Item 1.01
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Entry into a Material Definitive Agreement.
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Merger Agreement
On December 6, 2020, Anworth Mortgage Asset
Corporation, a Maryland corporation (“Anworth”), Ready Capital Corporation, a Maryland corporation (“Ready Capital”),
and RC Merger Subsidiary, LLC, a Delaware limited liability company and a wholly owned subsidiary of Ready Capital (“Merger
Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, subject to the
terms and conditions therein, Anworth will be merged with and into Merger Sub, with Merger Sub remaining as a wholly owned subsidiary
of Ready Capital (such surviving company, the “Surviving Company”, and such transaction, the “Merger”).
Following the consummation of the Merger, the Surviving Company will be contributed to Ready Capital’s operating partnership
subsidiary in exchange for additional partnership units.
Under the terms of the Merger Agreement,
at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.01 per share,
of Anworth (“Anworth Common Stock”) issued and outstanding immediately prior to the Effective Time (excluding any shares
held by Ready Capital, Merger Sub or any of their respective subsidiaries) will automatically be converted into the right to receive
from Ready Capital (i) 0.1688 shares of common stock, par value $0.0001, of Ready Capital (“Ready Capital Common Stock”),
plus (ii) $0.61 in cash minus the Per Share Excess Amount, in each case, subject to adjustment as provided in the Merger Agreement
(the “Per Share Common Merger Consideration”). The Per Share Excess Amount means an amount, if any, per share by which
Anworth’s termination expenses and transaction expenses exceed $32.5 million. Cash will be paid in lieu of any fractional
shares of Ready Capital Common Stock that would have been received as a result of the Merger.
Certain outstanding phantom shares granted
by Anworth under its 2014 Equity Compensation Plan or 2004 Equity Compensation Plan, as amended, will, as of the Effective Time,
automatically become fully vested and then immediately cancelled in exchange for the right to receive the Per Share Common Merger
Consideration. The remaining outstanding non-vesting phantom shares granted by Anworth will, as of the Effective Time, automatically
be cancelled without consideration.
Each outstanding dividend equivalent right
granted by Anworth under its 2007 Dividend Equivalent Rights Plan will, as of the Effective Time, automatically be cancelled; provided,
that any accrued amounts that have not yet been paid with respect to such dividend equivalent rights will be paid to the holders
thereof at the Effective Time (or as soon as practicable thereafter but in no event later than the first payroll date following
the Effective Time), less applicable income and employment tax withholdings.
At the Effective Time, each share of Anworth’s
8.625% Series A Cumulative Preferred Stock, $0.01 par value per share, will be converted into the right to receive one share of
a newly designated series of Ready Capital preferred stock, par value $0.0001 per share, which Ready Capital expects will be classified
and designed as Ready Capital’s Series B Preferred Stock (“Ready Capital Series B Preferred Stock”); each share
of Anworth’s 6.25% Series B Cumulative Convertible Preferred Stock, $0.01 par value per share, will be converted into the
right to receive one share of a newly designated series of Ready Capital preferred stock, par value $0.0001 per share, which Ready
Capital expects will be classified and designed as Ready Capital’s Series C Preferred Stock (“Ready Capital Series
C Preferred Stock”); and each share of Anworth’s 7.625% Series C Cumulative Redeemable Preferred Stock, $0.01 par value
per share, will be converted into the right to receive one share of a newly designated series of Ready Capital preferred stock,
par value $0.0001 per share, which Ready Capital expects will be classified and designed as Ready Capital’s Series D Preferred
Stock (“Ready Capital Series D Preferred Stock”).
The Merger Agreement provides that Anworth
and Ready Capital will pay a special 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 obligation of each party to
consummate the Merger is subject to a number of conditions, including, among others, (a) the approval of the issuance of the
Ready Capital Common Stock in connection with the Merger by the affirmative vote of a majority of the votes cast at a meeting
of Ready Capital stockholders (the “Ready Capital Stockholder Approval”), (b) the approval of the Merger and the
other transactions contemplated by the Merger Agreement by the affirmative vote of the holders of at least a majority of the
outstanding shares of Anworth Common Stock entitled to vote on the Merger (the “Anworth Stockholder Approval”),
(c) the registration and listing on the New York Stock Exchange of the shares of Ready Capital Common Stock, Ready Capital
Series B Preferred Stock, Ready Capital Series C Preferred Stock, and Ready Capital Series D Preferred Stock that will be
issued in connection with the Merger, (d) the respective representations and warranties of the parties being true and
correct, subject to the materiality standards contained in the Merger Agreement, (e) each party’s compliance in all
material respects with their respective covenants and agreements set forth in the Merger Agreement, (f) the absence of a
material adverse effect with respect to either Anworth or Ready Capital, (g) the effectiveness of an amendment to the
management agreement between Anworth and its external manager pertaining to the termination of such management agreement effective as of the Effective Time, (h) the effectiveness of an amendment to the management
agreement between Ready Capital and its external manager pertaining to the reduction in the base management fee payable to Ready Capital’s external manager by $1,000,000 per quarter for
each of the first four full quarters following the Effective Time, and (i) the delivery of certain documents and certificates.
The Merger Agreement contains
customary representations, warranties and covenants by each party. The respective representations and warranties of the
parties are subject to certain important qualifications and limitations set forth in confidential disclosure letters
delivered by Anworth, on the one hand, and Ready Capital, on the other hand, and were made solely for purposes of the
contract among the parties. The representations and warranties are subject to a contractual standard of materiality that may
be different from what may be viewed as material to stockholders, and the representations and warranties are primarily
intended to establish circumstances in which either of the parties may not be obligated to consummate the Merger, rather than
establishing matters as facts. In addition, the Merger Agreement provides that each of Anworth and Ready Capital will, until
the Effective Time, operate their respective businesses in all material respects in the ordinary course and consistent with
practice, and preserve substantially intact its current business organization and preserve key business relationships. Each
of Anworth and Ready Capital are subject to restrictions as specified in the Merger Agreement on certain actions each company
may take prior to the Effective Time, including, among other things, actions related to amending organizational documents,
declaring dividends, issuing or repurchasing capital stock, engaging in certain business transactions and incurring
indebtedness.
The Merger Agreement provides for reciprocal
“no-shop” provisions, which prohibit each of Anworth, Ready Capital, and their respective subsidiaries from, among
other things, (a) initiating, soliciting or knowingly encouraging the making of a competing proposal; (b) engaging in any discussions
or negotiations with any person with respect to a competing proposal; (c) furnishing any non-public information regarding it or
any of its subsidiaries, or access to its properties, assets or employees in connection with a competing proposal; (d) entering
into a letter of intent or agreement in principle or other agreement providing for a competing proposal; or (e) effecting a change
of recommendation. The no-shop provisions are subject to certain exceptions as more fully described in the Merger Agreement, including
the ability of Ready Capital or Anworth to engage in the foregoing activities under certain circumstances in the event that it
receives a bona fide, unsolicited competing proposal.
At any time prior to obtaining the requisite
stockholder approval, under certain specified circumstances, the respective board of directors of each of Anworth and Ready Capital
may change its recommendation to its respective stockholders regarding the Merger, or the issuance of shares of Ready Capital Common
Stock, as applicable, if such board of directors determines in good faith after consulting with its legal and financial advisors
that the failure to do so would reasonably be likely to be inconsistent with such board of directors’ legal duties under
applicable law, provided that the company intending to make the change of recommendation complies with the procedures set forth
in the Merger Agreement. With respect to Anworth, if such change of recommendation is made in response to a proposal that the board
of directors of Anworth has determined in good faith (after consultation with its legal and financial advisors) is a “superior
proposal”, after taking into account any adjustment to the terms and conditions of the Merger proposed by Ready Capital,
Anworth may terminate the Merger Agreement to accept such superior proposal upon payment of the termination fee described below.
The Merger Agreement contains certain termination
rights for both Anworth and Ready Capital, including if the Merger is not completed on or before September 30, 2021, the failure
to obtain the Anworth Stockholder Approval or the Ready Capital Stockholder Approval, a change of recommendation of the other party’s
board of directors, and breaches by the other party of certain covenants. In the event of a termination of the Merger Agreement
under certain circumstances, including a change of recommendation or, in the case of Anworth, the acceptance of a superior proposal,
Anworth or Ready Capital, as applicable, would be required to pay the other party a termination fee of $15,000,000. In addition,
upon termination of the Merger Agreement by Anworth or Ready Capital under specified circumstances, Anworth or Ready Capital, as
applicable, would be required to pay the other party an agreed expense amount of $3,000,000.
In the Merger Agreement, Ready Capital has
agreed to take all necessary corporate action so that upon and after the Effective Time, the size of the board of directors of
Ready Capital is increased by one member, and Dominique Mielle, who is currently a director of Anworth, is appointed to the board
of directors of Ready Capital. If Ms. Mielle is unable or unwilling to serve on the board of directors of Ready Capital, then a
substitute who is an independent director of Anworth may be designated by Anworth (subject to the substitute being reasonably acceptable
to Ready Capital) as specified in the Merger Agreement.
The foregoing description
of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement,
a copy of which is filed as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein by reference.
First Amendment to Management Agreement
In connection with
the execution of the Merger Agreement, Anworth, its external manager, Anworth Management LLC, a Delaware limited liability company
(the “Manager”), and Ready Capital entered into an amendment (the “Management Agreement Amendment”) to
the management agreement, dated as of December 31, 2011 (the “Management Agreement”), by and between Anworth and the
Manager. The Management Agreement Amendment provides that upon the completion of the transactions contemplated by the Merger
Agreement, the Management Agreement will terminate, and as a result of the completion of the transactions contemplated by the Merger
Agreement and the termination of the Management Agreement, Anworth will pay the Manager a termination fee of $20.3 million,
and Ready Capital or Merger Sub (as the Surviving Company following the Merger) will reimburse the Manager for certain unpaid expenses
and pay to the Manager all accrued and unpaid management fees then owed under the Management Agreement, as and when specified in
the Management Agreement Amendment.
The foregoing description
of the Management Agreement Amendment not purport to be complete and is qualified in its entirety by reference to the Management
Agreement Amendment, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by
reference.