RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2019

Management Fee

The Company is externally managed and advised by the Manager. Pursuant to the terms of the prior management agreement in effect for the year ended December 31, 2019, the Company paid the prior manager a management fee equal to 1.5% per annum, calculated and payable quarterly (0.375% per quarter) in arrears. For purposes of calculating the management fee, the Company’s stockholders’ equity included 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 paid for repurchases of the Company’s common stock since inception, and excluding any unrealized gains, losses or other items that did not affect realized net income (regardless of whether such items were included in other comprehensive income or loss, or in net income). This amount was 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 an asset impairment reduced the Company’s retained earnings at the end of any completed calendar quarter, it would 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 consolidated financial statements. Additionally, starting in the first full calendar quarter following January 18, 2019, the Company is also required to pay the Manager a quarterly incentive fee equal to 20% of the excess of Core Earnings (as defined in the management agreement) over the product of (i) Stockholders' Equity as of the end of such fiscal quarter, and (ii) 8% per annum. On January 3, 2020, the management agreement in effect for the year ended December 31, 2019 was terminated, and a new management agreement with the Manager became effective. Pursuant to the terms of the new management contract, the Company is required to pay the 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 the prior management agreement. Additionally, starting in the first full calendar quarter following January 3, 2020, the Company is also required to pay the Manager a quarterly incentive fee equal to 20% of the excess of Core Earnings (as defined in the management agreement) over the product of (i) the Stockholders' Equity as of the end of such fiscal; quarter, and (ii) 8% per annum.

On June 7, 2017, a 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, for the next twelve monthly payments, beginning with the payment due for the month of June 2017. Due to the termination of that previous management agreement, the fee waiver terminated on January 18, 2018. The net amount of management fee waived from January 1, 2018 to January 18, 2018 was $6,959.

For the year ended December 31, 2019, the Company incurred management fees of $2,245,065 (2018: $2,335,998, net of $6,959 in management fees waived), recorded as "Management Fee" in the consolidated statement of operations, of which $564,620 (2018: $587,500) 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, 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. The Manager has agreed to certain limitations on manager expense reimbursement from the Company.

On March 18, 2019, the Company entered into a support agreement with the prior manager, pursuant to which, the prior manager agreed to reduce the reimbursement cap by 25% per annum (subject to such reduction not exceeding $568,000 per annum) until such time as the aggregate support provided thereunder equaled approximately $1.96 million. As of December 31, 2019, $89,379 in expense reimbursement has exceeded the reimbursement cap and was not paid. Pursuant to the terms of the new management agreement, the terms of the support agreement are unchanged.

For the year ended December 31, 2019, the Company incurred reimbursable expenses of $1,629,908 (2018: $2,375,804) recorded as "operating expenses reimbursable to Manager" in the consolidated statement of operations, of which $427,361 (2018: $587,500) was accrued but had not yet been paid, included in "fees and expenses payable to Manager" in the consolidated balance sheets.

Manager Equity Plan

The Company has in place 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 is 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, 2019 and 2018:


	Year Ended December 31,
	2019				2018
	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	$	3.40	4,500	$	4.33
Granted	4,500	3.33		4,500	3.40
Vested	(4,500)	3.40		(4,500)	4.33
Outstanding Unvested Shares at End of Period	4,500	$	3.33	4,500	$	3.40

For the year ended December 31, 2019, the Company recognized compensation expense related to restricted common stock of $8,962 (2018: $22,912). The Company has unrecognized compensation expense of $13,946 as of December 31, 2019 (2018: $7,922) for unvested shares of restricted common stock. As of December 31, 2019, the weighted average period for which the unrecognized compensation expense will be recognized is 5.4 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. For the year ended December 31, 2018, the Company received $359,626 in fees, net of $83,893 in marketing services fees paid to MAXEX, relating to its provision to MAXEX of seller eligibility review and backstop services. The Company did not receive any fees from MAXEX for the year ended December 31, 2019. Pursuant to an Assumption Agreement dated December 31, 2018, among MAXEX Clearing LLC and FOAC, MAXEX Clearing LLC assumed all of FOAC's obligations under its backstop guarantees and agreed to indemnify and hold FOAC harmless against any losses, liabilities, costs, expenses and obligations under the backstop guarantee. FOAC paid MAXEX Clearing LLC, as the replacement backstop provider, a fee of $426,770. See Note 14 for additional disclosure relating to the backstop services.

Hunt Financial Securities, LLC

During the second quarter of 2018, the Company sold four AFS securities with a total notional balance of $82.9 million to Hunt Financial Securities, LLC ("HFS"), an affiliate of the Company's prior manager.

Additionally, Hunt Financial Securities, LLC acted as a placement agent related to Hunt CRE 2018-FL2, Ltd. in the third quarter of 2018 and earned fees of $208,477 in this capacity.

The Company did not have any transactions with HFS during the year ended December 31, 2019.

Hunt Finance Company, LLC

During the year ended December 31, 2019, Hunt CRE 2017-FL1 purchased twenty-two loans with unpaid principal balance of $180.8 million at par and Hunt CRE 2018-FL2 purchased six loans with unpaid principal balance of $87.6 million and purchased twenty-five loan advances with unpaid principal balance of $12.0 million from Hunt Finance Company, LLC ("HFC"), an affiliate of our Manager. Additionally, Hunt CRE 2017-FL1, Seller sold six loan advances with unpaid principal balance of $6.8 million at par to HFC.

During the year ended 2018, Hunt CRE 2017-FL1, Ltd. purchased nine loans with unpaid principal balance of $151.1 million at par and Hunt CRE 2018-FL2, Ltd. purchased twenty-four loans with unpaid principal balance of $257.8 million at par from HFC.

Hunt Servicing Company, LLC

Hunt Servicing Company, LLC, an affiliate of the Manager, was appointed as the sub-servicer to the servicer with respect to mortgage assets for Hunt CRE 201-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. by KeyBank in its capacity as servicer with both CLOs. Additionally, Hunt Servicing Company, LLC was appointed by KeyBank as servicer to act as special servicer of any serviced mortgage that becomes a specially serviced mortgage loan.