careful deliberations, the Great Ajax Special Committee resolved (i) that the Merger Agreement and the Merger are advisable and in the best interests of Great Ajax and the Great Ajax Stockholders (other than the related parties and the holders of the Cancelled Shares), (ii) to recommend to the Great Ajax Board that the Merger be approved by the Great Ajax Board and submitted to the Great Ajax Stockholders for their approval and that the Great Ajax Board recommend that the Great Ajax Stockholders approve the same, and (iii) to recommend to the Great Ajax Board that the Great Ajax Board approve and authorize Great Ajax to enter into, execute and deliver the Merger Agreement.

Later that afternoon, the Great Ajax Board held a video meeting, with all but one of the members of the Great Ajax Board in attendance. At the invitation of the Great Ajax Board, Great Ajax’s Chief Financial Officer, the Great Ajax Secretary, as well as representatives of Mayer Brown, Piper Sandler and BTIG were in attendance. Also in attendance, at the invitation of the Great Ajax Board, was a representative from Flexpoint Ford, as an observer on behalf of the member of the Great Ajax Board who could not attend the meeting.

Representatives of Mayer Brown reviewed the recent changes to the Draft Merger Agreement and the status of the negotiations between the parties. Representatives of BTIG summarized BTIG’s presentation to the Great Ajax Special Committee and presented to the Great Ajax Board a summary of BTIG’s fairness opinion to the Great Ajax Special Committee. Mr. Friedman then reported the Great Ajax Special Committee’s conclusion that the Merger Agreement and the Merger are advisable and in the best interests of Great Ajax and the Great Ajax Stockholders (other than the related parties and the holders of the Cancelled Shares) and its recommendation that the Great Ajax Board approve and authorize Great Ajax to enter into, execute and deliver the Merger Agreement, approve the Merger and direct that the Merger be submitted to the Great Ajax Stockholders for their approval and that the Great Ajax Board recommend that the Great Ajax Stockholders approve the same.

Representatives of Piper Sandler delivered a presentation to the Great Ajax Board. The presentation included an overview of the EFC Proposed Transaction, the calculations and analysis that led to the determination of the exchange ratio and the Merger Consideration, overview of Great Ajax and EFC’s historical financial profile and stock price performance, comparable group analysis, analyst estimates and projections. Then, Piper Sandler provided an oral summary of Piper Sandler’s fairness opinion, stating that as of June 30, 2023 and based upon and subject to the various assumptions, qualifications, limitations and other matters set forth therein, the Merger Consideration to be received by the Great Ajax Stockholders pursuant to the Merger Agreement is fair from a financial point of view to the Great Ajax Stockholders (other than holders of Cancelled Shares).

The Great Ajax Board deliberated and discussed the EFC Proposed Transaction. All the present members of the Great Ajax Board then resolved that (i) the terms and conditions of the Merger Agreement and the Merger and any and all actions heretofore taken or hereafter to be taken by the Great Ajax Special Committee or any officer of Great Ajax in connection with the consummation of the Merger Agreement and the Merger are approved and ratified, (ii) the Merger Agreement and the Merger are advisable and in the best interests of Great Ajax and the Great Ajax Stockholders, (iii) the Merger be submitted for consideration at a special meeting of the Great Ajax Stockholders for approval by Great Ajax Stockholders entitled to vote thereon and that (iv) it is recommended that Great Ajax Stockholders vote in favor of the Merger.

After the conclusion of the meeting, BTIG and Piper Sandler provided their written fairness opinions to the Great Ajax Special Committee and Great Ajax respectively confirming their oral opinions rendered earlier in the day.

The member of the Great Ajax Board that was not able to attend the June 30 Great Ajax Board meeting was subsequently brought up to speed by the Flexpoint Ford observer, Mr. Mendelsohn and representatives of Mayer Brown, reviewed the Merger Agreement and the presentation from Piper Sandler, and was able to ask questions and receive answers from Mr. Mendelsohn and Mayer Brown to his satisfaction.

The full Great Ajax Board executed a unanimous written consent to the effect described above which included additional resolutions related to the proposed transaction, and which were discussed and approved by the Great Ajax Board at the meeting.

 

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Also that afternoon, a representative of V&E circulated comments on the Great Ajax Disclosure Letter. Following that circulation, representatives of Mayer Brown and V&E held several telephonic meetings to address and resolve the open issues regarding the Great Ajax Disclosure Letter.

That afternoon, representatives of Mayer Brown reviewed the EFC Disclosure Letter and communicated with V&E about questions related to one of the items in the letter.

Also that night, representatives of Mayer Brown and V&E continued exchanging drafts of the Great Ajax Disclosure Letter, until finalizing and signing-off on it and the EFC Disclosure Letter.

Following the approval of the Merger Agreement by the EFC Board and the Great Ajax Board, the parties and their counsel continued to work to finalize and document the legal terms of the Merger Agreement, and later that night the parties executed the Merger Agreement which was dated as of June 30, 2023.

On July 3, 2023, EFC and Great Ajax issued a joint press release announcing the execution of the Merger Agreement and filed their respective Form 8-Ks, and EFC filed its investor presentation.

Recommendation of the Great Ajax Board and Its Reasons for the Merger

In evaluating the Merger Agreement and the transactions, including the Merger, contemplated by the Merger Agreement, the Great Ajax Special Committee consulted with its financial and legal advisors, BTIG, LLC and Sheppard, Mullin, Richter & Hampton LLP, respectively, and the Great Ajax Board consulted with Great Ajax’s financial and legal advisors, Piper Sandler and Mayer Brown LLP, respectively. In reaching their respective determinations, the Great Ajax Special Committee and the Great Ajax Board considered a number of factors, including, but not limited to, the following material factors, which the Great Ajax Special Committee and the Great Ajax Board viewed as supporting their determinations with respect to the Merger Agreement and the transactions, including the Merger, contemplated by the Merger Agreement:

•

Recommendation of the Great Ajax Special Committee.   That the Great Ajax Special Committee, comprised entirely of independent directors of the Great Ajax Board, unanimously (i) determined that the transactions contemplated by the Merger Agreement, including the Merger, are advisable and in the best interests of Great Ajax and the Great Ajax Stockholders (other than certain related parties and the holders of the Cancelled Shares), and (ii) recommended that the Great Ajax Board determine the same;

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•

Offer Price and Certainty.   That, as of June 30, 2023 (the last trading day prior to the public announcement of the execution of the Merger Agreement), the per share Merger Consideration (valued at $7.33 on such date) represented a premium of approximately 27% to the volume weighted average price of Great Ajax Common Stock for the 30 day period ended on June 30, 2023 (which was $5.79);

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•

Industry and Business Considerations.   The perspectives of the members of the Great Ajax Special Committee and the Great Ajax Board with respect to the industry, business, financial condition, current business strategy, succession planning and short- and long-term prospects of Great Ajax, including the following:

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the challenges facing the mortgage REIT sector in general, including significant uncertainty regarding the outlook for interest rates as well as uncertainty regarding the outlook for the financial markets generally; and

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the challenges facing Great Ajax in particular, including the fact that the price per share of Great Ajax Common Stock has traded at a substantial discount to Great Ajax’s tangible book value per share for an extended period;

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•

Evaluation of Strategic Alternatives.   The belief of the members of the Great Ajax Special Committee and the Great Ajax Board that the value offered to Great Ajax’s stockholders in the Merger was more favorable to Great Ajax’s stockholders than the potential value of remaining an independent public company (as more fully described above in “— Background of the Merger”);

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•

Negotiations with EFC.   The belief that, as a result of the robust negotiations with EFC, Great Ajax maximized stockholder value and obtained not only the highest per share consideration that EFC was willing to pay, but also that the terms of the Merger, were also the most favorable to Great Ajax (as more fully described above in “— Background of the Merger”);

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•

Benefits of Increased Scale, Portfolio Diversity and other Operating Capabilities of the Combined Company.   That the receipt of EFC Common Stock as the Merger Consideration provides Great Ajax Stockholders the opportunity to continue ownership in the Combined Company, which is expected to provide significant potential strategic opportunities and benefits, including the following:

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EFC’s diversified business should allow the Combined Company to benefit from a broader suite of investment opportunities. EFC also has expertise in managing the types of assets held in Great Ajax’s portfolio and can manage that portfolio to maximize their respective values; and

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Great Ajax Stockholders are expected to benefit from increased operating scale, liquidity and access to capital alternatives available to the larger Combined Company;

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•

Liquidity of EFC Common Stock.   That the Merger Consideration consists of shares of EFC Common Stock that will be listed for trading on the NYSE, which should provide greater liquidity for Great Ajax Stockholders who may desire to liquidate their investment in the Combined Company after the Merger, since:

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◦

prior to the public announcement of the execution of the Merger Agreement, EFC’s market capitalization was over six times higher than Great Ajax’s market capitalization; and

​

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the increased market capitalization of the Combined Company following the consummation of the Merger is expected to improve stockholder liquidity and trading technicals;

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•

Opinion of BTIG and Related Analysis.   The opinion of BTIG delivered to the Great Ajax Special Committee, and subsequently confirmed by delivery of a written opinion dated as of June 30, 2023, to the effect that, based on and subject to the assumptions made, procedures followed, factors considered, limitations of the review undertaken and qualifications contained in such opinion, as of the date of such opinion, the Merger Consideration to be received by the Great Ajax Stockholders pursuant to the Merger Agreement is fair from a financial point of view to the Great Ajax Stockholders (other than holders of Cancelled Shares), as more fully described in the section entitled “The Merger — Opinion of Great Ajax Special Committee’s Financial Advisor, BTIG, LLC.” beginning on page 82;

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•

Opinion of Piper Sandler and Related Analysis.   The opinion of Piper Sandler provided to the Great Ajax Board, and subsequently confirmed in writing, dated June 30, 2023, to the effect that, as of the date of such opinion and based upon and subject to the various assumptions, qualifications, limitations and other matters set forth therein, the Merger Consideration to be received by the Great Ajax Stockholders pursuant to the Merger Agreement was fair from a financial point of view to the Great Ajax Stockholders (other than holders of Cancelled Shares), as more fully described in the section entitled “The Merger —  Opinion of Great Ajax’s Financial Advisor, Piper Sandler & Co.” beginning on page 74; and

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•

Other Terms of the Merger Agreement.   Certain other terms of the Merger Agreement, which are more fully described in the section entitled “The Merger Agreement” beginning on page 99, including, among others:

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the Merger Agreement permits Great Ajax to continue to pay, between the signing of the Merger Agreement and the consummation of the Merger, regular quarterly dividends payable in respect of the Great Ajax Common Stock, not to exceed $0.20 per share per quarter, consistent with past practice;

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the Merger is subject to approval by holders of shares of Great Ajax Common Stock entitled to cast a majority of all the votes entitled to be cast on the matter;

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the Merger Agreement provides Great Ajax with the right, under certain specified circumstances, to consider an unsolicited competing proposal if the Great Ajax Board determines in good faith, after consultation with its financial advisors and outside legal counsel, that such a competing

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proposal is a superior proposal for Great Ajax Stockholders, and provides the Great Ajax Board with the ability, under certain specified circumstances, to make a change in recommendation or to terminate the Merger Agreement in order to enter into a definitive agreement with respect to such Great Ajax superior proposal upon payment to EFC of the Great Ajax Termination Fee;

◦

the commitment on the part of each of Great Ajax and EFC to complete the Merger as reflected in their respective obligations under the terms of the Merger Agreement and the absence of any required government consents, and the likelihood that the Merger will be completed on a timely basis;

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The Exchange Ratio shall be adjusted for certain dilutive or accretive share issuances by EFC or Great Ajax, respectively, prior to the Closing. Additionally, EFC has agreed to pay Great Ajax Stockholders contingent cash consideration depending upon certain potential repurchases of Great Ajax securities prior to the Closing on certain terms;

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Great Ajax and EFC agreed to cooperate and negotiate in good faith to enter into an assignment agreement which will assign Great Ajax’s rights and obligations under the Servicing Agreement to EFC in order for Gregory to continue as the mortgage servicer for each of the mortgage loans owned by Great Ajax and any of its subsidiaries immediately prior to the Closing and serviced by Gregory immediately prior to the Closing so long as EFC or any of its affiliates maintains an ownership interest in such loan; and

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the other terms of the Merger Agreement, including representations, warranties and covenants of the parties, as well as the conditions to their respective obligations under the Merger Agreement.

​

The Great Ajax Special Committee and the Great Ajax Board also considered a variety of risks and other potentially negative factors in considering the Merger Agreement and the transactions, including the Merger, contemplated by the Merger Agreement, including, but not limited to, the following material factors:

•

Other Strategic Alternatives.   The risk that a different strategic alternative, such as continuing as an independent public company, could be more beneficial to Great Ajax Stockholders than the Merger;

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•

Competing Transactions; Termination Fee.   That the terms of the Merger Agreement place limitations on Great Ajax’s right to initiate, solicit or knowingly encourage the making of any proposal by or with a third party with respect to a competing transaction and to furnish information to, or enter into discussions with, a third party interested in pursuing an alternative strategic transaction, and that, under the terms of the Merger Agreement, Great Ajax must pay EFC the Great Ajax Termination Fee if the Merger Agreement is terminated under certain circumstances, which might discourage or deter other parties from proposing an alternative transaction that may be more advantageous to Great Ajax Stockholders;

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•

Expenses.   The expenses to be incurred in connection with the Merger;

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•

Completion of Merger.   That, while the Merger is expected to be completed, there is no assurance that all the conditions to the parties’ obligations to complete the Merger will be satisfied or waived, or that the Merger in fact will be completed;

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•

Management Resources.   The risk of diverting management focus and resources from operational matters and other strategic opportunities while working to implement the Merger;

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•

Interested Directors.   That certain members of the Great Ajax Board have a conflict of interest with respect to the termination of the Great Ajax Management Agreement (which is a closing condition that must be satisfied immediately prior to the consummation of the Merger), and the resulting payment of approximately $15.0 million termination fee to the Great Ajax Manager;

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•

Great Ajax Stockholder Approval.   That the consummation of the Merger is subject to the approval of the Great Ajax Stockholders and the Merger will not close if the Great Ajax Stockholders do not approve the Great Ajax Merger Proposal;

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•

Conduct of Great Ajax Business Pending the Merger.   That provisions in the Merger Agreement restricting some ordinary and non-ordinary course operation of Great Ajax’s business during the

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period between the signing of the Merger Agreement and consummation of the Merger may delay or prevent Great Ajax from undertaking business opportunities that may arise or other actions it would otherwise take with respect to its operations absent the pending completion of the Merger; and

•

Forecasts.   That forecasts of future financial and operational results of Great Ajax are necessarily estimates based on assumptions and may vary significantly from future performance and may be impacted by the risks of the types and nature described under the section entitled “Risk Factors” beginning on page 31.

​

The foregoing discussion of the factors considered by the Great Ajax Special Committee and the Great Ajax Board is not intended to be exhaustive and is not provided in any specific order or ranking, but rather includes material factors considered by the Great Ajax Special Committee and the Great Ajax Board. In view of the wide variety of factors considered in connection with their respective evaluation of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and the complexity of these matters, the Great Ajax Special Committee and the Great Ajax Board did not consider it practical to, and did not attempt to, quantify, rank or otherwise assign any relative or specific weights or values to the different factors considered and individuals may have given different weights to different factors. The Great Ajax Special Committee and the Great Ajax Board conducted an overall review of the factors considered and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the Merger Agreement and the transactions, including the Merger, contemplated by the Merger Agreement.

The explanation and reasoning of the Great Ajax Special Committee and the Great Ajax Board and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 49.

After careful consideration, for the reasons set forth above, the Great Ajax Board has approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement and has declared that the transactions contemplated by the Merger Agreement, including the Merger, are advisable and in the best interests of Great Ajax and its stockholders, and the Great Ajax Board recommends to the Great Ajax Stockholders that they vote “FOR” the Great Ajax Merger Proposal and “FOR” the Great Ajax Adjournment Proposal.

The EFC Board’s Reasons for the Merger

At its meeting on June 29, 2023, after careful consideration, the EFC Board unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and the EFC Stock Issuance, are in the best interests of EFC, and (ii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger and the EFC Stock Issuance.

In evaluating the Merger Agreement and the EFC Stock Issuance, the EFC Board consulted with senior management and outside legal and financial advisors and carefully considered numerous factors that the EFC Board viewed as supporting its decision, including, but not limited to, the following material factors:

•

The EFC Board considered that the Merger is expected to provide a number of significant benefits to EFC and its stockholders, including the following:

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the Merger would enable EFC to effectively raise a relatively large amount of common equity capital at a premium to what EFC would be expected to achieve in the public markets;

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the Merger is expected to provide EFC with improved scale, enhanced portfolio liquidity, access to a broader set of financing alternatives, and additional borrowing capacity, which should support continued growth across EFC’s target assets and position EFC to take advantage of opportunities as they arise in the diversified markets in which EFC operates;

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the increased market capitalization resulting from the Merger is expected to enhance the trading volume and liquidity for stockholders of the Combined Company, generate a greater level of interest in EFC’s business from a broader investor base, and provide more efficient access to the capital markets;

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the larger size EFC will achieve as a result of the Merger may benefit EFC as larger mortgage REITs have historically tended to trade at better market-price-to-book-value multiples compared to smaller mortgage REITs;

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the combination of EFC and Great Ajax can potentially create cost savings and efficiencies over time resulting from the allocation of fixed operating expenses over a larger common equity base;

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Great Ajax’s portfolio of first-lien residential RPL and NPL investments would provide a synergistic expansion of EFC’s current RPL/NPL strategies, and enhance EFC’s portfolio diversification with assets that EFC believes complement EFC’s existing investment strategy. Great Ajax’s investments also align well with EFC’s expertise, and would potentially give EFC enhanced access to the RPL and NPL securitization market and the ability to capitalize further on attractive investment environments;

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the potential synergies between EFC and Great Ajax, including the combination of EFC’s hedging, trading and structuring capabilities with Great Ajax’s whole loan asset management resolution capabilities, have the potential to create a platform that will optimize Great Ajax’s portfolio and deliver returns to stockholders;

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the potential synergies and operating efficiencies that Great Ajax’s affiliated servicer, Gregory, could unlock across EFC’s investment portfolio, given Great Ajax’s equity investment in Gregory;

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the potential to provide EFC with an opportunity to rotate out of selected lower-yielding assets of Great Ajax and redeploy capital into higher-yielding strategies over time; and

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the Merger is estimated by EFC to be accretive to EFC’s earnings per share within one year of the Closing, with enhanced long-term growth potential;

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•

The business, operations, financial condition, earnings and prospects of EFC and Great Ajax, after taking into account the results of EFC’s due diligence review of Great Ajax, the current and prospective business environments in which EFC and Great Ajax operate, and current and prospective general economic and market conditions;

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•

The commitment on the part of both parties to consummate the Merger as reflected in their respective obligations under the terms of the Merger Agreement, including that Great Ajax may be required to pay EFC the Great Ajax Termination Fee under certain circumstances, and the likelihood that the Great Ajax Stockholder Approval needed to consummate the Merger would be obtained in a timely manner; and

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The benefit of further diversification of EFC’s asset base in light of the challenges facing the mortgage REIT sector in general, including significant uncertainty regarding the outlook for interest rates and macroeconomic conditions.

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The EFC Board also considered a variety of risks and other potentially negative factors in considering the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including, but not limited to, the following material factors:

•

the risk that a different strategic alternative could be more beneficial to EFC stockholders than the Merger;

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•

the expected initial dilutive effect of the Merger on EFC’s earnings and book value per share, and the risk that the Merger may not ultimately be accretive to EFC’s earnings or book value per share;

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•

the risk of diverting management focus and resources from operational matters and other strategic opportunities while working to implement the Merger;

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•

the risk that Great Ajax’s book value per share may decline, including as a result of net losses, following execution of the Merger Agreement and EFC’s inability to terminate the Merger Agreement due to such changes;

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•

the risk that, notwithstanding the likelihood of the Merger being completed, the Merger may not be completed, or that completion may be unduly delayed, including the effect of the pendency of the

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Merger and the effect such failure to be completed may have on the trading price of EFC Common Stock and EFC’s operating results, particularly in light of the costs incurred in connection with the transaction;

•

the risk that the cost savings, operational efficiencies and other benefits to the EFC stockholders expected to result from the Merger might not be fully realized or realized at all;

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•

the risk that EFC will be unable to redeploy the capital acquired in connection with the Merger into its targeted asset classes within the anticipated timeline or at anticipated returns;

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•

the risk of other potential difficulties in integrating the two companies and their respective operations;

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•

the substantial costs to be incurred in connection with the transaction, including the transaction expenses arising from the Merger and the costs of integrating the businesses of EFC and Great Ajax;

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•

the restrictions on the conduct of EFC’s business during the period between the execution of the Merger Agreement and the Closing (for more information, see “The Merger Agreement  —  Conduct of Business by EFC Pending the Merger” on page 109); and

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•

other matters described in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

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The foregoing discussion of the factors considered by the EFC Board is not intended to be exhaustive and is not provided in any specific order or ranking, but rather includes material factors considered by the EFC Board. In view of the wide variety of factors considered in connection with its evaluation of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and the complexity of these matters, the EFC Board did not consider it practicable to, and did not attempt to, quantify, rank or otherwise assign any relative or specific weights or values to the factors considered, and individual directors may have held varied views of the relative importance of the factors considered and given different weights or values to different factors. The EFC Board viewed its position and recommendation as being based on an overall review of the totality of the information available to it and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

The explanation and reasoning of the EFC Board and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 49.

Opinion of Great Ajax’s Financial Advisor, Piper Sandler & Co.

Great Ajax engaged Piper Sandler to act as exclusive financial advisor to the Great Ajax Board in connection with the proposed Merger. In connection with this engagement, the Great Ajax Board requested that Piper Sandler evaluate the fairness, from a financial point of view, of the Merger Consideration to be received by the Great Ajax Stockholders (other than holders of Cancelled Shares) pursuant to the Merger Agreement. On June 30, 2023, at a meeting of the Great Ajax Board held to evaluate the proposed Merger, Piper Sandler rendered an oral opinion, confirmed by delivery of a written opinion dated June 30, 2023, to the Great Ajax Board to the effect that, as of that date and based on and subject to the various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Piper Sandler, as set forth therein, the Merger Consideration to be received by the Great Ajax Stockholders (other than holders of Cancelled Shares) pursuant to the Merger Agreement was fair, from a financial point of view, to such holders.

The full text of Piper Sandler’s written opinion, dated June 30, 2023, to the Great Ajax Board, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken by Piper Sandler in connection with such opinion, is attached to this proxy statement/prospectus as Annex B. The description of Piper Sandler’s opinion set forth in this proxy statement/prospectus is qualified in its entirety by reference to the full text of Piper Sandler’s opinion. Piper Sandler’s opinion was provided to the Great Ajax Board (in its capacity as such) for its information in connection with its evaluation of the Merger Consideration from a financial point of view and did not address any other

 

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terms, aspects or implications of the proposed Merger, the relative merits of the proposed Merger or related transactions as compared to alternative transactions or strategies that might be available to Great Ajax or the underlying business decision of the Great Ajax Board or Great Ajax to proceed with the proposed Merger or related transactions. Piper Sandler’s opinion does not constitute advice or a recommendation to any stockholder as to how such stockholder should vote or act on any matter relating to the proposed Merger or otherwise.

In arriving at its opinion, Piper Sandler reviewed a draft, dated June 29, 2023, of the Merger Agreement and certain publicly available business and financial information relating to Great Ajax and EFC. Piper Sandler also reviewed certain other information relating to Great Ajax and EFC, including (i) the Great Ajax Projections relating to Great Ajax for the fiscal years ending December 31, 2023 through December 31, 2025 prepared and provided to Piper Sandler by the senior management of Great Ajax and (ii) publicly available mean and median analyst estimates relating to EFC for the fiscal years ending December 31, 2023 through December 31, 2025 (which are referred to in this section as the “EFC Estimates”). Piper Sandler also discussed with certain members of the senior management of Great Ajax and its representatives the business, financial condition, results of operations and prospects of Great Ajax and held similar discussions with certain members of the senior management of EFC and its representatives regarding the business, financial condition, results of operations and prospects of EFC. Piper Sandler also considered certain financial and stock market data of Great Ajax and EFC, and Piper Sandler compared that data with similar data for other companies with publicly traded equity securities in businesses Piper Sandler deemed similar to those of Great Ajax and EFC, respectively, and Piper Sandler considered, to the extent publicly available, the financial terms of certain other business combinations and other transactions which had been effected. Piper Sandler also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which it deemed relevant.

In connection with its review, Piper Sandler did not independently verify any of the foregoing information and, with Great Ajax’s consent, Piper Sandler assumed and relied upon such information being complete and accurate in all respects material to Piper Sandler’s analyses and opinion. With respect to the foregoing information, the respective senior managements of Great Ajax and EFC confirmed to Piper Sandler that such information reflected (or, in the case of the publicly available EFC Estimates referred to above, were consistent with) the best currently available projections, estimates and judgements of those respective senior managements as to the future financial performance of Great Ajax and EFC, respectively. At Great Ajax’s direction, Piper Sandler assumed that the Great Ajax Projections and the EFC Estimates were a reasonable basis to evaluate Great Ajax, EFC and the proposed Merger and, at Great Ajax’s direction, Piper Sandler relied upon the Great Ajax Projections and the EFC Estimates for purposes of its analyses and opinion.

As set forth in the Merger Agreement, to the extent Great Ajax effectuates the repurchase of certain securities on the terms set forth in the Great Ajax Disclosure Letter prior to the closing of the Merger, EFC will deliver the Contingent Cash Purchase Price to the Great Ajax Stockholders as part of the Merger Consideration. At Great Ajax’s direction and with Great Ajax’s consent, Piper Sandler assumed for purposes of its analyses that the Contingent Cash Purchase Price would be zero. In addition, for purposes of its analyses and opinion, Piper Sandler was advised and Piper Sandler assumed that the proposed Merger would qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Piper Sandler also assumed, with Great Ajax’s consent, that, in the course of obtaining any regulatory or third-party consents, approvals or agreements in connection with the proposed Merger, no modification, delay, limitation, restriction or condition would be imposed that would have an adverse effect on Great Ajax, EFC or the contemplated benefits of the proposed Merger and that the proposed Merger would be consummated in compliance with all applicable laws and regulations and in accordance with the terms of the Merger Agreement without waiver, modification or amendment of any term, condition or agreement thereof that is material to Piper Sandler’s analyses or opinion. In addition, Piper Sandler was not requested to make, and did not make, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Great Ajax or EFC, nor was Piper Sandler furnished with any such evaluations or appraisals. With Great Ajax’s consent, Piper Sandler further assumed that the final form of the Merger Agreement, when executed by the parties thereto, would conform to the draft reviewed by Piper Sandler in all respects material to its analyses and opinion.

Piper Sandler’s opinion addressed only the fairness, from a financial point of view, to the Great Ajax Stockholders, other than the holders of Cancelled Shares, of the Merger Consideration to be received by

 

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such holders in the proposed Merger pursuant to the Merger Agreement and did not address any other aspect or implication of the proposed Merger or any agreement, arrangement or understanding entered into in connection therewith or otherwise, including, without limitation, the form or structure of the proposed Merger or the Merger Consideration and the fairness of the amount or nature of, or any other aspect relating to, any compensation or consideration to be received or otherwise payable to any officers, directors, Great Ajax Manager, securityholders or affiliates of any party to the proposed Merger, or class of such persons, relative to the Merger Consideration or otherwise. Furthermore, Piper Sandler did not express any advice or opinion regarding matters that required legal, regulatory, accounting, insurance, intellectual property, tax, environmental, executive compensation or other similar professional advice. Piper Sandler assumed that Great Ajax had or would obtain such advice or opinions from the appropriate professional sources. The issuance of Piper Sandler’s opinion was approved by Piper Sandler’s internal fairness opinion committee.

Piper Sandler’s opinion was necessarily based on information made available to Piper Sandler as of the date of Piper Sandler’s opinion and upon financial, economic, market and other conditions as they existed and could be evaluated on that date. It should be understood that Piper Sandler has not undertaken, and is under no obligation, to update, revise, reaffirm or withdraw its opinion or otherwise comment on or consider events occurring or coming to its attention after the date of its opinion. Piper Sandler did not express any opinion as to what the value of shares of EFC Common Stock actually would be when issued to the Great Ajax Stockholders pursuant to the Merger Agreement or the prices or ranges of prices at which shares of Great Ajax Common Stock or EFC Common Stock might be purchased or sold at any time. Piper Sandler assumed that the shares of EFC Common Stock to be issued in the proposed Merger would be approved for listing on the NYSE prior to the consummation of the proposed Merger. Piper Sandler’s opinion did not address the relative merits of the proposed Merger as compared to alternative transactions or strategies that might be available to Great Ajax, nor did it address the underlying business decision of the Great Ajax Board or Great Ajax to proceed with or effect the proposed Merger.

In preparing its opinion to the Great Ajax Board, Piper Sandler performed a variety of financial and comparative analyses, including those described below. The summary of Piper Sandler’s analyses described below is not a complete description of the analyses underlying Piper Sandler’s opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. Piper Sandler arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, Piper Sandler believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.

In its analyses, Piper Sandler considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Great Ajax and EFC and the other parties involved in the proposed Merger. No company, business or transaction used for comparative purposes in Piper Sandler’s analyses is identical to Great Ajax, EFC or the proposed Merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses or transactions analyzed. The estimates contained in Piper Sandler’s analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold or acquired. Accordingly, the estimates used in, and the results derived from, Piper Sandler’s analyses are inherently subject to substantial uncertainty.

Piper Sandler was not requested to, and it did not, determine or recommend the Merger Consideration, which was determined through negotiations between Great Ajax and EFC, and the decision of the Great Ajax Board to authorize Great Ajax to enter into the Merger Agreement was solely that of the Great Ajax Board. Piper Sandler’s opinion and financial analyses were only one of many factors considered by the Great

 

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Ajax Board in its evaluation of the Merger Consideration and should not be viewed as determinative of the views of the Great Ajax Board or Great Ajax management with respect to the proposed Merger or the Merger Consideration payable in the proposed Merger.

Financial Analyses

The following is a summary of certain financial analyses reviewed by Piper Sandler with the Great Ajax Board in connection with the rendering of Piper Sandler’s opinion to the Great Ajax Board on June 30, 2023. The summary does not contain all of the financial data stockholders of Great Ajax may want or need for purposes of making an independent determination of fair value. Stockholders of Great Ajax are encouraged to consult their own financial and other advisors before making any investment decision in connection with the proposed Merger. The financial analyses summarized below include information presented in tabular format. In order to fully understand Piper Sandler’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, as well as the methodologies underlying, and the assumptions, qualifications and limitations in connection with, each analysis, could create a misleading or incomplete view of Piper Sandler’s financial analyses.

Public Companies Analyses

Piper Sandler performed separate analyses of comparable public companies for each of Great Ajax and EFC.

Great Ajax

In order to assess how the public market values shares of similar publicly traded companies, and to provide a range of relative implied equity values per share of Great Ajax Common Stock by reference to these companies, Piper Sandler reviewed and compared certain financial and stock market information relating to Great Ajax with companies that Piper Sandler deemed comparable to Great Ajax. Piper Sandler reviewed certain financial and stock market information relating to Great Ajax and the following four publicly traded companies (which are referred to in this section as the “Great Ajax Peer Group”), which included publicly traded non-agency mortgage REITs with a market cap less than $250 million and with business characteristics, including operations and scale, that Piper Sandler considered generally similar to those of Great Ajax:

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Angel Oak Mortgage REIT, Inc.

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AG Mortgage Investment Trust Inc.

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Arlington Asset Investment Corp.

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Western Asset Mortgage Capital Corporation.

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With respect to each company above, Piper Sandler calculated and compared (i) the multiple of price to tangible book value per share (“P/TBV”) and (ii) estimated 2023 dividend yield based on current mean analyst estimates (“2023E Dividend Yield”), in each case, based on reported metrics and available estimates obtained from public filings, consensus third party research and other publicly available information as of June 29, 2023.

The overall low to high March 31, 2023 P/TBV multiples (and mean and median multiples) observed for the Great Ajax Peer Group were as follows:

The overall low to high 2023E Dividend Yields (and mean and median percentages) observed for the Great Ajax Peer Group were as follows:

 

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Piper Sandler then applied a selected range of March 31, 2023 P/TBV multiples of 0.50x to 0.60x derived from the March 31, 2023 TBV multiples of the Great Ajax Peer Group to the May 31, 2023 TBV per share of Great Ajax, and applied a selected 2023E Dividend Yield range of 10.0% to 14.0% to Great Ajax’s estimated dividend per share for 2023. Great Ajax’s May 31, 2023 TBV per share was provided by Great Ajax management and Great Ajax’s dividend per share for 2023 was based on financial forecasts for Great Ajax prepared by Great Ajax management. This analysis indicated the following approximate implied per share equity value reference ranges for Great Ajax:

Implied Per Share Equity Value Reference Range

EFC

In order to assess how the public market values shares of similar publicly traded companies and to provide a range of relative implied equity values per share of EFC Common Stock by reference to these companies, Piper Sandler reviewed and compared certain financial and stock market information relating to EFC with companies that Piper Sandler deemed comparable to EFC. Piper Sandler reviewed certain financial and stock market information relating to EFC and the following ten publicly traded companies, (which are referred to in this section as the “EFC Peer Group”), which included publicly traded non-agency mortgage REITs with a market cap greater than $250 million and with business characteristics, including operations and scale, that Piper Sandler considered generally similar to those of EFC:

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Rithm Capital Corp.

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Two Harbors Investment Corp.

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Chimera Investment Corporation

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PennyMac Mortgage Investment Trust

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MFA Financial, Inc.

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New York Mortgage Trust, Inc.

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Redwood Trust, Inc.

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Dynex Capital, Inc.

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Invesco Mortgage Capital Inc.

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Orchid Island Capital, Inc.

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With respect to each company above, Piper Sandler calculated and compared (i) the multiple of price to tangible book value per share (“P/TBV”) and (ii) estimated 2023 dividend yield based on current mean analyst estimates (“2023E Dividend Yield”), in each case, based on reported metrics and available estimates obtained from public filings, consensus third party research and other publicly available information as of June 29, 2023.

The overall low to high March 31, 2023 P/TBV multiples (and mean and median multiples) observed for the EFC Peer Group were as follows:

 

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The overall low to high 2023E Dividend Yields (and mean and median percentages) observed for the EFC Peer Group were as follows:

Piper Sandler then applied a selected range of March 31, 2023 P/TBV multiples of 0.90x to 1.00x derived from the March 31, 2023 TBV multiples of the EFC Peer Group to the May 31, 2023 TBV per share of EFC(1), and applied a selected 2023E Dividend Yield range of 12.0% to 14.0% to EFC’s estimated dividend per share for 2023. EFC’s May 31, 2023 TBV per share was provided by EFC management and EFC’s dividend per share for 2023 was based on publicly available consensus estimates. This analysis indicated the following approximate implied per share equity value reference ranges for EFC:

Implied Per Share Equity Value Reference Range