Item 5: Fees and Compensation
Fees are separately determined for each client. As a general matter, the Manager and its affiliates receive (i) management
and incentive fees pursuant to advisory contracts and other agreements with clients; and (ii) other fees and expense
reimbursements, as described in more detail below.
Management and Incentive Fees
The Company
The Company’s management agreement with the Manager (“Management Agreement”), and the Company’s
subsidiary, Credit RE Operating Company, LLC (“Operating Company”) provides for both an annual base
management fee and an incentive fee. The annual base management fee, calculated and payable quarterly in
arrears in cash, is equal to:
• one and one-half percent (1.50%) of “Stockholders’ Equity” per annum, calculated and payable quarterly
in arrears in cash.
“Stockholders’ Equity” means
• the sum of:
o the net proceeds received by the Company (or, without duplication, the Company’s direct
subsidiaries, such as Operating Company) from all issuances of the Company’s or such
subsidiaries’ common and preferred equity securities since inception (allocated on a pro rata daily
basis for such issuances during the calendar quarter of any such issuance); plus
o cumulative “core earnings” (as defined in the Management Agreement) from and after the
effective date of the Management Agreement to the end of the most recently completed calendar
quarter,
• less:
o any distributions to the Company’s common stockholders (or owners of common equity of the
Company’s direct subsidiaries, such as Operating Company) (other than the Company or any of
such subsidiaries);
o any amount that the Company or any of the Company’s direct subsidiaries (such as Operating
Company) has paid to (1) repurchase for cash the common stock or common equity securities of
such subsidiaries or (2) repurchase or redeem for cash preferred equity securities of the Company
or such subsidiaries, in each case since the effective date of the Management Agreement; and
o any incentive fee (discussed below) paid to the Manager following the effective date of the
Management Agreement.
Incentive fees, calculated and payable quarterly in arrears in cash in an amount, not less than zero, equal to the
difference between:
• the product of (a) twenty percent (20%) and (b) the difference between (1) “core earnings” (as defined in
the Management Agreement) for the most recent twelve (12)-month period (or if the effective date is less
than twelve (12) months earlier, since the effective date), including the current quarter, and (2) the product
of (A) the common equity in the most recent twelve (12)-month period (or if the effective date is less than
twelve (12) months earlier, since the effective date), including the current quarter, and (B) seven percent
(7%) per annum, and
• the sum of any incentive fee paid to the Manager with respect to the first three (3) calendar quarters
of the most recent twelve (12)-month period (or if the effective date is less than twelve (12) months
earlier, since the effective date);
provided, however, that no incentive fee shall be payable with respect to any calendar quarter unless core
earnings is greater than zero for the most recently completed twelve (12) calendar quarters (or if the effective
date is less than twelve (12) calendar quarters earlier, since the effective date).
For purposes of calculating the incentive fee prior to the completion of a twelve (12)-month period during the
term of the Management Agreement, core earnings shall be calculated on the basis of the number of days that
the Management Agreement has been in effect on an annualized basis.
If the effective termination date of the Management Agreement does not correspond to the end of a calendar
quarter, the Manager’s incentive fee shall be calculated for the period beginning on the day after the end of the
calendar quarter immediately preceding the effective termination date of the Management Agreement and
ending on the effective termination date of the Management Agreement, which incentive fee shall be calculated
using core earnings for the twelve (12)-month period ending on the effective termination date.
Other Fees and Expense Reimbursements
Expense Reimbursements
Reimbursement of expenses related to the Company incurred by the Manager, including legal, accounting, financial,
due diligence and other services will be paid on the Company’s behalf by the Operating Company or its designee(s).
The Operating Company will reimburse the Manager for the Company’s allocable share of the salaries, bonus, any
related withholding taxes and employee benefits of the Company’s chief financial officer and certain of its affiliates’
non-investment personnel who spend all or a portion of their time managing the Company’s affairs, and the
Company’s share of such costs will be based upon the percentage of such time devoted by personnel of the Manager
(or its affiliates) to the Company’s affairs. The Operating Company may or will be required to pay the Company’s pro
rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead
expenses of the Manager and its affiliates required for the Company’s operations.
Termination Fee
Upon termination of the management agreement by the Company without cause or by the Manager if the Company
materially breaches the management agreement, the Company will owe the Manager a termination fee equal to three
times the sum of (i) the average annual base management fee and (ii) the average annual incentive fee, in each case
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