RELATED PARTY TRANSACTIONS

Management Fee

The Company is externally managed and advised by the Manager. Pursuant to the terms of the management agreement in effect for the year ended December 31, 2017, the Company paid the Manager a management fee equal to 1.5% per annum, calculated and payable monthly in arrears. For purposes of calculating the management fee, the Company’s stockholders’ equity means the sum of the net proceeds from all issuances of the Company’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus the Company’s retained earnings at the end of the most recently completed calendar quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less any amount that the Company pays for repurchases of the Company’s common stock since inception, and excluding any unrealized gains, losses or other items that do not affect realized net income (regardless of whether such items are included in other comprehensive income or loss, or in net income). This amount is adjusted to exclude one-time events pursuant to changes in GAAP and certain non-cash items after discussions between the Manager and the Company’s independent directors and approval by a majority of the Company’s independent directors. To the extent asset impairment reduces the Company’s retained earnings at the end of any completed calendar quarter, it will reduce the management fee for such quarter. The Company’s stockholders’ equity for the purposes of calculating the management fee could be greater than the amount of stockholders’ equity shown on the financial statements. The initial term of the management agreement expired on May 16, 2014, but there have continued to be automatic, one-year renewals at the end of the initial term and each year thereafter. On January 18, 2018 the management agreement in effect for the year ended December 31, 2017 was terminated, and a new agreement with Hunt Investment Management, LLC became effective. Pursuant to the terms of the new management contract, we are required to pay our Manager an annual base management fee of 1.50% of Stockholders' Equity (as defined in the management agreement), payable quarterly (0.375% per quarter) in arrears. The definition of stockholders' equity in the new management agreement is materially unchanged from the definition in our prior management agreement. Additionally, starting in the first full calendar quarter following January 18, 2019, we are also required to pay our Manager a quarterly incentive fee equal to 20% of the excess of Core Earnings (as defined in the management agreement) over a hurdle rate of 8% per annum.

On June 7, 2017, the Company's prior Manager agreed to waive a portion equal to 0.75% of its 1.50% management fee on the net proceeds of the June 16, 2017 common stock offering, beginning with the payment due for the month of June 2017. The net amount of management fee waived through the period ended December 31, 2017 is $79,415.

For the year ended December 31, 2017, the Company incurred management fees of $2,215,050 (2016: $2,472,353; 2015: $2,774,432), included in Management Fee in the consolidated statement of operations, of which $182,000 (2016: $400,000) was accrued but had not been paid, included in fees and expenses payable to Manager in the consolidated balance sheets.

Expense Reimbursement

Pursuant to the management agreement, the Company is required to reimburse the Manager for operating expenses related to the Company incurred by the Manager, including accounting services, auditing and tax services, technology and office facilities, operations, compliance, legal and filing fees, and miscellaneous general and administrative costs, including the cost of non-investment management personnel of the Manager who spend all or a portion of their time managing the Company’s affairs.

On August 7, 2017, we received a commitment letter ("the Commitment Letter") from Oak Circle. The Commitment Letter provided that in furtherance of dialogues between our Board of Directors and Oak Circle to seek additional economies in the expenses for which Oak Circle may seek reimbursement from us pursuant to our Management Agreement, pursuant to the Commitment Letter Oak Circle represents, covenants and commits to us in respect of the 12-month period commencing October 1, 2017, Oak Circle will not seek reimbursement for, and we shall not be obligated to reimburse Oak Circle, for any non-investment management professional compensation-related expenses pursuant to Section 8(a) of the Management Agreement in excess of $2,000,000 unless otherwise agreed upon by our Board of Directors. On January 18, 2018 the management agreement in effect for the year ended December 31, 2017 was terminated, and a new agreement with Hunt Investment Management, LLC became effective. Pursuant to the terms of the new management agreement, our Manager has agreed upon certain limitations on manager expense reimbursement from us.

For the year ended December 31, 2017, the Company incurred reimbursable expenses of $4,127,549 (2016: $4,747,275; 2015: $4,980,348) included in operating expenses reimbursable to Manager in the consolidated statement of operations, of which $570,000 (2016: $480,000) was accrued but had not yet been paid, included in fees and expenses payable to Manager in the consolidated balance sheets.

Fulfillment and Securitization Fees

During 2015, the Company’s Manager accrued fees pursuant to Section 8(b) of the management agreement in addition to the Management Fee for services rendered in connection to FOAC’s aggregation of loans and subsequent contribution of these and certain other loans into the OAKS 2015-1 Trust and OAKS 2015-2 Trust. All of the invoices for such fees were approved by the Company’s Audit Committee pursuant to the Company’s related party transaction policies. There were no fees accrued during 2017 (2016: $0; 2015: $200,000) and no fees payable at December 31, 2017 (2016: $0).

Manager Equity Plan

The Company has adopted a Manager Equity Plan under which the Company may compensate the Manager and the Company’s independent directors or consultants, or officers whom it may employ in the future. In turn, the Manager, in its sole discretion, grants such awards to its directors, officers, employees or consultants. The Company will be able to issue under the Manager Equity Plan up to 3.0% of the total number of issued and outstanding shares of common stock (on a fully diluted basis) at the time of each award.

Stock based compensation arrangements may include incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock awards and other awards based on the Company’s common stock.

The following table summarizes the activity related to restricted common stock for the years December 31, 2017 and 2016:



	Year Ended December 31,
	2017				2016
	Shares		Weighted Average Grant Date Fair Market Value		Shares		Weighted Average Grant Date Fair Market Value
Outstanding Unvested Shares at Beginning of Period	4,500		$	5.97	15,500		$	12.79
Granted	4,500		4.33		4,500		5.97
Vested	(4,500	)	5.97		(15,500	)	12.79
Outstanding Unvested Shares at End of Period	4,500		$	4.33	4,500		$	5.97

For the year ended December 31, 2017, the Company recognized compensation expense related to restricted common stock of $20,585 (2016: $35,785; 2015: $63,275). The Company has unrecognized compensation expense of $15,535 as of December 31, 2017 (2016: $16,634; 2015: $46,405) for unvested shares of restricted common stock. As of December 31, 2017, the weighted average period for which the unrecognized compensation expense will be recognized is 9.7 months.

MAXEX LLC

The Company’s lead independent director is also an independent director of an entity, MAXEX LLC (“MAXEX”), with which the Company has a commercial business relationship. The objective of MAXEX, together with its subsidiaries, is to create a whole loan mortgage trading platform which encompasses a centralized counterparty with a standardized purchase and sale contract and an independent dispute resolution process. As of December 31, 2016, the Company had sold $22.5 million of residential mortgage loans to a third party buyer that were effected through MAXEX, for which the Company did not receive compensation other than receipt of loan sale proceeds from the third party; the Company has sold an additional $2.1 million in loans through MAXEX in 2017. For the year ended December 31, 2017, the Company has received $64,976 (2016: 209,088) in fees, net of $15,156 (2016: 44,354) in marketing services fees paid to MAXEX, relating to its provision to MAXEX of seller eligibility review and backstop services. These fees are recorded on the Company’s consolidated balance sheet as a liability in the line item “Deferred Income”. See Note 15 for additional disclosure relating to the backstop services.