Item 5 – Fees and Compensation
Management Fee
For the services we render to Five Oaks, we generally receive an asset-based management fee in an
amount equal to 1.5% per annum. The fee is calculated and payable monthly in arrears and based on
Five Oaks’ stockholders’ equity. OCCP’s management fees are negotiable under certain limited
circumstances. For purposes of calculating the management fee, “stockholders’ equity” means: 1) the
net proceeds from any issuances of Five Oaks’ equity securities since inception (prorated on a daily
basis for such issuances during the fiscal quarter of any such issuance), plus retained earnings,
calculated in accordance with GAAP, at the end of the most recently completed fiscal quarter (without
taking into account any non-cash equity compensation expense incurred in current or prior periods),
3) less any amount paid for repurchases of shares of common stock, but excluding 4) any unrealized
gains, losses or other non-cash items that have impacted stockholder’s equity, as reported in the
financial statements prepared in accordance with GAAP, regardless of whether such items are
included in other comprehensive income or loss, or in net income, and 5) one-time events pursuant to
changes in GAAP and certain other non-cash charges, if approved by a majority of Five Oak’s
independent directors.
As the result of the fee structure noted above that is based on stockholders’ equity, we may not be
sufficiently incentivized to pursue a business strategy that maximizes risk-adjusted returns for Five
Oaks’ portfolio. Instead, we are incentivized to increase stockholders’ equity, for example by
recommending follow-on stock offerings, which may not be in the best interests of Five Oaks or its
investors.
In addition to the asset-based management fee, as a component of our compensation, Five Oaks may
issue stock-based compensation to us under a Manager Equity Plan. The restricted stock units that
may be issued under this plan at any time may not exceed 3% of Five Oaks’ then outstanding
stockholders’ equity.
Termination Fee
Five Oaks is obligated to pay us a termination fee equal to three times the average annual
management fee earned by us during the prior 24-month period prior to such termination, calculated
as of the end of the most recently completed fiscal quarter prior to such termination, but only if Five
Oaks terminates the management agreement without “Cause”, as defined in that agreement.
Other Fees and Expenses
Five Oaks is responsible for the costs and expenses (including for goods and services provided by
third parties) incurred on its behalf by OCCP and/or its related persons or in connection with the
management agreement, except for those costs and expenses that are specifically required to be borne
by us under the management agreement. Among those fees, costs and expenses that Five Oaks is
responsible for are the following:
• all costs and expenses in connection with the acquisition, origination, disposition,
development, modification, protection, maintenance, financing, refinancing, hedging,
administration and ownership of Five Oaks’ assets (including costs and expenses incurred
for transactions that are not subsequently completed), including costs and expenses incurred
in contracting with third parties, including our affiliates, to provide such services, such as
legal fees, accounting fees, consulting fees, loan servicing fees, trustee fees, appraisal fees,
insurance premiums, commitment fees, brokerage fees, guaranty fees, ad valorem taxes,
costs of due diligence, foreclosure, maintenance, repair and improvement of property and
premiums for insurance on property owned or leased by Five Oaks;
• all costs and expenses in connection with legal, accounting, due diligence (including due
diligence costs for assets that are not subsequently acquired), securitization, property
management, brokerage, leasing and other services that outside professionals or outside
consultants perform or otherwise would perform on Five Oaks’ behalf and that are
performed by us or our affiliates;
• all costs and expenses of money borrowed by Five Oaks, including principal, interest and the
costs associated with the establishment and maintenance of any credit facilities, warehouse
loans, repurchase agreements and other indebtedness of Five Oaks (including commitment
fees, accounting fees, legal fees, closing and other costs and expenses);
• all taxes and license fees applicable to Five Oaks, including interest and penalties thereon;
• all fees paid to and expenses of third-party advisers and independent contractors,
consultants, managers and other agents (including real estate underwriters, brokers and special
servicers) engaged by Five Oaks or by us for Five Oaks’ account;
• all insurance costs incurred by Five Oaks, including any costs to obtain liability or other
insurance to indemnify us;
• all costs and expenses relating to the acquisition of, and maintenance and upgrades to, Five
Oaks’ portfolio accounting systems;
• all expenses of Five Oaks’ directors (including those directors who are also our employees),
the cost of directors’ and officers’ liability insurance and premiums for errors and omissions
insurance and any other insurance deemed necessary or advisable by Five Oaks’ Board of
Directors for Five Oaks’ benefit and that of Five Oaks’ directors and officers (including those
directors who are also our employees);
• all of our third-party legal, expert and other fees and expenses relating to any actions,
proceedings, lawsuits, demands, causes of action and claims, whether actual or threatened,
made by or against us or Five Oaks (in connection with our services on its behalf) or which
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