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ZFC > SEC Filings for ZFC > Form 8-K on 6-Aug-2014All Recent SEC Filings

Show all filings for ZAIS FINANCIAL CORP.



Entry into a Material Definitive Agreement, Financial Statements and Exhibit

Item 1.01. Entry into a Material Definitive Agreement

On August 5, 2014, ZAIS Financial Corp. (the "Company"), in its capacity as guarantor, entered into an agreement and plan of merger (the "Merger Agreement") among ZFC Honeybee TRS, LLC ("Honeybee TRS"), an indirect subsidiary of the Company, ZFC Honeybee Acquisitions, LLC ("Honeybee Acquisitions"), a wholly owned subsidiary of Honeybee TRS, GMFS LLC ("GMFS"), and Honeyrep, LLC, solely in its capacity as the Securityholder Representative (as defined in the Merger Agreement). Subject to the terms and conditions of the Merger Agreement, Honeybee Acquisitions will merge with and into GMFS (the "Merger"), with GMFS surviving the Merger as an indirect subsidiary of the Company.

GMFS is an approved Fannie Mae Seller-Servicer, Freddie Mac Seller-Servicer, Ginnie Mae issuer, Department of Housing and Urban Development ("HUD") / Federal Housing Administration ("FHA") Mortgagee, U.S. Department of Agriculture
("USDA") approved originator and U.S. Department of Veterans Affairs ('VA")
Lender. GMFS currently originates loans that are eligible to be purchased, guaranteed or insured by Fannie Mae, Freddie Mac, FHA, VA and USDA through retail, correspondent and broker channels. GMFS also originates and sells reverse mortgage loans as part of its existing operations.

Under the terms of the Merger Agreement, the purchase price will consist of cash payable at closing, estimated at approximately $61 million, two contingent $1 million deferred premium payments payable in cash over two years, plus potential additional consideration based on future loan production and profits which will be payable over a four-year period if certain conditions are met. The cash payable at closing will include the actual market value of GMFS's mortgage servicing rights portfolio, which was $30.1 million at June 30, 2014. In addition to the value of the mortgage servicing rights portfolio, the purchase price will reflect the actual value of GMFS's net tangible assets at closing. The $2 million of deferred premium payments is contingent on GMFS remaining profitable and retaining certain key employees. The additional contingent consideration is dependent on GMFS achieving certain profitability and loan production goals and is capped at $20 million. Up to 50% of the additional contingent consideration may be paid in common stock of the Company, at the Company's option. The Company intends to fund the closing payment from existing cash and the sale of non-agency RMBS holdings.

The obligation of each party to the Merger Agreement to consummate the Merger is subject to a number of conditions, including the receipt of regulatory and seller/servicer related approvals relating to the transfer of GMFS's licenses, the delivery of certain documents and consents, the representations and warranties of the parties being true and correct, subject to the materiality standards contained in the Merger Agreement, and the absence of a material adverse effect on GMFS.

The Company anticipates that the closing of the Merger will occur in the fourth quarter of 2014. Upon closing, the Company expects GMFS to continue to operate under its existing name, and under the leadership of the current management team. The Merger Agreement contains customary representations and warranties by the parties, as well as customary covenants, including non-competition and non-solicitation covenants by GMFS's key managers, a covenant by GMFS to conduct its business and operations in the ordinary course between the date of the Merger Agreement and the closing of the Merger and indemnification covenants by both parties, subject to stated thresholds and limitations.

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The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.

Forward-Looking Statements

This report contains statements that constitute "forward-looking statements," as such term is defined in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended and such statements are intended to be covered by the safe harbor provided by the same. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements; the Company can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from the Company's expectations include a delay in the closing of the Merger; changes in future loan production; the Company's ability to retain certain key managers of GMFS; the Company's ability to integrate GMFS's operations; the availability of suitable investment opportunities; changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability and terms of financing; general economic conditions; market conditions; conditions in the market for mortgage-related investments; legislative and regulatory changes that could adversely affect the business of the Company or GMFS; and other factors, including those set forth in the Risk Factors section of the Company's Annual Report on Form 10-K filed on March 13, 2014 and other reports filed by the Company with the SEC, copies of which are available on the SEC's website, The Company undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

2.1 Agreement and Plan of Merger dated August 5, 2014, by and among ZFC Honeybee TRS, LLC, ZFC Honeybee Acquisitions, LLC, GMFS LLC, Honeyrep, LLC, solely in its capacity as the Securityholder Representative and ZAIS Financial Corp., as guarantor.

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