e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31,
2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
001-32136
Arbor Realty Trust,
Inc.
(Exact name of registrant as
specified in its charter)
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Maryland
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20-0057959
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(State or other jurisdiction
of incorporation)
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(I.R.S. Employer
Identification No.)
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333 Earle Ovington Boulevard, Suite 900
Uniondale, NY
(Address of principal
executive offices)
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11553
(Zip
Code)
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(516) 506-4200
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common stock, par value $0.01 per share
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The New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the proceeding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in the definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act.
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company þ
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants common
stock, all of which is voting, held by non-affiliates of the
registrant as of June 30, 2009 (computed based on the
closing price on such date as reported on the NYSE) was
$30.9 million. As of March 8, 2010, the registrant had
25,387,410 shares of common stock outstanding (excluding
279,400 shares held in treasury).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the
registrants 2010 Annual Meeting of Stockholders (the
2010 Proxy Statement), to be filed within
120 days after the end of the registrants fiscal year
ended December 31, 2009, are incorporated by reference into
Part III of this Annual Report on
Form 10-K.
FORWARD
LOOKING STATEMENTS
This report contains certain forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
relate to, among other things, the operating performance of our
investments and financing needs. Forward-looking statements are
generally identifiable by use of forward-looking terminology
such as may, will, should,
potential, intend, expect,
endeavor, seek, anticipate,
estimate, overestimate,
underestimate, believe,
could, project, predict,
continue or other similar words or expressions.
Forward-looking statements are based on certain assumptions,
discuss future expectations, describe future plans and
strategies, contain projections of results of operations or of
financial condition or state other forward-looking information.
Our ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Although we believe
that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, our actual
results and performance could differ materially from those set
forth in the forward-looking statements. These forward-looking
statements involve risks, uncertainties and other factors that
may cause our actual results in future periods to differ
materially from forecasted results. Factors that could have a
material adverse effect on our operations and future prospects
include, but are not limited to, changes in economic conditions
generally and the real estate market specifically; adverse
changes in the financing markets we access affecting our ability
to finance our loan and investment portfolio; changes in
interest rates; the quality and size of the investment pipeline
and the rate at which we can invest our cash; impairments in the
value of the collateral underlying our loans and investments;
changes in the markets; legislative/regulatory changes;
completion of pending investments; the availability and cost of
capital for future investments; competition within the finance
and real estate industries; and other risks detailed from time
to time in our SEC reports. Readers are cautioned not to place
undue reliance on any of these forward-looking statements, which
reflect our managements views as of the date of this
report. The factors noted above could cause our actual results
to differ significantly from those contained in any
forward-looking statement. For a discussion of our critical
accounting policies, see Managements Discussion and
Analysis of Financial Condition and Results of Operations of
Arbor Realty Trust, Inc. and Subsidiaries
Significant Accounting Estimates and Critical Accounting
Policies under Item 7 of this report.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements.
We are under no duty to update any of the forward-looking
statements after the date of this report to conform these
statements to actual results.
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PART I
Overview
Arbor Realty Trust, Inc. is a specialized real estate finance
company that invests in a diversified portfolio of structured
finance assets in the multi-family and commercial real estate
markets. We invest primarily in real estate-related bridge and
mezzanine loans, including junior participating interests in
first mortgages, preferred and direct equity, and in limited
cases, discounted mortgage notes and other real estate-related
assets, which we refer to collectively as structured finance
investments. We also invest in mortgage-related securities and
real estate property. Our principal business objective is to
maximize the difference between the yield on our investments and
the cost of financing these investments to generate cash
available for distribution, facilitate capital appreciation and
maximize total return to our stockholders.
We are organized to qualify as a real estate investment trust
(REIT) for federal income tax purposes. A REIT is
generally not subject to federal income tax on that portion of
its REIT taxable income (Taxable Income) that is
distributed to its stockholders, provided that at least 90% of
Taxable Income is distributed and provided that certain other
requirements are met. Certain of our assets that produce
non-qualifying income are held in taxable REIT subsidiaries.
Unlike other subsidiaries of a REIT, the income of a taxable
REIT subsidiary is subject to federal and state income taxes.
We commenced operations in July 2003 and conduct substantially
all of our operations and investing activities through our
operating partnership, Arbor Realty Limited Partnership, and its
wholly-owned subsidiaries. We serve as the general partner of
our operating partnership, and own a 100% partnership interest
in our operating partnership as of December 31, 2009.
We are externally managed and advised by Arbor Commercial
Mortgage, LLC (ACM), a national commercial real
estate finance company that specializes in debt and equity
financing for multi-family and commercial real estate, pursuant
to the terms of a management agreement described below. ACM
provides us with all of the services vital to our operations
other than asset management and securitization, and our
executive officers and other staff are all employed by our
manager, ACM, pursuant to the management agreement. The
management agreement requires ACM to manage our business affairs
in conformity with the policies and investment guidelines that
are approved and monitored by our board of directors.
We believe ACMs experience and reputation positions it to
originate attractive investment opportunities for us. Our
management agreement with ACM was developed to capitalize on
synergies with ACMs origination infrastructure, existing
business relationships and management expertise. ACM has granted
us a right of first refusal to pursue all structured finance
investment opportunities in the multi-family or commercial real
estate markets that are identified by ACM or its affiliates. ACM
continues to originate and service multi-family and commercial
mortgage loans under Fannie Mae, Federal Housing Administration
and conduit commercial lending programs. We believe that the
customer relationships established from these lines of business
may generate additional real estate investment opportunities for
our business.
Current
Market Conditions
In 2009, the global economic and financial deterioration that
began in 2007 continued, resulting in ongoing disruptions in the
credit and capital markets, significant devaluations of assets,
lack of liquidity throughout the worldwide financial system and
a global economic recession. Global deleveraging by most
financial institutions has severely limited the availability of
capital for most businesses, including those involved in the
commercial real estate sector. As a result, we, and most
institutions in our industry, have significantly reduced new
investment activity until the capital markets become more stable
and market liquidity increases. Under normal market conditions,
we rely on these credit and equity markets to generate capital
for financing the growth of our business. However, in this
current environment, we are focused on managing our portfolio to
preserve capital, generate and recycle liquidity from existing
assets and actively manage our financing facilities.
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Global stock and credit markets have experienced prolonged price
volatility, dislocations and liquidity disruptions, which have
caused market prices of many stocks to fluctuate substantially
and the spreads on prospective debt financings to widen
considerably. Commercial real estate classes in general have
been adversely affected by this prolonged economic downturn and
liquidity crisis. If this continues, the commercial real estate
sector will likely experience additional losses, challenges in
complying with the terms of financing agreements, decreased net
interest spreads, and additional difficulties in raising capital
and obtaining investment financing on attractive terms.
These market conditions have also resulted in the unavailability
of certain types of financing, and, in certain cases, making
terms for certain financings less attractive. If these
conditions persist, lending institutions may be forced to exit
markets such as repurchase lending, become insolvent, further
tighten their lending standards or increase the amount of equity
capital required to obtain financing. In addition, these factors
may make it more difficult for borrowers to repay our loans as
they may experience difficulties in selling assets, increased
costs of financing or obtaining financing at all. It may also
make it more difficult for companies like us to raise capital
through the issuance of common or preferred stock.
This environment has had a significant impact on our business,
our borrowers and real estate values throughout all asset
classes and geographic locations. Declining real estate values
will likely continue to minimize our level of new mortgage loan
originations, since borrowers often use increases in the value
of their existing properties to support the purchase or
investment in additional properties. Borrowers may also be less
able to pay principal and interest on our loans if the real
estate economy weakens. Declining real estate values also
significantly increase the likelihood that we will continue to
incur losses on our loans in the event of default because the
value of our collateral may be insufficient to cover our
investment in the loan. Any sustained period of increased
payment delinquencies, foreclosures or losses could adversely
affect both our net interest income from loans in our portfolio
as well as our ability to originate, sell and securitize loans,
which would significantly harm our revenues, results of
operations, financial condition, business prospects and our
ability to make distributions to the stockholders. We have made,
and continue to make modifications and extensions to loans when
it is economically feasible to do so. In some cases,
modification is a more viable alternative to foreclosure
proceedings when a borrower can not comply with loan terms. In
doing so, lower borrower interest rates, combined with
non-performing loans will result in reduced net interest margins.
In summary, commercial real estate financing companies have been
severely impacted by the current economic environment and have
had very little access to the capital markets or the debt
markets in order to meet their existing obligations or to
refinance maturing debt, and it is difficult to predict when
conditions will improve. We have responded to these troubled
times by decreasing investment activity for capital
preservation, aggressively managing our assets through
restructuring and extending our debt facilities and repurchasing
and retiring our previously issued debt at discounts when
economically feasible. In order to accomplish these goals, we
have worked closely with our borrowers in restructuring our
loans, receiving payoffs and paydowns and monetizing our
investments as appropriate. We will continue to remain focused
on executing these strategies when appropriate and where
available as this significant economic downturn persists.
Our
Corporate History
On July 1, 2003, ACM contributed a portfolio of structured
finance investments to our operating partnership. Concurrently
with this contribution, we and our operating partnership entered
into a management agreement with ACM pursuant to which ACM
manages our investments for a base management fee and incentive
compensation, and the nine person asset management group of ACM
became our employees.
In exchange for ACMs contribution of structured finance
investments, our operating partnership issued approximately
3.1 million units of limited partnership interest, or
operating partnership units, and approximately 0.6 million
warrants to purchase additional operating partnership units at
an initial exercise price of $15.00 per operating partnership
unit to ACM. Concurrently, we, our operating partnership and ACM
entered into a pairing agreement. Pursuant to the pairing
agreement, each operating partnership unit issued to ACM and
issuable to ACM upon exercise of its warrants for additional
operating partnership units in connection with the contribution
of initial assets was paired with one share of the
Companys special voting preferred stock. In October 2004,
ACM exercised
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these warrants and held approximately 3.8 million operating
partnership units, constituting an approximately 16% limited
partnership interest in our operating partnership. ACM had the
ability to redeem each of these operating partnership units for
cash or, at our election, one share of our common stock. We
granted ACM certain demand and other registration rights with
respect to the shares of common stock that may be issued upon
redemption of these operating partnership units. Each of these
operating partnership units were also paired with one share of
our special voting preferred stock entitling ACM to one vote on
all matters submitted to a vote of our stockholders. Upon
redemption of these operating partnership units, an equivalent
number of shares of our special voting preferred stock would be
redeemed and cancelled.
Concurrently with ACMs contribution of investments to our
operating partnership, we sold approximately 1.6 million of
our units, each consisting of five shares of our common stock
and one warrant to purchase an additional share of common stock
at an initial exercise price of $15.00 per share, for $75.00 per
unit in a private placement and agreed to register the shares of
common stock underlying these units and warrants for resale
under the Securities Act of 1933, as amended (the
1933 Act). In July 2004, we registered
approximately 9.6 million shares of common stock underlying
these units and warrants. At December 31, 2005,
approximately 1.6 million warrants were exercised, of which
0.5 million were exercised cashless, for a
total of 1.3 million common shares issued pursuant to their
exercise.
In April 2004, we closed our initial public offering in which we
issued and sold 6.3 million shares of common stock and a
selling stockholder sold 22,500 shares of common stock,
each at $20.00 per share. Concurrently with the initial public
offering, we sold 0.5 million shares of common stock at the
initial public offering price directly to an entity wholly-owned
by one of our directors. The underwriters of our initial public
offering exercised their overallotment option and, in May 2004,
we issued and sold an additional 0.5 million shares of our
common stock pursuant to such exercise.
In March 2007, we filed a shelf registration statement on
Form S-3
with the Securities and Exchange Commission (SEC)
under the 1933 Act with respect to an aggregate of
$500.0 million of debt securities, common stock, preferred
stock, depositary shares and warrants, that may be sold by us
from time to time pursuant to Rule 415 of the
1933 Act. On April 19, 2007, the SEC declared this
shelf registration statement effective.
In June 2007, we sold 2,700,000 shares of our common stock
registered on the shelf registration statement in a public
offering at a price of $27.65 per share, for net proceeds of
approximately $73.6 million after deducting the
underwriting discount and the other estimated offering expenses.
We used the proceeds to pay down debt and finance our loan and
investment portfolio. The underwriters did not exercise their
over allotment option for additional shares.
Since January 2005, we completed three non-recourse
collateralized debt obligation (CDO) transactions,
whereby $1.44 billion of real estate-related and other
assets were contributed to three newly-formed consolidated
subsidiaries, which issued $1.21 billion of investment
grade-rated floating-rate notes in three separate private
placements. These proceeds were used to repay outstanding debt
and resulted in a decreased cost of funds relating to the CDO
assets.
Since March 2005, we issued a total of $290.0 million of
junior subordinated notes in private placements. The junior
subordinated notes are unsecured, have a maturity of 24 to
27 years, pay interest quarterly at a fixed rate or
floating rate of interest based on three-month LIBOR and, absent
the occurrence of special events, are not redeemable during the
first five years. In February 2010, we retired
$114.1 million of our junior subordinated notes in exchange
for the re-issuance of certain of our own CDO bonds, as well as
other assets.
In June 2008, our external manager exercised its right to redeem
its approximate 3.8 million operating partnership units in
our operating partnership for shares of our common stock on a
one-for-one
basis. In addition, the special voting preferred shares paired
with each operating partnership unit, pursuant to the pairing
agreement, were redeemed simultaneously and cancelled. ACM
currently holds approximately 21.2% of the voting power of our
outstanding common stock.
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Our
Investment Strategy
Our principal business objectives are to invest in bridge and
mezzanine loans, including junior participating interests in
first mortgages, preferred and direct equity and other real
estate-related assets in the multifamily and commercial real
estate markets and actively manage our investment portfolio in
order to generate cash available for distribution, facilitate
capital appreciation and maximize total return to our
stockholders. We believe the financing of multi-family and
commercial real estate offers opportunities that demand
customized financing solutions. We believe we can achieve these
objectives through the following business and growth strategies:
Provide Customized Financing. We provide
financing customized to the needs of our borrowers. We target
borrowers who have demonstrated a history of enhancing the value
of the properties they operate, but whose options may be limited
by conventional bank financing and who may benefit from the
sophisticated structured finance products we offer.
Execute Transactions Rapidly. We act quickly
and decisively on proposals, provide commitments and close
transactions within a few weeks and sometimes days, if required.
We believe that rapid execution attracts opportunities from both
borrowers and other lenders that would not otherwise be
available. We believe our ability to structure flexible terms
and close loans in a timely manner gives us a competitive
advantage over our competition.
Manage Credit Quality. A critical component of
our strategy in the real estate finance sector is our ability to
manage the real estate risk that is underwritten by our manager
and us. We actively manage the credit quality of our portfolio
by using the expertise of our asset management group, which has
a proven track record of structuring and repositioning
structured finance investments to improve credit quality and
yield.
Use Arbor Commercial Mortgages Relationships with
Existing Borrowers. We capitalize on ACMs
reputation in the commercial real estate finance industry. ACM
has relationships with a large borrower base nationwide. Since
ACMs originators offer senior mortgage loans as well as
our structured finance products, we are able to benefit from its
existing customer base and use its senior lending business as a
potential refinance vehicle for our structured finance assets.
Offer Broader Products and Expand Customer
Base. We have the ability to offer a larger
number of financing alternatives than ACM has been able to offer
to its customers in the past. Our potential borrowers are able
to choose from products offering longer maturities and larger
principal amounts than ACM could previously offer.
Leverage the Experience of Executive Officers, Arbor
Commercial Mortgage and Our Employees. Our
executive officers and employees, and those of ACM, have
extensive experience originating and managing structured
commercial real estate investments. Our senior management team
has on average over 20 years of experience in the financial
services industry.
Our
Targeted Investments
We pursue lending and investment opportunities with property
owners and developers who need interim financing until permanent
financing can be obtained. We primarily target transactions
where we believe we have competitive advantages, particularly
our lower cost structure and in-house underwriting capabilities.
Our structured finance investments generally have maturities of
two to five years, depending on type, have extension options
when appropriate, and generally require a balloon payment of
principal at maturity. Borrowers in the market for these types
of loans include, but are not limited to, owners or developers
seeking either to acquire or refurbish real estate or to pay
down debt and reposition a property for permanent financing.
Our investment program emphasizes the following general
categories of real estate-related activities:
Bridge Financing. We offer bridge financing
products to borrowers who are typically seeking short-term
capital to be used in an acquisition of property. The borrower
has usually identified an undervalued asset that has been under
managed
and/or is
located in a recovering market. From the borrowers
perspective, shorter term bridge financing is advantageous
because it allows for time to improve the property value through
repositioning the property without encumbering it with
restrictive long term debt.
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The bridge loans we make typically range in size from
$1 million to $75 million and are predominantly
secured by first mortgage liens on the property. The term of
these loans typically is up to five years. Historically,
interest rates have typically ranged from 1.10% to 9.00% over
30-day
LIBOR, with fixed rates ranging from 1.70% to 13.00%. At
December 31, 2009, interest rates typically ranged from
1.70% to 8.00% over
30-day
LIBOR, with fixed rates ranging from 1.70% to 12.20%. Additional
yield enhancements may include origination fees, deferred
interest, yield look-backs, and participating interests, which
are equity interests in the borrower that share in a percentage
of the underlying cash flows of the property. Borrowers
generally use the proceeds of a conventional mortgage to repay a
bridge loan.
Junior Participation Financing. We offer
junior participation financing in the form of junior
participating interest in the senior debt. Junior participation
financings have the same obligations, collateral and borrower as
the senior debt. The junior participation interest is
subordinated to the senior debt by virtue of a contractual
agreement between the senior debt lender and the junior
participating interest lender.
Our junior participation loans typically range in size from
$1 million to $60 million and have terms of up to ten
years. Historically, interest rates have typically ranged from
2.30% to 9.75% over
30-day
LIBOR, with fixed rates ranging from 4.70% to 12.80%. At
December 31, 2009, interest rates typically ranged from
2.30% to 7.20% over
30-day
LIBOR, with fixed rates ranging from 4.70% to 12.80%. As in the
case with our bridge loans, the yield on these investments may
be enhanced by prepaid and deferred interest payments, yield
look-backs and participating interests.
Mezzanine Financing. We offer mezzanine
financing in the form of loans that are subordinate to a
conventional first mortgage loan and senior to the
borrowers equity in a transaction. Mezzanine financing may
take the form of loans secured by pledges of ownership interests
in entities that directly or indirectly control the real
property or subordinated loans secured by second mortgage liens
on the property. We may also require additional security such as
personal guarantees, letters of credit
and/or
additional collateral unrelated to the property.
Our mezzanine loans typically range in size from $1 million
to $50 million and have terms of up to ten years.
Historically, interest rates have typically ranged from 2.00% to
12.00% over
30-day
LIBOR, with fixed rates ranging from 5.00% to 16.00%. At
December 31, 2009, interest rates typically ranged from
2.00% to 10.00% over
30-day
LIBOR, with fixed rates ranging from 6.00% to 16.00%. As in the
case with our bridge loans, the yield on these investments may
be enhanced by prepaid and deferred interest payments, yield
look-backs and participating interests.
We hold a majority of our mezzanine loans through subsidiaries
of our operating partnership that are pass-through entities for
tax purposes or taxable subsidiary corporations.
Preferred Equity Investments. We provide
financing by making preferred equity investments in entities
that directly or indirectly own real property. In cases where
the terms of a first mortgage prohibit additional liens on the
ownership entity, investments structured as preferred equity in
the entity owning the property serve as viable financing
substitutes. With preferred equity investments, we typically
become a special limited partner or member in the ownership
entity.
Our preferred equity investments typically range in size from
$0.3 million to $100.0 million, have terms up to ten
years and interest rates that have typically ranged from 3.75%
to 6.00% over
30-day
LIBOR, with fixed rates ranging from 5.00% to 15.00%. At
December 31, 2009, our preferred equity investments ranged
in size from $0.3 million to $96.0 million and
interest rates typically ranged from 4.50% to 6.00% over
30-day
LIBOR, with fixed rates ranging from 6.22% to 11.40%.
Real Property Acquisitions. We have, and may
in the future, acquire real estate by foreclosure or deed in
lieu of foreclosure related to our loans. Our management team
may identify such assets and initiate an asset-specific plan to
maximize the value of the collateral, which can include
appointing a third party property manager, completing the
construction or renovation of the property, continuing the sale
of condominium units, leasing or increasing the occupancy of the
property, or selling the entire asset or a partial interest to a
third party. Additionally, we may identify real estate
investment opportunities such as domestic real estate for
repositioning
and/or
renovation and then disposition at an anticipated significant
return. In these situations, we
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may act solely on our own behalf or in partnership with other
investors. Typically, these transactions are analyzed with the
expectation that we will have the ability to sell the property
within a one to three year time period, achieving a significant
return on invested capital. In connection with these
transactions, speed of execution is often the most critical
component to success. We may seek to finance a portion of the
acquisition price through short-term financing. Repayment of the
short-term financing will either come from the sale of the
property or conventional permanent debt.
Note Acquisitions. We may acquire real estate
notes from lenders in situations where the borrower wishes to
restructure and reposition its short-term debt and the lender
wishes, for a variety of reasons (such as risk mitigation,
portfolio diversification or other strategic reasons), to divest
certain assets from its portfolio. These notes may be acquired
at a discount. In such cases, we intend to use our management
resources to resolve any disputes concerning the note or the
property securing it and to identify and resolve any existing
operational or any other problems at the property. We will then
either restructure the debt obligation for immediate resale or
sale at a later date, or reposition it for permanent financing.
In some instances, we may take title to the property underlying
the real estate note.
Equity Securities. We have and may, in the
future, invest in equity securities such as the common stock of
a commercial real estate specialty finance company. Investments
in these securities have the risk of stock market fluctuations
which may result in the loss of our principal investment.
Commercial Real Estate Collateralized Debt Obligation
Bonds. We have and may, in the future, invest in
securities such as investment grade commercial real estate
collateralized debt obligation bonds. These certificates are
purchased at a discount to their face value which is accreted
into interest income on an effective yield adjusted for actual
prepayment activity over the average life of the related
security as a yield adjustment. These securities have underlying
credit ratings assigned by the three leading nationally
recognized rating agencies (Moodys Investor Service,
Standard & Poors and Fitch Ratings) and are
generally not insured or otherwise guaranteed.
Commercial Mortgage-Backed Securities. We have
and may, in the future, invest in investment grade commercial
mortgage-backed securities. These securities are purchased at a
discount to their face value which is accreted into interest
income on an effective yield adjusted for actual prepayment
activity over the average life of the related security as a
yield adjustment. These securities have underlying credit
ratings assigned by the three leading nationally recognized
rating agencies (Moodys Investor Service,
Standard & Poors and Fitch Ratings) and are
generally not insured or otherwise guaranteed.
Our
Structured Finance Investments
We own a diversified portfolio of structured finance investments
consisting primarily of real estate-related bridge, junior
participation interests in first mortgages, and mezzanine loans
as well as preferred equity investments and mortgage-related
debt securities.
At December 31, 2009, we had 126 loans and investments in
our portfolio, totaling $2.0 billion. These loans and
investments were for 69 multi-family properties, 27 office
properties, 11 hotel properties, 11 land properties, six
commercial properties, one condominium property, and two retail
properties. We have an allowance for loan losses of
$326.3 million at December 31, 2009 related to 31
loans in our portfolio with an aggregate carrying value, before
reserves, of $693.7 million. The loan loss reserves were
the result of our regular quarterly risk rating review process
which is based on several factors including current market
conditions, values and the operating status of these properties.
We continue to actively manage all loans and investments in the
portfolio through our strict underwriting and active asset
management with the goal of maintaining the credit quality of
our portfolio and limiting potential losses. We also have at
December 31, 2009, seven commercial real estate
collateralized debt obligation bond investments and three
commercial mortgage-backed security investments with carrying
values of $48.2 million and $12.7 million,
respectively.
The overall yield on our loan and investments portfolio in 2009
was 5.08% on average assets of $2.3 billion. This yield was
computed by dividing the interest income earned during the year
by the average assets during the
6
year. Our cost of funds in 2009 was 4.27% on average borrowings
of $1.9 billion. This cost of funds was computed by
dividing the interest expense incurred during the year by the
average borrowings during the year.
Our average net investment (average assets less average
borrowings) in 2009 was $418.6 million, resulting in
average leverage (average borrowings divided by average assets)
of 81.8%. Including average junior subordinated notes of
$283.8 million as equity, our average leverage was 69.4%.
The net interest income earned in 2009 yielded an 8.7% return on
our average net investment during the year. This yield was
computed by dividing net interest (interest income less interest
expense) earned in 2009 by average equity (computed as average
assets minus average borrowings) invested during the year.
Our business plan contemplates that our leverage ratio,
including our junior subordinated notes as equity, will be
around 70% to 80% of our assets in the aggregate. However,
including our junior subordinated notes as equity, our leverage
is generally not to exceed 80% of the value of our assets in the
aggregate when considering additional financing sources unless
approval to exceed the 80% limit is obtained from our board of
directors. See Operating Policies and Strategies
below for further details. At December 31, 2009, our
overall leverage ratio including the junior subordinated notes
as equity was 83%, which was the result of a decrease in the
carrying value of our assets due to loan loss reserves.
The following table set forth information regarding our loan and
investment portfolio as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Unpaid Principal
|
|
|
Weighted Average
|
|
|
Remaining
|
|
Type
|
|
Asset Class
|
|
Number
|
|
|
(Dollars in Thousands)
|
|
|
Pay Rate(1)
|
|
|
Maturity (months)
|
|
|
Bridge Loans
|
|
Multi Family
|
|
|
25
|
|
|
$
|
477,880
|
|
|
|
5.60
|
%
|
|
|
23.8
|
|
|
|
Office
|
|
|
12
|
|
|
|
288,280
|
|
|
|
5.54
|
%
|
|
|
41.0
|
|
|
|
Hotel
|
|
|
5
|
|
|
|
179,028
|
|
|
|
3.20
|
%
|
|
|
27.7
|
|
|
|
Commercial
|
|
|
3
|
|
|
|
55,375
|
|
|
|
4.52
|
%
|
|
|
21.6
|
|
|
|
Land
|
|
|
10
|
|
|
|
241,099
|
|
|
|
4.69
|
%
|
|
|
7.2
|
|
|
|
Retail
|
|
|
1
|
|
|
|
3,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
|
1,245,497
|
|
|
|
5.00
|
%
|
|
|
25.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine Loans
|
|
Multi Family
|
|
|
24
|
|
|
|
140,770
|
|
|
|
7.08
|
%
|
|
|
35.1
|
|
|
|
Office
|
|
|
7
|
|
|
|
106,475
|
|
|
|
6.63
|
%
|
|
|
33.1
|
|
|
|
Hotel
|
|
|
2
|
|
|
|
30,000
|
|
|
|
3.23
|
%
|
|
|
5.0
|
|
|
|
Condo
|
|
|
1
|
|
|
|
15,869
|
|
|
|
2.23
|
%
|
|
|
|
|
|
|
Commercial
|
|
|
1
|
|
|
|
38,297
|
|
|
|
|
|
|
|
15.0
|
|
|
|
Land
|
|
|
1
|
|
|
|
9,333
|
|
|
|
|
|
|
|
17.0
|
|
|
|
Retail
|
|
|
1
|
|
|
|
2,750
|
|
|
|
10.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
343,494
|
|
|
|
5.43
|
%
|
|
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior Participations
|
|
Multi Family
|
|
|
4
|
|
|
|
60,550
|
|
|
|
3.23
|
%
|
|
|
31.9
|
|
|
|
Office
|
|
|
7
|
|
|
|
162,350
|
|
|
|
5.90
|
%
|
|
|
56.7
|
|
|
|
Hotel
|
|
|
3
|
|
|
|
28,686
|
|
|
|
7.41
|
%
|
|
|
58.2
|
|
|
|
Commercial
|
|
|
1
|
|
|
|
3,491
|
|
|
|
7.89
|
%
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
255,077
|
|
|
|
5.46
|
%
|
|
|
50.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Equity
|
|
Multi Family
|
|
|
16
|
|
|
|
78,103
|
|
|
|
5.47
|
%
|
|
|
86.9
|
|
|
|
Office
|
|
|
1
|
|
|
|
12,500
|
|
|
|
9.25
|
%
|
|
|
68.0
|
|
|
|
Hotel
|
|
|
1
|
|
|
|
100,364
|
|
|
|
|
|
|
|
90.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
190,967
|
|
|
|
2.84
|
%
|
|
|
87.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
126
|
|
|
$
|
2,035,035
|
|
|
|
4.93
|
%
|
|
|
34.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Weighted Average Pay
Rate is a weighted average, based on the unpaid principal
balances of each loan in the Companys portfolio, of the
interest rate that is required to be paid monthly as stated in
the individual loan agreements. Certain loans and investments
that require an additional rate of interest Accrual
Rate to be paid at the maturity are not included in the
weighted average pay rate as shown in the table.
|
7
The following table sets forth geographic and asset class
information regarding our loan and investment portfolio as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal
|
|
|
|
|
|
|
|
Unpaid Principal
|
|
|
|
|
Geographic Location
|
|
(Dollars in Thousands)
|
|
|
Percentage(1)
|
|
|
Asset Class
|
|
(Dollars in Thousands)
|
|
|
Percentage(1)
|
|
|
New York
|
|
$
|
774,235
|
|
|
|
38.0
|
%
|
|
Multi Family
|
|
$
|
757,303
|
|
|
|
37.2
|
%
|
California
|
|
|
250,767
|
|
|
|
12.3
|
%
|
|
Office
|
|
|
569,605
|
|
|
|
28.0
|
%
|
Florida
|
|
|
216,989
|
|
|
|
10.7
|
%
|
|
Hotel
|
|
|
338,078
|
|
|
|
16.6
|
%
|
Maryland
|
|
|
91,699
|
|
|
|
4.5
|
%
|
|
Land
|
|
|
250,432
|
|
|
|
12.3
|
%
|
Texas
|
|
|
76,577
|
|
|
|
3.8
|
%
|
|
Commercial
|
|
|
97,163
|
|
|
|
4.8
|
%
|
Michigan
|
|
|
44,500
|
|
|
|
2.2
|
%
|
|
Condo
|
|
|
15,869
|
|
|
|
0.8
|
%
|
Diversified
|
|
|
326,892
|
|
|
|
16.1
|
%
|
|
Retail
|
|
|
6,585
|
|
|
|
0.3
|
%
|
Other(2)
|
|
|
253,376
|
|
|
|
12.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,035,035
|
|
|
|
100.0
|
%
|
|
Total
|
|
$
|
2,035,035
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Based on a percentage of the total
unpaid principal balance of the underlying loans.
|
|
(2)
|
|
No other individual state makes up
more than 2% of the total.
|
Our
Investments in
Available-for-Sale
Securities
Equity Securities. During 2007, we purchased
2,939,465 shares of common stock of Realty Finance
Corporation, formerly CBRE Realty Finance, Inc., a commercial
real estate specialty finance company, for $16.7 million
which had a fair value of $0.1 million, at
December 31, 2009. We also had a margin loan agreement with
a financial institution related to the purchases of this
security which was not to exceed $7.0 million, bore
interest at pricing over LIBOR, and was due upon demand from the
lender. In July 2008, the margin loan was repaid in full.
Commercial Real Estate Collateralized Debt Obligation
Bonds. At December 31, 2009, two investment
grade commercial real estate (CRE) collateralized
debt obligation bonds, with a combined fair value of
$0.4 million, were reclassified from
held-to-maturity
to
available-for-sale
as we intend to sell these bonds within one year as part of a
debt restructuring. See Our Investments in
Held-to-Maturity
Securities below.
Our
Investments in
Held-to-Maturity
Securities
Commercial Real Estate Collateralized Debt Obligation
Bonds. In 2008, we purchased $82.7 million
of investment grade CRE collateralized debt obligation bonds for
$58.1 million, representing a $24.6 million discount
to their face value. To the extent that we believe the discount
is collectable, it is accreted into interest income on an
effective yield adjusted for actual prepayment activity over the
average life of the related security as a yield adjustment.
These securities bear interest at a weighted average spread of
34 basis points over LIBOR, have a weighted average stated
maturity of 34.2 years but have an estimated average
remaining life of 3.7 years due to the maturities of the
underlying assets. At December 31, 2009, two investment
grade CRE collateralized debt obligation bonds with a combined
fair value of $0.4 million were reclassified from
held-to-maturity
to
available-for-sale,
as they were exchanged in the retirement of a portion of our own
junior subordinated notes in February 2010.
Commercial Mortgage-Backed Securities. In
2009, we purchased $17.0 million of investment grade
commercial mortgage-backed securities (CMBS) for
$12.4 million, representing a $4.6 million discount to
their face value. To the extent that we believe the discount is
collectable, it is accreted into interest income on an effective
yield adjusted for actual prepayment activity over the average
life of the related security as a yield adjustment. These
securities bear interest at a weighted average coupon rate of
5.80%, have a weighted average stated maturity of
29.6 years but have an estimated average remaining life of
6.0 years due to the maturities of the underlying assets.
We did not have any CMBS investments at December 31, 2008.
We intend to hold these remaining bonds to maturity. For the
year ended December 31, 2009, the total average yield on
the above securities based on their face values was 4.62%,
including the accretion of discount.
8
Regulatory
Aspects of Our Investment Strategy
Real Estate Exemption from Investment Company
Act. We believe that we conduct, and we intend to
conduct, our business at all times in a manner that avoids
registration as an investment company under the Investment
Company Act of 1940, as amended, or the Investment Company Act.
Entities that are primarily engaged in the business of
purchasing or otherwise acquiring mortgages and other
liens on and interests in real estate, are exempt from
registration under the Investment Company Act if they maintain
at least 55% of their assets directly in qualifying real estate
assets and meet certain other requirements. Assets that qualify
for purposes of this 55% test include, among other things,
direct investments in real estate and mortgage loans. Our bridge
loans, which are secured by first mortgage liens on the
underlying properties, and our loans that are secured by second
mortgage liens on the underlying properties generally qualify
for purposes of this 55% test. These two types of loans
constituted more than 55% of our assets as of December 31,
2009.
Our investment guidelines provide that no more than 15% of our
assets may consist of any type of mortgage-related securities
and that the percentage of our investments in mortgage-related
securities as compared to our structured finance investments be
monitored on a regular basis.
Management
Agreement
On July 1, 2003, we and our operating partnership entered
into a management agreement with ACM. On January 19, 2005,
we, our operating partnership, Arbor Realty SR, Inc., one of our
subsidiaries and ACM entered into an amended and restated
management agreement with substantially the same terms as the
original management agreement in order to add Arbor Realty SR,
Inc. as a beneficiary of ACMs services. Pursuant to the
terms of the management agreement, our manager has agreed to
service and manage our investments and to provide us with
multi-family and commercial real estate-related structured
finance investment opportunities, finance and other services
necessary to operate our business. Our manager is required to
provide a dedicated management team to provide these services to
us, the members of which will devote such of their time to our
management as our independent directors reasonably deem
necessary and appropriate, commensurate with our level of
activity from time to time. We rely to a significant extent on
the facilities and resources of our manager to conduct our
operations. For performing services under the management
agreement, as amended in August 2009, ACM receives a base
management fee, incentive compensation and
success-based compensation as described in
Managements Discussion and Analysis of Financial
Condition and Results of Operations under Item 7 of
this report.
Operations
Our Managers Investment Services. Under
the management agreement, ACM is responsible for sourcing
originations, providing underwriting services and processing
approvals for all loans and other investments in our portfolio.
ACM also provides certain administrative loan servicing
functions with respect to our loans and investments. We are able
to capitalize on ACMs well established operations and
services in each area described below.
Origination. Our manager sources the
origination of most of our investments. ACM has a network of
over eight sales offices located in Bloomfield Hills, Michigan;
Boston, Massachusetts; Plano, Texas; Dallas, Texas; Chicago,
Illinois; New York, New York; and Uniondale, New York. These
offices are staffed by approximately 20 loan originators who
solicit property owners, developers and mortgage loan brokers.
In some instances, the originators accept loan applications
meeting our underwriting criteria from a select group of
mortgage loan brokers. While a large portion of ACMs
marketing effort occurs at the branch level, ACM also markets
its products in national industry publications and targeted
direct mailings. ACM markets structured finance products and our
product offerings using the same methods. Once potential
borrowers have been identified, ACM determines which financing
products best meet the borrowers needs. Loan originators
in every branch office are able to offer borrowers the full
array of ACMs and our structured finance products. After
identifying a suitable product, ACM works with the borrower to
prepare a loan application. Upon completion by the borrower, the
application is forwarded to ACMs underwriters for due
diligence.
Underwriting. ACMs loan originators work
in conjunction with its underwriters who perform due diligence
on all proposed transactions prior to loan approval and
commitment. The underwriters analyze each loan
9
application in accordance with the guidelines set forth below in
order to determine the loans conformity with respect to
such guidelines. In general, ACMs underwriting guidelines
require it to evaluate the following: the historic and current
property revenues and expenses; the potential for near-term
revenue growth and opportunity for expense reduction and
increased operating efficiencies; the propertys location,
its attributes and competitive position within its market; the
proposed ownership structure, financial strength and real estate
experience of the borrower and property management; third party
appraisal, environmental and engineering studies; market
assessment, including property inspection, review of tenant
lease files, surveys of property comparables and an analysis of
area economic and demographic trends; review of an acceptable
mortgagees title policy and an as built
survey; construction quality of the property to determine future
maintenance and capital expenditure requirements; and the
requirements for any reserves, including those for immediate
repairs or rehabilitation, replacement reserves, tenant
improvement and leasing commission costs, real estate taxes and
property casualty and liability insurance. Key factors
considered in credit decisions include, but are not limited to,
debt service coverage, loan to value ratios and property,
financial and operating performance. Consideration is also given
to other factors, such as additional forms of security and
identifying likely strategies to affect repayment. ACM
continuously refines its underwriting criteria based upon actual
loan portfolio experience and as market conditions and investor
requirements evolve.
Investment Approval Process. ACM applies its
established investment approval process to all loans and other
investments proposed for our portfolio before submitting each
proposal to us for final approval. A written report is generated
for every loan or other investment that is submitted to
ACMs credit committee for approval. The report includes a
description of the prospective borrower and any guarantors, the
collateral and the proposed use of investment proceeds, as well
as borrower and property consolidated financial statements and
analysis. In addition, the report includes an analysis of
borrower liquidity, net worth, cash investment, income, credit
history and operating experience. If the transaction is approved
by a majority of ACMs credit committee, it is presented
for approval to our credit committee, which consists of our
chief executive officer, chief credit officer, and executive
vice president of structured finance. All transactions require
the approval of a majority of the members of our credit
committee. Following the approval of any such transaction,
ACMs underwriting and servicing departments, together with
our asset management group, assure that all loan approval terms
have been satisfied and conform with lending requirements
established for that particular transaction. If our credit
committee rejects the loan and our independent directors allow
ACM or one of its affiliates to pursue it, ACM will have the
opportunity to execute the transaction.
Servicing. ACM services our loans and
investments through its internal servicing operations. Our
manager currently services an expanding portfolio, consisting of
approximately 1,152 loans with outstanding balances of
$7.3 billion through its loan administration department in
Buffalo, New York. ACMs loan servicing operations are
designed to provide prompt customer service and accurate and
timely information for account follow up, financial reporting
and management review. Following the funding of an approved
loan, all pertinent loan data is entered into ACMs data
processing system, which provides monthly billing statements,
tracks payment performance and processes contractual interest
rate adjustments on variable rate loans. Our manager utilizes
the operations of its loan administration department to service
our portfolio with the same efficiency, accuracy and promptness.
ACM also works closely with our asset management group to ensure
the appropriate level of customer service and monitoring of
these loans.
Our Asset Management Operations. Our asset
management group is comprised of 23 employees. Prior to our
formation, the asset management group successfully managed
numerous transactions, including complex restructurings,
refinancings and asset dispositions for ACM.
Effective asset and portfolio management is essential to
maximize the performance and value of a real estate investment.
The asset management group customizes an asset management plan
with the loan originators and underwriters to track each
investment from origination through disposition. This group
monitors each investments operating history, local
economic trends and rental and occupancy rates and evaluates the
underlying propertys competitiveness within its market.
This group assesses ongoing and potential operational and
financial performance of each investment in order to evaluate
and ultimately improve its operations and financial viability.
The asset management group performs frequent onsite inspections,
conducts meetings with borrowers and evaluates and participates
in the budgeting process, financial and operational review and
renovation plans of each of the underlying properties. As an
asset and portfolio manager, the asset management group focuses
on increasing the
10
productivity of onsite property managers and leasing brokers.
This group communicates the status of each transaction against
its established asset management plan to senior management, in
order to enhance and preserve capital, as well as to avoid
litigation and potential exposure.
Timely and accurate identification of an investments
operational and financial issues and each borrowers
objectives is essential to implementing an executable loan
workout and restructuring process, if required. Since existing
property management may not have the requisite expertise to
manage the workout process effectively, the asset management
group determines current operating and financial status of an
asset or portfolio and performs liquidity analysis of properties
and ownership entities and then, if appropriate, identifies and
evaluates alternatives in order to maximize the value of an
investment.
Our asset management group continues to provide its services to
ACM on a limited basis pursuant to an asset management services
agreement between ACM and us. The asset management services
agreement will be effective throughout the term of our
management agreement and during the origination period described
in the management agreement. In the event the services provided
by our asset management group, pursuant to this agreement,
exceed more than 15% per quarter, the level anticipated by our
board of directors, we will negotiate in good faith with our
manager an adjustment to our managers base management fee
under the management agreement, to reduce the scope of the
services, the quantity of serviced assets or the time required
to be devoted to the services by our asset management group.
Operating
Policies and Strategies
Investment Guidelines. Our board of directors
has adopted general guidelines for our investments and
borrowings to the effect that: (1) no investment will be
made that would cause us to fail to qualify as a REIT;
(2) no investment will be made that would cause us to be
regulated as an investment company under the Investment Company
Act; (3) no more than 25% of our equity (including junior
subordinated notes as equity), determined as of the date of such
investment, will be invested in any single asset; (4) no
single mezzanine loan or preferred equity investment will exceed
$75 million; (5) our leverage (including junior
subordinated notes as equity) will generally not exceed 80% of
the value of our assets, in the aggregate; (6) we will not
co-invest with our manager or any of its affiliates unless such
co-investment is otherwise in accordance with these guidelines
and its terms are at least as favorable to us as to our manager
or the affiliate making such co-investment; (7) no more
than 15% of our gross assets may consist of mortgage-related
securities. Any exceptions to the above general guidelines
require the approval of our board of directors.
Financing Policies. We finance the acquisition
of our structured finance investments primarily by borrowing
against or leveraging our existing portfolio and
using the proceeds to acquire additional mortgage assets. We
expect to incur debt such that we will maintain an equity to
assets ratio no less than 20% (including junior subordinated
notes as equity), although the actual ratio may be lower from
time to time depending on market conditions and other factors
deemed relevant by our manager. Our charter and bylaws do not
limit the amount of indebtedness we can incur, and the board of
directors has discretion to deviate from or change our
indebtedness policy at any time. However, we intend to maintain
an adequate capital base to protect against various business
environments in which our financing and hedging costs might
exceed the interest income from our investments.
Our investments are financed primarily by collateralized debt
obligations, our junior subordinate notes, and through our
floating rate term and working capital credit agreements, loan
repurchase agreements and other financing facilities with
institutional lenders. Although we expect that these will be the
principal means of leveraging our investments, we may issue
preferred stock or secured or unsecured notes of any maturity if
it appears advantageous to do so.
Credit Risk Management Policy. We are exposed
to various levels of credit and special hazard risk depending on
the nature of our underlying assets and the nature and level of
credit enhancements supporting our assets. We originate or
purchase mortgage loans that meet our minimum debt service
coverage standards. ACM, as our manager, our chief credit
officer, and our asset management group, reviews and monitors
credit risk and other risks of loss associated with each
investment. In addition, ACM seeks to diversify our portfolio of
assets to avoid undue geographic, issuer, industry and certain
other types of concentrations. Our board of directors monitors
the overall portfolio risk and reviews levels of provision for
loss.
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Interest Rate Risk Management Policy. To the
extent consistent with our election to qualify as a REIT, we
follow an interest rate risk management policy intended to
mitigate the negative effects of major interest rate changes. We
minimize our interest rate risk from borrowings by attempting to
structure the key terms of our borrowings to generally
correspond to the interest rate term of our assets.
We may enter into hedging transactions to protect our investment
portfolio from interest rate fluctuations and other changes in
market conditions. These transactions may include interest rate
swaps, the purchase or sale of interest rate collars, caps or
floors, options, mortgage derivatives and other hedging
instruments. These instruments may be used to hedge as much of
the interest rate risk as ACM determines is in the best interest
of our stockholders, given the cost of such hedges and the need
to maintain our status as a REIT. In general, income from
hedging transactions does not constitute qualifying income for
purposes of the REIT gross income requirements. To the extent,
however, that a hedging contract reduces interest rate risk on
indebtedness incurred to acquire or carry real estate assets,
any income that is derived from the hedging contract, while
comprising non-qualifying income for purposes of the REIT 75%
gross income test, would not give rise to non-qualifying income
for purposes of the 95% gross income test. ACM may elect to have
us bear a level of interest rate risk that could otherwise be
hedged when it believes, based on all relevant facts, that
bearing such risk is advisable.
To date, we have entered into various interest rate swaps in
connection with the issuance of floating rate secured notes, the
issuance of variable rate junior subordinate notes, and to hedge
the interest risk on forecasted outstanding LIBOR based debt.
The notional amount of each interest rate swap agreement and the
related terms have been designed to protect our investment
portfolio from interest rate risk and to match the payment and
receipts of interest on the underlying debt instruments, where
applicable.
Disposition Policies. ACM evaluates our asset
portfolio on a regular basis to determine if it continues to
satisfy our investment criteria. Subject to certain restrictions
applicable to REITs, ACM may cause us to sell our investments
opportunistically and use the proceeds of any such sale for debt
reduction, additional acquisitions, or working capital purposes.
Equity Capital Policies. Subject to applicable
law, our board of directors has the authority, without further
stockholder approval, to issue additional authorized common
stock and preferred stock or otherwise raise capital, including
through the issuance of senior securities, in any manner and on
the terms and for the consideration it deems appropriate,
including in exchange for property. We may in the future issue
common stock in connection with acquisitions. We also may issue
units of partnership interest in our operating partnership in
connection with acquisitions of property. We may, under certain
circumstances, repurchase our common stock in private
transactions with our stockholders, if those purchases are
approved by our board of directors.
Conflicts of Interest Policies. We, our
executive officers, and ACM face conflicts of interests because
of our relationships with each other. ACM currently has an
approximate 21% voting interest in our common stock.
Mr. Kaufman, our chairman and chief executive officer, is
the chief executive officer of ACM and beneficially owns
approximately 92% of the outstanding membership interests of
ACM. Mr. Martello, one of our directors, is the chief
operating officer of Arbor Management, LLC (the managing member
of ACM) and a trustee of two trusts which own minority
membership interests in ACM. Mr. Bishar, one of our
directors, is general council to ACM. Mr. Elenio, our chief
financial officer and treasurer, is the chief financial officer
of ACM. Mr. Horn, our secretary and one of our directors,
is the secretary of ACM. Each of Messrs. Kaufman, Martello,
Elenio and Horn, as well as Mr. Weber, our executive vice
president of structured finance and Mr. Kilgore, our
executive vice president of structured securitization are
members of ACMs executive committee. Each of
Messrs. Kaufman, Martello, Bishar, Elenio, Horn, Weber,
Kilgore, own minority membership interests in ACM.
We have implemented several policies, through board action and
through the terms of our charter and our agreements with ACM, to
help address these conflicts of interest, including the
following:
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Our charter requires that a majority of our board of directors
be independent directors and that only our independent directors
make any determination on our behalf with respect to the
relationships or transactions that present a conflict of
interest for our directors or officers.
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Our board of directors have adopted a policy that decisions
concerning our management agreement with ACM, including
termination, renewal and enforcement thereof or our
participation in any transactions with
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ACM or its affiliates outside of the management agreement,
including our ability to purchase securities and mortgages or
other assets from ACM, or our ability to sell securities and
assets to ACM, must be reviewed and approved by a majority of
our independent directors.
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Our management agreement provides that our determinations to
terminate the management agreement for cause or because the
management fees are unfair to us or because of a change in
control of our manager, will be made by a majority vote of our
independent directors.
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Our independent directors will periodically review the general
investment standards established by ACM under the management
agreement.
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Our management agreement with ACM provides that ACM may not
assign duties under the management agreement, except to certain
affiliates of ACM, without the approval of a majority of our
independent directors.
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Our management agreement provides that decisions to approve or
reject investment opportunities rejected by our credit committee
that ACM or Mr. Kaufman wish to pursue will be made by a
majority of our independent directors.
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Our board of directors has approved the operating policies and
the strategies set forth above. Our board of directors has the
power to modify or waive these policies and strategies, or amend
our agreements with ACM, without the consent of our stockholders
to the extent that the board of directors (including a majority
of our independent directors) determines that such modification
or waiver is in the best interest of our stockholders. Among
other factors, developments in the market that either affect the
policies and strategies mentioned herein or that change our
assessment of the market may cause our board of directors to
revise its policies and strategies. However, if such
modification or waiver involves the relationship of, or any
transaction between, us and our manager or any affiliate of our
manager, the approval of a majority of our independent directors
is also required. We may not, however, amend our charter to
change the requirement that a majority of our board consist of
independent directors or the requirement that our independent
directors approve related party transactions without the
approval of two thirds of the votes entitled to be cast by our
stockholders.
Compliance
with Federal, State and Local Environmental Laws
Properties that we may acquire directly or indirectly through
partnerships, and the properties underlying our structured
finance investments and mortgage-related securities, are subject
to various federal, state and local environmental laws,
ordinances and regulations. Under these laws, ordinances and
regulations, a current or previous owner of real estate
(including, in certain circumstances, a secured lender that
succeeds to ownership or control of a property) may become
liable for the costs of removal or remediation of certain
hazardous or toxic substances or petroleum product releases at,
on, under or in its property. These laws typically impose
cleanup responsibility and liability without regard to whether
the owner or control party knew of or was responsible for the
release or presence of the hazardous or toxic substances. The
costs of investigation, remediation or removal of these
substances may be substantial and could exceed the value of the
property. An owner or control party of a site may be subject to
common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a
site. Certain environmental laws also impose liability in
connection with the handling of or exposure to materials
containing asbestos. These laws allow third parties to seek
recovery from owners of real properties for personal injuries
associated with materials containing asbestos. Our operating
costs and the values of these assets may be adversely affected
by the obligation to pay for the cost of complying with existing
environmental laws, ordinances and regulations, as well as the
cost of complying with future legislation, and our income and
ability to make distributions to our stockholders could be
affected adversely by the existence of an environmental
liability with respect to properties we may acquire. We will
endeavor to ensure that these properties are in compliance in
all material respects with all federal, state and local laws,
ordinances and regulations regarding hazardous or toxic
substances or petroleum products.
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Competition
Our net income depends, in large part, on our managers
ability to originate structured finance investments with spreads
over our borrowing costs. In originating these investments, our
manager competes with other mortgage REITs, specialty finance
companies, savings and loan associations, banks, mortgage
bankers, insurance companies, mutual funds, institutional
investors, investment banking firms, other lenders, governmental
bodies and other entities, some of which may have greater
financial resources and lower costs of capital available to
them. In addition, there are numerous mortgage REITs with asset
acquisition objectives similar to ours, and others may be
organized in the future. The effect of the existence of
additional REITs may be to increase competition for the
available supply of structured finance assets suitable for
purchase by us. Competitive variables include market presence
and visibility, size of loans offered and underwriting
standards. To the extent that a competitor is willing to risk
larger amounts of capital in a particular transaction or to
employ more liberal underwriting standards when evaluating
potential loans, our origination volume and profit margins for
our investment portfolio could be impacted. Our competitors may
also be willing to accept lower returns on their investments and
may succeed in buying the assets that we have targeted for
acquisition. Although management believes that we are well
positioned to continue to compete effectively in each facet of
our business, there can be no assurance that we will do so or
that we will not encounter further increased competition in the
future that could limit our ability to compete effectively.
Employees
We have 29 employees, including Messrs. Weber, Kilgore
and Horn, Mr. Felletter, our Senior Vice President of Asset
Management, Mr. Guziewicz, our Chief Credit Officer, and a
23 person asset management group. Mr. Kaufman, our
Chief Executive Officer and Mr. Elenio, our Chief Financial
Officer are full time employees of ACM and are not directly
compensated by us (other than pursuant to our equity incentive
plans).
Corporate
Governance and Internet Address
We have adopted corporate governance guidelines and a code of
business conduct and ethics, which delineate our standards for
our directors, officers and employees, and the employees of our
manager who provide services to us. We emphasize the importance
of professional business conduct and ethics through our
corporate governance initiatives.
Our internet address is www.arborrealtytrust.com. We make
available, free of charge through a link on our site, our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to such reports, if any, as filed with the SEC as
soon as reasonably practicable after such filing. Our site also
contains our code of business conduct and ethics, code of ethics
for chief executive and senior financial officers, corporate
governance guidelines, stockholder communications with the board
of directors, and the charters of the audit committee,
nominating/corporate governance committee, and compensation
committee of our board of directors. No information contained in
or linked to our website is incorporated by reference in this
report.
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Our business is subject to various risks, including the risks
listed below. If any of these risks actually occur, our
business, financial condition and results of operations could be
materially adversely affected and the value of our common stock
could decline.
Risks
Related to Our Business
Prolonged
disruptions in the financial markets could affect our ability to
obtain financing on reasonable terms and have other adverse
effects on us and the market price of our common
stock.
Global stock and credit markets have experienced prolonged price
volatility, dislocations and liquidity disruptions, which have
caused market prices of many stocks to fluctuate substantially
and the spreads on prospective debt financings to widen
considerably. Commercial real estate classes in general have
been adversely affected by this prolonged economic downturn and
liquidity crisis. These circumstances have materially impacted
liquidity in the financial markets and have resulted in the
scarcity of certain types of financing, and, in certain cases,
making certain financing terms less attractive. If these
conditions persist, lending institutions may be forced to exit
markets such as repurchase lending, become insolvent or further
tighten their lending standards or increase the amount of equity
capital required to obtain financing, and in such event, could
make it more difficult for us to obtain financing on favorable
terms or at all. Our profitability will be adversely affected if
we are unable to obtain cost-effective financing for our
investments. A prolonged downturn in the stock or credit markets
may cause us to seek alternative sources of potentially less
attractive financing, and may require us to adjust our business
plan accordingly. In addition, these factors may make it more
difficult for our borrowers to repay our loans as they may
experience difficulties in selling assets, increased costs of
financing or obtaining financing at all. These events in the
stock and credit markets may also make it more difficult or
unlikely for us to raise capital through the issuance of our
common stock or preferred stock. These disruptions in the
financial markets also may have a material adverse effect on the
market value of our common stock and other adverse effects on us
or the economy in general.
A
prolonged economic slowdown, a lengthy or severe recession, or
declining real estate values could harm our
operations.
We believe the risks associated with our business are more
severe during periods of economic slowdown or recession if these
periods are accompanied by declining real estate values.
Declining real estate values will likely continue to minimize
our level of new mortgage loan originations, since borrowers
often use increases in the value of their existing properties to
support the purchase or investment in additional properties.
Borrowers may also be less able to pay principal and interest on
our loans if the real estate economy weakens. Declining real
estate values also significantly increase the likelihood that we
will continue to incur losses on our loans in the event of
default because the value of our collateral may be insufficient
to cover our cost on the loan. Any sustained period of increased
payment delinquencies, foreclosures or losses could adversely
affect both our net interest income from loans in our portfolio
as well as our ability to originate, sell and securitize loans,
which would significantly harm our revenues, results of
operations, financial condition, business prospects and our
ability to make distributions to the stockholders.
Increases
in loan loss reserves and other impairments are expected if
economic conditions do not improve.
A further decline in economic conditions could negatively impact
the credit quality of our loans and investments portfolio. If we
do not see a stabilization of the financial markets and such
market conditions continue to decline further, we will likely
experience significant increases in loan loss reserves,
potential defaults and other asset impairment charges.
Loan
loss reserves are particularly difficult to estimate in a
turbulent economic environment.
We perform an evaluation of loans on a quarterly basis to
determine whether an impairment is necessary and adequate to
absorb probable losses. The valuation process for our loans and
investments portfolio requires us to make certain estimates and
judgments, which are particularly difficult to determine during
a recession in which the
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availability of commercial real estate credit is severely
limited and commercial real estate transactions have
dramatically decreased. Our estimates and judgments are based on
a number of factors, including projected cash flows from the
collateral securing our commercial real estate loans, loan
structure, including the availability of reserves and recourse
guarantees, likelihood of repayment in full at the maturity of a
loan, potential for a refinancing market coming back to
commercial real estate in the future and expected market
discount rates for varying property types. If our estimates and
judgments are not correct, our results of operations and
financial condition could be severely impacted.
Loan
repayments are less likely in the current market
environment.
In a market in which liquidity is essential to our business,
loan repayments have been a significant source of liquidity for
us. However, many financial institutions have drastically
curtailed new lending activity and real estate owners are having
difficulty refinancing their assets at maturity. If borrowers
are not able to refinance loans at their maturity, the loans
could go into default and the liquidity that we would receive
from such repayments will not be available. Furthermore, without
a functioning commercial real estate finance market, borrowers
that are performing on their loans will almost certainly extend
such loans if they have that right, which will further delay our
ability to access liquidity through repayments.
We may
not be able to access the debt or equity capital markets on
favorable terms, or at all, for additional liquidity, which
could adversely affect our business, financial condition and
operating results.
Additional liquidity, future equity or debt financing may not be
available on terms that are favorable to us, or at all. Our
ability to access additional debt and equity capital depends on
various conditions in these markets, which are beyond our
control. If we are able to complete future equity offerings,
they could be dilutive to our existing shareholders or could
result in the issuance of securities that have rights,
preferences and privileges that are senior to those of our other
securities. Our inability to obtain adequate capital could have
a material adverse effect on our business, financial condition,
liquidity and operating results.
We may
be unable to invest excess equity capital on acceptable terms or
at all, which would adversely affect our operating
results.
We may not be able to identify investments that meet our
investment criteria and we may not be successful in closing the
investments that we identify. Unless and until we identify
investments consistent with our investment criteria, any excess
equity capital may be used to repay borrowings under our term
and revolving credit agreements and repurchase agreements, which
would not produce a return on capital. In addition, the
investments that we acquire with our equity capital may not
produce a return on capital. There can be no assurance that we
will be able to identify attractive opportunities to invest our
equity capital, which would adversely affect our results of
operations.
Changes
in market conditions could adversely affect the market price of
our common stock.
As with other publicly traded equity securities, the value of
our common stock depends on various market conditions which may
change from time to time. Among the market conditions that may
affect the value of our common stock are the following:
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the general reputation of REITs and the attractiveness of our
equity securities in comparison to other equity securities,
including securities issued by other real estate-based companies;
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our financial performance; and
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general stock and bond market conditions.
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The market value of our common stock is based primarily upon the
markets perception of our growth potential and our current
and potential future earnings and dividends. Consequently, our
common stock may trade at prices that are higher or lower than
our book value per share of common stock. If our future earnings
or dividends are less than expected, it is likely that the
market price of our common stock will diminish.
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Our
stock could be at risk of being delisted by the New York Stock
Exchange and could have a materially adverse effects on our
business
The price of our common stock has declined significantly and
rapidly since September 2008. In the event we record additional
losses, it is possible that the value of our common stock could
decline further. This reduction in stock price could have
materially adverse effects on our business, including reducing
our ability to use our common stock as compensation or to
otherwise provide incentives to employees and by reducing our
ability to generate capital through stock sales or otherwise use
our stock as currency with third parties.
In the event that the average closing price of our common stock
is less than $1.00 or our market capitalization is less than
$25 million over a consecutive 30
trading-day
period, our stock could be delisted from the NYSE. The threat of
delisting
and/or a
delisting of our common stock could have adverse effects by,
among other things:
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Reducing the liquidity and market price of our common stock;
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Reducing the number of investors willing to hold or acquire our
common stock, thereby further restricting our ability to obtain
equity financing;
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Reducing our ability to retain, attract and motivate our
directors, officers and employees.
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declining portfolio and reductions in debt could adversely
affect the returns on our investments.
Continued dislocations in the market will likely lead to a
reduction in our loans and investments portfolio. Additionally,
the majority of the proceeds received from repayments of loans
are expected to be used to repay borrowings. This deleveraging
will likely result in reduced returns on our investments.
Our
investments in commercial mortgage-related securities are
subject to risks relating to the particular REIT issuer of the
securities, which may result in losses to us.
Our investments in commercial mortgage-related securities
involve special risks relating to the particular issuer of the
securities, including the financial condition and business
outlook of the issuer. The issuers of these securities are
experiencing many of the same risks resulting from continued
disruptions in the financial markets and deteriorating economic
conditions. In addition, our investments are also subject to the
risks described above with respect to commercial real estate
loans and mortgage-backed securities and similar risks,
including risks of delinquency and foreclosure, the dependence
upon the successful operation of, and net income from, real
property, risks generally related to interests in real property,
and risks that may be presented by the type and use of a
particular commercial property. REITs have been severely
impacted by the current economic environment and have had very
little access to the capital markets or the debt markets in
order to meet their existing obligations or to refinance
maturing debt.
We
depend on key personnel with long standing business
relationships, the loss of whom could threaten our ability to
operate our business successfully.
Our future success depends, to a significant extent, upon the
continued services of ACM as our manager and ACMs officers
and employees. In particular, the mortgage lending experience of
Mr. Kaufman and Mr. Weber and the extent and nature of
the relationships they have developed with developers and owners
of multi-family and commercial properties and other financial
institutions are critical to the success of our business. We
cannot assure their continued employment with ACM or service as
our officers. The loss of services of one or more members of our
or ACMs management team could harm our business and our
prospects.
The
real estate investment business is highly competitive. Our
success depends on our ability to compete with other providers
of capital for real estate investments.
Our business is highly competitive. Competition may cause us to
accept economic or structural features in our investments that
we would not have otherwise accepted and it may cause us to
search for investments in markets outside of our traditional
product expertise. We compete for attractive investments with
traditional lending sources, such as insurance companies and
banks, as well as other REITs, specialty finance companies and
private equity
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vehicles with similar investment objectives, which may make it
more difficult for us to consummate our target investments. Many
of our competitors have greater financial resources and lower
costs of capital than we do, which provides them with greater
operating flexibility and a competitive advantage relative to us.
We may
not achieve our targeted rate of return on our
investments.
We originate or acquire investments based on our estimates or
projections of overall rates of return on such investments,
which in turn are based upon, among other considerations,
assumptions regarding the performance of assets, the amount and
terms of available financing to obtain desired leverage and the
manner and timing of dispositions, including possible asset
recovery and remediation strategies, all of which are subject to
significant uncertainty. In addition, events or conditions that
we have not anticipated may occur and may have a significant
effect on the actual rate of return received on an investment.
As we acquire or originate investments for our balance sheet
portfolio, whether as new additions or as replacements for
maturing investments, there can be no assurance that we will be
able to originate or acquire investments that produce rates of
return comparable to returns on our existing investments.
Our
due diligence may not reveal all of a borrowers
liabilities and may not reveal other weaknesses in its
business.
Before investing in a company or making a loan to a borrower, we
will assess the strength and skills of such entitys
management and other factors that we believe are material to the
performance of the investment. In making the assessment and
otherwise conducting customary due diligence, we will rely on
the resources available to us and, in some cases, an
investigation by third parties. This process is particularly
important and subjective with respect to newly organized
entities because there may be little or no information publicly
available about the entities. There can be no assurance that our
due diligence processes will uncover all relevant facts or that
any investment will be successful.
We
invest in junior participation notes which may be subject to
additional risks relating to the privately negotiated structure
and terms of the transaction, which may result in losses to
us.
We invest in junior participation loans which is a mortgage loan
typically (i) secured by a first mortgage on a single
commercial property or group of related properties and
(ii) subordinated to a senior note secured by the same
first mortgage on the same collateral. As a result, if a
borrower defaults, there may not be sufficient funds remaining
for the junior participation loan after payment is made to the
senior note holder. Since each transaction is privately
negotiated, junior participation loans can vary in their
structural characteristics and risks. For example, the rights of
holders of junior participation loans to control the process
following a borrower default may be limited in certain
investments. We cannot predict the terms of each junior
participation investment. A junior participation may not be
liquid and, consequently, we may be unable to dispose of
underperforming or non-performing investments. The higher risks
associated with a subordinate position in any investments we
make could subject us to increased risk of losses.
We
invest in mezzanine loans which are subject to a greater risk of
loss than loans with a first priority lien on the underlying
real estate.
We invest in mezzanine loans that take the form of subordinated
loans secured by second mortgages on the underlying property or
loans secured by a pledge of the ownership interests of either
the entity owning the property or a pledge of the ownership
interests of the entity that owns the interest in the entity
owning the property. These types of investments involve a higher
degree of risk than long-term senior mortgage lending secured by
income producing real property because the investment may become
unsecured as a result of foreclosure by the senior lender. In
the event of a bankruptcy of the entity providing the pledge of
its ownership interests as security, we may not have full
recourse to the assets of such entity, or the assets of the
entity may not be sufficient to satisfy our mezzanine loan. If a
borrower defaults on our mezzanine loan or debt senior to our
loan, or in the event of a borrower bankruptcy, our mezzanine
loan will be satisfied only after the senior debt. As a result,
we may not recover some or
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all of our investment. In addition, mezzanine loans may have
higher loan to value ratios than conventional mortgage loans,
resulting in less equity in the property and increasing the risk
of loss of principal.
Preferred
equity investments involve a greater risk of loss than
traditional debt financing.
We invest in preferred equity investments, which involve a
higher degree of risk than traditional debt financing due to a
variety of factors, including that such investments are
subordinate to other loans and are not secured by property
underlying the investment. Furthermore, should the issuer
default on our investment, we would only be able to proceed
against the partnership in which we have an interest, and not
the property underlying our investment. As a result, we may not
recover some or all of our investment.
We
invest in multi-family and commercial real estate loans, which
may involve a greater risk of loss than single family real
estate loans.
Our investments include multi-family and commercial real estate
loans that are considered to involve a higher degree of risk
than single family residential lending because of a variety of
factors, including generally larger loan balances, dependency
for repayment on successful operation of the mortgaged property
and tenant businesses operating therein, and loan terms that
include amortization schedules longer than the stated maturity
and provide for balloon payments at stated maturity rather than
periodic principal payments. In addition, the value of
commercial real estate can be affected significantly by the
supply and demand in the market for that type of property.
Volatility
of values of multi-family and commercial properties may
adversely affect our loans and investments.
Multi-family and commercial property values and net operating
income derived from such properties are subject to volatility
and may be affected adversely by a number of factors, including,
but not limited to, events such as natural disasters, including
hurricanes and earthquakes, acts of war
and/or
terrorism and others that may cause unanticipated and uninsured
performance declines
and/or
losses to us or the owners and operators of the real estate
securing our investment; national, regional and local economic
conditions, such as what we have experienced over the past two
years (which may be adversely affected by industry slowdowns and
other factors); local real estate conditions (such as an
oversupply of housing, retail, industrial, office or other
commercial space); changes or continued weakness in specific
industry segments; construction quality, construction cost, age
and design; demographic factors; retroactive changes to building
or similar codes; and increases in operating expenses (such as
energy costs). In the event a propertys net operating
income decreases, a borrower may have difficulty repaying our
loan, which could result in losses to us. In addition, decreases
in property values reduce the value of the collateral and the
potential proceeds available to a borrower to repay our loans,
which could also cause us to suffer losses.
Many
of our commercial real estate loans are funded with interest
reserves and our borrowers may be unable to replenish those
interest reserves once they run out.
Given the transitional nature of many of our commercial real
estate loans, we often require borrowers to post reserves to
cover interest and operating expenses until the property cash
flows are projected to increase sufficiently to cover debt
service costs. We also generally required the borrower to
replenish reserves if they become depleted due to
underperformance or if the borrower wants to exercise extension
options under the loan. Despite low interest rates, revenues on
the properties underlying any commercial real estate loan
investments will likely continue to decrease in the current
economic environment, making it more difficult for borrowers to
meet their payment obligations to us. We expect that in the
future some of our borrowers may continue to have difficulty
servicing our debt and will not have sufficient capital to
replenish reserves, which could have a significant impact on our
operating results and cash flow.
We may
not have control over certain of our loans and
investments.
Our ability to manage our portfolio of loans and investments may
be limited by the form in which they are made. In certain
situations, we may acquire investments subject to rights of
senior classes and servicers under inter-
19
creditor or servicing agreements; acquire only a participation
in an underlying investment; co-invest with third parties
through partnerships, joint ventures or other entities, thereby
acquiring non-controlling interests; or rely on independent
third party management or strategic partners with respect to the
management of an asset.
Therefore, we may not be able to exercise control over the loan
or investment. Such financial assets may involve risks not
present in investments where senior creditors, servicers or
third party controlling investors are not involved. Our rights
to control the process following a borrower default may be
subject to the rights of senior creditors or servicers whose
interests may not be aligned with ours. A third party partner or
co-venturer may have financial difficulties resulting in a
negative impact on such assets and may have economic or business
interests or goals which are inconsistent with ours. In
addition, we may, in certain circumstances, be liable for the
actions of our third party partners or co-venturers.
The
impact of any future terrorist attacks and the availability of
terrorism insurance expose us to certain risks.
The terrorist attacks on September 11, 2001 disrupted the
U.S. financial markets, including the real estate capital
markets, and negatively impacted the U.S. economy in
general. Any future terrorist attacks, the anticipation of any
such attacks, and the consequences of any military or other
response by the United States and its allies may have a further
adverse impact on the U.S. financial markets and the
economy generally. We cannot predict the severity of the effect
that any such future events would have on the
U.S. financial markets, the economy or our business. Any
future terrorist attacks could adversely affect the credit
quality of some of our loans and investments. Some of our loans
and investments will be more susceptible to such adverse effects
than others. We may suffer losses as a result of the adverse
impact of any future terrorist attacks and these losses may
adversely impact our results of operations.
In addition, the enactment of the Terrorism Risk Insurance Act
of 2002, or the TRIA, and the subsequent enactment of the
Terrorism Risk Insurance Program Reauthorization Act of 2007,
which extended TRIA through the end of 2014, requires insurers
to make terrorism insurance available under their property and
casualty insurance policies in order to receive federal
compensation under TRIA for insured losses. However, this
legislation does not regulate the pricing of such insurance. The
absence of affordable insurance coverage may adversely affect
the general real estate lending market, lending volume and the
markets overall liquidity and may reduce the number of
suitable investment opportunities available to us and the pace
at which we are able to make investments. If the properties that
we invest in are unable to obtain affordable insurance coverage,
the value of those investments could decline and in the event of
an uninsured loss, we could lose all or a portion of our
investment.
We are
required to comply with Section 404 of the Sarbanes-Oxley
Act of 2002 and furnish a report on our internal control over
financial reporting.
We are required to comply with Section 404 of the
Sarbanes-Oxley Act of 2002. Section 404 requires us to
assess and attest to the effectiveness of our internal control
over financial reporting and requires our independent registered
public accounting firm to opine as to the adequacy of our
assessment and effectiveness of our internal control over
financial reporting in absence of a temporary exemption
currently granted to smaller reporting companies. In the future,
we may not receive an unqualified opinion from our independent
registered public accounting firm with regard to our internal
control over financial reporting.
Failure
to maintain an exemption from regulation as an investment
company under the Investment Company Act would adversely affect
our results of operations.
We believe that we conduct, and we intend to conduct our
business in a manner that allows us to avoid being regulated as
an investment company under the Investment Company Act. Pursuant
to Section 3(c) (5) (C) of the Investment Company Act,
entities that are primarily engaged in the business of
purchasing or otherwise acquiring mortgages and other
liens on and interests in real estate are exempted from
regulation thereunder. The staff of the SEC has provided
guidance on the availability of this exemption. Specifically,
the staffs position generally requires us to maintain at
least 55% of our assets directly in qualifying real estate
interests. To constitute a qualifying real estate interest
under this 55% test, an interest in real estate must meet
various criteria. Loans that are secured by
20
equity interests in entities that directly or indirectly own the
underlying real property, rather than a mortgage on the
underlying property itself, and ownership of equity interests in
real property owners may not qualify for purposes of the 55%
test depending on the type of entity. Mortgage-related
securities that do not represent all of the certificates issued
with respect to an underlying pool of mortgages may also not
qualify for purposes of the 55% test. Therefore, our ownership
of these types of loans and equity interests may be limited by
the provisions of the Investment Company Act. To the extent that
we do not comply with the SEC staffs 55% test, another
exemption or exclusion from registration as an investment
company under the Investment Company Act or other
interpretations under the Investment Company Act, we may be
deemed to be an investment company. If we fail to maintain an
exemption or other exclusion from registration as an investment
company we could, among other things, be required either
(a) to substantially change the manner in which we conduct
our operations to avoid being required to register as an
investment company or (b) to register as an investment
company, either of which could have an adverse effect on us and
the market price of our common stock. If we were required to
register as an investment company under the Investment Company
Act, we would become subject to substantial regulation with
respect to our capital structure (including our ability to use
leverage), management, operations, transactions with affiliated
persons (as defined in the Investment Company Act), portfolio
composition, including restrictions with respect to
diversification and industry concentration and other matters.
Risks
Related to Our Financing and Hedging Activities
We may
not be able to access financing sources on favorable terms, or
at all, which could adversely affect our ability to execute our
business plan.
We finance our assets over the short and long-term through a
variety of means, including repurchase agreements, term
facilities, credit facilities, junior subordinated notes, CDOs
and other structured financings. Our ability to execute this
strategy depends on various conditions in the markets for
financing in this manner that are beyond our control, including
lack of liquidity and wider credit spreads, which we have seen
over the past year. If these conditions continue to worsen, we
cannot assure you that these sources are feasible as a means of
financing our assets, as there can be no assurance that these
agreements will be renewed or extended at expiration. If our
strategy is not viable, we will have to find alternative forms
of long-term financing for our assets, as secured revolving
credit facilities and repurchase facilities may not accommodate
long-term financing. This could subject us to more recourse
indebtedness and the risk that debt service on less efficient
forms of financing would require a larger portion of our cash
flows, thereby reducing cash available for distribution to our
stockholders, funds available for operations as well as for
future business opportunities.
Our
credit facilities contain restrictive covenants relating to our
operations.
Each of our credit facilities contains various financial
covenants and restrictions, including minimum net worth, minimum
liquidity and
debt-to-equity
ratios. Other restrictive covenants contained in our credit
facility agreements include covenants that prohibit us from
affecting a change in control, disposing of or encumbering
assets being financed and restricting us from making any
material amendment to our underwriting guidelines without
approval of the lender. At December 31, 2009, we were in
compliance with all financial covenants and restrictions for the
periods presented with the exception of a minimum tangible net
worth requirement with Wachovia at December 31, 2009. Our
tangible net worth was $98.6 million at December 31,
2009 and we were required to maintain a minimum tangible net
worth of $150.0 million with this financial institution. We
have obtained a waiver of this covenant, as well as the minimum
ratio of total liabilities to tangible net worth covenant, from
this financial institution for December 31, 2009 and
through an extended payoff date of August 27, 2010, in
conjunction with amendments to our credit facilities. We have
also obtained temporary amendments thereafter until December
2010 for the quarterly minimum GAAP tangible net worth
covenants, from $150.0 million to $50.0 million, and
quarterly maximum ratio of total liabilities to tangible net
worth covenants, from 4.5 to 1 to 5.8 to 1. However, if economic
conditions continue to weaken and capital for commercial real
estate remains scarce, we expect credit quality in our assets
and across the commercial real estate sector to decline as well.
While we remain focused on actively managing our loans and
investments portfolio, a continued weak environment will make
maintaining compliance with the credit facilities
covenants more difficult. If we are not in compliance with
21
any of our covenants, there can be no assurance that our lenders
would waive or amend such non-compliance in the future and any
such non-compliance could have a material adverse effect on us.
Investor
demand for commercial real estate CDOs has been substantially
curtailed.
The continued turmoil in the structured finance markets,
including
sub-prime
residential loans and commercial real estate loans, has
negatively impacted the credit markets generally. As a result,
investor demand for commercial real estate CDOs has been
substantially curtailed. In recent years, we have relied to a
substantial extent on CDO financings to obtain match-funded
financing for our investments. Until and unless the market for
commercial real estate CDOs recovers, we may be unable to
utilize CDOs to finance our investments and we may need to
utilize less favorable sources of financing to finance our
investments on a long-term basis. There can be no assurance as
to when or if the demand for commercial real estate CDOs will
return, what the terms of such securities investors will demand,
or whether we will be able to issue CDOs to finance our
investments on terms beneficial to us.
We may
not be able to obtain the level of leverage necessary to
optimize our return on investment.
Our return on investment depends, in part, upon our ability to
grow our balance sheet portfolio of invested assets through the
use of leverage at a cost of debt that is lower than the yield
earned on our investments. We generally obtain leverage through
the issuance of collateralized debt obligations, or CDOs, term
and revolving credit agreements, repurchase agreements and other
borrowings. Our future ability to obtain the necessary leverage
on beneficial terms ultimately depends upon the quality of the
portfolio assets that collateralize our indebtedness. Our
failure to obtain
and/or
maintain leverage at desired levels, or to obtain leverage on
attractive terms, would have a material adverse effect on our
performance. Moreover, we are dependent upon a few lenders to
provide financing under credit agreements and repurchase
agreements for our origination or acquisition of loans and
investments and there can be no assurance that these agreements
will be renewed or extended at expiration. Our ability to obtain
financing through CDOs is subject to conditions in the debt
capital markets which are impacted by factors beyond our control
that may at times be adverse and reduce the level of investor
demand for such securities.
The
credit facilities and repurchase agreements that we use to
finance our investments may require us to provide additional
collateral.
We use credit facilities and repurchase agreements to finance
some of our investments. If the market value of the loans
pledged or sold by us to a funding source decline in value, we
may be required by the lending institution to provide additional
collateral or pay down a portion of the funds advanced. We may
not have the funds available to pay down our debt, which could
result in defaults. Posting additional collateral to support our
repurchase and credit facilities would reduce our liquidity and
limit our ability to leverage our assets. In the event we do not
have sufficient liquidity to meet such requirements, lending
institutions can accelerate our indebtedness, increase interest
rates and terminate our ability to borrow. Such a situation
would likely result in a rapid deterioration of our financial
condition and possibly necessitate a filing for protection under
the United States Bankruptcy Code. Further, facility providers
may require us to maintain a certain amount of uninvested cash
or set aside unlevered assets sufficient to maintain a specified
liquidity position which would allow us to satisfy our
collateral obligations. As a result, we may not be able to
leverage our assets as fully as we would choose, which could
reduce our return on assets. In the event that we are unable to
meet these collateral obligations, our financial condition could
deteriorate rapidly.
Our
use of leverage may create a mismatch with the duration and
index of the investments that we are financing.
We attempt to structure our leverage such that we minimize the
difference between the term of our investments and the leverage
we use to finance such an investment. In the event that our
leverage is shorter term than the financed investment, we may
not be able to extend or find appropriate replacement leverage
and that would have an adverse impact on our liquidity and our
returns. In the event that our leverage is longer term than the
financed investment, we may not be able to repay such leverage
or replace the financed investment with an optimal substitute or
at all, which will negatively impact our desired leveraged
returns.
22
We attempt to structure our leverage such that we minimize the
difference between the index of our investments and the index of
our leverage financing floating rate investments
with floating rate leverage and fixed rate investments with
fixed rate leverage. If such a product is not available to us
from our lenders on reasonable terms, we may use hedging
instruments to effectively create such a match. For example, in
the case of fixed rate investments, we may finance such an
investment with floating rate leverage, but effectively convert
all or a portion of the attendant leverage to fixed rate using
hedging strategies.
Our attempts to mitigate such risk are subject to factors
outside of our control, such as the availability to us of
favorable financing and hedging options, which is subject to a
variety of factors, of which duration and term matching are only
two such factors.
We
utilize a significant amount of debt to finance our portfolio,
which may subject us to an increased risk of loss, adversely
affecting the return on our investments and reducing cash
available for distribution.
We utilize a significant amount of debt to finance our
operations, which may compound losses and reduce the cash
available for distributions to our stockholders. We generally
leverage our portfolio through the use of bank credit
facilities, repurchase agreements, and securitizations,
including the issuance of CDOs and other borrowings. The
leverage we employ varies depending on our ability to obtain
credit facilities, the
loan-to-value
and debt service coverage ratios of our assets, the yield on our
assets, the targeted leveraged return we expect from our
portfolio and our ability to meet ongoing covenants related to
our asset mix and financial performance. Substantially all of
our assets are pledged as collateral for our borrowings. Our
return on our investments and cash available for distribution to
our stockholders may be reduced to the extent that changes in
market conditions cause the cost of our financing to increase
relative to the income that we can derive from the assets we
acquire.
Our debt service payments, including payments in connection with
any CDOs, reduce the net income available for distributions.
Moreover, we may not be able to meet our debt service
obligations and, to the extent that we cannot, we risk the loss
of some or all of our assets to foreclosure or sale to satisfy
our debt obligations. Currently, neither our charter nor our
bylaws impose any limitations on the extent to which we may
leverage our assets.
We may
guarantee some of our leverage and contingent
obligations.
We guarantee the performance of some of our obligations,
including but not limited to some of our repurchase agreements,
derivative agreements, and unsecured indebtedness.
Non-performance on such obligations may cause losses to us in
excess of the capital we initially may have invested/committed
under such obligations and there is no assurance that we will
have sufficient capital to cover any such losses.
We may
not be able to acquire suitable investments for a CDO issuance,
or we may not be able to issue CDOs on attractive terms, or at
all, which may require us to utilize more costly financing for
our investments.
We have financed, and, if the opportunities exist in the future,
we may continue to finance certain of our investments through
the issuance of CDOs. During the period that we are acquiring
investments for eventual long-term financing through CDOs, we
intend to finance these investments through repurchase and
credit agreements. We use these agreements to finance our
acquisition of investments until we have accumulated a
sufficient quantity of investments, at which time we may
refinance them through a securitization, such as a CDO issuance.
As a result, we are subject to the risk that we will not be able
to acquire a sufficient amount of eligible investments to
maximize the efficiency of a CDO issuance. In addition,
conditions in the debt capital markets may make the issuance of
CDOs less attractive to us even when we do have a sufficient
pool of collateral, or we may not be able to execute a CDO
transaction due to substantial curtailment in demand for
commercial real estate CDOs, such as currently exists. If we are
unable to issue a CDO to finance these investments, we may be
required to utilize other forms of potentially less attractive
financing.
We may
not be able to find suitable replacement investments for CDOs
with reinvestment periods.
Some of our CDOs have periods where principal proceeds received
from assets securing the CDO can be reinvested for a defined
period of time, commonly referred to as a reinvestment period.
Our ability to find suitable
23
investments during the reinvestment period that meet the
criteria set forth in the CDO documentation and by rating
agencies may determine the success of our CDO investments. Our
potential inability to find suitable investments may cause,
among other things, lower returns, interest deficiencies,
hyper-amortization
of the senior CDO liabilities and may cause us to reduce the
life of our CDOs and accelerate the amortization of certain fees
and expenses.
The
use of CDO financings with over-collateralization and interest
coverage requirements may have a negative impact on our cash
flow.
The terms of CDOs will generally provide that the principal
amount of investments must exceed the principal balance of the
related bonds by a certain amount and that interest income
exceeds interest expense by a certain amount. Generally, CDO
terms provide that, if certain delinquencies
and/or
losses or other factors cause a decline in collateral or cash
flow levels, the cash flow otherwise payable on subordinated
classes may be redirected to repay senior classes of CDOs until
the issuer or the collateral is in compliance with the terms of
the governing documents. Other tests (based on delinquency
levels or other criteria) may restrict our ability to receive
net income from assets pledged to secure CDOs. We cannot assure
you that the performance tests will be satisfied. If our
investments fail to perform as anticipated, our
over-collateralization, interest coverage or other credit
enhancement expense associated with our CDO financings will
increase. With respect to future CDOs we may issue, we cannot
assure you, in advance of completing negotiations with the
rating agencies or other key transaction parties as to the
actual terms of the delinquency tests, over-collateralization
and interest coverage terms, cash flow release mechanisms or
other significant factors upon which net income to us will be
calculated. Failure to obtain favorable terms with regard to
these matters may adversely affect the availability of net
income to us.
We may
be required to repurchase loans that we have sold or to
indemnify holders of our CDOs.
If any of the loans we originate or acquire and sell or
securitize through CDOs do not comply with representations and
warranties we make about certain characteristics of the loans,
the borrowers and the underlying properties, we may be required
to repurchase those loans or replace them with substitute loans.
In addition, in the case of loans that we have sold instead of
retained, we may be required to indemnify persons for losses or
expenses incurred as a result of a breach of a representation or
warranty. Repurchased loans typically require a significant
allocation of working capital to carry on our books, and our
ability to borrow against such assets is limited. Any
significant repurchases or indemnification payments could
adversely affect our financial condition and operating results.
Our
loans and investments may be subject to fluctuations in interest
rates which may not be adequately protected, or protected at
all, by our hedging strategies.
Our current balance sheet investment program emphasizes loans
with both floating interest rates and fixed interest
rates. Floating rate investments earn interest at rates that
adjust from time to time (typically monthly) based upon an index
(typically LIBOR), allowing this portion of our portfolio to be
insulated from changes in value due specifically to changes in
rates. Fixed interest rate investments, however, do not have
adjusting interest rates and, as prevailing interest rates
change, the relative value of the fixed cash flows from these
investments will cause potentially significant changes in value.
Depending on market conditions, fixed rate assets may become a
greater portion of our new loan originations. We may employ
various hedging strategies to limit the effects of changes in
interest rates (and in some cases credit spreads), including
engaging in interest rate swaps, caps, floors and other interest
rate derivative products. No strategy can completely insulate us
from the risks associated with interest rate changes and there
is a risk that they may provide no protection at all and
potentially compound the impact of changes in interest rates.
Hedging transactions involve certain additional risks such as
counterparty risk, the legal enforceability of hedging
contracts, the early repayment of hedged transactions and the
risk that unanticipated and significant changes in interest
rates may cause a significant loss of basis in the contract and
a change in current period expense. We cannot make assurances
that we will be able to enter into hedging transactions or that
such hedging transactions will adequately protect us against the
foregoing risks. In addition, cash flow hedges which are not
perfectly correlated (and appropriately designated and
documented as such) with a variable rate financing will impact
our reported income as gains, and losses on the ineffective
portion of such hedges will be recorded.
24
Hedging
instruments often are not traded on regulated exchanges,
guaranteed by an exchange or its clearing house, or regulated by
any U.S. or foreign governmental authorities and involve risks
and costs.
The cost of using hedging instruments increases as the period
covered by the instrument lengthens and during periods of rising
and volatile interest rates. We may increase our hedging
activity and thus increase our hedging costs during periods when
interest rates are volatile or rising and hedging costs have
increased.
In addition, hedging instruments involve risk since they often
are not traded on regulated exchanges, guaranteed by an exchange
or its clearing house, or regulated by any U.S. or foreign
governmental authorities. Consequently, there are no
requirements with respect to record keeping, financial
responsibility or segregation of customer funds and positions.
Furthermore, the enforceability of agreements underlying
derivative transactions may depend on compliance with applicable
statutory and commodity and other regulatory requirements and,
depending on the identity of the counterparty, applicable
international requirements. The business failure of a hedging
counterparty with whom we enter into a hedging transaction will
most likely result in a default. Default by a party with whom we
enter into a hedging transaction may result in the loss of
unrealized profits and force us to cover our resale commitments,
if any, at the then current market price. Although generally we
will seek to reserve the right to terminate our hedging
positions, it may not always be possible to dispose of or close
out a hedging position without the consent of the hedging
counterparty, and we may not be able to enter into an offsetting
contract to cover our risk. We cannot assure you that a liquid
secondary market will exist for hedging instruments purchased or
sold, and we may be required to maintain a position until
exercise or expiration, which could result in losses.
We may
enter into derivative contracts that could expose us to
contingent liabilities in the future.
Subject to maintaining our qualification as a REIT, part of our
investment strategy involves entering into derivative contracts
that could require us to fund cash payments in the future under
certain circumstances (e.g., the early termination of the
derivative agreement caused by an event of default or other
early termination event, or the decision by a counterparty to
request margin securities it is contractually owed under the
terms of the derivative contract). The amount due would be equal
to the unrealized loss of the open swap positions with the
respective counterparty and could also include other fees and
charges. These economic losses will be reflected in our
financial results of operations, and our ability to fund these
obligations will depend on the liquidity of our assets and
access to capital at the time, and the need to fund these
obligations could adversely impact our financial condition.
Changes
in values of our derivative contracts could adversely affect our
liquidity and financial condition.
Certain of our derivative contracts, which are designed to hedge
interest rate risk associated with a portion of our loans and
investments, could require the funding of additional cash
collateral for changes in the market value of these contracts.
Due to the continued volatility in the financial markets, the
value of these contracts has declined substantially. As a
result, as of December 31, 2009, we funded approximately
$18.9 million in cash related to these contracts. If we
continue to experience significant changes in the outlook of
interest rates, these contracts could continue to decline in
value, which would require additional cash to be funded.
However, at maturity the value of these contracts return to par
and all cash will be recovered. We may not have available cash
to meet these requirements, which could result in the early
termination of these derivatives, leaving us exposed to interest
rate risk associated with these loans and investments, which
could adversely impact our financial condition.
We are
subject to certain counterparty risks related to our derivative
contracts.
We periodically hedge a portion of our interest rate risk by
entering into derivative financial instrument contracts. As a
result of the global credit crisis, there is a risk that
counterparties could fail, shut down, file for bankruptcy or be
unable to pay out contracts. The failure of a counterparty that
holds collateral that we post in connection with certain
interest rate swap agreements could result in the loss of such
collateral.
25
Risks
Related to Our Corporate and Ownership Structure
We are
substantially controlled by ACM and
Mr. Kaufman.
Mr. Ivan Kaufman, our chairman, chief executive officer and
president and the chief executive officer of ACM, beneficially
owns approximately 92% of the outstanding membership interests
of ACM. ACM currently has 21.2% of the voting power of our
outstanding stock. As a result of Mr. Kaufmans
beneficial ownership of stock held by ACM as well as his
beneficial ownership of additional shares of our common stock,
Mr. Kaufman currently has 21.7% of the voting power of our
outstanding stock. Because of his position with us and our
manager and his ability to effectively vote a substantial
minority of our outstanding stock, Mr. Kaufman has
significant influence over our policies and strategy.
Our
charter as amended generally does not permit ownership in excess
of 7.0% of our capital stock, and attempts to acquire our
capital stock in excess of this limit are ineffective without
prior approval from our board of directors.
For the purpose of preserving our REIT qualification, our
charter generally prohibits direct or constructive ownership by
any person of more than 7.0% (by value or by number of shares,
whichever is more restrictive) of the outstanding shares of our
common stock or 7.0% (by value) of our outstanding shares of
capital stock. For purposes of this calculation, warrants held
by such person will be deemed to have been exercised if such
exercise would result in a violation. Our charters
constructive ownership rules are complex and may cause the
outstanding stock owned by a group of related individuals or
entities to be deemed to be constructively owned by one
individual or entity. As a result, the acquisition of less than
these percentages of the outstanding stock by an individual or
entity could cause that individual or entity to own
constructively in excess of these percentages of the outstanding
stock and thus be subject to our charters ownership limit.
Any attempt to own or transfer shares of our common or preferred
stock in excess of the ownership limit without the consent of
the board of directors will result in the shares being
automatically transferred to a charitable trust or otherwise
voided.
Our
staggered board and other provisions of our charter and bylaws
may prevent a change in our control.
Our board of directors is divided into three classes of
directors. The current terms of the Class I, Class II
and Class III directors will expire in 2010, 2011 and 2012,
respectively. Directors of each class are chosen for three year
terms upon the expiration of their current terms, and each year
one class of directors is elected by the stockholders. The
staggered terms of our directors may reduce the possibility of a
tender offer or an attempt at a change in control, even though a
tender offer or change in control might be in the best interest
of our stockholders. In addition, our charter and bylaws also
contain other provisions that may delay or prevent a transaction
or a change in control that might involve a premium price for
our common stock or otherwise be in the best interest of our
stockholders.
26
Risks
Related to Conflicts of Interest with Our Manager
We are
dependent on our manager with whom we have conflicts of
interest.
We have only 29 employees, including Messrs. Weber,
Felletter, Horn, Guziewicz, and are dependent upon our manager
to provide services to us that are vital to our operations. ACM,
our manager currently has approximately 21.2% of the voting
power of the outstanding shares of our capital stock and
Mr. Kaufman, our chairman and chief executive officer and
the chief executive officer of ACM, beneficially owns these
shares. Mr. Martello, one of our directors, is the chief
operating officer of Arbor Management, LLC (the managing member
of ACM) and a trustee of two trusts which own minority
membership interests in ACM. Mr. Elenio, our chief
financial officer and treasurer, is the chief financial officer
of ACM. Each of Messrs. Kaufman, Martello, Elenio, Horn,
Weber, Kilgore, Felletter are members of ACMs executive
committee and own minority membership interests in ACM.
We may enter into transactions with ACM outside the terms of the
management agreement with the approval of a majority vote of the
independent members of our board of directors. Transactions
required to be approved by a majority of our independent
directors include, but are not limited to, our ability to
purchase securities, mortgages and other assets from ACM or to
sell securities and assets to ACM. ACM may from time to time
provide permanent mortgage loan financing to clients of ours,
which will be used to refinance bridge financing provided by us.
We and ACM may also make loans to the same borrower or to
borrowers that are under common control. Additionally, our
policies and those of ACM may require us to enter into
intercreditor agreements in situations where loans are made by
us and ACM to the same borrower.
We have entered into a management agreement with our manager
under which our manager provides us with all of the services
vital to our operations other than asset management services.
Certain matters relating to our organization were not approved
at arms length and the terms of the contribution of assets
to us may not be as favorable to us as if the contribution was
with an unaffiliated third party.
The results of our operations are dependent upon the
availability of, and our managers ability to identify and
capitalize on, investment opportunities. Our managers
officers and employees are also responsible for providing the
same services for ACMs portfolio of investments. As a
result, they may not be able to devote sufficient time to the
management of our business operations.
Our
directors have approved very broad investment guidelines for our
manager and do not approve each investment decision made by our
manager.
Our manager is authorized to follow very broad investment
guidelines. Our directors will periodically review our
investment guidelines and our investment portfolio. However, our
board does not review each proposed investment. In addition, in
conducting periodic reviews, the directors rely primarily on
information provided to them by our manager. Furthermore,
transactions entered into by our manager may be difficult or
impossible to unwind by the time they are reviewed by the
directors. Our manager has great latitude within the broad
investment guidelines in determining the types of assets it may
decide are proper investments for us.
Our
manager has broad discretion to invest funds and may acquire
structured finance assets where the investment returns are
substantially below expectations or that result in net operating
losses.
Our manager has broad discretion, within the general investment
criteria established by our board of directors, to allocate the
proceeds of the concurrent offerings and to determine the timing
of investment of such proceeds. Such discretion could result in
allocation of proceeds to assets where the investment returns
are substantially below expectations or that result in net
operating losses, which would materially and adversely affect
our business, operations and results.
The management compensation structure that we have agreed to
with our manager may cause our manager to invest in high risk
investments. Our manager is entitled to a base management fee,
which is based on an agreed upon budget which represents the
actual cost of managing the assets. Our manager is also entitled
to receive incentive compensation based in part upon our
achievement of targeted levels of funds from operations. In
evaluating investments and other management strategies, the
opportunity to earn incentive compensation based on funds from
operations may lead our manager to place undue emphasis on the
maximization of funds from operations at the
27
expense of other criteria, such as preservation of capital, in
order to achieve higher incentive compensation. Investments with
higher yield potential are generally riskier or more
speculative. This could result in increased risk to the value of
our invested portfolio.
Risk
Related to Our Status as a REIT
If we
fail to remain qualified as a REIT, we will be subject to tax as
a regular corporation and could face substantial tax
liability.
We conduct our operations to qualify as a REIT under the
Internal Revenue Code. However, qualification as a REIT involves
the application of highly technical and complex Internal Revenue
Code provisions for which only limited judicial and
administrative authorities exist. Even a technical or
inadvertent mistake could jeopardize our REIT status. Our
continued qualification as a REIT will depend on our
satisfaction of certain asset, income, organizational,
distribution, stockholder ownership and other requirements on a
continuing basis. In addition, our ability to satisfy the
requirements to qualify as a REIT depends in part on the actions
of third parties over which we have no control or only limited
influence, including in cases where we own an equity interest in
an entity that is classified as a partnership for
U.S. federal income tax purposes.
Furthermore, new tax legislation, administrative guidance or
court decisions, in each instance potentially with retroactive
effect, could make it more difficult or impossible for us to
qualify as a REIT. If we fail to qualify as a REIT in any tax
year, then:
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we would be taxed as a regular domestic corporation, which,
among other things, means we would be unable to deduct
distributions to stockholders in computing taxable income and
would be subject to federal income tax on our taxable income at
regular corporate rates;
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any resulting tax liability could be substantial and would
reduce the amount of cash available for distribution to
stockholders; and
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unless we were entitled to relief under applicable statutory
provisions, we would be disqualified from treatment as a REIT
for the subsequent four taxable years following the year during
which we lost our qualification, and thus, our cash available
for distribution to stockholders would be reduced for each of
the years during which we did not qualify as a REIT.
|
Even
if we remain qualified as a REIT, we may face other tax
liabilities that reduce our cash flow.
Even if we remain qualified for taxation as a REIT, we may be
subject to certain federal, state and local taxes on our income
and assets, including taxes on any undistributed income, tax on
income from some activities conducted as a result of a
foreclosure, and state or local income, property and transfer
taxes, such as mortgage recording taxes. Any of these taxes
would decrease cash available for distribution to our
stockholders. In addition, in order to meet the REIT
qualification requirements, or to avert the imposition of a 100%
tax that applies to certain gains derived by a REIT from dealer
property or inventory, we may hold some of our assets through
taxable subsidiary corporations.
The
taxable mortgage pool rules may increase the taxes
that we or our stockholders may incur, and may limit the manner
in which we effect future securitizations.
Certain of our securitizations have resulted in the creation of
taxable mortgage pools for federal income tax purposes. So long
as 100% of the equity interests in a taxable mortgage pool are
owned by an entity that qualifies as a REIT, including our
subsidiary Arbor Realty SR, Inc., we would generally not be
adversely affected by the characterization of the securitization
as a taxable mortgage pool. Certain categories of stockholders,
however, such as foreign stockholders eligible for treaty or
other tax benefits, stockholders with net operating losses, and
certain tax-exempt stockholders that are subject to unrelated
business income tax, could be subject to increased taxes on a
portion of their dividend income from us that is attributable to
the taxable mortgage pool. In addition, to the extent
28
that our stock is owned by tax-exempt disqualified
organizations, such as certain government-related entities
that are not subject to tax on unrelated business income, we
could incur a corporate level tax on a portion of our income
from the taxable mortgage pool. In that case, we may reduce the
amount of our distributions to any disqualified organization
whose stock ownership gave rise to the tax. Moreover, we could
be precluded from selling equity interests in these
securitizations to outside investors, or selling any debt
securities issued in connection with these securitizations that
might be considered to be equity interests for tax purposes.
These limitations may prevent us from using certain techniques
to maximize our returns from securitization transactions.
Complying
with REIT requirements may cause us to forego otherwise
attractive opportunities.
To qualify as a REIT for federal income tax purposes we must
continually satisfy tests concerning, among other things, the
sources of our income, the nature and diversification of our
assets, the amounts we distribute to our stockholders and the
ownership of our stock. We may be required to make distributions
to stockholders at disadvantageous times or when we do not have
funds readily available for distribution. Thus, compliance with
the REIT requirements may hinder our ability to operate solely
on the basis of maximizing profits.
Complying
with REIT requirements may force us to liquidate otherwise
attractive investments.
To qualify as a REIT we must ensure that at the end of each
calendar quarter at least 75% of the value of our assets
consists of cash, cash items, government securities and
qualified REIT real estate assets. The remainder of our
investment in securities generally cannot comprise more than 10%
of the outstanding voting securities, or more than 10% of the
total value of the outstanding securities, of any one issuer. In
addition, in general, no more than 5% of the value of our assets
(other than assets which qualify for purposes of the 75% asset
test) may consist of the securities of any one issuer, and no
more than 25% of the value of our total assets may be
represented by securities of one or more taxable REIT
subsidiaries. If we fail to comply with these requirements at
the end of any calendar quarter, we must correct such failure
within 30 days after the end of the calendar quarter to
avoid losing our REIT status and suffering adverse tax
consequences. As a result, we may be required to liquidate
otherwise attractive investments.
Liquidation
of collateral may jeopardize our REIT status.
To continue to qualify as a REIT, we must comply with
requirements regarding our assets and our sources of income. If
we are compelled to liquidate investments to satisfy our
obligations to our lenders, we may be unable to comply with
these requirements, ultimately jeopardizing our status as a REIT.
We may
be unable to generate sufficient revenue from operations to pay
our operating expenses and to pay dividends to our
stockholders.
As a REIT, we are generally required to distribute at least 90%
of our taxable income each year to our stockholders, though
under the terms of certain financing agreements, annual
dividends are limited to 100% of taxable income to common
shareholders and are required to be paid in the form of our
stock to the maximum extent permissible (currently 90%), with
the balance payable in cash. In order to qualify for the tax
benefits accorded to REITs, we intend to declare quarterly
dividends and to make distributions to our stockholders in
amounts such that we distribute all or substantially all of our
taxable income each year, subject to certain adjustments.
However, our ability to make distributions may be adversely
affected by the risk factors described in this report. In the
event of a downturn in our operating results and financial
performance or unanticipated declines in the value of our asset
portfolio, we may be unable to declare or pay quarterly
dividends or make distributions to our stockholders. The timing
and amount of dividends are in the sole discretion of our board
of directors, which considers, among other factors, our
earnings, financial condition, debt service obligations and
applicable debt covenants, REIT qualification requirements and
other tax considerations and capital expenditure requirements as
our board may deem relevant from time to time.
Among the factors that could adversely affect our results of
operations and impair our ability to make distributions to our
stockholders are:
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our ability to make profitable structured finance investments;
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defaults in our asset portfolio or decreases in the value of our
portfolio;
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29
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the fact that anticipated operating expense levels may not prove
accurate, as actual results may vary from estimates; and
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increased debt service requirements, including those resulting
from higher interest rates on variable rate indebtedness.
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A change in any one of these factors could affect our ability to
make distributions. If we are not able to comply with the
restrictive covenants and financial ratios contained in our
credit facilities, our ability to make distributions to our
stockholders may also be impaired. We cannot assure you that we
will be able to make distributions to our stockholders in the
future or that the level of any distributions we make will
increase over time.
We may
need to borrow funds under our credit facilities in order to
satisfy our REIT distribution requirements, and a portion of our
distributions may constitute a return of capital. Debt service
on any borrowings for this purpose will reduce our cash
available for distribution.
In order to qualify as a REIT, we must generally, among other
requirements, distribute at least 90% of our taxable income,
subject to certain adjustments, to our stockholders each year,
though under the terms of certain financing agreements, annual
dividends are limited to 100% of taxable income to common
shareholders and are required to be paid in the form of our
stock to the maximum extent permissible (currently 90%), with
the balance payable in cash. To the extent that we satisfy the
distribution requirement, but distribute less than 100% of our
taxable income, we will be subject to federal corporate income
tax on our undistributed taxable income. In addition, we will be
subject to a 4% nondeductible excise tax if the actual amount
that we pay out to our stockholders in a calendar year is less
than a minimum amount specified under federal tax laws.
From time to time, we may generate taxable income greater than
our net income for financial reporting purposes, or our taxable
income may be greater than our cash flow available for
distribution to stockholders. If we do not have other funds
available in these situations we could be required to borrow
funds, issue stock or sell investments and our equity securities
at disadvantageous prices or find another alternative source of
funds to make distributions sufficient to enable us to satisfy
the REIT distribution requirement and to avoid corporate income
tax and the 4% excise tax in a particular year.
We may
be subject to adverse legislative or regulatory tax changes that
could reduce the market price of our common stock.
At any time, the federal income tax laws governing REITs or the
administrative interpretations of those laws may change. Any
such changes may have retroactive effect, and could adversely
affect us or our stockholders. Legislation enacted in 2003 and
extended in 2006 generally reduced the federal income tax rate
on most dividends paid by corporations to individual investors
to a maximum of 15% (through 2010). REIT dividends, with limited
exceptions, will not benefit from the rate reduction, because a
REITs income generally is not subject to corporate level
tax. As such, this legislation could cause shares in non-REIT
corporations to be a more attractive investment to individual
investors than shares in REITs, and could have an adverse effect
on the value of our common stock.
Restrictions
on share accumulation in REITs could discourage a change of
control of us.
In order for us to qualify as a REIT, not more than 50% of the
value of our outstanding shares of capital stock may be owned,
directly or indirectly, by five or fewer individuals during the
last half of a taxable year.
In order to prevent five or fewer individuals from acquiring
more than 50% of our outstanding shares and a resulting failure
to qualify as a REIT, our charter provides that, subject to
certain exceptions, no person, including entities, may own, or
be deemed to own by virtue of the attribution provisions of the
Internal Revenue Code, more than 7.0% of the aggregate value or
number of shares (whichever is more restrictive) of our
outstanding common stock, or more than 7.0%, by value, of our
outstanding shares of capital stock of all classes, in the
aggregate. For purposes of the ownership limitations, warrants
held by a person will be deemed to have been exercised if such
exercise would result in a violation of the charter provisions.
Shares of our stock that would otherwise be directly or
indirectly acquired or held by a person in violation of the
ownership limitations are, in general, automatically transferred
to a trust for the benefit of a charitable
30
beneficiary, and the purported owners interest in such
shares is void. In addition, any person who acquires shares in
excess of these limits is obliged to immediately give written
notice to us and provide us with any information we may request
in order to determine the effect of the acquisition on our
status as a REIT.
While these restrictions are designed to prevent any five
individuals from owning more than 50% of our shares, they could
also discourage a change in control of our company. These
restrictions may also deter tender offers that may be attractive
to stockholders or limit the opportunity for stockholders to
receive a premium for their shares if an investor makes
purchases of shares to acquire a block of shares.
Moreover, the current level of the ownership limit that applies
to our stockholders, generally 7.0%, is such that in conjunction
with the exemptions described above that were granted to Mssrs.
Kaufman and Kojaian, if individuals were to acquire stock in the
maximum amounts thereby permitted, our ability to qualify as a
REIT could be jeopardized. We believe that the actual ownership
of our stock has complied with the REIT qualification
requirements, and we expect to be able to maintain such
compliance in the future. Nevertheless, no assurance can be
given that future ownership of our stock will be such that we
will be able to maintain our qualification as a REIT.
Complying
with REIT requirements may limit our ability to hedge
effectively.
The REIT provisions of the Internal Revenue Code may limit our
ability to hedge our operations. Under current law, income that
we generate from derivatives or other transactions intended to
hedge various risks may be treated as non-qualifying income for
purposes of the REIT income tests, unless certain requirements
are met, and our position in such a hedging or derivative
transaction, to the extent that it has positive value, may be
treated as a non-qualifying asset for purposes of the REIT asset
tests. As a result of these rules, we may have to limit our use
of hedging techniques that might otherwise be advantageous,
which could result in greater risks associated with interest
rate or other changes than we would otherwise incur.
31
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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Not applicable.
Arbor Commercial Mortgage, our manager, leases our shared
principal executive and administrative offices, located at 333
Earle Ovington Boulevard in Uniondale, New York.
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ITEM 3.
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LEGAL
PROCEEDINGS
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We are not involved in any material litigation nor, to our
knowledge, is any material litigation threatened against us.
32
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information
Our common stock has been listed on the New York Stock Exchange
under the symbol ABR since our initial public
offering in April 2004. The following table sets forth for the
indicated periods the high and low sales prices for our common
stock, as reported on the New York Stock Exchange, and the
dividends declared and paid with respect to such periods.
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Dividends
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High
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Low
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Declared
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2008
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First Quarter
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$
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18.80
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$
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13.46
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$
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0.62
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Second Quarter
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$
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18.18
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$
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8.71
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$
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0.62
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Third Quarter
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$
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12.49
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$
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7.50
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$
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0.62
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Fourth Quarter(1)
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$
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10.25
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$
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1.77
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$
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0.24
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2009
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First Quarter(2)
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$
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3.50
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$
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0.56
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$
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Second Quarter(2)
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$
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4.23
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$
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0.69
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$
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Third Quarter(2)
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$
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3.60
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$
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1.50
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$
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Fourth Quarter(2)
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$
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2.97
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$
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1.65
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$
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(1) |
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In January 2009, we elected not to pay a common stock
distribution with respect to the quarter ended December 31,
2008 and we believe the dividends paid fully satisfy our 2008
REIT distribution requirements. |
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(2) |
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We elected not to pay a common stock distribution for the
calendar year ended December 31, 2009. |
We are organized and conduct our operations to qualify as a real
estate investment trust, or a REIT, which requires that we
distribute at least 90% of taxable income. No assurance,
however, can be given as to the amounts or timing of future
distributions as such distributions are subject to our earnings,
financial condition, capital requirements and such other factors
as our board of directors deems relevant.
On March 5, 2010, the closing sale price for our common
stock, as reported on the NYSE, was $2.54. As of March 5,
2010, there were 9,730 record holders of our common stock,
including persons holding shares in broker accounts under street
names.
Equity
Compensation Plan Information
Information regarding securities authorized for issuance under
our equity compensation plans which are set forth under the
caption Equity Compensation Plan Information of the
2010 Proxy Statement is incorporated herein by reference.
Performance
Graph
Set forth below is a line graph comparing the cumulative total
stockholder return on shares of our common stock with the
cumulative total return of the NAREIT All REIT Index and the
Russell 2000 Index. The five year period commences on
December 31, 2004 and ends on December 31, 2009, the
end of our most recently completed fiscal year. The graph
assumes an investment of $100 on January 1, 2005 and the
reinvestment of any dividends. This graph is not necessarily
indicative of future price performance. The information included
in the graph and table below was obtained from SNL Financial LC,
Charlottesville,
VA.©
2009.
33
Arbor
Realty Trust, Inc.
Total
Return Performance
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Period Ending
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Index
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12/31/04
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12/31/05
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12/31/06
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12/31/07
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12/31/08
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12/31/09
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Arbor Realty Trust, Inc.
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100.00
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|
|
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114.94
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|
|
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147.11
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|
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87.59
|
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|
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19.30
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|
|
|
13.02
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Russell 2000
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100.00
|
|
|
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104.55
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|
|
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123.76
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|
|
|
121.82
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|
|
|
80.66
|
|
|
|
102.58
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|
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NAREIT All REIT Index
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100.00
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108.29
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145.49
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|
|
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119.54
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|
|
|
74.91
|
|
|
|
95.47
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In accordance with SEC rules, this section entitled
Performance Graph shall not be incorporated by
reference into any of our future filings under the Securities
Act or the Exchange Act, and shall not be deemed to be
soliciting material or to be filed under the Securities Act or
the Exchange Act.
Recent
Issuances of Unregistered Securities
In connection with the amendment and restructuring of our term
credit agreements, revolving credit agreement and working
capital facility with Wachovia on July 23, 2009, we issued
warrants that entitle Wachovia to purchase one million shares of
our common stock at an average strike price of $4.00. The
warrants were issued without registration in reliance on the
exemption provided by Section 4(2) of the 1933 Act. Of such
warrants, 500,000 warrants are exercisable immediately at a
price of $3.50, 250,000 warrants are exercisable after
July 23, 2010 at a price of $4.00 and 250,000 warrants are
exercisable after July 23, 2011 at a price of $5.00. All
warrants expire on July 23, 2015 and no warrants have been
exercised to date.
Pursuant to a registration rights agreement between the Company
and Wachovia, dated as of July 23, 2009, we have agreed to
file a registration statement to permit the resale by Wachovia
of the shares underlying the one million warrants and to pay all
expenses related to such registration. We are obligated to use
our best efforts to cause any such registration statement to
become effective promptly following the filing thereof and to
remain effective for a period of up to two years.
34
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ITEM 6.
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SELECTED
FINANCIAL DATA
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SELECTED
CONSOLIDATED FINANCIAL INFORMATION OF
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
The following tables present selected historical consolidated
financial information for the periods indicated. The selected
historical consolidated financial information presented below
under the captions Consolidated Statement of Operations
Data and Consolidated Balance Sheet Data have
been derived from our audited consolidated financial statements
and include all adjustments, consisting only of normal recurring
accruals, which management considers necessary for a fair
presentation of the historical consolidated financial statements
for such period. Prior period amounts have been reclassified to
conform to current period presentation. In addition, since the
information presented below is only a summary and does not
provide all of the information contained in our historical
consolidated financial statements, including the related notes,
you should read it in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our historical consolidated financial
statements, including the related notes, included elsewhere in
this report.
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Year Ended December 31,
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2009
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|
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2008
|
|
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2007
|
|
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2006
|
|
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2005
|
|
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Consolidated Statement of Operations Data
|
|
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|
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Interest income
|
|
$
|
117,262,129
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|
|
$
|
204,135,097
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|
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$
|
273,984,357
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|
|
$
|
172,833,401
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|
|
$
|
121,109,157
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Interest expense
|
|
|
80,102,075
|
|
|
|
108,656,702
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|
|
|
147,710,194
|
|
|
|
92,693,419
|
|
|
|
45,745,424
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|
Net interest income
|
|
|
37,160,054
|
|
|
|
95,478,395
|
|
|
|
126,274,163
|
|
|
|
80,139,982
|
|
|
|
75,363,733
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Total other revenue
|
|
|
1,726,054
|
|
|
|
82,329
|
|
|
|
39,503
|
|
|
|
867,157
|
|
|
|
498,250
|
|
Other-than-temporary
impairment
|
|
|
10,260,555
|
|
|
|
17,573,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
241,328,039
|
|
|
|
132,000,000
|
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
Loss on restructured loans
|
|
|
57,579,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees related party
|
|
|
15,136,170
|
|
|
|
3,539,854
|
|
|
|
25,004,975
|
|
|
|
12,831,791
|
|
|
|
12,430,546
|
|
Other expenses
|
|
|
22,165,361
|
|
|
|
16,307,371
|
|
|
|
14,974,230
|
|
|
|
11,291,352
|
|
|
|
10,216,873
|
|
Gain on exchange of profits interest
|
|
|
55,988,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
54,080,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on termination of swaps
|
|
|
(8,729,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from equity affiliates
|
|
|
(438,507
|
)
|
|
|
(2,347,296
|
)
|
|
|
34,573,594
|
|
|
|
4,784,292
|
|
|
|
8,453,440
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
16,885,000
|
|
|
|
150,000
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(206,682,964
|
)
|
|
|
(76,207,777
|
)
|
|
|
16,989,177
|
|
|
|
11,104,481
|
|
|
|
11,280,981
|
|
Loss from discontinued operations
|
|
|
(5,275,337
|
)
|
|
|
(582,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(211,958,301
|
)
|
|
|
(76,790,071
|
)
|
|
|
101,523,055
|
|
|
|
61,518,288
|
|
|
|
61,668,004
|
|
Net income attributable to noncontrolling interest
|
|
|
18,672,855
|
|
|
|
4,439,773
|
|
|
|
16,989,177
|
|
|
|
11,104,481
|
|
|
|
11,280,981
|
|
Net (loss) income attributable to Arbor Realty Trust, Inc.
|
|
|
(230,631,156
|
)
|
|
|
(81,229,844
|
)
|
|
|
84,533,878
|
|
|
|
50,413,807
|
|
|
|
50,387,023
|
|
(Loss) earnings from continuing operations per share, basic
|
|
|
(8.90
|
)
|
|
|
(3.52
|
)
|
|
|
4.44
|
|
|
|
2.94
|
|
|
|
2.99
|
|
Loss from discontinued operations per share, basic
|
|
|
(0.21
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share, basic
|
|
|
(9.11
|
)
|
|
|
(3.54
|
)
|
|
|
4.44
|
|
|
|
2.94
|
|
|
|
2.99
|
|
(Loss) earnings from continuing operations per share, diluted
|
|
|
(8.90
|
)
|
|
|
(3.52
|
)
|
|
|
4.44
|
|
|
|
2.93
|
|
|
|
2.98
|
|
Loss from discontinued operations per share, diluted
|
|
|
(0.21
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings per share, diluted(1)
|
|
|
(9.11
|
)
|
|
|
(3.54
|
)
|
|
|
4.44
|
|
|
|
2.93
|
|
|
|
2.98
|
|
Dividends declared per common share(2)(3)(4)(5)(6)
|
|
|
|
|
|
|
2.10
|
|
|
|
2.46
|
|
|
|
2.57
|
|
|
|
2.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and investments, net
|
|
$
|
1,700,774,288
|
|
|
$
|
2,181,683,619
|
|
|
$
|
2,592,093,930
|
|
|
$
|
1,993,525,064
|
|
|
$
|
1,246,825,906
|
|
Related party loans, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,752,038
|
|
|
|
7,749,538
|
|
Total assets
|
|
|
2,060,774,772
|
|
|
|
2,579,236,489
|
|
|
|
2,901,493,534
|
|
|
|
2,204,345,211
|
|
|
|
1,396,075,357
|
|
Repurchase agreements
|
|
|
2,657,332
|
|
|
|
60,727,789
|
|
|
|
244,937,929
|
|
|
|
395,847,359
|
|
|
|
413,624,385
|
|
Collateralized debt obligations
|
|
|
1,100,515,185
|
|
|
|
1,152,289,000
|
|
|
|
1,151,009,000
|
|
|
|
1,091,529,000
|
|
|
|
299,319,000
|
|
Junior subordinated notes to subsidiary trust issuing preferred
securities
|
|
|
259,487,421
|
|
|
|
276,055,000
|
|
|
|
276,055,000
|
|
|
|
222,962,000
|
|
|
|
155,948,000
|
|
Notes payable
|
|
|
375,219,206
|
|
|
|
518,435,437
|
|
|
|
596,160,338
|
|
|
|
94,574,240
|
|
|
|
115,400,377
|
|
Note payable related party
|
|
|
|
|
|
|
4,200,000
|
|
|
|
|
|
|
|
|
|
|
|
30,000,000
|
|
Mortgage note payable
held-for-sale
|
|
|
41,440,000
|
|
|
|
41,440,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,962,140,802
|
|
|
|
2,298,241,821
|
|
|
|
2,433,376,191
|
|
|
|
1,842,765,882
|
|
|
|
1,044,775,284
|
|
Total Arbor Realty Trust, Inc. stockholders equity
|
|
|
96,693,606
|
|
|
|
281,005,649
|
|
|
|
395,263,085
|
|
|
|
296,111,077
|
|
|
|
287,608,517
|
|
Noncontrolling interest in operating partnership units
|
|
|
|
|
|
|
|
|
|
|
72,854,258
|
|
|
|
65,468,252
|
|
|
|
63,691,556
|
|
Noncontrolling interest in consolidated entity
|
|
|
1,940,364
|
|
|
|
(10,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
98,633,970
|
|
|
|
280,994,668
|
|
|
|
468,117,343
|
|
|
|
361,579,329
|
|
|
|
351,300,073
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
Other Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originations(7)
|
|
$
|
3,000,000
|
|
|
$
|
290,565,879
|
|
|
$
|
2,007,838,793
|
|
|
$
|
1,458,153,387
|
|
|
$
|
953,937,330
|
|
|
|
|
(1)
|
|
In 2009, the Company issued one
million warrants as part of a debt restructuring which were
anti-dilutive for the period.
|
|
(2)
|
|
We elected not to pay a common
stock distribution for the calendar year ended December 31,
2009.
|
|
(3)
|
|
In January 2009, we elected not to
pay a common stock distribution with respect to the quarter
ended December 31, 2008 and we believe the dividends paid
fully satisfy our 2008 REIT distribution requirements.
|
|
(4)
|
|
On January 25, 2008, our board
of directors authorized and we declared a distribution to our
stockholders of $0.62 per share of common stock, payable with
respect to the quarter ended December 31, 2007, to
stockholders of record at the close of business on
February 15, 2008. We made this distribution on
February 26, 2008.
|
|
(5)
|
|
On January 25, 2007, our board
of directors authorized and we declared a distribution to our
stockholders of $0.60 per share of common stock, payable with
respect to the quarter ended December 31, 2006, to
stockholders of record at the close of business on
February 5, 2007. We made this distribution on
February 20, 2007.
|
|
(6)
|
|
On January 11, 2006, our board
of directors authorized and we declared a distribution to our
stockholders of $0.70 per share of common stock, payable with
respect to the quarter ended December 31, 2005, to
stockholders of record at the close of business on
January 23, 2006. We made this distribution on
February 6, 2006.
|
|
(7)
|
|
Year ended December 31, 2005
originations are net of a $59.4 million participation in
one of our loans.
|
36
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
You should read the following discussion in conjunction with
the sections of this report entitled Risk Factors,
Forward-Looking Statements, and Selected
Consolidated Financial Information of Arbor Realty Trust, Inc.
and Subsidiaries and the historical consolidated financial
statements of Arbor Realty Trust, Inc. and Subsidiaries,
including related notes, included elsewhere in this report.
Overview
We are a Maryland corporation that was formed in June 2003 to
invest in multi-family and commercial real estate-related bridge
loans, junior participating interests in first mortgages,
mezzanine loans, preferred and direct equity and, in limited
cases, discounted mortgage notes and other real estate-related
assets, which we refer to collectively as structured finance
investments. We have also invested in mortgage-related
securities. We conduct substantially all of our operations
through our operating partnership and its wholly-owned
subsidiaries.
Our operating performance is primarily driven by the following
factors:
|
|
|
|
|
Net interest income earned on our investments
Net interest income represents the amount by
which the interest income earned on our assets exceeds the
interest expense incurred on our borrowings. If the yield earned
on our assets decreases or the cost of borrowings increases,
this will have a negative impact on earnings. However, if the
yield earned on our assets increases or the cost of borrowings
decreases, this will have a positive impact on earnings. Net
interest income is also directly impacted by the size and
performance of our asset portfolio. See Current Market
Conditions, Risks and Recent Trends below for risks and
trends of our net interest income.
|
|
|
|
Credit quality of our assets Effective asset
and portfolio management is essential to maximize the
performance and value of a real estate/mortgage investment.
Maintaining the credit quality of our loans and investments is
of critical importance. Loans that do not perform in accordance
with their terms may have a negative impact on earnings and
liquidity.
|
|
|
|
Cost control We seek to minimize our
operating costs, which consist primarily of employee
compensation and related costs, management fees and other
general and administrative expenses. If there are increases in
foreclosures and non-performing loans and investments, certain
of these expenses, particularly employee compensation expenses
and asset management related expenses, may increase.
|
We are organized and conduct our operations to qualify as a real
estate investment trust, or a REIT and to comply with the
provisions of the Internal Revenue Code with respect thereto. A
REIT is generally not subject to federal income tax on that
portion of its REIT-taxable income which is distributed to its
stockholders provided that at least 90% of its REIT-taxable
income is distributed and provided that certain other
requirements are met. Additionally, under the terms of certain
financing agreements, annual dividends are required to be paid
in the form of our stock to the maximum extent permissible
(currently 90%), with the balance payable in cash. Certain of
our assets that produce non-qualifying income may be held in
taxable REIT subsidiaries. Unlike other subsidiaries of a REIT,
the income of a taxable REIT subsidiary is subject to Federal
and state income taxes. For the year ended December 31,
2009, we did not record a provision for income taxes related to
the assets that are held in taxable REIT subsidiaries.
On July 1, 2003, ACM, our manager, contributed
$213.1 million of structured finance assets, encumbered by
$169.2 million of borrowings in exchange for an equity
interest in our operating partnership represented by
3,146,724 units of limited partnership interest and 629,345
warrants to acquire additional units of limited partnership
interest. In addition, certain employees of ACM became our
employees. We are externally managed and advised by ACM and pay
ACM a management fee in accordance with a management agreement.
ACM originates, underwrites and services all structured finance
assets on behalf of our operating partnership.
Concurrently with ACMs asset contribution, we consummated
a private placement of 1.6 million units, each consisting
of five shares of our common stock and one warrant to purchase
one share of common stock, for $75.00
37
per unit, resulting in gross proceeds of $120.2 million.
Gross proceeds from the private placement combined with the
concurrent equity contribution by ACM totaled approximately
$164.1 million in equity capital.
On April 13, 2004, we sold 6,750,000 shares of our
common stock at a price to the public of $20.00 per share, for
net proceeds of approximately $124.4 million after
deducting the underwriting discount and other estimated offering
expenses. On May 11, 2004, we issued and sold 524,200
additional shares of common stock, for net proceeds of
approximately $9.8 million after deducting the underwriting
discount pursuant to the exercise of a portion of the
over-allotment option granted to the underwriters of our initial
public offering. As of December 31, 2005, we issued
1,256,130 shares of common stock from the exercise of
warrants originally issued as a component of units on
July 1, 2003, for proceeds of $17.1 million. In
addition, in June 2007, we issued 2,700,000 shares of
common stock in a public offering at a price of $27.65 per
share, for net proceeds of approximately $73.6 million.
Current
Market Conditions, Risks and Recent Trends
Global stock and credit markets have experienced prolonged price
volatility, dislocations and liquidity disruptions, which have
caused market prices of many stocks to fluctuate substantially
and the spreads on prospective debt financings to widen
considerably. Commercial real estate classes in general have
been adversely affected by this prolonged economic downturn and
liquidity crisis. If this continues, the commercial real estate
sector will likely experience additional losses, challenges in
complying with the terms of financing agreements, decreased net
interest spreads, and additional difficulties in raising capital
and obtaining investment financing with attractive terms or at
all.
These circumstances have materially impacted liquidity in the
financial markets and have resulted in the scarcity of certain
types of financing, and, in some cases, making terms for
available financings less attractive. If these conditions
persist, lending institutions may be forced to exit markets such
as repurchase lending, become insolvent, further tighten their
lending standards or increase the amount of equity capital
required to obtain financing, and in such event, could make it
more difficult for us to obtain financing on favorable terms or
at all. Our profitability will be adversely affected if we are
unable to obtain cost-effective financing for our investments. A
prolonged downturn in the stock or credit markets may cause us
to seek alternative sources of potentially less attractive
financing, and may require us to adjust our business plan
accordingly. During the third quarter of 2009, we restructured
substantially all of our short-term debt for three years at
costs of financing higher than previous rates. This has and will
continue to have a negative impact on our net interest margins.
In addition, these factors may make it more difficult for our
borrowers to repay our loans as they may experience difficulties
in selling assets, increased costs of financing or obtaining
financing at all. These events in the stock and credit markets
may also make it more difficult or unlikely for us to raise
capital through the issuance of our common stock or preferred
stock. These disruptions in the financial markets also may have
a material adverse effect on the market value of our common
stock and other adverse effects on us or the economy in general.
This environment has undoubtedly had a significant impact on our
business, our borrowers and real estate values throughout all
asset classes and geographic locations. Declining real estate
values will likely continue to minimize our level of new
mortgage loan originations, since borrowers often use increases
in the value of their existing properties to support the
purchase or investment in additional properties. Borrowers may
also be less able to pay principal and interest on our loans if
the real estate economy continues to weaken. Declining real
estate values also significantly increase the likelihood that we
will continue to incur losses on our loans in the event of
default because the value of our collateral may be insufficient
to cover our cost on the loan. Any sustained period of increased
payment delinquencies, foreclosures or losses could adversely
affect both our net interest income from loans in our portfolio
as well as our ability to originate, sell and securitize loans,
which would significantly harm our revenues, results of
operations, financial condition, business prospects and our
ability to make distributions to the stockholders. In addition,
our investments are also subject to the risks described above
with respect to commercial real estate loans and mortgage-backed
securities and similar risks, including risks of delinquency and
foreclosure, the dependence upon the successful operation of,
and net income from, real property, risks generally related to
interests in real property, and risks that may be presented by
the type and use of a particular commercial property. During the
first, second, third and fourth quarters of fiscal year 2009,
respectively, we recorded $67.5 million,
$23.0 million, $51.0 million and $99.8 million of
new provisions for loan losses for a total of
$241.3 million, due to declining collateral values, and
$9.0 million, $23.8 million, $0.3 million and
$24.5 million of losses on restructured
38
loans for a total of $57.6 million in 2009. During the
first three quarters of fiscal year 2008, we recorded
$8.0 million of provisions for loan losses and
$124.0 million in the fourth quarter for a total of
$132.0 million, and no loss on restructured loans was
recorded in 2008. We have made, and continue to make
modifications and extensions to loans when it is economically
feasible to do so. In some cases, modification is a more viable
alternative to foreclosure proceedings when a borrower can not
comply with loan terms. In doing so, lower borrower interest
rates, combined with non-performing loans, will lower our net
interest margins when comparing interest income to our costs of
financing. These trends may persist with a prolonged economic
recession and we feel that there will be continued modifications
and delinquencies in the foreseeable future, which will result
in reduced net interest margins and additional losses throughout
our sector.
Commercial real estate financing companies have been severely
impacted by the current economic environment and have had very
little access to the capital markets or the debt markets in
order to meet their existing obligations or to refinance
maturing debt. We have responded to these troubled times by
decreasing investment activity for capital preservation,
aggressively managing our assets through restructuring and
extending our debt facilities and repurchasing our previously
issued debt at discounts when economically feasible. In order to
accomplish these goals, we have worked closely with our
borrowers in restructuring our loans, receiving payoffs and
paydowns and monetizing our investments as appropriate.
Additionally, as mentioned above, we were successful in
restructuring our short-term debt facilities, and, based on
available liquidity and market opportunities, have from time to
time repurchased our debt at a discount. Also, in 2010, we
entered into an agreement with Wachovia Bank, National
Association to retire our outstanding debt for
$113.9 million at any time on or before an extended payoff
date of August 27, 2010 and we retired $114.1 million
of our junior subordinated notes for the re-issuance of certain
of our own CDO bonds, as well as other assets. We will continue
to remain focused on executing these strategies when appropriate
and where available as this significant economic downturn
persists.
Refer to Item 1A Risk Factors above and
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk below for additional risk factors.
Sources
of Operating Revenues
We derive our operating revenues primarily from interest
received from making real estate-related bridge, mezzanine and
junior participation loans and preferred equity investments.
Interest income earned on these loans and investments
represented approximately 95%, 97% and 90% of our total revenues
in 2009, 2008 and 2007, respectively.
Interest income is also derived from profits on equity
participation interests. No such income was recognized in 2009.
In 2008 and 2007 interest income from participation interests
represented approximately 1% and 10% of total revenues,
respectively.
We also derive interest income from our investments in
commercial real estate (CRE) collateralized debt
obligation bond securities and commercial mortgage-backed
securities (CMBS). Interest on these investments
represented 4% and 2% of our total revenues in 2009 and 2008,
respectively, and less than 1% of our total revenues in 2007.
Property operating income is derived from our real estate owned.
In 2009, property operating income represented 1% of total
revenue. No such income was recognized in 2008 and 2007.
Additionally, we derive operating revenues from other income
that represents loan structuring and defeasance fees, and
miscellaneous asset management fees associated with our loans
and investments portfolio. Revenue from other income represented
less than 1% of our total revenues in 2009, 2008 and 2007.
Loss or
Income from Equity Affiliates and Gain on Sale of Loans and Real
Estate
We derive loss or income from equity affiliates relating to
joint ventures that were formed with equity partners to acquire,
develop
and/or sell
real estate assets. These joint ventures are not majority owned
or controlled by us, and are not consolidated in our financial
statements. These investments are recorded under either the
equity or cost method of accounting as appropriate. We record
our share of net income and losses from the underlying
properties and any
other-than-temporary
impairment of these investments on a single line item in the
consolidated statements
39
of operations as loss or income from equity affiliates. In 2009
and 2008, loss from equity affiliates totaled $0.4 million
and $2.3 million, respectively. In 2007, income from equity
affiliates totaled $34.6 million.
We also may derive income or losses from the sale of loans and
real estate. We may acquire (1) real estate for our own
investment and, upon stabilization, disposition at an
anticipated return and (2) real estate notes generally at a
discount from lenders in situations where the borrower wishes to
restructure and reposition its short-term debt and the lender
wishes to divest certain assets from its portfolio. No such
income or loss has been recorded to date.
Significant
Accounting Estimates and Critical Accounting Policies
Managements discussion and analysis of financial condition
and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance
with U.S. Generally Accepted Accounting Principles
(GAAP). The preparation of financial statements in
conformity with GAAP requires the use of estimates and
assumptions that could affect the reported amounts in our
consolidated financial statements. Actual results could differ
from these estimates. A summary of our significant accounting
policies is presented in Note 2 of the Notes to
Consolidated Financial Statements set forth in Item 8
hereof. Set forth below is a summary of the accounting policies
that management believes are critical to the preparation of the
consolidated financial statements included in this report.
Certain of the accounting policies used in the preparation of
these consolidated financial statements are particularly
important for an understanding of the financial position and
results of operations presented in the historical consolidated
financial statements included in this report and require the
application of significant judgment by management and, as a
result, are subject to a degree of uncertainty.
Loans and
Investments
At the time of purchase, we designate a security as
held-to-maturity,
available-for-sale,
or trading depending on ability and intent to hold. We do not
have any trading securities at this time. Securities
available-for-sale
are reported at fair value, while securities and investments
held-to-maturity
are reported at amortized cost. Unrealized losses that are
determined to be
other-than-temporary
are recognized in earnings. The determination of
other-than-temporary
impairment is a subjective process requiring judgments and
assumptions. The process may include, but is not limited to,
assessment of recent market events and prospects for near term
recovery, assessment of cash flows, internal review of the
underlying assets securing the investments, credit of the issuer
and the rating of the security, as well as our ability and
intent to hold the investment. We closely monitor market
conditions on which we base such decisions.
We also assess certain of our
held-to-maturity
securities, other than those of high credit quality, to
determine whether significant changes in estimated cash flows or
unrealized losses on these securities reflect a decline in value
which is
other-than-temporary;
accordingly, such securities are written down to fair value
against earnings. On a quarterly basis, we review these changes
in estimated cash flows, which could occur due to actual
prepayment and credit loss experience, to determine if an
other-than-temporary
impairment is deemed to have occurred. The determination of
other-than-temporary
impairment is a subjective process requiring judgments and
assumptions. We calculate a revised yield based on the current
amortized cost of the investment, including any
other-than-temporary
impairments recognized to date, and the revised yield is then
applied prospectively to recognize interest income.
Loans held for investment are intended to be
held-to-maturity
and, accordingly, are carried at cost, net of unamortized loan
origination costs and fees, loan purchase discounts, and
allowance for loan losses when such loan or investment is deemed
to be impaired. We invest in preferred equity interests that, in
some cases, allow us to participate in a percentage of the
underlying propertys cash flows from operations and
proceeds from a sale or refinancing. At the inception of each
such investment, management must determine whether such
investment should be accounted for as a loan, joint venture or
as real estate. To date, management has determined that all such
investments are properly accounted for and reported as loans.
Impaired
Loans and Allowance for Loan Losses
Loans are considered impaired when, based upon current
information and events, it is probable that we will be unable to
collect all amounts due for both principal and interest
according to the contractual terms of the loan
40
agreement. Specific valuation allowances are established for
impaired loans based on the fair value of collateral on an
individual loan basis. The fair value of the collateral is
determined by selecting the most appropriate valuation
methodology, or methodologies, among several generally available
and accepted in the commercial real estate industry. The
determination of the most appropriate valuation methodology is
based on the key characteristics of the collateral type. These
methodologies include the evaluation of operating cash flow from
the property during the projected holding period, and estimated
sales value of the collateral computed by applying an expected
capitalization rate to the stabilized net operating income of
the specific property, less selling costs, discounted at market
discount rates.
If upon completion of the valuation, the fair value of the
underlying collateral securing the impaired loan is less than
the net carrying value of the loan, an allowance is created with
a corresponding charge to the provision for loan losses. The
allowance for each loan is maintained at a level believed
adequate by management to absorb probable losses. We had a
$326.3 million allowance for loan losses at
December 31, 2009 related to 31 loans in our portfolio with
an aggregate carrying value of approximately
$693.7 million, before reserves. At December 31, 2008,
we had a $130.5 million allowance for loan losses related to ten
loans in our portfolio with an aggregate carrying value of
approximately $443.2 million, before reserves.
Repurchase
Obligations
In certain circumstances, we have financed the purchase of
investments from a counterparty through a repurchase agreement
with that same counterparty. We currently record these
investments in the same manner as other investments financed
with repurchase agreements, with the investment recorded as an
asset and the related borrowing under the repurchase agreement
as a liability on our consolidated balance sheet. Interest
income earned on the investments and interest expense incurred
on the repurchase obligations are reported separately on the
consolidated statement of operations. These transactions may not
qualify as a purchase by us under current accounting guidance,
which is effective for fiscal years beginning after
November 15, 2008. We would be required to present the net
investment on our balance sheet as a derivative with the
corresponding change in fair value of the derivative being
recorded in the statement of operations when certain criteria to
treat these transactions as part of the same arrangements
(linked transactions) are met. The value of the derivative would
reflect not only changes in the value of the underlying
investment, but also changes in the value of the underlying
credit provided by the counterparty. The guidance applies to
prospective transactions, and no such transactions have been
recorded in this manner in 2009.
Capitalized
Interest
We capitalize interest related to investments (equity, loans and
advances) accounted for by the equity method as qualifying
assets of the investor while the investee has activities in
progress necessary to commence its planned principal operations,
provided that the investees activities include the use of
funds to acquire qualifying assets for its operations. One of
our joint ventures, which is accounted for using the equity
method, has used funds to acquire qualifying assets for its
planned principal operations. During 2007, the joint venture
sold both of the acquired properties and we discontinued the
capitalization of interest on its remaining investment in the
joint venture. We did not capitalize interest during the years
ended December 31, 2009 and 2008, and we capitalized
$0.3 million of interest during the year ended
December 31, 2007 relating to this investment.
Real
Estate Owned and
Held-For-Sale
Real estate owned, shown net of accumulated depreciation, is
comprised of real property acquired by foreclosure or deed in
lieu of foreclosure. Real estate acquired by foreclosure or deed
in lieu of foreclosure is recorded at the lower of the net
carrying value of the loan previously collateralized by the real
estate or estimated fair value of the real estate at the time of
foreclosure or delivery of a deed in lieu of foreclosure. The
net carrying value is the unpaid principal balance of the loan,
adjusted for any unamortized deferred fees, loan loss allowances
and amounts previously due to borrower.
41
Costs incurred in connection with the foreclosure of the
properties collateralizing the real estate loans are expensed as
incurred and costs subsequently incurred to extend the life or
improve the assets subsequent to foreclosure are capitalized.
We allocate the purchase price of operating properties to land,
building, tenant improvements, deferred lease cost for the
origination costs of the in-place leases and to intangibles for
the value of the above or below market leases at fair value. We
amortize the value allocated to the in-place leases over the
remaining lease term. The value allocated to the above or below
market leases are amortized over the remaining lease term as an
adjustment to rental income.
Real estate assets, including assets acquired by foreclosure or
deed in lieu of foreclosure that are operated for the production
of income are depreciated using the straight-line method over
their estimated useful lives. Ordinary repairs and maintenance
which are not reimbursed by the tenants are expensed as
incurred. Major replacements and betterments which improve or
extend the life of the asset are capitalized and depreciated
over their estimated useful life.
We recognize impairment of real estate assets operated for the
production of income if the estimated undiscounted cash flows
generated by the assets are less than the carrying amount of the
assets. Measurement of impairment is based upon the estimated
fair value of the assets. Upon evaluating a property, many
factors are considered, including estimated current and expected
operating cash flow from the property during the projected
holding period, costs necessary to extend the life or improve
the asset, expected capitalization rates, projected stabilized
net operating income, selling costs, and the ability to hold and
dispose of such real estate owned in the ordinary course of
business. Valuation adjustments may be necessary in the event
that effective interest rates,
rent-up
periods, future economic conditions, and other relevant factors
vary significantly from those assumed in valuing the property.
If future evaluations result in a diminution in the value of the
property, the reduction will be recognized as an impairment
charge at that time.
Real estate is classified as
held-for-sale
when management commits to a plan of sale, the asset is
available for immediate sale, there is an active program to
locate a buyer, and it is probable the sale will be complete
within one year. Properties classified as held for sale are not
depreciated and the results of their operations are shown in
discontinued operations. Real estate assets that are expected to
be disposed of are valued at the lower of the carrying amount or
their fair value less costs to sell on an individual asset basis.
We recognize sales of real estate properties only upon closing.
Payments received from purchasers prior to closing are recorded
as deposits. Profit on real estate sold is recognized using the
full accrual method upon closing when the collectability of the
sale price is reasonably assured and we are not obligated to
perform significant activities after the sale. Profit may be
deferred in whole or in part until collectability of the sales
price is reasonably assured and the earnings process is complete.
Revenue
Recognition
Interest Income. Interest income is recognized
on the accrual basis as it is earned from loans, investments and
securities. In many instances, the borrower pays an additional
amount of interest at the time the loan is closed, an
origination fee, and deferred interest upon maturity. In some
cases, interest income may also include the amortization or
accretion of premiums and discounts arising from the purchase or
origination of the loan or security. This additional income, net
of any direct loan origination costs incurred, is deferred and
accreted into interest income on an effective yield or
interest method adjusted for actual prepayment
activity over the life of the related loan or security as a
yield adjustment. Income recognition is suspended for loans
when, in the opinion of management, a full recovery of income
and principal becomes doubtful. Income recognition is resumed
when the loan becomes contractually current and performance is
demonstrated to be resumed. Several of the loans provide for
accrual of interest at specified rates, which differ from
current payment terms. Interest is recognized on such loans at
the accrual rate subject to managements determination that
accrued interest and outstanding principal are ultimately
collectible, based on the underlying collateral and operations
of the borrower. If management cannot make this determination
regarding collectability, interest income above the current pay
rate is recognized only upon actual receipt. Additionally,
interest income is recorded when earned from equity
participation interests, referred to as equity kickers. These
equity kickers have the potential to generate additional
revenues to us as a result of excess
42
cash flows being distributed
and/or as
appreciated properties are sold or refinanced. We did not record
interest income on such investments for the year ended
December 31, 2009, as compared to $1.0 million and
$30.0 million of interest on such loans and investments for
the years ended December 31, 2009 and 2008, respectively.
Property operating income. Property operating
income represents income associated with the operation of two
commercial real estate properties recorded as real estate owned.
For the years ended December 31, 2009, we recorded
approximately $0.9 million of property operating income
relating to real estate owned. At September 30, 2009, one
of our three real estate investments was reclassified from real
estate owned to real estate
held-for-sale
and resulted in a reclassification from property operating
income into discontinued operations for the current and all
prior periods. We did not have property operating income in 2008
and 2007 due to the subsequent reclassification to discontinued
operations. For more details see Note 7 of the Notes
to Consolidated Financial Statements set forth in
Item 8 hereof.
Stock-Based
Compensation
We record stock-based compensation expense at the grant date
fair value of the related stock-based award. We measure the
compensation costs for these shares as of the date of the grant,
with subsequent remeasurement for any unvested shares granted to
non-employees with such amounts expensed against earnings, at
the grant date (for the portion that vest immediately) or
ratably over the respective vesting periods. The cost of these
grants is amortized over the vesting term. Dividends are paid on
the restricted shares as dividends are paid on shares of our
common stock whether or not they are vested. Stock-based
compensation was disclosed in our Consolidated Statement of
Operations under employee compensation and benefits
for employees and under selling and administrative
expense for non-employees.
Income
Taxes
We are organized and conduct our operations to qualify as a REIT
and to comply with the provisions of the Internal Revenue Code
with respect thereto. A REIT is generally not subject to federal
income tax on taxable income which is distributed to its
stockholders, provided that at least 90% of taxable income is
distributed and provided that certain other requirements are
met. Certain of our assets that produce non-qualifying income
are held in taxable REIT subsidiaries. Unlike other subsidiaries
of a REIT, the income of a taxable REIT subsidiary is subject to
federal and state income taxes.
Current accounting guidance clarifies the accounting for
uncertainty in income taxes recognized in an enterprises
financial statements. This guidance prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. This guidance also provides clarity
on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure.
Variable
Interest Entities
Current accounting guidance requires a variable interest entity
(VIE) to be consolidated by its primary beneficiary
(PB). The PB is the party that absorbs a majority of
the VIEs anticipated losses
and/or a
majority of the expected returns.
On a quarterly basis, we evaluate our loans and investments,
mortgage related securities and investments in equity affiliates
to determine whether they are VIEs. This evaluation resulted in
us determining that our bridge loans, junior participation
loans, mezzanine loans, preferred equity investments and
investments in equity affiliates were potential variable
interests. For each of these investments, we have evaluated
(1) the sufficiency of the fair value of the entities
equity investments at risk to absorb losses, (2) that as a
group the holders of the equity investments at risk have
(a) the direct or indirect ability through voting rights to
make decisions about the entities significant activities,
(b) the obligation to absorb the expected losses of the
entity and their obligations are not protected directly or
indirectly, (c) the right to receive the expected residual
return of the entity and their rights are not capped,
(3) substantially all of the entities activities do
not involve or are not conducted on behalf of an investor that
has disproportionately fewer voting rights in terms of its
obligation to absorb the expected losses or its right to receive
expected residual returns of the entity, or both.
43
Entities that issue junior subordinated notes are considered
VIEs. However, it is not appropriate to consolidate these
entities, as equity interests are variable interests only to the
extent that the investment is considered to be at risk. Since
our investments were funded by the entities that issued the
junior subordinated notes, they are not considered to be at
risk. In addition, we have evaluated our investments in
collateralized debt obligation securities and have determined
that the issuing entities are considered VIEs, but have
determined that we are not the primary beneficiary.
We will be required to follow updated accounting guidance
beginning with the first quarter of 2010, by prescribing an
ongoing qualitative rather than quantitative assessment of our
ability to direct the activities of a variable interest entity
that most significantly impact the entitys economic
performance and our rights or obligations to receive benefits or
absorb losses, in order to determine whether those entities will
be required to be consolidated in our Consolidated Financial
Statements. We do not expect the adoption of this guidance to
have a material effect on our Consolidated Financial Statements.
As of December 31, 2009, we have identified 39 loans and
investments which were made to entities determined to be VIEs
with an aggregate carrying amount of $807.3 million. These
VIE entities had exposure to real estate debt of approximately
$3.3 billion at December 31, 2009. For the 39 VIEs
identified, we have determined that we are not the primary
beneficiaries and as such the VIEs should not be consolidated in
our financial statements. For all other investments, we have
determined they are not VIEs. As such, we have continued to
account for these loans and investments as a loan or joint
venture, as appropriate. A summary of our identified VIEs is
presented in Note 10 of the Notes to Consolidated
Financial Statements set forth in Item 8 hereof.
Derivatives
and Hedging Activities
The carrying values of interest rate swaps and the underlying
hedged liabilities are reflected at their fair value. Changes in
the fair value of these derivatives are either offset against
the change in the fair value of the hedged liability through
earnings or recognized in other comprehensive income (loss)
until the hedged item is recognized in earnings. The ineffective
portion of a derivatives change in fair value is
immediately recognized in earnings. Derivatives that do not
qualify for cash flow hedge accounting treatment are adjusted to
fair value through earnings.
We record all derivatives on the balance sheet at fair value.
Additionally, the accounting for changes in the fair value of
derivatives depends on the intended use of the derivative,
whether a company has elected to designate a derivative in a
hedging relationship and apply hedge accounting and whether the
hedging relationship has satisfied the criteria necessary to
apply hedge accounting. Derivatives designated and qualifying as
a hedge of the exposure to changes in the fair value of an
asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, are considered fair
value hedges. Derivatives designated and qualifying as a hedge
of the exposure to variability in expected future cash flows, or
other types of forecasted transactions, are considered cash flow
hedges. Hedge accounting generally provides for the matching of
the timing of gain or loss recognition on the hedging instrument
with the recognition of the changes in the fair value of the
hedged asset or liability that are attributable to the hedged
risk in a fair value hedge or the earnings effect of the hedged
forecasted transactions in a cash flow hedge. We may enter into
derivative contracts that are intended to economically hedge
certain of our risk, even though hedge accounting does not apply
or we elect not to apply hedge accounting.
During the year ended December 31, 2009, we entered into
one new interest rate swap that qualifies as a cash flow hedge
with a notional value of approximately $45.1 million and
paid $1.7 million, which will be amortized into interest
expense over the life of the swap. During the year ended
December 31, 2008, we entered into six interest rate swaps,
which qualify as cash flow hedges, having a total combined
notional value of approximately $121.6 million. During the
year ended December 31, 2009, we terminated six interest
rate swaps related to our restructured trust preferred
securities, with a combined notional value of
$140.0 million, for a loss of $8.7 million recorded to
loss on termination of swaps on our Consolidated Statement of
Operations. Refer to the section titled Liquidity and
Capital Resources Junior Subordinated Notes
below. During the year ended December 31, 2009, we also
terminated two interest rate swaps with a combined notional
value of approximately $78.1 million and a
$33.5 million portion of an interest rate swap with a total
notional value of approximately $67.0 million.
Additionally, one basis swap with a notional amount of
$37.2 million matured and one basis swap and one interest
rate swap had partially amortizing maturities totaling
approximately $221.7 million. The remaining losses
44
on termination will be amortized to interest expense over the
original life of the hedging instruments. The fair value of our
qualifying hedge portfolio has increased by approximately
$50.8 million from December 31, 2008 as a result of
the terminated and matured swaps, combined with a change in the
projected LIBOR rates and credit spreads of both parties.
Because the valuations of our hedging activities are based on
estimates, the fair value may change. For the effect of
hypothetical changes in market interest rates on our interest
rate swaps, see Interest Rate Risk in
Quantitative and Qualitative Disclosures About Market
Risk, set forth in Item 7A hereof.
Fair
Value Measurements
Current accounting guidance for financial assets and liabilities
defines fair value, provides guidance for measuring fair value
and requires certain disclosures. This standard does not require
any new fair value measurements, but rather applies to all other
accounting pronouncements that require or permit fair value
measurements.
Fair value is defined as the price at which an asset could be
exchanged in a current transaction between knowledgeable,
willing parties. A liabilitys fair value is defined as the
amount that would be paid to transfer the liability to a new
obligor, not the amount that would be paid to settle the
liability with the creditor. Where available, fair value is
based on observable market prices or parameters or derived from
such prices or parameters. Where observable prices or inputs are
not available, valuation models are applied. These valuation
techniques involve some level of management estimation and
judgment, the degree of which is dependent on the price
transparency for the instruments or market and the
instruments complexity.
Assets and liabilities disclosed at fair value are categorized
based upon the level of judgment associated with the inputs used
to measure their fair value. Hierarchical levels, defined by the
guidance and directly related to the amount of subjectivity
associated with the inputs to fair valuation of these assets and
liabilities, are as follows:
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Level 1 Inputs are unadjusted, quoted prices in
active markets for identical assets or liabilities at the
measurement date. The types of assets and liabilities carried at
Level 1 fair value generally are government and agency
securities, equities listed in active markets, investments in
publicly traded mutual funds with quoted market prices and
listed derivatives.
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Level 2 Inputs (other than quoted prices
included in Level 1) are either directly or indirectly
observable for the asset or liability through correlation with
market data at the measurement date and for the duration of the
instruments anticipated life. Level 2 inputs include
quoted market prices in markets that are not active for an
identical or similar asset or liability, and quoted market
prices in active markets for a similar asset or liability. Fair
valued assets and liabilities that are generally included in
this category are non-government securities, municipal bonds,
certain hybrid financial instruments, certain mortgage and asset
backed securities including CDO bonds, certain corporate debt,
certain commitments and guarantees, certain private equity
investments and certain derivatives.
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Level 3 Inputs reflect managements best
estimate of what market participants would use in pricing the
asset or liability at the measurement date. These valuations are
based on significant unobservable inputs that require a
considerable amount of judgment and assumptions. Consideration
is given to the risk inherent in the valuation technique and the
risk inherent in the inputs to the model. Generally, assets and
liabilities carried at fair value and included in this category
are certain mortgage and asset-backed securities, certain
corporate debt, certain private equity investments, certain
municipal bonds, certain commitments and guarantees and certain
derivatives.
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Determining which category an asset or liability falls within
the hierarchy requires significant judgment and we evaluate our
hierarchy disclosures each quarter.
At December 31, 2009, we measured certain financial assets
and financial liabilities at fair value on a recurring basis,
including available-for-sale securities and derivative financial
instruments. Fair values of our derivative financial instruments
were approximated on current market data received from financial
sources that trade such instruments and are based on prevailing
market data and derived from third party proprietary models
based on well
45
recognized financial principles and reasonable estimates about
relevant future market conditions. These items were included in
other assets and other liabilities on the consolidated balance
sheet. We incorporated credit valuation adjustments in the fair
values of our derivative financial instruments to reflect
counterparty nonperformance risk. In addition, the fair value of
our
available-for-sale
securities were approximated on current market quotes received
from financial sources that trade such securities.
At December 31, 2009, we measured certain financial assets
and financial liabilities at fair value on a nonrecurring basis,
including loans and securities
held-to-maturity.
Fair values of loans were estimated using discounted cash flow
methodology, using discount rates, which, in the opinion of
management, best reflect current market interest rates that
would be offered for loans with similar characteristics and
credit quality. Loans are designated as held for investment and
are intended to be held to maturity and, accordingly, are
carried at cost, net of unamortized loan origination costs and
fees, loan purchase discounts, and net of the allowance for loan
losses when such loan or investment is deemed to be impaired. We
consider a loan impaired when, based upon current information
and events, it is probable that we will be unable to collect all
amounts due for both principal and interest according to the
contractual terms of the loan agreement. We perform evaluations
of our loans to determine if the fair value of the underlying
collateral securing the impaired loan is less than the net
carrying value of the loan, which may result in an allowance and
corresponding charge to the provision for loan losses. In
addition, the fair values of our securities-held-to maturity
were approximated on current market quotes received from
financial sources that trade such securities.
Recently
Issued Accounting Pronouncements
In February 2010, the Financial Accounting Standards Board
(FASB) issued updated guidance on subsequent events
which states that disclosure of the date through which
subsequent events have been evaluated, the issuance date of the
financial statements, is no longer required. This guidance is
effective upon issuance and its adoption did not have a material
effect on our Consolidated Financial Statements.
In January 2010, the FASB issued updated guidance on fair value
measurements and disclosures, which requires disclosure of
details of significant asset or liability transfers in and out
of Level 1 and Level 2 measurements within the fair
value hierarchy and inclusion of gross purchases, sales,
issuances, and settlements in the rollforward of assets and
liabilities valued using Level 3 inputs within the fair
value hierarchy. The guidance also clarifies and expands
existing disclosure requirements related to the disaggregation
of fair value disclosures and inputs used in arriving at fair
values for assets and liabilities using Level 2 and
Level 3 inputs within the fair value hierarchy. This
guidance is effective for interim and annual reporting periods
beginning after December 15, 2009, except for the gross
presentation of the Level 3 rollforward, which is required
for annual reporting periods beginning after December 15,
2010 and for interim periods within those years. We do not
expect the adoption of this guidance to have a material effect
on our Consolidated Financial Statements.
In January 2010, the FASB issued updated guidance on accounting
for distributions to shareholders with components of stock and
cash, which clarifies the treatment of the stock portion of a
distribution to shareholders that allows the election to receive
cash or stock. This guidance is effective for interim and annual
reporting periods beginning after December 15, 2009. We do
not expect the adoption of this guidance to have a material
effect on our Consolidated Financial Statements.
In August 2009, the FASB issued updated guidance on the fair
value measurement of liabilities not exchanged in an orderly
transaction. This guidance is effective for the first reporting
period (including interim periods) beginning after issuance. The
adoption of this guidance did not have a material effect on our
Consolidated Financial Statements.
In June 2009, the FASB issued The FASB Accounting
Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles (the Codification), which
establishes the exclusive authoritative reference for accounting
principles generally acceptable in the United States. The
Codification simplifies the classification of accounting
guidance into one online database under a common referencing
system. Use of the Codification is effective for interim and
annual periods ending after September 15, 2009. We began to
use the Codification on the effective date, and it had no impact
on our Consolidated Financial Statements. However, throughout
this
Form 10-K,
all references to prior accounting pronouncements have been
removed, and all non-SEC accounting guidance is referred to in
terms of the applicable subject matter.
46
In June 2009, the FASB issued updated guidance related to the
consolidation of variable interest entities, which changes how a
reporting entity determines when an entity that is
insufficiently capitalized or is not controlled through voting,
or similar rights, should be consolidated. The determination of
whether a reporting entity is required to consolidate another
entity is based on, among other things, the other entitys
purpose and design and the reporting entitys ability to
direct the activities of the other entity that most
significantly impact the other entitys economic
performance. This new guidance will require a reporting entity
to provide additional disclosures about its involvement with
variable interest entities and any significant changes in risk
exposure due to that involvement. These new requirements will be
effective at the start of a reporting entitys first fiscal
year beginning after November 15, 2009. Early application
is not permitted. We will adopt these new requirements effective
January 1, 2010. We do not currently expect the adoption of
this guidance to have a material effect on our Consolidated
Financial Statements.
In June 2009, the FASB issued updated guidance related to the
accounting for transfers of financial assets. This new guidance
will require more information about transfers of financial
assets, including securitization transactions, and where
entities have continuing exposure to the risks related to
transferred financial assets. It eliminates the concept of a
qualifying special-purpose entity, changes the
requirements for derecognizing financial assets and requires
additional disclosures. These requirements are effective at the
start of a reporting entitys first fiscal year beginning
after November 15, 2009. Early application is not
permitted. We will adopt these new requirements effective
January 1, 2010. We do not expect the adoption of this
guidance to have a material effect on our Consolidated Financial
Statements.
In April 2009, the FASB issued updated guidance on initial
recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. This guidance
applies to all assets or liabilities arising from contingencies
in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The adoption of
this guidance did not have a material effect on our Consolidated
Financial Statements.
In April 2009, the FASB issued updated guidance on determining
the fair value of an asset or liability when the volume and
level of activity may indicate an inactive market and when
transactions are not orderly. This guidance applies to all fair
value measurements prospectively and is effective for interim
and annual periods ending after June 15, 2009. The adoption
of this guidance did not have a material effect on our
Consolidated Financial Statements.
Changes
in Financial Condition
Our loan portfolio balance, including our
held-to-maturity
securities, decreased $473.6 million, or 21%, to
$1.8 billion at December 31, 2009, with a weighted
average current interest pay rate of 4.95%, as compared to
$2.2 billion, with a weighted average current interest pay
rate of 6.13%, at December 31, 2008. At December 31,
2009, advances on financing facilities totaled
$1.8 billion, with a weighted average funding cost of
3.88%, as compared to $2.0 billion, with a weighted average
funding cost of 3.51% at December 31, 2008.
In 2009, we purchased three CMBS investments at a discounted
price of approximately $12.4 million with a face amount of
approximately $17.0 million and originated three loans
totaling $3.0 million. We have received full satisfaction
of 11 loans totaling $157.3 million, which included
$21.0 million in charge-offs against loan loss reserves,
$32.8 million of losses on restructuring and
$20.7 million as a reclassification from due to borrowers.
We also received partial repayment on 14 loans totaling
$122.8 million, which included $20.3 million in
charge-offs against loan loss reserves and $24.8 million of
losses on restructuring. We also refinanced and or modified 39
loans during the year totaling $1.1 billion. In addition,
22 loans totaling approximately $594.4 million were
extended in accordance with the extension options of the
corresponding loan agreements.
Since December 31, 2009, we purchased one CMBS investment
at a discounted price of approximately $4.5 million with a
face amount of $4.5 million and have not originated any new
loans. We have also received $49.0 million for the
repayment in full of one loan.
47
Cash and cash equivalents increased $63.8 million to
$64.6 million at December 31, 2009 compared to
$0.8 million at December 31, 2008. All highly liquid
investments with original maturities of three months or less are
considered to be cash equivalents. The increase was primarily
due to payoffs and paydowns of our loan investments as well as
cash received from an increase in the value of our interest rate
swaps for which we had previously posted as cash collateral
against these swaps.
Restricted cash decreased $65.3 million, or 70%, to
$27.9 million at December 31, 2009 compared to
$93.2 million at December 31, 2008. Restricted cash is
kept on deposit with the trustees for our collateralized debt
obligations (CDOs), and primarily represents
proceeds from loan repayments which will be used to purchase
replacement loans as collateral for the CDOs. The decrease was
primarily due to the redeployment of funds during 2009 from
proceeds received from the full satisfaction of loans held in
the CDO and the transfer of loans from other financing
facilities to the CDOs.
Securities
available-for-sale
were $0.5 million at December 31, 2009 due to two
investment grade CRE collateralized debt obligation bond with a
total face value of $25.0 million, discount of
$13.4 million and fair value of $0.4 million,
reclassified from
held-to-maturity
to
available-for-sale
with an
other-than-temporary
impairment of $9.8 million. We exchanged these two bonds in
retiring our own junior subordinated notes in February, 2010.
See Securities
Held-To-Maturity
below. In 2008, an
other-than-temporary
impairment of $1.4 million was recognized on one of the
investment grade CRE collateralized debt obligation bond. In
2009 and 2008, we also recorded $0.4 million and
$16.2 million, respectively, in
other-than-temporary
impairment charges against our shares of common stock of Realty
Finance Corporation., formerly CBRE Realty Finance, Inc.,
representing an adjustment to their fair value at
December 31, 2009 and 2008. These securities had a fair
value of $0.1 million and $0.5 million at
December 31, 2009 and December 31, 2008, respectively.
As of December 31, 2009, all of the securities
available-for-sale
have been in an unrealized loss position for more than twelve
months. Generally accepted accounting principles in the United
States (GAAP) require that all securities are evaluated
periodically to determine whether a decline in their value is
other-than-temporary,
though it is not intended to indicate a permanent decline in
value. We believe that based on recent market events and the
unfavorable prospects for near-term recovery of value, that
there is a lack of evidence to support the conclusion that the
fair value decline is temporary. Prior to the third quarter of
2008, changes in the fair market value of our
available-for-sale
securities were considered unrealized gains or losses and were
recorded as a component of other comprehensive income or loss.
See Notes 4 and 5 of the Notes to the Consolidated
Financial Statements set forth in Item 8 hereof for a
further description of these transactions.
Securities
held-to-maturity
increased $2.3 million, or 4%, to $60.6 million at
December 31, 2009 compared to $58.2 million at
December 31, 2008, as a result of purchasing
$17.0 million of investment grade CMBS for
$12.4 million during 2009. The $4.6 million discount
received on the purchases of these securities is accreted into
interest income on an effective yield adjusted for actual
prepayment activity over the estimated life remaining of the
securities as a yield adjustment. Additionally, two investment
grade CRE collateralized debt obligation bonds with a total face
value of $25.0 million and a discount of $13.4 million
were reclassified from
held-to-maturity
to
available-for-sale.
We exchanged these two bonds in the retirement of a portion of
our own junior subordinated notes in February 2010, and intend
to hold the remaining bonds to maturity. See Securities
Available-For-Sale
above and Notes 4 and 5 of the Notes to the
Consolidated Financial Statements set forth in Item 8
hereof for a further description of these transactions.
Investment in equity affiliates increased $35.6 million to
$64.9 million at December 31, 2009 compared to
$29.3 million at December 31, 2008. In June 2008, we
entered into an agreement to transfer our 16.67% interest in
Prime Outlets Member, LLC (POM), in exchange for
preferred and common operating partnership units of Lightstone
Value Plus REIT L.P. Upon closing this transaction in March
2009, we recorded an investment of approximately
$56.0 million for the preferred and common operating
partnership units. This was partially offset by
$13.6 million of
other-than-temporary
impairments on equity investments in unconsolidated joint
ventures, for the remaining amounts of the investments. These
other-than-temporary
impairments were recorded in loss from equity affiliates in our
Consolidated Statements of Operations in the second and third
quarters of 2009, respectively. In addition, in May 2009, we
retired $7.4 million of common equity and corresponding
trust preferred securities in connection with the restructuring
of our junior subordinated notes, reducing our investment in
these entities to $0.6 million at December 31, 2009.
In August 2009, we exchanged our remaining 7.5% equity interest
in Prime
48
Outlets at a value of approximately $10.7 million, in
exchange for preferred and common operating partnership units of
Lightstone Value Plus REIT L.P. and cash consideration. We
received distributions of proceeds of $9.9 million,
resulting in a net investment of $0.9 million in this
unconsolidated joint venture as of September 30, 2009. See
Note 6 of the Notes to the Consolidated Financial
Statements set forth in Item 8 hereof for further
details.
Real estate owned decreased $38.3 million to
$8.2 million at December 31, 2009 compared to
$46.5 million at December 31, 2008. In the second
quarter of 2009, we foreclosed on a property secured by a
$4.0 million bridge loan and as a result, we recorded
$2.9 million on our balance sheet as real estate owned, at
fair value and in the third quarter of 2009, we foreclosed on a
property secured by a $9.9 million bridge loan and recorded
$9.9 million on our consolidated balance sheet as real
estate owned, at fair value. During the third quarter of 2009,
we mutually agreed with a first mortgage lender to appoint a
reciever to operate one of our real estate owned investments and
we are working to assist in the transfer of title to the first
mortgage lender. As a result, this investment was reclassified
from real estate owned to real estate
held-for-sale
at a fair value of $41.4 million and property operating
income and expenses for current and prior periods were
reclassified to discontinued operations, as well as an
impairment loss of $4.9 million was recorded. See
Note 7 of the Notes to the Consolidated Financial
Statements set forth in Item 8 hereof for a further
description of these transactions.
Due from related party increased $12.3 million, to
$15.2 million at December 31, 2009 and consisted of
$7.0 of loan proceeds, which were repaid in the first quarter of
2010, $0.9 million of escrows due from ACM related to 2009
real estate asset transactions and $7.3 million
reclassified from prepaid management fee related
party, related to the POM transaction which closed in 2009. See
Note 6 of the Notes to the Consolidated Financial
Statements set forth in Item 8 hereof for further
details. In accordance with the August 2009 amended management
agreement, since no incentive fee was earned for 2009, the
prepaid management fee is to be paid back in installments of 25%
due by December 31, 2010 and 75% due by June 30, 2012,
with an option to make payment in both cash and Arbor Realty
Trust, Inc. common stock provided that at least 50% of the
payment is made in cash, and will be offset against any future
incentive management fees or success-based payments earned by
our manager prior to June 30, 2012. At December 31,
2008, due from related party was $2.9 million as a result
of an overpayment of incentive management compensation based on
the results of the twelve months ended December 31, 2008,
which was repaid in the second quarter of 2009. Refer to
Management Agreement below for further details.
Prepaid management fee decreased $7.3 million, or 28%, to
$19.0 million at December 31, 2009 compared to
$26.3 million at December 31, 2008, due to the
classification to due from related party of a $7.3 million
advance made to ACM for the incentive management fee paid on
$33.0 million of cash received in June 2008 from the
agreement to transfer 16.67% of our 24.17% interest in POM, one
of our equity affiliates. Upon the closing of this transaction,
which occurred in March 2009, we exchanged our 16.67% interest
in POM for approximately $37.0 million of preferred and
common operating partnership units in another REIT. In
accordance with the August 2009 amended management agreement,
since no incentive fee was earned for 2009, the management fee
is to be paid back. Refer to Due from Related Party
above and Note 6 of the Notes to the Consolidated
Financial Statements set forth in Item 8 hereof for
further details.
Other assets decreased $82.1 million, or 59% to
$57.5 million at December 31, 2009 compared to
$139.7 million at December 31, 2008. The decrease was
primarily due to a $27.6 million decrease in collateral
posted for a portion of our interest rate swaps whose value had
increased and which includes $17.6 million in funded cash
collateral from the termination of six swaps related to our
restructured trust preferred securities and two other terminated
interest rate swaps. The decrease was also due to a reduction of
a $16.5 million third party member receivable in March 2009
in connection with the closing of the POM transaction, a
$24.8 million decrease in interest receivable as a result
of non-performing loans, loan repayments and paydowns, lower
rates on refinanced and modified loans, lower LIBOR rates, and
the effect of a decrease in LIBOR rates on a portion of our
interest rate swaps, a $4.8 million reduction of margin
calls related to other financing in 2008 and a $5.2 million
decrease in the fair value of non-qualifying CDO basis swaps.
See Item 7A Quantitative and Qualitative Disclosures
About Market Risk for further information relating to our
derivatives.
Due to related party increased $1.0 million, to
$2.0 million at December 31, 2009 and consisted of
base management fees due to ACM, which will be remitted by us in
2010. At December 31, 2008, due to related party
49
was $1.0 million and consisted of $0.8 million of base
management fees and $0.2 million of unearned fees and was
repaid in the first quarter of 2009.
Other liabilities decreased $37.6 million, or 28%, to
$97.0 million at December 31, 2009 compared to
$134.6 million at December 31, 2008. The decrease was
primarily due to a $48.9 million decrease in accrued
interest payable primarily due to the increase in value of our
interest rate swaps, as well as the termination of interest rate
swaps, a reduction in LIBOR rates, the timing of reset dates and
a decline in the outstanding balance of our financing
facilities, net of a $20.5 million increase due to
receiving a non-refundable deposit on the settlement of a bridge
loan.
During the second quarter of 2009, we settled a
$37.0 million repurchase financing facility for a cash
payment of approximately $22.0 million, resulting in a gain
on extinguishment of debt of approximately $15.0 million.
In connection with this transaction, we sold a loan financed in
this facility with a carrying value of $47.0 million, at a
discount, for approximately $23.2 million and recorded a
loss on restructuring of $23.8 million. The proceeds were
used to satisfy the $22.0 million cash payment.
On April 21, 2009, we issued an aggregate of
245,000 shares of restricted common stock under the 2003
Stock Incentive Plan, as amended in 2005 (the Plan),
of which 155,000 shares were awarded to certain of our and
ACM employees and 90,000 shares were issued to members of
the board of directors. As a means of emphasizing retention at a
critical time for Arbor and due to their relatively low value,
the 245,000 common shares underlying the restricted stock awards
granted were fully vested as of the date of grant. In addition,
on April 8, 2009, we accelerated the vesting of all
unvested shares underlying restricted stock awards totaling
243,091 shares previously granted to certain of our and ACM
employees and non-management members of the board. As a result
of these transactions, we recorded approximately
$2.1 million of expense in our Consolidated Statements of
Operations during the second quarter of 2009 of which,
$1.7 million was recorded in employee compensation and
benefits and $0.4 million was recorded in selling and
administrative.
In July 2009, we issued Wachovia Bank, National Association one
million warrants at an average strike price of $4.00 in
connection with our amended and restructured debt facilities.
500,000 warrants were exercisable immediately at a price of
$3.50, 250,000 warrants are exercisable after July 23, 2010
at a price of $4.00 and 250,000 warrants are exercisable after
July 23, 2011 at a price of $5.00. All warrants expire on
July 23, 2015 and no warrants have been exercised to date.
The warrants were valued at approximately $0.6 million
using the Black-Scholes method and will be amortized into
interest expense over the life of the agreement in our
Consolidated Statement of Operations. Refer to Notes
Payable below for further details.
In March 2009, we exchanged our 16.67% interest in POM for
preferred and common operating partnership units of Lightstone
Value Plus REIT L.P. at a value of approximately
$37.3 million. As a result, during the first quarter of
2009, we recorded a gain on exchange of profits interest of
approximately $56.0 million and income attributable to
noncontrolling interest of approximately $18.7 million
related to the third party members portion of income
recorded. In August 2009, we exchanged our remaining 7.5% equity
interest in Prime at a value of approximately $9.0 million,
in exchange for preferred and common operating partnership units
of Lightstone Value Plus REIT L.P. As a result of this
transaction, during the third quarter of 2009, we recorded
income from equity affiliates of $10.7 million. See
Note 6 of the Notes to the Consolidated Financial
Statements set forth in Item 8 hereof for further
details.
In March 2009, we purchased from our manager, ACM, approximately
$9.4 million of junior subordinated notes originally issued
by a wholly-owned subsidiary of our operating partnership for
$1.3 million. In 2009, ACM purchased these notes from third
party investors for $1.3 million. We recorded a net gain on
extinguishment of debt of $8.1 million and a reduction of
outstanding debt totaling $9.4 million from this
transaction. In addition, during the first quarter of 2009, we
purchased approximately $23.7 million of investment grade
rated notes originally issued by our CDO issuing entities for a
price of $5.6 million and recorded a net gain on
extinguishment of debt of $18.2 million and a reduction of
outstanding debt totaling $23.7 million. Of the
$23.7 million purchased, $8.8 million of the CDO notes
were purchased from ACM for a price of $3.2 million. In
2008, ACM purchased these notes from third party investors for
$3.2 million. During the second quarter of 2009, we
purchased the remaining CDO notes from ACM for a price of
$4.7 million and recorded a gain on extinguishment of debt
of $6.5 million and a reduction of outstanding debt
totaling $11.2 million. In 2008, ACM purchased these notes
from
50
third party investors for $5.0 million. During the third
quarter of 2009, we purchased, at a discount, approximately
$7.9 million of investment grade rated notes originally
issued by our CDO issuing entities for a price of
$1.5 million from third party investors and recorded a net
gain on extinguishment of debt of $6.3 million.
Comparison
of Results of Operations for Year Ended 2009 and 2008
The following table sets forth our results of operations for the
years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase/(Decrease)
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
Percent
|
|
Interest income
|
|
$
|
117,262,129
|
|
|
$
|
204,135,097
|
|
|
$
|
(86,872,968
|
)
|
|
(43)%
|
Interest expense
|
|
|
80,102,075
|
|
|
|
108,656,702
|
|
|
|
(28,554,627
|
)
|
|
(26)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
37,160,054
|
|
|
|
95,478,395
|
|
|
|
(58,318,341
|
)
|
|
(61)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating income
|
|
|
916,246
|
|
|
|
|
|
|
|
916,246
|
|
|
nm
|
Other income
|
|
|
809,808
|
|
|
|
82,329
|
|
|
|
727,479
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenue
|
|
|
1,726,054
|
|
|
|
82,329
|
|
|
|
1,643,725
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
10,154,276
|
|
|
|
8,110,003
|
|
|
|
2,044,273
|
|
|
25%
|
Selling and administrative
|
|
|
10,505,013
|
|
|
|
8,197,368
|
|
|
|
2,307,645
|
|
|
28%
|
Property operating expenses
|
|
|
1,411,253
|
|
|
|
|
|
|
|
1,411,253
|
|
|
nm
|
Depreciation and amortization
|
|
|
94,819
|
|
|
|
|
|
|
|
94,819
|
|
|
nm
|
Other-than-temporary
impairment
|
|
|
10,260,555
|
|
|
|
17,573,980
|
|
|
|
(7,313,425
|
)
|
|
(42)%
|
Provision for loan losses
|
|
|
241,328,039
|
|
|
|
132,000,000
|
|
|
|
109,328,039
|
|
|
83%
|
Loss on restructured loans
|
|
|
57,579,561
|
|
|
|
|
|
|
|
57,579,561
|
|
|
nm
|
Management fee related party
|
|
|
15,136,170
|
|
|
|
3,539,854
|
|
|
|
11,596,316
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
346,469,686
|
|
|
|
169,421,205
|
|
|
|
177,048,481
|
|
|
105%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before gain on exchange of
profits interest, gain on extinguishment of debt, loss on
termination of swaps, and loss from equity affiliates
|
|
|
(307,583,578
|
)
|
|
|
(73,860,481
|
)
|
|
|
(233,723,097
|
)
|
|
nm
|
Gain on exchange of profits interest
|
|
|
55,988,411
|
|
|
|
|
|
|
|
55,988,411
|
|
|
nm
|
Gain on extinguishment of debt
|
|
|
54,080,118
|
|
|
|
|
|
|
|
54,080,118
|
|
|
nm
|
Loss on termination of swaps
|
|
|
(8,729,408
|
)
|
|
|
|
|
|
|
(8,729,408
|
)
|
|
nm
|
Loss from equity affiliates
|
|
|
(438,507
|
)
|
|
|
(2,347,296
|
)
|
|
|
1,908,789
|
|
|
(81)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(206,682,964
|
)
|
|
|
(76,207,777
|
)
|
|
|
(130,475,187
|
)
|
|
171%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on impairment of real estate
held-for-sale
|
|
|
(4,898,295
|
)
|
|
|
|
|
|
|
(4,898,295
|
)
|
|
nm
|
Loss on operations of real estate
held-for-sale
|
|
|
(377,042
|
)
|
|
|
(582,294
|
)
|
|
|
205,252
|
|
|
(35)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(5,275,337
|
)
|
|
|
(582,294
|
)
|
|
|
(4,693,043
|
)
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(211,958,301
|
)
|
|
|
(76,790,071
|
)
|
|
|
(135,168,230
|
)
|
|
176%
|
Net income attributable to noncontrolling interest
|
|
|
18,672,855
|
|
|
|
4,439,773
|
|
|
|
14,233,082
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Arbor Realty Trust, Inc.
|
|
$
|
(230,631,156
|
)
|
|
$
|
(81,229,844
|
)
|
|
$
|
(149,401,312
|
)
|
|
184%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
Net
Interest Income
Interest income decreased $86.9 million, or 43%, to
$117.3 million in 2009 from $204.1 million in 2008.
This decrease was primarily due to a 35% decrease in the average
yield on assets from 7.80% in 2008 to 5.08% in 2009 combined
with a 10% decrease in the average balance of our loans and
investments from $2.5 billion for 2008 to $2.3 billion
for 2009. The decrease in yield was the result of a decrease in
the average LIBOR rate over the same period, along with the
suspension of interest on our non-performing loans, and lower
rates on refinanced and modified loans. The decrease in loans
and investments was due to payoffs, paydowns and modifications.
In addition, interest income from cash equivalents decreased
$3.7 million to $0.7 million for 2009 compared to
$4.4 million for 2008 as a result of decreased average cash
balances, as well as decreases in interest rates from 2008 to
2009. Interest income in 2008 also includes $1.3 million of
interest income from profits and equity interests from our
investment in equity affiliates.
Interest expense decreased $28.6 million, or 26%, to
$80.1 million in 2009 from $108.7 million in 2008.
This decrease was primarily due to a 15% decrease in the average
cost of these borrowings from 5.00% for 2008 to 4.27% for 2009
due to a reduction in the average LIBOR rate on the portion of
our debt that was floating over the same period. In addition,
there was a 13% decrease in the average balance of our debt
facilities from $2.2 billion for 2008 to $1.9 billion
for 2009 as a result of decreased leverage on our portfolio due
to the reduction of certain outstanding indebtedness from
repayment of loans, the transfer of assets to our CDO vehicles,
which carry a lower cost of funds, and from available capital.
The decrease was also due to $5.2 million of losses related
to the recognition of
mark-to-market
adjustments on certain of our CDO basis swaps in 2009, compared
to $4.6 million of gains recorded in 2008.
Other
Revenue
Property operating income was $0.9 million in 2009. This
was primarily due to the operation of two real estate
investments recorded as real estate owned as of
December 31, 2009. One of our real estate investments was
reclassified from real estate owned to real estate
held-for-sale
in the third quarter of 2009, resulting in a reclassification
from property operating income into discontinued operations for
the current period and all prior periods presented.
Other income increased $0.7 million to $0.8 million in
2009 from $0.1 million in 2008. This is primarily due to
excess proceeds received from the payoff of a defeased loan in
the second quarter of 2009.
Other
Expenses
Employee compensation and benefits expense increased
$2.0 million, or 25%, to $10.2 million in 2009 from
$8.1 million for in 2008. This increase was due to grants
of restricted stock awards to employees and the acceleration of
all previously unvested restricted stock in the second quarter
of 2009. These expenses represent salaries, benefits,
stock-based compensation related to employees, and incentive
compensation for those employed by us during these periods.
Selling and administrative expense increased $2.3 million,
or 28%, to $10.5 million in 2009 from $8.2 million in
2008. These costs include, but are not limited to, professional
and consulting fees, marketing costs, insurance expense,
directors fees, licensing fees, travel and placement fees,
and stock-based compensation relating to the cost of restricted
stock granted to our directors and certain employees of our
manager. This increase was primarily due to foreclosure fees
associated with one of our properties incurred during 2009, as
well as grants of restricted stock awards to directors and
certain employees of our manager, ACM, and the acceleration of
all previously unvested restricted stock. The increase was also
due to an increase in general corporate legal expenses
associated with the exchange of our debt restructurings in 2009.
Property operating expense was $1.4 million in 2009. This
was primarily due to the operation of two real estate
investments recorded as real estate owned as of
December 31, 2009. One of our real estate investments was
reclassified from real estate owned to real estate
held-for-sale
in the third quarter of 2009, resulting in a reclassification
from property operating expense into discontinued operations for
the current period and all prior periods presented.
52
Depreciation and amortization expense was $0.1 million in
2009. This was primarily due to depreciation expense associated
with consolidation of a hotel during 2009, which was recorded as
real estate owned. One of our real estate investments was
reclassified from real estate owned to real estate
held-for-sale
in the third quarter of 2009, resulting in a reclassification
from depreciation and amortization expense into discontinued
operations for the current period and all prior periods
presented.
Other-than-temporary
impairment charges of $10.3 million and $17.6 million
in 2009 and 2008, respectively, represents the recognition of
impairment to the fair market value of our
available-for-sale
securities at December 31, 2009 and 2008, respectively,
that was considered
other-than-temporary.
GAAP accounting standards require that investments are evaluated
periodically to determine whether a decline in their value is
other-than-temporary,
though it is not intended to indicate a permanent decline in
value. See Notes 4, 5 and 6 of the Notes to the
Consolidated Financial Statements set forth in Item 8
hereof for further details.
Provision for loan losses totaled $241.3 million for the
year ended December 31, 2009, and $132.0 million for
the year ended December 31, 2008. The provision recorded in
2009 related to 31 loans with an aggregate carrying value of
$693.7 million, before reserves, that were impaired. We
performed an evaluation of the loans and determined that the
fair value of the underlying collateral securing the impaired
loans was less than the net carrying value of the loans,
resulting in us recording the above mentioned provision for loan
losses. The provision recorded in 2008 related to ten loans with
an aggregate carrying value of $443.2 million, before
reserves, that were impaired.
Loss on restructured loans of $57.6 million in 2009
represents losses incurred as a result of restructuring certain
of our loans and investments and included $31.1 million for
the write-down of four loans and investments, $23.8 million
for the settlement of a bridge loan and $2.7 million for
the settlement of a junior participation loan. There were no
losses on restructured loans in 2008.
Management fees increased $11.6 million to
$15.1 million in 2009 from $3.5 million in 2008. These
amounts represent compensation in the form of base management
fees and incentive management fees as provided for in the
management agreement with our manager. Refer to
Contractual Commitments Management
Agreement below for further details including information
related to our amended management agreement with ACM. The
amended management agreement also provides for
success-based payments to be paid to our manager
upon the completion of specified corporate objectives in
addition to the standard base management fee. The base
management fee expense was $15.1 million in 2009, which
included success-based payments for the trust preferred and
Wachovia debt restructurings of $4.1 million in the third
quarter of 2009 and a $3.0 million retroactive payment for
2008 costs in the second quarter of 2009, as compared to
$3.5 million in 2008, in accordance with our management
agreement with ACM, which was amended in August 2009. No
incentive management fee was earned in 2009 or 2008.
Gain on exchange of profits interest of $56.0 million was
due to the recognition of income attributable to the exchange of
our POM profits interest in 2009. See Note 6 of the
Notes to the Consolidated Financial Statements set
forth in Item 8 hereof for further details on the POM
transaction recorded in the first quarter of 2009. There were no
gains on exchange of profits interest in 2008.
Gain on extinguishment of debt totaled $54.1 million for in
2009. During the year ended December 31, 2009, we
purchased, at a discount, approximately $42.8 million of
investment grade rated bonds originally issued by our three CDO
issuing entities. In addition, we purchased, at a discount,
approximately $9.4 million of junior subordinated notes
originally issued by a wholly-owned subsidiary of our operating
partnership. We recorded a net gain on early extinguishment of
debt of $39.1 million related to these transactions. Also,
during the second quarter of 2009, we settled a bridge loan
secured by a condominium project in New York City, as well as
our debt for the loan resulting in a gain on early
extinguishment of the debt of $15.0 million. There were no
gains on extinguishment of debt in 2008.
Loss on termination of swaps of $8.7 million in 2009
resulted from the exchange of our outstanding trust preferred
securities for newly issued unsecured junior subordinated notes
in the second quarter of 2009. Refer to Junior
Subordinated Notes below. In connection with the original
issuance of the trust preferred securities, we had entered into
various interest rate swap agreements. Due to the modified
interest payment structure of the newly issued unsecured junior
subordinated notes, the swaps were determined to no longer be
effective or necessary and were subsequently terminated,
resulting in a loss of $8.7 million. There were no losses
on termination of swaps in 2008.
53
Loss from equity affiliates of $0.4 million in 2009
includes an $11.7 million impairment charge in the second
quarter of 2009 and a $1.9 million impairment charge in the
third quarter of 2009, on investments in an equity affiliates
that were considered
other-than-temporary.
GAAP accounting standards require that investments are evaluated
periodically to determine whether a decline in their value is
other-than-temporary,
though it is not intended to indicate a permanent decline in
value. There were no
other-than-temporary
impairment charges on investments in an equity affiliates in
2008. This was netted with income of $10.7 million from the
August 2009 exchange of our remaining 7.5% equity interest in
POM. We owned the 7.5% interest through a 50% non-controlling
interest in an unconsolidated joint venture, which had a 15%
interest in Prime Outlets. Loss from equity affiliates also
includes $1.6 million of income recorded during 2009, which
reflects a portion of the joint ventures income from our
Alpine Meadows equity investment, which had $2.3 million of
losses in 2008, as well as income from our other joint ventures
of $0.9 million. See Note 6 of the Notes to the
Consolidated Financial Statements set forth in Item 8
hereof for further details.
We are organized and conduct our operations to qualify as a REIT
for federal income tax purposes. As a REIT, we are generally not
subject to federal income tax on our REIT taxable
income that we distribute to our stockholders, provided that we
distribute at least 90% of our REIT taxable income
and meet certain other requirements. As of December 31,
2009 and 2008, we were in compliance with all REIT requirements
and, therefore, have not provided for income tax expense for the
years ended December 31, 2009 and 2008. Certain of our
assets that produce non-qualifying income are owned by our
taxable REIT subsidiaries, the income of which is subject to
federal and state income taxes. During the years ended
December 31, 2009 and 2008, we did not record any provision
on income from these taxable REIT subsidiaries.
Loss
from Discontinued Operations
During the third quarter of 2009, we mutually agreed with a
first mortgage lender to appoint a receiver to operate one of
our real estate owned investments and we are working to assist
in the transfer of title to the first mortgage lender. As a
result, this investment was reclassified from real estate owned
to real estate
held-for-sale
at a fair value of $41.4 million and property operating
income and expenses, which netted to a loss of $0.4 million
and $0.6 million in 2009 and 2008, respectively, were
reclassified to discontinued operations, as well as an
impairment loss of $4.9 million to write down the
investment to its fair value was recorded in the third quarter
of 2009. See Note 7 of the Notes to the Consolidated
Financial Statements set forth in Item 8 hereof for
further details.
Net
Income Attributable to Noncontrolling Interest
Net income attributable to noncontrolling interest totaled
$18.7 million in 2009 representing the portion of income
allocated to the third partys interest in a consolidated
subsidiary, primarily the result of the $56.0 million gain
recorded from the exchange of our profits interest in POM during
the first quarter of 2009. See Note 6 of the Notes to
the Consolidated Financial Statements set forth in
Item 8 hereof. Net income attributable to noncontrolling
interest totaled $4.4 million in 2008 representing the
portion of our income allocated to our manager for their
noncontrolling interest in our operating partnership as well as
loss allocated to a third partys interest in a
consolidated subsidiary. There was no net income attributable to
noncontrolling interest in our operating partnership in 2009.
Our manager had a weighted average limited partnership interest
of 15.3% for the six months ended June 30, 2008. In June
2008, our manager, exercised its right to redeem its 3,776,069
operating partnership units in our operating partnership for
shares of our common stock on a
one-for-one
basis. As a result, our managers operating partnership
ownership interest percentage was reduced to zero.
54
Comparison
of Results of Operations for Year Ended 2008 and 2007
The following table sets forth our results of operations for the
years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase/(Decrease)
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
Percent
|
|
Interest income
|
|
$
|
204,135,097
|
|
|
$
|
273,984,357
|
|
|
$
|
(69,849,260
|
)
|
|
(25)%
|
Interest expense
|
|
|
108,656,702
|
|
|
|
147,710,194
|
|
|
|
(39,053,492
|
)
|
|
(26)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
95,478,395
|
|
|
|
126,274,163
|
|
|
|
(30,795,768
|
)
|
|
(24)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
82,329
|
|
|
|
39,503
|
|
|
|
42,826
|
|
|
108%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenue
|
|
|
82,329
|
|
|
|
39,503
|
|
|
|
42,826
|
|
|
108%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
8,110,003
|
|
|
|
9,381,055
|
|
|
|
(1,271,052
|
)
|
|
(14)%
|
Selling and administrative
|
|
|
8,197,368
|
|
|
|
5,593,175
|
|
|
|
2,604,193
|
|
|
47%
|
Other-than-temporary
impairment
|
|
|
17,573,980
|
|
|
|
|
|
|
|
17,573,980
|
|
|
nm
|
Provision for loan losses
|
|
|
132,000,000
|
|
|
|
2,500,000
|
|
|
|
129,500,000
|
|
|
nm
|
Management fee related party
|
|
|
3,539,854
|
|
|
|
25,004,975
|
|
|
|
(21,465,121
|
)
|
|
(86)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
169,421,205
|
|
|
|
42,479,205
|
|
|
|
126,942,000
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before (loss) income
from equity affiliates and provision for income taxes
|
|
|
(73,860,481
|
)
|
|
|
83,834,461
|
|
|
|
(157,694,942
|
)
|
|
nm
|
(Loss) income from equity affiliates
|
|
|
(2,347,296
|
)
|
|
|
34,573,594
|
|
|
|
(36,920,890
|
)
|
|
nm
|
Provision for income taxes
|
|
|
|
|
|
|
(16,885,000
|
)
|
|
|
16,885,000
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(76,207,777
|
)
|
|
|
101,523,055
|
|
|
|
(177,730,832
|
)
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(582,294
|
)
|
|
|
|
|
|
|
(582,294
|
)
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(76,790,071
|
)
|
|
|
101,523,055
|
|
|
|
(178,313,126
|
)
|
|
nm
|
Net income attributable to noncontrolling interest
|
|
|
4,439,773
|
|
|
|
16,989,177
|
|
|
|
(12,549,404
|
)
|
|
(74)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Arbor Realty Trust, Inc.
|
|
$
|
(81,229,844
|
)
|
|
$
|
84,533,878
|
|
|
$
|
(165,763,722
|
)
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Interest Income
Interest income decreased $69.8 million, or 25%, to
$204.1 million in 2008 from $274.0 million in 2007.
This decrease was due in part to the recognition of
$37.6 million of interest income from profits and equity
interests from our investment in equity affiliates during 2007
as compared to $1.3 million in 2008.
Excluding these transactions, interest income decreased
$33.5 million, or 14%, compared to the same period of the
prior year. This was primarily due to a 16% decrease in the
average yield on the assets from 9.34% in 2007 to 7.80% in 2008.
This decrease in yield was the result of a decrease in the
average LIBOR rate over the same period and a reduction in the
yield on new originations compared to higher yielding loan
payoffs from the same period in 2007. This was partially offset
by a portion of our portfolio having LIBOR floors and fixed
rates of interest. In addition, interest income from cash
equivalents decreased $4.5 million to $4.4 million for
2008 compared to $8.9 million for 2007 as a result of
decreased average restricted and unrestricted cash balances as
well as lower interest rates.
55
Interest expense decreased $39.1 million, or 26%, to
$108.7 million in 2008 from $147.7 million in 2007.
This decrease was primarily due to a 26% decrease in the average
cost of these borrowings from 6.76% for 2007 to 5.00% for 2008
due to a reduction in average LIBOR rate on the portion of our
debt that was floating over the same period. This decrease was
also due to $2.9 million in gains recorded in 2008 related
to the recognition of
mark-to-market
adjustments on certain of our CDO basis swaps. In addition,
there was a 1% decrease in the average balance of our debt
facilities from the year ended December 31, 2007 as
compared to the year ended December 31, 2008 as a result of
decreased leverage on our portfolio due to the reduction of
certain outstanding indebtedness from repayment of loans, the
transfer of assets to our CDO vehicles which carry a lower cost
of funds and from available capital.
Other
Revenue
Other income increased $42,826, or 108%, to $82,329 in 2008 from
$39,503 in 2007. This was primarily due to increased
miscellaneous asset management fees on our loan and investment
portfolio.
Other
Expenses
Employee compensation and benefits expense decreased
$1.3 million, or 14%, to $8.1 million in 2008 from
$9.4 million in 2007. These expenses represent salaries,
benefits, stock-based compensation related to employees, and
incentive compensation for those employed by us during these
periods. This decrease was primarily due to a decrease in
employee compensation and benefits, partially offset by an
increase in costs related to restricted stock awards granted to
employees in 2008.
Selling and administrative expense increased $2.6 million,
or 47%, to $8.2 million in 2008 from $5.6 million in
2007. These costs include, but are not limited to, professional
and consulting fees, marketing costs, insurance expense,
directors fees, licensing fees, travel and placement fees,
and stock-based compensation relating to the cost of restricted
stock granted to our directors and certain employees of our
manager. The increase was primarily due to expenses related to
the Prime Outlets transaction in 2008 and other increases in
professional fees including general corporate legal expenses.
This increase was also due to $0.4 million of losses
recognized from the sales of two properties securing two bridge
loans during 2008.
Other-than-temporary
impairment charges of $17.6 million in 2008 primarily
represents the recognition of a $16.2 million impairment
that was considered
other-than-temporary
relating to the fair market value of our
available-for-sale
securities at December 31, 2008. Prior to
September 30, 2008, changes in the fair market value of our
available-for-sale
securities were considered unrealized gains or losses and were
recorded as a component of other comprehensive income or loss.
Other-than-temporary
impairment charges in 2008 also included $1.4 million for
the recognition of an impairment that was considered
other-than-temporary
relating to one of our securities
held-to-maturity,
which was subsequently reclassified as
available-for-sale
at December 31, 2009. These securities represent common
stock and a CDO bond security, both issued by Realty Finance
Corporation, formerly CBRE, another commercial REIT. There were
no
other-than-temporary
impairment charges in 2007.
Provision for loan losses totaled $132.0 million for the
year ended December 31, 2008, and $2.5 million for the
year ended December 31, 2007. The provision recorded in
2008 related to ten loans with an aggregate carrying value of
$443.2 million, before reserves, became impaired. We
performed quarterly evaluations of the loans and determined that
the fair value of the underlying collateral securing the
impaired loans was less than the net carrying value of the loan,
resulting in us recording the above mentioned provision for loan
losses. The provision recorded in 2007 related to two loans with
an aggregate carrying value of $58.5 million, before
reserves, that were impaired.
Management fees decreased $21.5 million, or 86%, to
$3.5 million in 2008 from $25.0 million in 2007. These
amounts represent compensation in the form of base management
fees and incentive management fees as provided for in the
management agreement with our manager. The incentive management
fees decreased by $21.8 million, or 100%, to $0 in 2008
from $21.8 million in 2007. This decrease was due to losses
in 2008, versus income in 2007, primarily due to
$132.0 million of provisions for loan losses, along with
other-than-temporary
impairment charges on our
available-for-sale
and
held-to-maturity
securities totaling $17.6 million in 2008. This decrease
was also due to $72.2 million of income from profits and
equity interests in 2007. The base management fees increased by
$0.3 million, or 10%, to $3.5 million in 2008 from
$3.2 million in 2007. This increase is primarily due to
increased
56
average stockholders equity directly attributable to
greater undistributed profits and capital raised from the June
2007 public offering of our common stock.
Loss from equity affiliates totaled $2.3 million in 2008.
Income from two of our investments in equity affiliates totaled
$34.6 million for 2007. The $2.3 million of loss
recorded during 2008 reflects a portion of the joint
ventures losses from a $10.2 million equity
investment, partially offset by $0.7 million in income from
two of our other investments. The $34.6 million of income
recorded in 2007 consisted of $29.6 million in gains
recognized on the sale of properties within one of our equity
affiliates and $5.0 million of income from excess proceeds
received from the sale and refinancing of certain properties in
the portfolio of another of our investments in equity affiliates.
We are organized and conduct our operations to qualify as a REIT
for federal income tax purposes. As a REIT, we are generally not
subject to federal income tax on our REIT taxable
income that we distribute to our stockholders, provided that we
distribute at least 90% of our REIT taxable income
and meet certain other requirements. As of December 31,
2008 and 2007, we were in compliance with all REIT requirements
and, therefore, have not provided for income tax expense for
years ended December 31, 2008 and 2007. Certain of our
assets that produce non-qualifying income are owned by our
taxable REIT subsidiaries, the income of which is subject to
federal and state income taxes. During the year ended
December 31, 2007, we recorded a $16.9 million
provision on income from these taxable REIT subsidiaries. No
such provision was recognized for the year ended
December 31, 2008. The provision for the year ended
December 31, 2007 resulted from $38.3 million of
pretax income from our taxable REIT subsidiaries.
Loss
from Discontinued Operations
During the third quarter of 2009, we mutually agreed with a
first mortgage lender to appoint a receiver to operate one of
our real estate owned investments and we are working to assist
in the transfer of title to the first mortgage lender. As a
result, this investment was reclassified from real estate owned
to real estate
held-for-sale
and property operating income and expenses, which netted to a
loss of $0.6 million in 2008, were reclassified to
discontinued operations. There were no property operating income
and expenses in 2007.
Net
Income Attributable to Noncontrolling Interest
Net income attributable to noncontrolling interest decreased by
$12.5 million, or 74%, to $4.4 million in 2008 from
$17.0 million in 2007. These amounts represent the portion
of our income allocated to our manager as well as a third
partys interest in a consolidated subsidiary which holds a
note payable that is accruing interest expense. This decrease
was primarily due to a decrease in our managers limited
partnership interest in us. Our manager had a weighted average
limited partnership interest of 7.6% in our operating
partnership in 2008 compared to 16.6% in 2007. In June 2008, our
manager exercised its right to redeem its 3,776,069 operating
partnership units in our operating partnership for shares of our
common stock on a
one-for-one
basis. As a result, our managers operating partnership
ownership interest percentage was reduced to zero at
June 30, 2008. This decrease was also due to a 43% decrease
in the average income before noncontrolling interest reduced by
the provision for income taxes for the first two quarters of
2008 as compared to all four quarters of 2007. 2008 included a
loss allocated to noncontrolling interest of $0.3 million
representing a third party members share of a
$1.0 million distribution received from a profits interest.
In addition, 2008 also included a gain allocated to
noncontrolling interest of $0.3 million representing the
portion of loss allocated to the third partys interest in
a consolidated subsidiary, which holds a note payable that is
accruing interest expense. This note payable is related to the
POM transaction discussed in Note 6 of the Notes to
the Consolidated Financial Statements set forth in
Item 8 hereof.
Liquidity
and Capital Resources
Sources
of Liquidity
Liquidity is a measurement of the ability to meet potential cash
requirements. Our short-term and long-term liquidity needs
include ongoing commitments to repay borrowings, fund future
loans and investments, fund additional cash collateral from
potential declines in the value of a portion of our interest
rate swaps, fund operating costs and distributions to our
stockholders as well as other general business needs. Our
primary sources of funds for liquidity consist of proceeds from
equity offerings, debt facilities and cash flows from
operations. Our equity
57
sources consist of funds raised from our private equity offering
in July 2003, net proceeds from our initial public offering of
our common stock in April 2004, net proceeds from our public
offering of our common stock in June 2007 and depending on
market conditions, proceeds from capital market transactions
including the future issuance of common, convertible
and/or
preferred equity securities. Our debt facilities include the
issuance of floating rate notes resulting from our CDOs, the
issuance of junior subordinated notes and borrowings under
credit agreements. Net cash provided by operating activities
include interest income from our loan and investment portfolio
reduced by interest expense on our debt facilities, cash from
equity participation interests, repayments of outstanding loans
and investments and funds from junior loan participation
arrangements.
We believe our existing sources of funds will be adequate for
purposes of meeting our short-term and long-term liquidity
needs. Our loans and investments are financed under existing
credit facilities and their credit status is continuously
monitored; therefore, these loans and investments are expected
to generate a generally stable return. Our ability to meet our
long-term liquidity and capital resource requirements is subject
to obtaining additional debt and equity financing. If we are
unable to renew our sources of financing on substantially
similar terms or at all, it would have an adverse effect on our
business and results of operations. Any decision by our lenders
and investors to enter into such transactions with us will
depend upon a number of factors, such as our financial
performance, compliance with the terms of our existing credit
arrangements, industry or market trends, the general
availability of and rates applicable to financing transactions,
such lenders and investors resources and policies
concerning the terms under which they make such capital
commitments and the relative attractiveness of alternative
investment or lending opportunities.
Current conditions in the capital and credit markets have made
certain forms of financing less attractive and, in certain
cases, less available, therefore we will continue to rely on
cash flows provided by operating and investing activities for
working capital.
To maintain our status as a REIT under the Internal Revenue
Code, we must distribute annually at least 90% of our
REIT taxable income. These distribution requirements
limit our ability to retain earnings and thereby replenish or
increase capital for operations. However, we believe that our
capital resources and access to financing will provide us with
financial flexibility and market responsiveness at levels
sufficient to meet current and anticipated capital requirements.
In December 2008, the IRS issued Revenue Procedure
2008-68
that allows listed REITs to offer shareholders elective stock
dividends, which are paid in a combination of cash and common
stock with at least 10% of the total distribution paid in cash,
to satisfy future dividend requirements.
Equity
Offerings
Our authorized capital provides for the issuance of up to
500 million shares of common stock, par value $0.01 per
share, and 100 million shares of preferred stock, par value
$0.01 per share.
In March 2007, we filed a shelf registration statement on
Form S-3
with the Securities and Exchange Commission (SEC)
under the Securities Act of 1933 (the 1933 Act)
with respect to an aggregate of $500.0 million of debt
securities, common stock, preferred stock, depositary shares and
warrants that may be sold by us from time to time pursuant to
Rule 415 of the 1933 Act. On April 19, 2007, the
Commission declared this shelf registration statement effective.
In June 2007, we sold 2,700,000 shares of our common stock
registered on the shelf registration statement in a public
offering at a price of $27.65 per share, for net proceeds of
approximately $73.6 million after deducting the
underwriting discount and the other estimated offering expenses.
We used the proceeds to pay down debt and finance our loan and
investment portfolio. The underwriters did not exercise their
over allotment option for additional shares.
In August 2008, we entered into an equity placement program
sales agreement with a securities agent whereby we may issue and
sell up to three million shares of our common stock through the
agent who agrees to use its commercially reasonable efforts to
sell such shares during the term of the agreement and under the
terms set forth therein. To date, we have not utilized this
equity placement program.
At December 31, 2009, we had $425.3 million available
under the shelf registration described above and
25,387,410 shares outstanding.
58
Debt
Facilities
We also currently maintain liquidity through a term credit
agreement, which has a revolving component, two master
repurchase agreements, one working capital facility, one note
payable and three junior loan participations with five different
financial institutions or companies. In addition, we have issued
three collateralized debt obligations or CDOs and 13 separate
junior subordinated notes. London inter-bank offered rate, or
LIBOR, refers to one-month LIBOR unless specifically stated. As
of December 31, 2009, these facilities had an aggregate
capacity of $1.8 billion and borrowings were approximately
$1.7 billion.
The following is a summary of our debt facilities as of
December 31, 2009:
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At December 31, 2009
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Debt
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Maturity
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Debt Facilities
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Commitment
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Carrying Value
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Available
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Dates
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Repurchase agreements. Interest is variable based on pricing
over LIBOR
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$
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2,657,332
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$
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2,657,332
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$
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2010
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Collateralized debt obligations. Interest is variable based on
pricing over three-month LIBOR
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1,113,815,185
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1,100,515,185
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13,300,000
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2011 - 2013
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Junior subordinated notes. Interest is variable based on pricing
over three-month LIBOR(1)
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259,487,421
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259,487,421
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2034 - 2037
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Notes payable. Interest is variable based on pricing over
LIBOR(2)
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410,490,201
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375,219,206
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35,270,995
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2010 - 2016
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$
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1,786,450,139
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$
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1,737,879,144
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$
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48,570,995
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(1)
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Represents a total face amount of
$290.0 million less a total deferred amount of
$30.5 million.
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(2)
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In July 2009, we amended and
restructured our term credit agreements, revolving credit
agreement and working capital facility with Wachovia Bank,
National Association as discussed below.
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These debt facilities are described in further detail in
Note 8 of the Notes to the Consolidated Financial
Statements set forth in Item 8 hereof.
Repurchase
Agreements
Repurchase obligation financings provide us with a revolving
component to our debt structure. Repurchase agreements provide
stand alone financing for certain assets and interim, or
warehouse financing, for assets that we plan to contribute to
our CDOs. At December 31, 2009, the aggregate outstanding
balance under these facilities was $2.7 million.
We had a $200.0 million repurchase agreement with a
financial institution that expired in 2009 and had interest at
pricing over LIBOR, varying on the type of asset financed. In
June 2009, this facility, with approximately $37.0 million
outstanding, was satisfied at a discount for $22.0 million
resulting in a $15.0 million gain on extinguishment of
debt. In connection with this transaction, we sold a bridge loan
financed in this facility with a carrying value of
$47.0 million, at a discount, for approximately
$23.2 million and recorded a loss on restructuring of
$23.8 million. The proceeds were used to satisfy the
$22.0 million cash payment.
We have a repurchase agreement with a second financial
institution that bears interest at 250 basis points over
LIBOR and had a term expiring in June 2009. In June 2009, we
amended this facility extending the maturity to June 2010, with
a one year extension option. In addition, the amendment includes
the removal of all financial covenants and a reduction of the
committed amount to $2.4 million reflecting the one asset
currently financed in this facility. During the year ended
December 31, 2009, we paid down approximately
$13.1 million of this facility. At December 31, 2009,
the outstanding balance under this facility was
$2.4 million with a current weighted average note rate of
2.77%.
We have an uncommitted master repurchase agreement with a third
financial institution, effective April 2008, entered into for
the purpose of financing our CRE CDO bond securities. The
agreement has a term expiring in May
59
2010 and bears interest at pricing over LIBOR, varying on the
type of asset financed. During the year ended December 31,
2009, we paid down approximately $1.3 million of this
facility, due to a decrease in values associated with a change
in market interest rate spreads and an additional
$6.7 million of principal. At December 31, 2009, the
outstanding balance under this facility was $0.2 million
with a current weighted average note rate of 1.52%. In January
2010, the facility was repaid in full.
CDOs
We completed three separate CDOs since 2005 by issuing to third
party investors, tranches of investment grade collateralized
debt obligations through newly-formed wholly-owned subsidiaries
(the Issuers). The Issuers hold assets, consisting
primarily of real-estate related assets and cash which serve as
collateral for the CDOs. The assets pledged as collateral for
the CDOs were contributed from our existing portfolio of assets.
By contributing these real estate assets to the various CDOs,
these transactions resulted in a decreased cost of funds
relating to the corresponding CDO assets and created capacity in
our existing credit facilities.
The Issuers issued tranches of investment grade floating-rate
notes of approximately $305.0 million, $356.0 million
and $447.5 million for CDO I, CDO II and CDO III,
respectively. CDO III also has a $100.0 million revolving
note which was not drawn upon at the time of issuance. The
revolving note facility has a commitment fee of 0.22% per annum
on the undrawn portion of the facility. The tranches were issued
with floating rate coupons based on three-month LIBOR plus
pricing of 0.44% 0.77%. Proceeds from the sale of
the investment grade tranches issued in CDO I, CDO II and
CDO III of $267.0 million, $301.0 million and
$317.1 million, respectively, were used to repay higher
costing outstanding debt under our repurchase agreements and
notes payable. The CDOs may be replenished with substitute
collateral for loans that are repaid during the first four years
for CDO I and the first five years for CDO II and CDO III,
subject to certain customary provisions. Thereafter, the
outstanding debt balance will be reduced as loans are repaid.
Proceeds from the repayment of assets which serve as collateral
for the CDOs must be retained in its structure as restricted
cash until such collateral can be replaced and therefore not
available to fund current cash needs. If such cash is not used
to replenish collateral, it could have a negative impact on our
anticipated returns. Proceeds from CDO II are distributed
quarterly with approximately $1.1 million being paid to
investors as a reduction of the CDO liability. As of
April 15, 2009, CDO I reached the end of its replenishment
date and will no longer make quarterly amortization payments to
investors. Investor capital will be repaid quarterly from
proceeds received from loan repayments held as collateral in
accordance with the terms of the CDO. Proceeds distributed will
be recorded as a reduction of the CDO liability. For accounting
purposes, CDOs are consolidated in our financial statements.
During the year ended December 31, 2009, we purchased, at a
discount, approximately $42.8 million of investment grade
rated notes originally issued by our CDO issuing entities for a
price of $11.8 million. We recorded a net gain on
extinguishment of debt of $31.0 million and a reduction of
outstanding debt totaling $42.8 million from these
transactions in our 2009 financial statements.
In the first quarter of 2010, we purchased, at a discount,
approximately $4.5 million of investment grade rated notes
originally issued by our CDO I issuing entity for a price of
$1.6 million, $7.9 million of investment grade rated
notes originally issued by our CDO II issuing entity for a price
of $1.6 million and $7.0 million originally issued by
our CDO III issuing entity for a price of $1.4 million from
third party investors. We will record a net gain on
extinguishment of debt of $14.9 million from these
transactions in our 2010 Consolidated Statements of Operations.
In February 2010, we re-issued the CDO bonds we had acquired
throughout 2009 with an aggregate face amount of
$42.8 million, as well as CDO bonds from other issuers
acquired in the second quarter of 2008 with an aggregate face
amount of $25.0 million and a carrying value of
$0.4 million, and $10.5 million in cash, in exchange
for the retirement of $114.1 million of our junior
subordinated notes. See Junior Subordinated Notes
below.
At December 31, 2009, the outstanding note balance under
CDO I, CDO II and CDO III was $254.1 million,
$329.5 million and $516.9 million, respectively.
The continued turmoil in the structured finance markets, in
particular the
sub-prime
residential loan market, has negatively impacted the credit
markets generally, and, as a result, investor demand for
commercial real estate collateralized debt obligations has been
substantially curtailed. In recent years, we have relied to a
substantial extent
60
on CDO financings to obtain match funded financing for our
investments. Until the market for commercial real estate CDOs
recovers, we may be unable to utilize CDOs to finance our
investments and we may need to utilize less favorable sources of
financing to finance our investments on a long-term basis. There
can be no assurance as to when demand for commercial real estate
CDOs will return or the terms of such securities investors will
demand or whether we will be able to issue CDOs to finance our
investments on terms beneficial to us.
Our CDO bonds contain interest coverage and asset over
collateralization covenants that must be met as of the waterfall
distribution date in order for us to receive such payments. If
we fail these covenants in any of our CDOs, all cash flows from
the applicable CDO would be diverted to repay principal and
interest on the outstanding CDO bonds and we would not receive
any residual payments until that CDO regained compliance with
such tests. We were in compliance with all such covenants as of
December 31, 2009. In the event of a breach of the CDO
covenants that could not be cured in the near-term, we would be
required to fund our non-CDO expenses, including management fees
and employee costs, distributions required to maintain REIT
status, debt costs, and other expenses with (i) cash on
hand, (ii) income from any CDO not in breach of a covenant
test, (iii) income from real property and unencumbered loan
assets, (iv) sale of assets, (v) or accessing the
equity or debt capital markets, if available. We have the
ability to cure covenant breaches which would resume normal
residual payments to us by purchasing non-performing loans out
of the CDOs. However, we may not have sufficient liquidity
available to do so at such time. The chart below is a summary of
our CDO compliance tests as of the most recent distribution date:
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Cash Flow Triggers
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CDO I
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CDO II
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CDO III
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Overcollateralization(1)
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Current
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194.40
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%
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177.72
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%
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111.28
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%
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Limit
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184.00
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%
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169.50
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%
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105.60
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%
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Pass/Fail
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Pass
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Pass
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Pass
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Interest Coverage(2)
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Current
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653.93
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%
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575.81
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%
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686.74
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%
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Limit
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160.00
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%
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147.30
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%
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105.60
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%
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Pass/Fail
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Pass
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Pass
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Pass
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(1)
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The overcollateralization ratio
divides the total principal balance of all collateral in the CDO
by the total bonds outstanding for the classes senior to those
retained by us. To the extent an asset is considered a defaulted
security, the assets principal balance is multiplied by
the assets recovery rate which is determined by the rating
agencies.
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(2)
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The interest coverage ratio divides
interest income by interest expense for the classes senior to
those retained by us.
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Junior
Subordinated Notes
In May 2009, we exchanged $247.1 million of our outstanding
trust preferred securities, consisting of $239.7 million of
junior subordinated notes issued to third party investors and
$7.4 million of common equity issued to us in exchange for
$268.4 million of newly issued unsecured junior
subordinated notes, representing 112% of the original face
amount. The new notes bear a fixed interest rate of 0.50% per
annum until April 30, 2012 (the Modification
Period), and then interest is to be paid at the rates set
forth in the existing trust agreements until maturity, equal to
a weighted average three month LIBOR plus 2.90%. We paid a
transaction fee of approximately $1.2 million to the
issuers of the junior subordinated notes related to this
restructuring.
In July 2009, we restructured the remaining $18.7 million
of trust preferred securities that were not exchanged from the
May 2009 restructuring transaction previously disclosed. We
amended the $18.7 million of junior subordinated notes to
$20.9 million of unsecured junior subordinated notes,
representing 112% of the original face amount. The amended notes
bear a fixed interest rate of 0.50% per annum for a period of
approximately three years, the modification period. Thereafter,
interest is to be paid at the rates set forth in the existing
trust agreements until maturity, equal to a weighted average
three month LIBOR plus 2.74%. We paid a transaction fee of
approximately $0.1 million to the issuers of the junior
subordinated notes related to this restructuring.
During the Modification Period, we will be permitted to make
distributions of up to 100% of taxable income to common
shareholders. We have agreed that such distributions will be
paid in the form of our stock to the maximum
61
extent permissible under the Internal Revenue Service rules and
regulations in effect at the time of such distribution, with the
balance payable in cash. This requirement regarding
distributions in stock can be terminated by us at any time,
provided that we pay the note holders the original rate of
interest from the time of such termination.
The junior subordinated notes are unsecured, have a maturity of
25 to 28 years, pay interest quarterly at a fixed rate or
floating rate of interest based on three-month LIBOR and, absent
the occurrence of special events, are not redeemable during the
first two years. In connection with the issuance of the original
variable rate junior subordinated notes, we had entered into
various interest rate swap agreements which were subsequently
terminated upon the exchange discussed above. As a result, in
2009, we recorded a loss of $8.7 million, which was
recorded to loss on termination of swaps on our Consolidated
Statement of Operations. See Item 7A Quantitative and
Qualitative Disclosures About Market Risk for further
information relating to our derivatives.
In March 2009, we purchased, at a discount, approximately
$9.4 million of investment grade rated junior subordinated
notes originally issued by a wholly-owned subsidiary of our
operating partnership for $1.3 million. We recorded a net
gain on extinguishment of debt of $8.1 million and a
reduction of outstanding debt totaling $9.4 million from
this transaction in our first quarter 2009 financial statements.
In connection with this transaction, during the second quarter
of 2009, we retired approximately $0.3 million of common
equity related to these junior subordinated notes.
In February 2010, we retired $114.1 million of our junior
subordinated notes, with a carrying value of
$102.1 million, in exchange for the re-issuance of our own
CDO bonds we had acquired throughout 2009 with an aggregate face
amount of $42.8 million, CDO bonds from other issuers
acquired in the second quarter of 2008 with an aggregate face
amount of $25.0 million and a carrying value of
$0.4 million, and $10.5 million in cash. In the first
quarter of 2010, this transaction is expected to result in
recording $65.3 million of additional CDO debt, of which
$42.3 million represents the portion of our CDO bonds that
were exchanged and $23.0 million represents the estimated
interest due on the bonds through their maturity, a reduction to
securities
available-for-sale
of $0.4 million representing the fair value of CDO bonds of
other issuers, and a gain on extinguishment of debt of
approximately $26.0 million.
At December 31, 2009, the aggregate carrying value under
these facilities was $259.5 million with a current weighted
average pay rate of 0.50%, however, based upon the accounting
treatment for the restructure, the effective rate was 3.96% at
December 31, 2009.
Notes
Payable
At December 31, 2009, notes payable consisted of a term
credit agreement with a revolving credit component, a working
capital facility, a note payable and three junior loan
participations, and the aggregate outstanding balance under
these facilities was $375.2 million.
In July 2009, we amended and restructured our term credit
agreements, revolving credit agreement and working capital
facility with Wachovia Bank, National Association as follows:
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The term revolving credit agreement with an outstanding balance
of $64.0 million was combined into the term debt facility
with an outstanding balance of $237.7 million, along with a
portion of the term debt facility with an outstanding balance of
$30.3 million, and $15.3 million of this term debt
facility was combined into the working capital line with an
outstanding balance of $41.9 million. This debt
restructuring resulted in the consolidation of these four
facilities into one term debt facility with an outstanding
balance of $316.7 million at the time of the agreement,
which contains a revolving component with $35.3 million of
availability, and one working capital facility with an
outstanding balance of $57.2 million at the time of the
agreement.
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The maturity dates of the facilities were extended for three
years, with a working capital facility maturity of June 8,
2012 and a term debt facility maturity of July 23, 2012.
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The term loan facility requires a $48.1 million reduction
over the three-year term, with approximately $8.0 million
in reductions due every six months beginning in December 2009.
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Margin call provisions relating to collateral value of the
underlying assets have been eliminated, as long as the term loan
reductions are met, with the exception of limited margin call
capability related to foreclosed or real estate-owned assets.
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62
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The working capital facility requires quarterly amortization of
up to $3.0 million per quarter, $1.0 million per CDO,
only if both (a) the CDO is cash flowing to us and
(b) we have a minimum quarterly liquidity level of
$27.5 million.
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Interest rate of LIBOR plus 350 basis points for the term
loan facility, compared to LIBOR plus approximately
200 basis points previously and LIBOR plus 800 basis
points for the working capital facility, compared to LIBOR plus
500 basis points previously. We have also agreed to pay a
commitment fee of 1.00% payable over 3 years.
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We issued Wachovia one million warrants at an average strike
price of $4.00. 500,000 warrants are exercisable immediately at
a price of $3.50, 250,000 warrants are exercisable after
July 23, 2010 at a price of $4.00 and 250,000 warrants are
exercisable after July 23, 2011 at a price of $5.00. All
warrants expire on July 23, 2015.
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Annual dividends are limited to 100% of taxable income to common
shareholders and are required to be paid in the form of our
stock to the maximum extent permissible (currently 90%), with
the balance payable in cash. We will be permitted to pay 100% of
taxable income in cash if the term loan facility balance is
reduced to $210.0 million, the working capital facility is
reduced to $30.0 million and we maintain $35.0 million
of minimum liquidity.
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Our CEO and Chairman, Ivan Kaufman, is required to remain an
officer or director of us for the term of the facilities.
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In addition, the financial covenants have been reduced to the
following (see Restrictive Covenants section below
for further details):
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Minimum quarterly liquidity of $7.5 million in cash and
cash equivalents.
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Minimum quarterly GAAP net worth of $150.0 million.
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Ratio of total liabilities to tangible net worth shall not
exceed 4.5 to 1 quarterly.
|
As a result of the above mentioned amendment, at
December 31, 2009, we have one term credit agreement with
Wachovia, which contains a revolving component with
$35.3 million of availability. The facility has a
commitment period of three years to July 2012, bears an interest
rate of LIBOR plus 350 basis points and margin call
provisions relating to collateral value of the underlying assets
have been eliminated, as long as the term loan reductions are
met, with the exception of limited margin call capability
related to foreclosed or real estate-owned assets. During the
six months ended December 31, 2009, we made net paydowns to
the facility of $47.4 million, reducing the
$48.1 million balance reduction requirements to
$0.7 million and satisfying the balance reduction
requirements until June 2012. The outstanding balance under this
facility was $269.3 million at December 31, 2009, with
a current weighted average note rate of 4.38%.
We have a working capital facility with Wachovia with a maturity
of June 2012 and an interest rate of LIBOR plus 800 basis
points. At December 31, 2009, the outstanding balance under
this facility was $49.5 million with a current weighted
average note rate of 8.35%.
We had a $70.0 million bridge loan warehousing credit
agreement with a financial institution, with a maturity date of
October 2009, to provide financing for bridge loans. In May
2009, we amended this facility, extending the maturity to May
2010 with a one year extension option and reducing the committed
amount to $13.5 million. This agreement bore a rate of
interest, payable monthly, based on one month LIBOR plus 3.75%.
In July 2009, the facility was repaid in full.
We have a $50.2 million note payable related to the POM
transaction. During the second quarter of 2008, we recorded a
$49.5 million note payable related to the POM exchange of
profits interest transaction. The note was initially secured by
our interest in POM, matures in July 2016 and bore interest at a
fixed rate of 4% with payment deferred until the closing of the
transaction. Upon the closing of the POM transaction in March
2009, the note balance was increased to $50.2 million,
bears interest at a fixed rate of 4% and is secured by our
investment in common and preferred operating partnership units
in Lightstone Value Plus REIT, L.P.
63
We have three junior loan participations with a total
outstanding balance at December 31, 2009 of
$6.3 million. These participation borrowings have a
maturity date equal to the corresponding mortgage loan and are
secured by the participants interest in the mortgage
loans. Interest expense is based on a portion of the interest
received from the loans.
In 2010, we entered into an agreement with Wachovia Bank,
National Association, owned by Wells Fargo Bank, National
Association, to retire all of our $335.6 million of then
outstanding debt for $176.2 million, representing 52.5% of
the face amount of the debt. The $335.6 million of
indebtedness was comprised of $286.1 million of term debt
and a $49.5 million working capital facility, representing
the outstanding balances in each facility at the time the
parties began to negotiate the agreement. The agreement can be
closed at any time on or before May 31, 2010 and also has
two consecutive 45 day extension options which would extend
the payoff date to August 27, 2010. The agreement provides
the ability to apply paydowns in the Wachovia facilities against
the discounted payoff amount during the term of the agreement
and accordingly, we have made payments of $62.3 million
towards the initial discounted payoff amount, leaving
$113.9 million payable to Wachovia to close this agreement.
The closing of this transaction is subject to certain closing
conditions and our ability to obtain the necessary capital. We
can make no assurances that we will be able to access sufficient
capital under acceptable terms and conditions. In addition, we
have obtained a waiver of our minimum tangible net worth
covenant, as well as our minimum ratio of total liabilities to
tangible net worth covenant, from this financial institution for
December 31, 2009 through the extended payoff date of
August 27, 2010. We have also obtained temporary amendments
thereafter until December 2010 for the quarterly minimum GAAP
tangible net worth covenants, from $150.0 million to
$50.0 million, and quarterly maximum ratio of total
liabilities to tangible net worth covenants, from 4.5 to 1 to
5.8 to 1. See Restrictive Covenants below for
further details
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Mortgage
Note Payable
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Held-For-Sale
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During the second quarter of 2008, we recorded a
$41.4 million first lien mortgage related to the
foreclosure of an entity in which we had a $5.0 million
mezzanine loan. The real estate investment was originally
classified as real estate owned and was reclassified as real
estate
held-for-sale
in the third quarter of 2009. The mortgage bears interest at a
fixed rate, has a maturity date of June 2012 and the outstanding
balance of this mortgage was $41.4 million at
December 31, 2009.
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Note
Payable
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Related
Party
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During the fourth quarter of 2008, we borrowed $4.2 million
from our manager, ACM. At December 31, 2008, we had
outstanding borrowings due to ACM totaling $4.2 million,
which was recorded in notes payable related party.
In January 2009, the loan was repaid in full.
The term credit agreement, working capital facility and the
master repurchase agreements require that we pay interest
monthly, based on pricing over LIBOR. The amount of our pricing
over these rates varies depending upon the structure of the loan
or investment financed pursuant to the specific agreement.
These facilities also require that we pay down borrowings based
on balance reduction requirements or pro-rata as principal
payments on our loans and investments are received. In addition,
if upon maturity of a loan or investment we decide to grant the
borrower an extension option, the financial institutions have
the option to extend the borrowings or request payment in full
on the outstanding borrowings of the loan or investment extended.
Restrictive
Covenants
Each of the credit facilities contains various financial
covenants and restrictions, including minimum net worth, minimum
liquidity and
debt-to-equity
ratios. In addition to the financial terms and capacities
described above, our credit facilities generally contain
covenants that prohibit us from effecting a change in control,
disposing of or encumbering assets being financed and restrict
us from making any material amendment to our underwriting
guidelines without approval of the lender. If we violate these
covenants in any of our credit facilities, we could be required
to pledge more collateral, or repay all or a portion of our
indebtedness before maturity at a time when we might be unable
to arrange financing for such repayment on attractive terms, if
at all. If we are unable to retire our borrowings in such a
situation, (i) we may need to prematurely sell the assets
securing such debt, (ii) the lenders could accelerate the
debt and foreclose on the assets that are pledged as collateral
to such lenders, (iii) such lenders could force us into
bankruptcy, (iv) such lenders could force us to take other
actions to protect the value of their
64
collateral and (v) our other debt financings could become
immediately due and payable. Any such event would have a
material adverse effect on our liquidity, the value of our
common stock, our ability to make distributions to our
stockholders and our ability to continue as a going concern.
Violations of these covenants may also result in our being
unable to borrow unused amounts under our credit facilities,
even if repayment of some or all borrowings is not required.
Additionally, to the extent that we were to realize additional
losses relating to our loans and investments, it would put
additional pressure on our ability to continue to meet these
covenants. We were in compliance with all financial covenants
and restrictions for the periods presented with the exception of
a minimum tangible net worth requirement with Wachovia at
December 31, 2009. Our tangible net worth was
$98.6 million at December 31, 2009 and we were
required to maintain a minimum tangible net worth of
$150.0 million with this financial institution. We have
obtained a waiver of this covenant, as well as the minimum ratio
of total liabilities to tangible net worth covenant, from this
financial institution for December 31, 2009 and through an
extended payoff date of August 27, 2010, in conjunction
with amendments to our credit facilities. We have also obtained
temporary amendments thereafter until December 2010 for the
quarterly minimum GAAP tangible net worth covenants, from
$150.0 million to $50.0 million, and quarterly maximum
ratio of total liabilities to tangible net worth covenants, from
4.5 to 1 to 5.8 to 1.
We also have certain cross-default provisions whereby
accelerated re-payment would occur under the Wachovia Term
Credit and Working Capital facilities if any party defaults
under any indebtedness in a principal amount of at least
$5.0 million in the aggregate beyond any applicable grace
period regardless of whether the default has been or is waived.
Also, a default under the Junior Subordinated Indentures or any
of the CDOs would trigger a default under our Wachovia
debt agreements, but not vice versa, and no payment due under
the Junior Subordinated Indentures may be paid if there is a
default under any senior debt and the senior lender has sent
notice to the trustee. The Junior Subordinated Indentures are
also cross-defaulted with each other.
Cash
Flow From Operations
We continually monitor our cash position to determine the best
use of funds to both maximize our return on funds and maintain
an appropriate level of liquidity. Historically, in order to
maximize the return on our funds, cash generated from operations
has generally been used to temporarily pay down borrowings under
credit facilities whose primary purpose is to fund our new loans
and investments. Consequently, when making distributions in the
past, we have borrowed the required funds by drawing on credit
capacity available under our credit facilities. However, given
current market conditions, we may have to maintain adequate
liquidity from operations to make any future distributions.
Contractual
Commitments
As of December 31, 2009, we had the following material
contractual obligations (payments in thousands):
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Payments Due by Period(1)
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Contractual Obligations
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2010
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2011
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2012
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2013
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2014
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Thereafter
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Total
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Notes payable
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$
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1,300
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$
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5,000
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$
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318,761
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$
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$
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$
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50,158
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$
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375,219
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Collateralized debt obligations(2)
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96,202
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75,686
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366,627
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217,416
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206,481
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138,103
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1,100,515
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Repurchase agreements
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2,657
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2,657
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Junior subordinated notes(3)
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289,958
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289,958
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Mortgage note payable
held-for-sale
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41,440
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41,440
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Outstanding unfunded commitments(4)
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47,909
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15,644
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1,269
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|
|
436
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436
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348
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66,042
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Totals
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$
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148,068
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$
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96,330
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$
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728,097
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$
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217,852
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$
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206,917
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$
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478,567
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$
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1,875,831
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(1)
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Represents principal amounts due
based on contractual maturities. Does not include total
projected interest payments on our debt obligations of
$49.1 million in 2010, $44.7 million in 2011,
$41.0 million in 2012, $25.2 million in 2013,
$20.3 million in 2014 and $190.5 million thereafter
based on current LIBOR rates.
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(2)
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Comprised of $254.1 million of
CDO I debt, $329.5 million of CDO II debt and
$516.9 million of CDO III debt with an estimated weighted
average remaining maturity of 2.08, 3.35 and 3.15 years,
respectively, as of December 31, 2009. In 2009, we
purchased, at a discount, approximately $42.8 million of
investment grade notes originally issued by our CDO I, CDO
II and CDO III issuers and recorded a reduction of the
outstanding debt balance of $42.8 million. In the first
quarter of 2010, we purchased, at a discount, approximately
$19.4 million of investment grade notes originally issued
by our CDO I, CDO II and CDO III issuers and recorded a
reduction of the outstanding debt balance of $19.4 million.
In February 2010, we re-issued the CDO bonds we had acquired
throughout 2009 with an aggregate face amount of
$42.8 million in exchange for the retirement of a portion
of our junior subordinated notes.
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(3)
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Represents the face amount due upon
maturity. The carrying value is $259.3 million, which is
net of a deferred amount of $30.5 million. In 2009, we
repurchased, at a discount, approximately $9.4 million of
investment grade rated junior subordinated notes originally
issued by our issuing entity and recorded a reduction of the
outstanding debt balance of $9.4 million. In February 2010,
we retired $114.1 million of our junior subordinated notes
in exchange for the re-issuance of certain of our own CDO bonds,
as well as other assets.
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(4)
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In accordance with certain loans
and investments, we have outstanding unfunded commitments of
$66.0 million as of December 31, 2009, that we are
obligated to fund as the borrowers meet certain requirements.
Specific requirements include, but are not limited to, property
renovations, building construction, and building conversions
based on criteria met by the borrower in accordance with the
loan agreements. In relation to the $66.0 million
outstanding balance at December 31, 2009, our restricted
cash balance and CDO III revolver capacity contained
approximately $15.2 million of cash and $13.3 million
of capacity available to fund the portion of the unfunded
commitments for loans financed by our CDO vehicles.
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Off-Balance-Sheet
Arrangements
At December 31, 2009, we did not have any off-balance-sheet
arrangements.
Management
Agreement
On August 6, 2009, we amended our management agreement with
ACM. The amendment was negotiated by a special committee of our
Board of Directors, consisting solely of independent directors
and approved unanimously by all of the independent directors.
JMP Securities LLC served as financial advisor to the special
committee and Skadden, Arps, Slate, Meagher & Flom LLP
served as its special counsel. The agreement includes the
following new terms, effective as of January 1, 2009:
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The existing base management fee structure, which is calculated
as a percentage of our equity, was replaced with an arrangement
whereby we will reimburse the manager for its actual costs
incurred in managing our business based on the parties
agreement in advance on an annual budget with subsequent
quarterly
true-ups to
actual costs. This change was adopted retroactively to
January 1, 2009 and we estimated the 2009 base management
fee would be in the range of $8.0 million to
$8.5 million. The 2010 base management fee is estimated to
be in the same range. Concurrent with this change, all future
origination fees on investments will be retained by us, whereas
under the prior agreement, origination fees up to 1% of the loan
were retained by ACM. In addition, we made a $3.0 million
payment to the manager in consideration of expenses incurred by
the manager in 2008 in managing our business and certain other
services. These changes were accounted for prospectively as a
change in accounting estimate.
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The percentage hurdle for the incentive fee will be applied on a
per share basis to the greater of $10.00 and the average gross
proceeds per share, whereas the previous management agreement
provided for such percentage hurdle to be applied only to the
average gross proceeds per share. In addition, only 60% of any
loan loss and other reserve recoveries will be eligible to be
included in the incentive fee calculation, which will be spread
over a three year period, whereas the previous management
agreement did not limit the inclusion of such recoveries in the
incentive fee calculation.
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The amended management agreement allows us to consider, from
time to time, the payment of additional fees to the manager for
accomplishing certain specified corporate objectives. In
accordance with the agreement, success-based
payments were paid for the trust preferred and Wachovia debt
restructurings totaling $4.1 million in the third quarter
of 2009.
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The amended management agreement modifies and simplifies the
provisions related to the termination of the agreement and any
related fees payable in such instances, including for
internalization, with a
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termination fee of $10.0 million, rather than payment based
on a multiple of base and incentive fees as previously existed.
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The amended management agreement will remain in effect until
December 31, 2010, and will be renewed automatically for
successive one-year terms thereafter.
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For performing services under the management agreement, we
previously paid ACM an annual base management fee payable
monthly in cash as a percentage of ARLPs equity and equal
to 0.75% per annum of the equity up to $400 million, 0.625%
per annum of the equity from $400 million to
$800 million and 0.50% per annum of the equity in excess of
$800 million. For purposes of calculating the base
management fee, equity equaled the month end value computed in
accordance with GAAP of (1) total partners equity in
ARLP, plus or minus (2) any unrealized gains, losses or
other items that do not affect realized net income. With respect
to all loans and investments originated during the term of the
management agreement, we had also agreed to pay ACM an amount
equal to 100% of the origination fees paid by the borrower up to
1% of the loans principal amount.
We also paid ACM incentive compensation on a quarterly basis,
calculated as (1) 25% of the amount by which
(a) ARLPs funds from operations per unit of
partnership interest in ARLP, adjusted for certain gains and
losses, exceeds (b) the product of (x) 9.5% per annum
or the Ten Year U.S. Treasury Rate plus 3.5%, whichever is
greater, and (y) the weighted average of book value of the
net assets contributed by ACM to ARLP per ARLP partnership unit,
the offering price per share of our common equity in the private
offering on July 1, 2003 and subsequent offerings and the
issue price per ARLP partnership unit for subsequent
contributions to ARLP, multiplied by (2) the weighted
average of ARLPs outstanding partnership units.
We incurred $15.1 million, or $0.60 per basic and diluted
common share, of base management fees for services rendered in
2009. The $15.1 million consisted of $8.0 million in
budgeted base management fees, a $3.0 million retroactive
payment for 2008 costs, and the new fee structure also provides
for success-based payments to be paid to our manager
upon the completion of specified corporate objectives in
addition to the standard base management fee, thus the third
quarter of 2009 base management fee included
success-based payments for the trust preferred and
Wachovia debt restructurings totaling $4.1 million. We
incurred $3.5 million and $3.2 million of base
management fees for services rendered in 2008 and 2007,
respectively.
In 2009, ACM did not earn an incentive compensation fee. In
2008, ACM did not earn an incentive compensation fee and the
overpayment of the incentive fee for the trailing twelve months
in the amount of $2.9 million, of which $1.4 million
was paid in 116,680 shares of common stock and
$1.5 million paid in cash, was recorded and included in due
from related party. In June, 2009, ACM repaid the
$2.9 million in accordance with the amended management
agreement described above. In addition, we recorded a
$7.3 million deferred management fee recorded in the second
quarter of 2008 related to the incentive compensation fee
recognized from the monetization of the POM transaction in June
2008, which subsequently closed in the second quarter of 2009.
In 2008, the $7.3 million deferred incentive compensation
fee was paid in 355,903 shares of common stock and
$4.1 million paid in cash, and was reclassified to prepaid
management fees. In accordance with the amended management
agreement, installments of the annual incentive compensation are
subject to quarterly recalculation and potential reconciliation
at the end of the fiscal year and any overpayments are required
to be repaid in accordance with the management agreement. Since
no incentive fee was earned for 2009, the prepaid management fee
is to be paid back in installments of 25% due by
December 31, 2010 and 75% due by June 30, 2012, with
an option to make payment in both cash and Arbor Realty Trust,
Inc. common stock provided that at least 50% of the payment is
made in cash, and will be offset against any future incentive
management fees or success-based payments earned by our manager
prior to June 30, 2012. See Note 6 and Note 17 of
the Notes to the Consolidated Financial Statements
set forth in Item 8 hereof for further details.
In 2007, ACM earned an incentive compensation installment
totaling $40.8 million, of which $13.7 million was
elected by ACM to be paid in 556,631 shares of common stock
and $27.1 million paid in cash. Included in the
$40.8 million of incentive compensation was
$21.8 million recorded as management fee expense and
$19.0 million recorded as prepaid management fees related
to the incentive compensation management fee on the deferred
revenue recognized on the transfer of control of the
450 West
33rd
Street property of one of our equity affiliates. As of
December 31, 2007, ACMs fourth quarter installment of
$2.9 million was included in due to related party. As
provided for in the management agreement, ACM elected to be paid
its fourth quarter incentive compensation
67
management fee partially in 86,772 shares of common stock
with the remainder to be paid in cash totaling
$1.5 million, which was subsequently paid in February 2008.
We pay the annual incentive compensation in four installments,
each within 60 days of the end of each fiscal quarter. The
calculation of each installment is based on results for the
12 months ending on the last day of the fiscal quarter for
which the installment is payable. These installments of the
annual incentive compensation are subject to recalculation and
potential reconciliation at the end of such fiscal year, and any
overpayments are required to be repaid in accordance with the
amended management agreement. Subject to the ownership
limitations in our charter, at least 25% of this incentive
compensation is payable to our manager in shares of our common
stock having a value equal to the average closing price per
share for the last 20 days of the fiscal quarter for which
the incentive compensation is being paid.
The incentive compensation is accrued as it is earned. The
expense incurred for incentive compensation paid in common stock
is determined using the valuation method described above and the
quoted market price of our common stock on the last day of each
quarter. At December 31 of each year, we remeasure the incentive
compensation paid to our manager in the form of common stock in
accordance with current accounting guidance, which discusses how
to measure at the measurement date when certain terms are not
known prior to the measurement date. Accordingly, the expense
recorded for such common stock is adjusted to reflect the fair
value of the common stock on the measurement date when the final
calculation of the annual incentive compensation is determined.
In the event that the annual incentive compensation calculated
as of the measurement date is less than the four quarterly
installments of the annual incentive compensation paid in
advance, our manager will refund the amount of such overpayment
in cash and we would record a negative incentive compensation
expense in the quarter when such overpayment is determined.
Origination Fees: Origination fees paid by
borrowers for loans or investments made by us, less any payments
to unaffiliated third party brokers or other unaffiliated third
party costs in connection with the origination of these
investments, would be retained by us or otherwise reduce the
base management fee installment for that month.
Term and Termination. The amended management
agreement has an initial term up to December 31, 2010 and
is renewable automatically for an additional one year period
every year thereafter, unless terminated with six months
prior written notice. If we terminate or elect not to renew the
management agreement without cause, we are required to pay a
termination fee of $10.0 million.
Inflation
Changes in the general level of interest rates prevailing in the
economy in response to changes in the rate of inflation
generally have little effect on our income because the majority
of our interest-earning assets and interest-bearing liabilities
have floating rates of interest. However, the significant
decline in interest rates during the latter part of 2007, 2008
and 2009 triggered LIBOR floors on certain of our variable rate
interest-earning assets. This resulted in an increase in
interest rate spreads as the rates we pay on variable rate
interest-bearing liabilities declined at a greater pace than the
rates we earned on our variable rate interest-earning assets.
Additionally, we have various fixed rate loans in our portfolio
which are financed with variable rate LIBOR borrowings. In
connection with these loans, we have entered into various
interest swaps to hedge our exposure to the interest rate risk
on our variable rate LIBOR borrowings as it relates to certain
fixed rate loans in our portfolio. However, the value of our
interest-earning assets, our ability to realize gains from the
sale of assets, and the average life of our interest-earning
assets, among other things, may be affected. See
Item 7A Quantitative and Qualitative
Disclosures about Market Risk.
Related
Party Transactions
Due from related party was $15.2 million at
December 31, 2009 and consisted of $7.0 million for a
loan paydown received by ACM in December 2009, which was repaid
in the first quarter of 2010, $0.9 million of escrows due
from ACM related to 2009 real estate asset transactions and
$7.3 million reclassified from prepaid management
fee related party, related to the POM transaction
which closed in 2009. See Note 6 of the Notes to the
Consolidated Financial Statements set forth in Item 8
hereof for further details. In accordance with the August 2009
amended management agreement, since no incentive fee was earned
for 2009, the prepaid management fee is to be paid back in
installments of 25% due by December 31, 2010 and 75% due by
June 30, 2012, with an option to
68
make payment in both cash and Arbor Realty Trust, Inc. common
stock provided that at least 50% of the payment is made in cash,
and will be offset against any future incentive management fees
or success-based payments earned by our manager prior to
June 30, 2012. At December 31, 2008, due from related
party was $2.9 million as a result of an overpayment of
incentive management compensation based on the results of the
twelve months ended December 31, 2008, which was repaid in
the second quarter of 2009. Refer to the section
Management Agreement above for further details.
Due to related party was $2.0 million at December 31,
2009 and consisted primarily of base management fees due to ACM,
which will be remitted by us in 2010. At December 31, 2008,
due to related party was $1.0 million and consisted of
$0.8 million of base management fees and $0.2 million
of unearned fees that were remitted by us in February 2009.
During 2009, we purchased from ACM, approximately
$20.0 million of investment grade rated bonds originally
issued by two of our three CDO issuing entities and
approximately $9.4 million of junior subordinated notes
originally issued by a wholly-owned subsidiary of our operating
partnership for $9.1 million and recorded a net gain on
early extinguishment of debt of $20.3 million. ACM had
purchased the CDO notes from third party investors for
$8.2 million in 2008, and the junior subordinated notes
from third party investors for $1.3 million in 2009.
During the fourth quarter of 2008, we borrowed $4.2 million
from our manager, ACM. At December 31, 2008, we had
outstanding borrowings due to ACM totaling $4.2 million,
which was recorded in notes payable related party.
In January 2009, the loan was repaid in full.
During 2006, we originated a $7.2 million bridge loan and a
$0.3 million preferred equity investment secured by
garden-style and townhouse apartments in South Carolina. We also
had a 25.0% carried profits interest in the borrowing entity. In
January 2008, the borrowing entity refinanced the property
through ACMs Fannie Mae program and we received
$0.3 million for our profits interest as well as full
repayment of the $0.3 million preferred equity investment
and the $7.0 million outstanding balance on the bridge
loan. We retained the 25% carried profits interest.
At December 31, 2006, we had a $7.75 million first
mortgage loan that bore interest at a variable rate of one month
LIBOR plus 4.25% and was scheduled to mature in March 2006. In
March 2006, this loan was extended for one year with no other
change in terms. The underlying property was sold to a third
party in March 2007. We provided the financing to the third
party and, in conjunction with the sale, the original loan was
repaid in full in March 2007. The original loan was made to a
not-for-profit
corporation that holds and manages investment property from the
endowment of a private academic institution. Two of our
directors are members of the board of trustees of the original
borrower and the private academic institution. Interest income
recorded from the original loan for the year ended
December 31, 2007 was approximately $0.1 million.
Other
Related Party Transactions
ACM contributed the majority of its structured finance portfolio
to our operating partnership pursuant to a contribution
agreement. The contribution agreement contains representations
and warranties concerning the ownership and terms of the
structured finance assets it contributed and other customary
matters. In exchange for ACMs asset contribution, we
issued to ACM approximately 3.1 million operating
partnership units, each of which ACM could redeem for one share
of our common stock or an equivalent amount in cash, at our
election, and 629,345 warrants, each of which entitled ACM to
purchase one additional operating partnership unit at an initial
exercise price of $15.00. The operating partnership units and
warrants for additional operating partnership units issued to
ACM were valued at approximately $43.9 million at
July 1, 2003, based on the price offered to investors in
our units in the private placement, adjusted for the initial
purchasers discount. We also granted ACM certain demand
and other registration rights with respect to the shares of
common stock issuable upon redemption of its operating
partnership units. In 2004, ACM exercised all of its warrants
for a total of 629,345 operating partnership units and proceeds
of $9.4 million.
Each of the approximately 3.8 million operating partnership
units owned by ACM was paired with one share of our special
voting preferred stock that entitles the holder to one vote on
all matters submitted to a vote of our
69
stockholders. As operating partnership units were redeemed for
shares of our common stock or cash an equivalent number of
shares of special voting preferred stock would be redeemed and
cancelled. As a result of the ACM asset contribution and the
related formation transactions, ACM owned approximately a 16%
limited partnership interest in our operating partnership and
the remaining 84% interest in our operating partnership was
owned by us.
In June 2008, our external manager exercised its right to redeem
its approximate 3.8 million operating partnership units in
our operating partnership for shares of our common stock on a
one-for-one
basis. In addition, the special voting preferred shares paired
with each operating partnership unit, pursuant to a pairing
agreement, were redeemed simultaneously and cancelled. ACM
currently holds approximately 21% of the voting power of our
outstanding common stock.
We and our operating partnership have entered into a management
agreement with ACM, as amended in August 2009, pursuant to which
ACM has agreed to provide us with structured finance investment
opportunities and loan servicing as well as other services
necessary to operate our business. As discussed above in
Contractual Commitments Management
Agreement, we have agreed to pay our manager a base
management fee monthly, based on an annual budget, and an
incentive management fee when earned.
Under the terms of the management agreement, ACM has also
granted us a right of first refusal with respect to all
structured finance investment opportunities in the multi-family
and commercial real estate markets that are identified by ACM or
its affiliates.
In addition, Mr. Kaufman has entered into a non-competition
agreement with us pursuant to which he has agreed not to pursue
structured finance investment opportunities in the multi-family
and commercial real estate markets, except as approved by our
board of directors.
We are dependent upon our manager (ACM), with whom we have a
conflict of interest, to provide services to us that are vital
to our operations. Our chairman, chief executive officer and
president, Mr. Ivan Kaufman, is also the chief executive
officer and president of our manager, and, our chief financial
officer and treasurer, Mr. Paul Elenio, is the chief
financial officer of our manager. In addition, Mr. Kaufman
and the Kaufman entities together beneficially own approximately
92% of the outstanding membership interests of ACM and certain
of our employees and directors, also hold an ownership interest
in ACM. Furthermore, one of our directors also serves as the
trustee of one of the Kaufman entities that holds a majority of
the outstanding membership interests in ACM and co-trustee of
another Kaufman entity that owns an equity interest in our
manager.
We and our operating partnership have also entered into a
services agreement with ACM pursuant to which our asset
management group provides asset management services to ACM. In
the event the services provided by our asset management group
pursuant to the agreement exceed by more than 15% per quarter
the level of activity anticipated by our board of directors, we
will negotiate in good faith with our manager an adjustment to
our managers base management fee under the management
agreement, to reflect the scope of the services, the quantity of
serviced assets or the time required to be devoted to the
services by our asset management group. See Management
Agreement above.
Funds
from Operations
We are presenting funds from operations (FFO)
because we believe it to be an important supplemental measure of
our operating performance in that it is frequently used by
analysts, investors and other parties in the evaluation of real
estate investment trusts (REITs). The revised White Paper on FFO
approved by the Board of Governors of the National Association
of Real Estate Investment Trusts, or NAREIT, in April 2002
defines FFO as net income (loss) attributable to Arbor Realty
Trust, Inc. (computed in accordance with generally accepted
accounting principles in the United States (GAAP)),
excluding gains (losses) from sales of depreciated real
properties, plus real estate-related depreciation and
amortization and after adjustments for unconsolidated
partnerships and joint ventures. We consider gains and losses on
the sales of undepreciated real estate investments to be a
normal part of our recurring operating activities in accordance
with GAAP and should not be excluded when calculating FFO. To
date, we have not sold any previously depreciated operating
properties, which would be excluded from the FFO calculation. In
accordance with the revised white paper, losses from
discontinued operations are not excluded when calculating FFO.
70
FFO is not intended to be an indication of our cash flow from
operating activities (determined in accordance with GAAP) or a
measure of our liquidity, nor is it entirely indicative of
funding our cash needs, including our ability to make cash
distributions. Our calculation of FFO may be different from the
calculation used by other companies and, therefore,
comparability may be limited.
FFO for the years ended December 31, 2009, 2008 and 2007
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net (loss) income attributable to Arbor Realty Trust Inc.,
GAAP basis
|
|
$
|
(230,631,156
|
)
|
|
$
|
(81,229,844
|
)
|
|
$
|
84,533,877
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in operating partnership
|
|
|
|
|
|
|
|
|
|
|
16,989,177
|
|
Depreciation real estate owned and
held-for-sale
|
|
|
755,704
|
|
|
|
751,859
|
|
|
|
|
|
Depreciation investment in equity affiliates
|
|
|
419,923
|
|
|
|
1,193,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations (FFO)
|
|
$
|
(229,455,529
|
)
|
|
$
|
(79,284,478
|
)
|
|
$
|
101,523,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted FFO per common share
|
|
$
|
(9.06
|
)
|
|
$
|
(3.46
|
)
|
|
$
|
4.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
25,313,574
|
|
|
|
22,916,648
|
|
|
|
22,870,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Market risk is the exposure to loss resulting from changes in
interest rates, foreign currency exchange rates, commodity
prices, equity prices and real estate values. The primary market
risks that we are exposed to are real estate risk and interest
rate risk.
Market
Conditions
We are subject to market changes in the debt and secondary
mortgage markets. These markets are currently experiencing
disruptions, which could have an adverse impact on our earnings
and financial condition.
Current conditions in the debt markets include reduced liquidity
and increased risk adjusted premiums. These conditions may
increase the cost and reduce the availability of debt. We
attempt to mitigate the impact of debt market disruptions by
obtaining adequate debt facilities from a variety of financing
sources. There can be no assurance, however, that we will be
successful in these efforts, that such debt facilities will be
adequate or that the cost of such debt facilities will be at
similar terms.
The secondary mortgage markets are also currently experiencing
disruptions resulting from reduced investor demand for
collateralized debt obligations and increased investor yield
requirements for these obligations. In light of these
conditions, we currently expect to finance our loan and
investment portfolio with our current capital and debt
facilities.
Real
Estate Risk
Commercial mortgage assets may be viewed as exposing an investor
to greater risk of loss than residential mortgage assets since
such assets are typically secured by larger loans to fewer
obligors than residential mortgage assets. Multi-family and
commercial property values and net operating income derived from
such properties are subject to volatility and may be affected
adversely by a number of factors, including, but not limited to,
events such as natural disasters including hurricanes and
earthquakes, acts of war
and/or
terrorism (such as the events of September 11,
2001) and others that may cause unanticipated and uninsured
performance declines
and/or
losses to us or the owners and operators of the real estate
securing our investment; national, regional and local economic
conditions (which may be adversely affected by industry
slowdowns and other factors); local real estate conditions (such
as an oversupply of housing, retail, industrial, office or other
commercial space); changes or continued weakness in specific
industry segments; construction quality, construction delays,
construction cost, age and design; demographic factors;
retroactive changes to building or similar codes; and increases
in operating expenses (such as energy costs). In the event net
operating income decreases, a borrower may have difficulty
repaying our loans, which could result in losses to us. In
addition, decreases in property values reducing the value of
collateral, and a lack of liquidity in the market, could reduce
the potential proceeds available to a borrower to repay our
loans, which could also cause us to suffer losses. Even when the
net operating income is sufficient to cover the related
propertys debt service, there can be no assurance that
this will continue to be the case in the future.
Interest
Rate Risk
Interest rate risk is highly sensitive to many factors,
including governmental monetary and tax policies, domestic and
international economic and political considerations and other
factors beyond our control.
Our operating results will depend in large part on differences
between the income from our loans and our borrowing costs. Most
of our loans and borrowings are variable-rate instruments, based
on LIBOR. The objective of this strategy is to minimize the
impact of interest rate changes on our net interest income. In
addition, we have various fixed rate loans in our portfolio,
which are financed with variable rate LIBOR borrowings. We have
entered into various interest swaps (as discussed below) to
hedge our exposure to interest rate risk on our variable rate
LIBOR borrowings as it relates to our fixed rate loans. Many of
our loans and borrowings are subject to various interest rate
floors. As a result, the impact of a change in interest rates
may be different on our interest income than it is on our
interest expense.
One month LIBOR approximated 0.25% at December 31, 2009 and
0.5% at December 31, 2008.
72
Based on our loans, securities
held-to-maturity
and liabilities as of December 31, 2009, and assuming the
balances of these loans, securities and liabilities remain
unchanged for the subsequent twelve months, a 0.25% increase in
LIBOR would decrease our annual net income and cash flows by
approximately $0.1 million. This is primarily due to
various interest rate floors that are in effect at a rate that
is above a 0.25% increase in LIBOR which would limit the effect
of a 0.25% increase, and increased expense on variable rate
debt, partially offset by our interest rate swaps that
effectively convert a portion of the variable rate LIBOR based
debt, as it relates to certain fixed rate assets, to a fixed
basis that is not subject to a 0.25% increase. Based on the
loans, securities
held-to-maturity
and liabilities as of December 31, 2009, and assuming the
balances of these loans, securities and liabilities remain
unchanged for the subsequent twelve months, a 0.25% decrease in
LIBOR would increase our annual net income and cash flows by
approximately $0.1 million. This is primarily due to
various interest rate floors which limit the effect of a
decrease on interest income and decreased expense on variable
rate debt, partially offset by our interest rate swaps that
effectively converted a portion of the variable rate LIBOR based
debt, as it relates to certain fixed rate assets, to a fixed
basis that is not subject to a 0.25% decrease.
Based on our loans, securities
held-to-maturity
and liabilities as of December 31, 2008, and assuming the
balances of these assets and liabilities remain unchanged for
the subsequent twelve months, a 0.5% increase in LIBOR would
decrease our annual net income and cash flows by approximately
$2.6 million. This is primarily due to various interest
rate floors that are in effect at a rate that is above a 0.5%
increase in LIBOR which would limit the effect of a 0.5%
increase, and increased expense on variable rate debt, partially
offset by our interest rate swaps that effectively convert a
portion of the variable rate LIBOR based debt, as it relates to
certain fixed rate assets, to a fixed basis that is not subject
to a 0.5% increase. Based on the loans, securities
held-to-maturity
and liabilities as of December 31, 2008, and assuming the
balances of these loans and liabilities remain unchanged for the
subsequent twelve months, a 0.5% decrease in LIBOR would
increase our annual net income and cash flows by approximately
$1.8 million. This is primarily due to various interest
rate floors which limit the effect of a decrease on interest
income and decreased expense on variable rate debt, partially
offset by our interest rate swaps that effectively converted a
portion of the variable rate LIBOR based debt, as it relates to
certain fixed rate assets, to a fixed basis that is not subject
to a decrease.
In the event of a significant rising interest rate environment
and/or
economic downturn, defaults could increase and result in credit
losses to us, which could adversely affect our liquidity and
operating results. Further, such delinquencies or defaults could
have an adverse effect on the spreads between interest-earning
assets and interest-bearing liabilities.
In connection with our CDOs described in Managements
Discussion and Analysis of Financial Condition and Results of
Operations, we entered into interest rate swap agreements
to hedge the exposure to the risk of changes in the difference
between three-month LIBOR and one-month LIBOR interest rates.
These interest rate swaps became necessary due to the
investors return being paid based on a three-month LIBOR
index while the assets contributed to the CDOs are yielding
interest based on a one-month LIBOR index. As of
December 31, 2009 and 2008, we had nine and ten of these
interest rate swap agreements outstanding that have combined
notional values of $1.1 billion and $1.3 billion,
respectively. The market value of these interest rate swaps is
dependent upon existing market interest rates and swap spreads,
which change over time. If there were a 25 basis point and
50 basis point increase in forward interest rates as of
December 31, 2009 and 2008, respectively, the value of
these interest rate swaps would have decreased by approximately
$0.1 million for both periods. If there were a
25 basis point and 50 basis point decrease in forward
interest rates as of December 31, 2009 and 2008,
respectively, the value of these interest rate swaps would have
increased by approximately $0.1 million for both periods.
As of December 31, 2009, we had 34 interest rate swap
agreements outstanding that have a combined notional value of
$708.2 million. As of December 31, 2008 we had 33
interest rate swap agreements outstanding with a combined
notional value of $689.9 million to hedge current and
outstanding LIBOR based debt relating to certain fixed rate
loans within our portfolio. The fair market value of these
interest rate swaps is dependent upon existing market interest
rates and swap spreads, which change over time. If there had
been a 25 basis point and 50 basis point increase in
forward interest rates as of December 31, 2009 and 2008,
respectively, the fair market value of these interest rate swaps
would have increased by approximately $6.1 million and
$15.7 million, respectively. If there were a 25 basis
point and 50 basis point decrease in forward interest rates
as of December 31, 2009 and 2008,
73
respectively, the fair market value of these interest rate swaps
would have decreased by approximately $6.0 million and
$16.2 million, respectively.
We have, in the past, entered into various interest rate swap
agreements in connection with the issuance of variable rate
junior subordinated notes. These swaps had total notional values
of $236.5 million as of December 31, 2008. We no
longer utilize interest rate swaps for the newly issued junior
subordinated notes exchanged for the aforementioned junior
subordinated notes due to the modified interest payment
structure. If there had been a 50 basis point increase in
forward interest rates as of December 31, 2008, the fair
market value of these interest rate swaps would have increased
by approximately $3.3 million. If there were a
50 basis point decrease in forward interest rates as of
December 31, 2008, the fair market value of these interest
rate swaps would have decreased by approximately
$3.4 million.
Certain of our interest rate swaps, which are designed to hedge
interest rate risk associated with a portion of our loans and
investments, could require the funding of additional cash
collateral for changes in the market value of these swaps. Due
to the prolonged volatility in the financial markets that began
in 2007, the value of these interest rate swaps has declined
substantially. As a result, at December 31, 2009 and 2008,
we funded approximately $18.9 million and
$46.5 million, respectively, in cash related to these
swaps. If we continue to experience significant changes in the
outlook of interest rates, these contracts could continue to
decline in value, which would require additional cash to be
funded. However, at maturity the value of these contracts return
to par and all cash will be recovered. If we do not have
available cash to meet these requirements, this could result in
the early termination of these interest rate swaps, leaving us
exposed to interest rate risk associated with these loans and
investments, which could adversely impact our financial
condition.
Our hedging transactions using derivative instruments also
involve certain additional risks such as counterparty credit
risk, the enforceability of hedging contracts and the risk that
unanticipated and significant changes in interest rates will
cause a significant loss of basis in the contract. The
counterparties to our derivative arrangements are major
financial institutions with high credit ratings with which we
and our affiliates may also have other financial relationships.
As a result, we do not anticipate that any of these
counterparties will fail to meet their obligations. There can be
no assurance that we will be able to adequately protect against
the foregoing risks and will ultimately realize an economic
benefit that exceeds the related amounts incurred in connection
with engaging in such hedging strategies.
We utilize interest rate swaps to limit interest rate risk.
Derivatives are used for hedging purposes rather than
speculation. We do not enter into financial instruments for
trading purposes.
74
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INDEX TO
THE CONSOLIDATED FINANCIAL STATEMENTS OF
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
Page
|
|
|
|
|
76
|
|
|
|
|
77
|
|
|
|
|
78
|
|
|
|
|
79
|
|
|
|
|
80
|
|
|
|
|
82
|
|
|
|
|
136
|
|
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
75
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Arbor Realty Trust, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Arbor Realty Trust, Inc. and Subsidiaries (the
Company) as of December 31, 2009 and 2008, and
the related consolidated statements of operations, changes in
equity, and cash flows for each of the three years in the period
ended December 31, 2009. Our audits also included the
financial statement schedule listed in the Index at Item 8.
These financial statements and schedule are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 2009 and
2008, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.
As discussed in Note 2 to the consolidated financial
statements, the Company retrospectively changed its method of
accounting for noncontrolling interests in consolidated entity
due to the adoption of the guidance originally issued in FASB
Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements (codified in FASB ASC
Topic 810, Consolidation).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated March 8, 2010 expressed an unqualified opinion
thereon.
New York, New York
March 8, 2010
76
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
64,624,275
|
|
|
$
|
832,041
|
|
Restricted cash
|
|
|
27,935,470
|
|
|
|
93,219,133
|
|
Loans and investments, net
|
|
|
1,700,774,288
|
|
|
|
2,181,683,619
|
|
Available-for-sale
securities, at fair value
|
|
|
488,184
|
|
|
|
529,104
|
|
Securities
held-to-maturity,
net
|
|
|
60,562,808
|
|
|
|
58,244,348
|
|
Investment in equity affiliates
|
|
|
64,910,949
|
|
|
|
29,310,953
|
|
Real estate owned, net
|
|
|
8,205,510
|
|
|
|
46,478,994
|
|
Real estate
held-for-sale,
net
|
|
|
41,440,000
|
|
|
|
|
|
Due from related party
|
|
|
15,240,255
|
|
|
|
2,933,344
|
|
Prepaid management fee related party
|
|
|
19,047,949
|
|
|
|
26,340,397
|
|
Other assets
|
|
|
57,545,084
|
|
|
|
139,664,556
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,060,774,772
|
|
|
$
|
2,579,236,489
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY:
|
|
|
|
|
|
|
|
|
Repurchase agreements
|
|
$
|
2,657,332
|
|
|
$
|
60,727,789
|
|
Collateralized debt obligations
|
|
|
1,100,515,185
|
|
|
|
1,152,289,000
|
|
Junior subordinated notes to subsidiary trust issuing preferred
securities
|
|
|
259,487,421
|
|
|
|
276,055,000
|
|
Notes payable
|
|
|
375,219,206
|
|
|
|
518,435,437
|
|
Note payable related party
|
|
|
|
|
|
|
4,200,000
|
|
Mortgage note payable
held-for-sale
|
|
|
41,440,000
|
|
|
|
41,440,000
|
|
Due to related party
|
|
|
1,997,629
|
|
|
|
993,192
|
|
Due to borrowers
|
|
|
6,676,544
|
|
|
|
32,330,603
|
|
Deferred revenue
|
|
|
77,123,133
|
|
|
|
77,123,133
|
|
Other liabilities
|
|
|
97,024,352
|
|
|
|
134,647,667
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,962,140,802
|
|
|
|
2,298,241,821
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Arbor Realty Trust, Inc. stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value: 100,000,000 shares
authorized; no shares issued or outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value: 500,000,000 shares
authorized; 25,666,810 shares issued,
25,387,410 shares outstanding at December 31, 2009 and
25,421,810 shares issued, 25,142,410 shares
outstanding at December 31, 2008
|
|
|
256,668
|
|
|
|
254,218
|
|
Additional paid-in capital
|
|
|
450,376,782
|
|
|
|
447,321,186
|
|
Treasury stock, at cost 279,400 shares
|
|
|
(7,023,361
|
)
|
|
|
(7,023,361
|
)
|
Accumulated deficit
|
|
|
(293,585,378
|
)
|
|
|
(62,939,722
|
)
|
Accumulated other comprehensive loss
|
|
|
(53,331,105
|
)
|
|
|
(96,606,672
|
)
|
|
|
|
|
|
|
|
|
|
Total Arbor Realty Trust, Inc. stockholders equity
|
|
|
96,693,606
|
|
|
|
281,005,649
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in consolidated entity
|
|
|
1,940,364
|
|
|
|
(10,981
|
)
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
98,633,970
|
|
|
|
280,994,668
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,060,774,772
|
|
|
$
|
2,579,236,489
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
77
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Interest income
|
|
$
|
117,262,129
|
|
|
$
|
204,135,097
|
|
|
$
|
273,984,357
|
|
Interest expense
|
|
|
80,102,075
|
|
|
|
108,656,702
|
|
|
|
147,710,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
37,160,054
|
|
|
|
95,478,395
|
|
|
|
126,274,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating income
|
|
|
916,246
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
809,808
|
|
|
|
82,329
|
|
|
|
39,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenue
|
|
|
1,726,054
|
|
|
|
82,329
|
|
|
|
39,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
10,154,276
|
|
|
|
8,110,003
|
|
|
|
9,381,055
|
|
Selling and administrative
|
|
|
10,505,013
|
|
|
|
8,197,368
|
|
|
|
5,593,175
|
|
Property operating expenses
|
|
|
1,411,253
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
94,819
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairment
|
|
|
10,260,555
|
|
|
|
17,573,980
|
|
|
|
|
|
Provision for loan losses
|
|
|
241,328,039
|
|
|
|
132,000,000
|
|
|
|
2,500,000
|
|
Loss on restructured loans
|
|
|
57,579,561
|
|
|
|
|
|
|
|
|
|
Management fee related party
|
|
|
15,136,170
|
|
|
|
3,539,854
|
|
|
|
25,004,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
346,469,686
|
|
|
|
169,421,205
|
|
|
|
42,479,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before gain on exchange
of profits interest, gain on extinguishment of debt, loss on
termination of swaps, (loss) income from equity affiliates and
provision for income taxes
|
|
|
(307,583,578
|
)
|
|
|
(73,860,481
|
)
|
|
|
83,834,461
|
|
Gain on exchange of profits interest
|
|
|
55,988,411
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
54,080,118
|
|
|
|
|
|
|
|
|
|
Loss on termination of swaps
|
|
|
(8,729,408
|
)
|
|
|
|
|
|
|
|
|
(Loss) income from equity affiliates
|
|
|
(438,507
|
)
|
|
|
(2,347,296
|
)
|
|
|
34,573,594
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(16,885,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(206,682,964
|
)
|
|
|
(76,207,777
|
)
|
|
|
101,523,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on impairment of real estate
held-for-sale
|
|
|
(4,898,295
|
)
|
|
|
|
|
|
|
|
|
Loss on operations of real estate
held-for-sale
|
|
|
(377,042
|
)
|
|
|
(582,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(5,275,337
|
)
|
|
|
(582,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(211,958,301
|
)
|
|
|
(76,790,071
|
)
|
|
|
101,523,055
|
|
Net income attributable to noncontrolling interest
|
|
|
18,672,855
|
|
|
|
4,439,773
|
|
|
|
16,989,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Arbor Realty Trust, Inc.
|
|
$
|
(230,631,156
|
)
|
|
$
|
(81,229,844
|
)
|
|
$
|
84,533,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations, net of
noncontrolling interest
|
|
$
|
(8.90
|
)
|
|
$
|
(3.52
|
)
|
|
$
|
4.44
|
|
Loss from discontinued operations
|
|
|
(0.21
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Arbor Realty Trust, Inc.
|
|
$
|
(9.11
|
)
|
|
$
|
(3.54
|
)
|
|
$
|
4.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations, net of
noncontrolling interest
|
|
$
|
(8.90
|
)
|
|
$
|
(3.52
|
)
|
|
$
|
4.44
|
|
Loss from discontinued operations
|
|
|
(0.21
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Arbor Realty Trust, Inc.
|
|
$
|
(9.11
|
)
|
|
$
|
(3.54
|
)
|
|
$
|
4.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
|
|
|
$
|
2.10
|
|
|
$
|
2.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,313,574
|
|
|
|
22,916,648
|
|
|
|
19,022,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
25,313,574
|
|
|
|
22,916,648
|
|
|
|
22,870,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
78
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
FOR THE
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Arbor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Accumulated
|
|
|
Accumulated
|
|
|
Realty
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Stock
|
|
|
Common
|
|
|
Common
|
|
|
Additional
|
|
|
Treasury
|
|
|
|
|
|
Deficit)/
|
|
|
Other
|
|
|
Trust, Inc.
|
|
|
Non-
|
|
|
|
|
|
|
Comprehensive
|
|
|
Stock
|
|
|
Par
|
|
|
Stock
|
|
|
Stock
|
|
|
Paid-in
|
|
|
Stock
|
|
|
Treasury
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
controlling
|
|
|
|
|
|
|
Income/(Loss)
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Shares
|
|
|
Stock
|
|
|
Earnings
|
|
|
Income/(Loss)
|
|
|
Equity
|
|
|
Interest
|
|
|
Total
|
|
|
Balance-December 31, 2006
|
|
|
|
|
|
|
3,776,069
|
|
|
$
|
37,761
|
|
|
|
17,388,770
|
|
|
$
|
173,888
|
|
|
$
|
273,037,744
|
|
|
|
(279,400
|
)
|
|
$
|
(7,023,361
|
)
|
|
$
|
27,732,489
|
|
|
$
|
2,152,556
|
|
|
$
|
296,111,077
|
|
|
$
|
65,468,252
|
|
|
$
|
361,579,329
|
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,700,000
|
|
|
|
27,000
|
|
|
|
73,599,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,626,068
|
|
|
|
|
|
|
|
73,626,068
|
|
Issuance of common stock for management incentive fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
590,864
|
|
|
|
5,909
|
|
|
|
15,971,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,977,425
|
|
|
|
|
|
|
|
15,977,425
|
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,101
|
|
|
|
1,190
|
|
|
|
(1,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,454,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,454,957
|
|
|
|
|
|
|
|
2,454,957
|
|
Distributions common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,585,916
|
)
|
|
|
|
|
|
|
(46,585,916
|
)
|
|
|
|
|
|
|
(46,585,916
|
)
|
Distributions preferred stock of private REIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,500
|
)
|
|
|
|
|
|
|
(14,500
|
)
|
|
|
|
|
|
|
(14,500
|
)
|
Adjustment to noncontrolling interest from decreased ownership
in ARLP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314,041
|
|
|
|
(314,041
|
)
|
|
|
|
|
Net income
|
|
$
|
101,523,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,533,878
|
|
|
|
|
|
|
|
84,533,878
|
|
|
|
16,989,177
|
|
|
|
101,523,055
|
|
Distribution to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,289,130
|
)
|
|
|
(9,289,130
|
)
|
Net unrealized loss on securities
available-for-sale
|
|
|
(1,018,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,018,841
|
)
|
|
|
(1,018,841
|
)
|
|
|
|
|
|
|
(1,018,841
|
)
|
Reclass adjustment of net loss on securities
available-for-sale
realized in net income
|
|
|
98,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,376
|
|
|
|
98,376
|
|
|
|
|
|
|
|
98,376
|
|
Unrealized loss on derivative financial instruments
|
|
|
(27,847,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,847,260
|
)
|
|
|
(27,847,260
|
)
|
|
|
|
|
|
|
(27,847,260
|
)
|
Reclassification of net realized loss on derivatives designated
as cash flow hedges into earnings
|
|
|
(2,386,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,386,220
|
)
|
|
|
(2,386,220
|
)
|
|
|
|
|
|
|
(2,386,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance-December 31, 2007
|
|
$
|
70,369,110
|
|
|
|
3,776,069
|
|
|
$
|
37,761
|
|
|
|
20,798,735
|
|
|
$
|
207,987
|
|
|
$
|
365,376,136
|
|
|
|
(279,400
|
)
|
|
$
|
(7,023,361
|
)
|
|
$
|
65,665,951
|
|
|
$
|
(29,001,389
|
)
|
|
$
|
395,263,085
|
|
|
$
|
72,854,258
|
|
|
$
|
468,117,343
|
|
Issuance of common stock for management incentive fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
559,354
|
|
|
|
5,594
|
|
|
|
5,970,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,976,255
|
|
|
|
|
|
|
|
5,976,255
|
|
Redemption of operating partnership units for common stock
|
|
|
|
|
|
|
(3,776,069
|
)
|
|
|
(37,761
|
)
|
|
|
3,776,069
|
|
|
|
37,761
|
|
|
|
72,622,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,622,686
|
|
|
|
(72,622,686
|
)
|
|
|
|
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,740
|
|
|
|
3,007
|
|
|
|
(3,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of unvested restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,088
|
)
|
|
|
(131
|
)
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,354,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,354,579
|
|
|
|
|
|
|
|
3,354,579
|
|
Distributions common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,361,290
|
)
|
|
|
|
|
|
|
(47,361,290
|
)
|
|
|
|
|
|
|
(47,361,290
|
)
|
Distributions preferred stock of private REIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,539
|
)
|
|
|
|
|
|
|
(14,539
|
)
|
|
|
|
|
|
|
(14,539
|
)
|
Net (loss) income
|
|
$
|
(76,790,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81,229,844
|
)
|
|
|
|
|
|
|
(81,229,844
|
)
|
|
|
4,439,773
|
|
|
|
(76,790,071
|
)
|
Distribution to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,682,326
|
)
|
|
|
(4,682,326
|
)
|
Reclass adjustment of unrealized net loss on securities
available-for-sale
realized in net loss
|
|
|
1,018,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,018,841
|
|
|
|
1,018,841
|
|
|
|
|
|
|
|
1,018,841
|
|
Unrealized loss on derivative financial instruments
|
|
|
(81,206,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81,206,105
|
)
|
|
|
(81,206,105
|
)
|
|
|
|
|
|
|
(81,206,105
|
)
|
Reclassification of net realized loss on derivatives designated
as cash flow hedges into earnings
|
|
|
12,581,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,581,981
|
|
|
|
12,581,981
|
|
|
|
|
|
|
|
12,581,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance-December 31, 2008
|
|
$
|
(144,395,354
|
)
|
|
|
|
|
|
$
|
|
|
|
|
25,421,810
|
|
|
$
|
254,218
|
|
|
$
|
447,321,186
|
|
|
|
(279,400
|
)
|
|
$
|
(7,023,361
|
)
|
|
$
|
(62,939,722
|
)
|
|
$
|
(96,606,672
|
)
|
|
$
|
281,005,649
|
|
|
$
|
(10,981
|
)
|
|
$
|
280,994,668
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
245,000
|
|
|
|
2,450
|
|
|
|
2,412,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,414,796
|
|
|
|
|
|
|
|
2,414,796
|
|
Issuance of warrants in conjunction with debt restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
643,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
643,250
|
|
|
|
|
|
|
|
643,250
|
|
Distributions preferred stock of private REIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,500
|
)
|
|
|
|
|
|
|
(14,500
|
)
|
|
|
|
|
|
|
(14,500
|
)
|
Net (loss) income
|
|
$
|
(211,958,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(230,631,156
|
)
|
|
|
|
|
|
|
(230,631,156
|
)
|
|
|
18,672,855
|
|
|
|
(211,958,301
|
)
|
Distribution to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,721,510
|
)
|
|
|
(16,721,510
|
)
|
Unrealized gain on derivative financial instruments
|
|
|
4,929,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,929,124
|
|
|
|
4,929,124
|
|
|
|
|
|
|
|
4,929,124
|
|
Reclassification of net realized loss on derivatives designated
as cash flow hedges into earnings
|
|
|
38,346,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,346,443
|
|
|
|
38,346,443
|
|
|
|
|
|
|
|
38,346,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance-December 31, 2009
|
|
$
|
(168,682,734
|
)
|
|
|
|
|
|
$
|
|
|
|
|
25,666,810
|
|
|
$
|
256,668
|
|
|
$
|
450,376,782
|
|
|
|
(279,400
|
)
|
|
$
|
(7,023,361
|
)
|
|
$
|
(293,585,378
|
)
|
|
$
|
(53,331,105
|
)
|
|
$
|
96,693,606
|
|
|
$
|
1,940,364
|
|
|
$
|
98,633,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
79
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(211,958,301
|
)
|
|
$
|
(76,790,071
|
)
|
|
$
|
101,523,055
|
|
Adjustments to reconcile net (loss) income to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
755,703
|
|
|
|
751,859
|
|
|
|
|
|
Stock-based compensation
|
|
|
2,414,796
|
|
|
|
3,047,479
|
|
|
|
2,454,957
|
|
Other-than-temporary
impairment
|
|
|
10,260,555
|
|
|
|
17,573,980
|
|
|
|
|
|
Gain on exchange of profits interest
|
|
|
(55,988,411
|
)
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt
|
|
|
(54,080,118
|
)
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
241,328,039
|
|
|
|
132,000,000
|
|
|
|
2,500,000
|
|
Loss on restructured loans
|
|
|
57,579,561
|
|
|
|
|
|
|
|
|
|
Loss on termination of swaps
|
|
|
8,729,408
|
|
|
|
|
|
|
|
|
|
Loss on impairment of real estate
held-for-sale
|
|
|
4,898,295
|
|
|
|
|
|
|
|
|
|
Amortization and accretion of interest and fees
|
|
|
6,147,222
|
|
|
|
(1,180,796
|
)
|
|
|
142,681
|
|
Change in fair value of non-qualifying swaps
|
|
|
5,190,704
|
|
|
|
4,649,349
|
|
|
|
1,691,116
|
|
Non-cash incentive compensation to manager related
party
|
|
|
|
|
|
|
1,385,918
|
|
|
|
9,146,905
|
|
Loss (earnings) from equity affiliates
|
|
|
438,507
|
|
|
|
2,347,296
|
|
|
|
(24,150,787
|
)
|
Gain on sale of securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
(30,182
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
26,596,827
|
|
|
|
(91,125,760
|
)
|
|
|
(8,710,086
|
)
|
Distributions of operations from equity affiliates
|
|
|
9,879,000
|
|
|
|
|
|
|
|
|
|
Prepaid management fee related party
|
|
|
|
|
|
|
(4,100,000
|
)
|
|
|
(14,460,587
|
)
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
(2,200,000
|
)
|
Deferred revenue
|
|
|
|
|
|
|
|
|
|
|
77,123,133
|
|
Other liabilities
|
|
|
(9,908,752
|
)
|
|
|
62,999,714
|
|
|
|
12,475,857
|
|
Deferred fees
|
|
|
2,851,909
|
|
|
|
1,815,483
|
|
|
|
1,493,699
|
|
Due from/to related party
|
|
|
4,280,341
|
|
|
|
(2,971,372
|
)
|
|
|
688,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
49,415,285
|
|
|
$
|
50,403,079
|
|
|
$
|
159,688,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and investments funded, originated and purchased, net
|
|
|
(8,569,643
|
)
|
|
|
(401,391,738
|
)
|
|
|
(1,926,833,770
|
)
|
Payoffs and paydowns of loans and investments
|
|
|
123,759,512
|
|
|
|
679,855,282
|
|
|
|
1,336,775,919
|
|
Deposits received relating to loan held-for-sale
|
|
|
20,500,000
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of loans
|
|
|
32,050,000
|
|
|
|
|
|
|
|
|
|
Due to borrowers
|
|
|
(8,574,898
|
)
|
|
|
14,064,697
|
|
|
|
2,198,611
|
|
Purchases of securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
(16,715,584
|
)
|
Purchases of securities
held-to-maturity
|
|
|
(12,412,500
|
)
|
|
|
(58,062,500
|
)
|
|
|
|
|
Principal collection on securities
held-to-maturity
|
|
|
2,710,012
|
|
|
|
|
|
|
|
|
|
Investment in real estate owned, net
|
|
|
(59,986
|
)
|
|
|
(1,231,577
|
)
|
|
|
|
|
Prepayments on securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
3,358,184
|
|
Proceeds from sales of securities
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
18,792,594
|
|
Contributions to equity affiliates
|
|
|
(295,330
|
)
|
|
|
(3,000,000
|
)
|
|
|
(24,455,557
|
)
|
Distributions from equity affiliates
|
|
|
2,614,710
|
|
|
|
931,941
|
|
|
|
51,250,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) investing activities
|
|
$
|
151,721,877
|
|
|
$
|
231,166,105
|
|
|
$
|
(555,629,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable and repurchase agreements
|
|
|
33,878,700
|
|
|
|
269,996,534
|
|
|
|
807,615,891
|
|
Payoffs and paydowns of notes payable and repurchase agreements
|
|
|
(215,375,061
|
)
|
|
|
(531,931,575
|
)
|
|
|
(456,939,223
|
)
|
Payoff of junior subordinated notes to subsidiary trust issuing
preferred securities
|
|
|
(1,265,625
|
)
|
|
|
|
|
|
|
|
|
Payoff of notes payable related party
|
|
|
(4,200,000
|
)
|
|
|
4,200,000
|
|
|
|
|
|
Proceeds from collateralized debt obligations
|
|
|
500,000
|
|
|
|
56,000,000
|
|
|
|
72,200,000
|
|
Payoffs and paydowns of collateralized debt obligations
|
|
|
(21,307,941
|
)
|
|
|
(54,720,000
|
)
|
|
|
(12,720,000
|
)
|
Change in restricted cash
|
|
|
65,283,663
|
|
|
|
45,916,972
|
|
|
|
(54,364,043
|
)
|
Payments on margin calls related to repurchase agreements
|
|
|
|
|
|
|
(4,845,810
|
)
|
|
|
|
|
Proceeds from issuance of junior subordinated notes
|
|
|
|
|
|
|
|
|
|
|
53,093,000
|
|
Payments on swaps to hedge counterparties
|
|
|
(70,320,588
|
)
|
|
|
(175,190,000
|
)
|
|
|
(41,840,000
|
)
|
Receipts on swaps to hedge counterparties
|
|
|
80,345,000
|
|
|
|
140,550,000
|
|
|
|
29,980,000
|
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
74,655,000
|
|
Offering expenses paid
|
|
|
|
|
|
|
|
|
|
|
(1,001,795
|
)
|
Distributions paid to noncontrolling interest
|
|
|
(221,510
|
)
|
|
|
(4,682,326
|
)
|
|
|
(9,289,130
|
)
|
Distributions paid on stock
|
|
|
(14,500
|
)
|
|
|
(47,375,829
|
)
|
|
|
(46,600,416
|
)
|
Payment of deferred financing costs
|
|
|
(4,647,066
|
)
|
|
|
(874,650
|
)
|
|
|
(4,385,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by financing activities
|
|
$
|
(137,344,928
|
)
|
|
$
|
(302,956,684
|
)
|
|
$
|
410,403,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
$
|
63,792,234
|
|
|
$
|
(21,387,500
|
)
|
|
$
|
14,462,684
|
|
Cash and cash equivalents at beginning of period
|
|
|
832,041
|
|
|
|
22,219,541
|
|
|
|
7,756,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
64,624,275
|
|
|
$
|
832,041
|
|
|
$
|
22,219,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used to pay interest, net of capitalized interest
|
|
$
|
58,214,170
|
|
|
$
|
116,916,357
|
|
|
$
|
151,577,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (received)/used for taxes
|
|
$
|
(354,279
|
)
|
|
$
|
86,214
|
|
|
$
|
19,032,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in equity affiliates
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,856,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment transferred to real estate
held-for-sale,
net
|
|
$
|
41,440,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate owned, net
|
|
$
|
8,525,428
|
|
|
$
|
45,247,417
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments transferred to
available-for-sale
securities, at fair value
|
|
$
|
400,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan origination
|
|
$
|
500,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin calls applied to repurchase agreements
|
|
$
|
4,845,810
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of swaps
|
|
$
|
17,034,929
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of common equity in trust preferred securities
|
|
$
|
7,727,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral on swaps to hedge counterparties
|
|
$
|
(3,500,000
|
)
|
|
$
|
3,500,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption of mortgage note payable
|
|
$
|
|
|
|
$
|
41,440,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of operating partnership units for common stock
|
|
$
|
|
|
|
$
|
72,622,686
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for management incentive fee
|
|
$
|
|
|
|
$
|
5,976,255
|
|
|
$
|
15,977,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrents
|
|
$
|
643,250
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan paydown received by related party
|
|
$
|
6,990,698
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification from due to borrowers to loans
|
|
$
|
20,684,387
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
81
Note 1
Description of Business / Form of Ownership
Arbor Realty Trust, Inc. (the Company) is a Maryland
corporation that was formed in June 2003 to invest in a
diversified portfolio of multi-family and commercial real
estate-related assets, primarily consisting of bridge loans,
mezzanine loans, junior participating interests in first
mortgage loans, and preferred and direct equity. The Company may
also directly acquire real property and invest in real
estate-related notes and certain mortgage-related securities.
The Company conducts substantially all of its operations through
its operating partnership, Arbor Realty Limited Partnership
(ARLP), and ARLPs wholly-owned subsidiaries.
The Company is externally managed and advised by Arbor
Commercial Mortgage, LLC (ACM).
The Company is organized and conducts its operations to qualify
as a real estate investment trust (REIT) for federal
income tax purposes. A REIT is generally not subject to federal
income tax on its REIT taxable income that it distributes to its
stockholders, provided that it distributes at least 90% of that
income and meets certain other requirements for qualification as
a REIT. Additionally, the IRS has issued guidance that
temporarily allows listed REITs to offer shareholders elective
dividends which are paid in a combination of cash and common
stock, even if the amount payable in cash is capped, so long as
that cap is not less than 10% of the total dividend. Certain of
our assets or operations that would not otherwise comply with
the REIT requirements, are owned or conducted by our taxable
REIT subsidiaries, the income of which is subject to federal and
state income taxes.
The Companys charter provides for the issuance of up to
500 million shares of common stock, with a par value of
$0.01 per share, and 100 million shares of preferred stock,
with a par value of $0.01 per share. The Company was
incorporated in June 2003 and was initially capitalized through
the sale of 67 shares of common stock for $1,005.
On July 1, 2003, ACM contributed $213.1 million of
structured finance assets and $169.2 million of borrowings
supported by $43.9 million of equity in exchange for a
commensurate equity ownership in ARLP. In addition, certain
employees of ACM were transferred to ARLP. These assets,
liabilities and employees represent a substantial portion of
ACMs structured finance business (the SF
Business). The Company is externally managed and advised
by ACM and pays ACM a management fee in accordance with a
management agreement. ACM also sources originations, provides
underwriting services, and services all structured finance
assets on behalf of ARLP and its wholly owned subsidiaries.
On July 1, 2003, the Company completed a private equity
offering of 1,610,000 units (including an overallotment
option), each consisting of five shares of common stock and one
warrant to purchase one share of common stock at $75.00 per
unit. The Company sold 8,050,000 shares of common stock in
the offering. Gross proceeds from the private equity offering
totaled $120.2 million. Gross proceeds from the private
equity offering combined with the concurrent equity contribution
by ACM totaled approximately $164.1 million in equity
capital. The Company paid and accrued offering expenses of
$10.1 million resulting in stockholders equity and
minority interest of $154.0 million as a result of the
private placement.
In April 2004, the Company sold 6,750,000 shares of its
common stock in a public offering at a price of $20.00 per
share, for net proceeds of approximately $124.4 million
after deducting the underwriting discount and other estimated
offering expenses. The Company used the proceeds to pay down
indebtedness. In May 2004, the underwriters exercised a portion
of their over-allotment option, which resulted in the issuance
of 524,200 additional shares. The Company received net proceeds
of approximately $9.8 million after deducting the
underwriting discount. In October 2004, ARLP received proceeds
of approximately $9.4 million from the exercise of warrants
for 629,345 operating partnership units. Additionally, in 2004
and 2005, the Company issued 973,354 and 282,776 shares of
common stock, respectively, from the exercise of warrants under
its Warrant Agreement, dated July 1, 2003, and received net
proceeds of $12.9 million and $4.2 million,
respectively.
In March 2007, the Company filed a shelf registration statement
on
Form S-3
with the Securities and Exchange Commission (SEC)
under the Securities Act of 1933, as amended (the
1933 Act) with respect to an aggregate of
$500.0 million of debt securities, common stock, preferred
stock, depositary shares and warrants, that may be sold
82
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
by the Company from time to time pursuant to Rule 415 of
the 1933 Act. On April 19, 2007, the Commission
declared this shelf registration statement effective.
In June 2007, the Company completed a public offering in which
it sold 2,700,000 shares of its common stock registered for
$27.65 per share, and received net proceeds of approximately
$73.6 million after deducting the underwriting discount and
the other estimated offering expenses. The Company used the
proceeds to pay down debt and finance its loan and investment
portfolio. The underwriters did not exercise their over
allotment option for additional shares. At December 31,
2009, the Company had $425.3 million remaining under the
previously mentioned shelf registration.
In June 2008, the Companys external manager exercised its
right to redeem its approximate 3.8 million operating
partnership units in the Companys operating partnership
for shares of the Companys common stock on a
one-for-one
basis. In addition, the special voting preferred shares paired
with each operating partnership unit, pursuant to a pairing
agreement, were redeemed simultaneously and cancelled by the
Company.
The Company had 25,387,410 shares outstanding at
December 31, 2009 and 25,142,410 shares outstanding at
December 31, 2008.
|
|
Note 2
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the
financial statements of the Company, its wholly owned
subsidiaries, and partnerships or other joint ventures in which
the Company owns a voting interest of greater than
50 percent. Entities in which the Company owns a voting
interest of 20 percent to 50 percent and entities that
are variable interest entities, of which the Company is not the
primary beneficiary, are accounted for primarily under the
equity method. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included.
All significant inter-company transactions and balances have
been eliminated in consolidation.
The preparation of consolidated financial statements in
conformity with the Financial Accounting Standards Board
(FASB) Accounting Standards
Codificationtm,
the authoritative reference for accounting principles generally
acceptable in the United States (GAAP), requires
management to make estimates and assumptions in determining the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates. Further, in connection with
preparation of the consolidated financial statements, the
Company evaluated events subsequent to the balance sheet date of
December 31, 2009 through the issuance of the Consolidated
Financial Statements.
Certain prior year amounts have been reclassified to conform to
current period presentation. Noncontrolling interest in
consolidated entity is classified in the Companys
Consolidated Balance Sheet in the Equity section of
the current years presentation and was disclosed as a
separate mezzanine section in prior years presentation and
net (loss) income is split out between noncontrolling interest
and Arbor Realty Trust, Inc. and was disclosed as one line in
prior presentations. Interest income and interest expense were
also netted on the Companys Consolidated Statements of
Operations in accordance with Article 9 of
Regulation S-X
due to the relevance in understanding its operations. In
addition, at September 30, 2009, one of our real estate
investments was reclassified from real estate owned to real
estate
held-for-sale,
net, and resulted in a reclassification from property operating
income and expenses to discontinued operations for the current
and all prior period presentations.
Cash
and Cash Equivalents
All highly liquid investments with original maturities of three
months or less are considered to be cash equivalents. The
Company places its cash and cash equivalents in high quality
financial institutions. The
83
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
consolidated account balances at each institution periodically
exceeds the Federal Deposit Insurance Corporation
(FDIC) insurance coverage and the Company believes
that this risk is not significant.
Restricted
Cash
At December 31, 2009 and 2008, the Company had restricted
cash of $27.9 million and $93.2 million, respectively,
on deposit with the trustees for the Companys
collateralized debt obligations (CDOs), see
Note 8 Debt Obligations. Restricted
cash primarily represents proceeds from loan repayments which
will be used to purchase replacement loans as collateral for the
CDOs and interest payments received from loans in the CDOs which
are remitted to the Company quarterly in the month following the
quarter end.
Loans
and Investments
At the time of purchase, the Company designates a security as
held-to-maturity,
available-for-sale,
or trading depending on ability and intent to hold. The Company
does not have any securities designated as trading at this time.
Securities
available-for-sale
are reported at fair value with the net unrealized gains or
losses reported as a component of accumulated other
comprehensive loss, while securities and investments
held-to-maturity
are reported at amortized cost. Unrealized losses determined to
be
other-than-temporary
are recognized in earnings. The determination of
other-than-temporary
impairment is a subjective process requiring judgments and
assumptions. The process may include, but is not limited to,
assessment of recent market events and prospects for near term
recovery, assessment of cash flows, internal review of the
underlying assets securing the investments, credit of the issuer
and the rating of the security, as well as the Companys
ability and intent to hold the investment. Management closely
monitors market conditions on which it bases such decisions.
Current accounting guidance provides greater clarity about the
credit and noncredit component of an
other-than-temporary
impairment event, more effectively communicates when it has
occurred, and requires the recording of a cumulative-effect
adjustment as of the beginning of the period of adoption to
reclassify the noncredit component of a previously recognized
other-than-temporary
impairment on debt securities from retained earnings to
accumulated other comprehensive income. The adoption of this
guidance in the second quarter of 2009 did not have a material
effect on the Companys Consolidated Financial Statements
and no such reclassification was necessary.
The Company also assesses certain of its
held-to-maturity
securities, other than those of high credit quality, to
determine whether significant changes in estimated cash flows or
unrealized losses on these securities reflect a decline in value
which is
other-than-temporary;
accordingly, such securities are written down to fair value
against earnings. On a quarterly basis, the Company reviews
these changes in estimated cash flows, which could occur due to
actual prepayment and credit loss experience, to determine if an
other-than-temporary
impairment is deemed to have occurred. The determination of
other-than-temporary
impairment is a subjective process requiring judgments and
assumptions. The Company calculates a revised yield based on the
current amortized cost of the investment, including any
other-than-temporary
impairments recognized to date, and then applies the revised
yield prospectively to recognize interest income.
Loans held for investment are intended to be held to maturity
and, accordingly, are carried at cost, net of unamortized loan
origination costs and fees, purchase discounts, and allowance
for loan losses when such loan or investment is deemed to be
impaired. The Company invests in preferred equity interests
that, in some cases, allow the Company to participate in a
percentage of the underlying propertys cash flows from
operations and proceeds from a sale or refinancing. At the
inception of each such investment, management must determine
whether such investment should be accounted for as a loan, joint
venture or as real estate. To date, management has determined
that all such investments are properly accounted for and
reported as loans.
From time to time the Company may enter into an agreement to
sell a loan. These loans are classified as
held-for-sale
and are valued at the lower of the loans carrying amount
or fair value. For the sale of loans, recognition occurs when
ownership passes to the buyer.
84
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
Impaired
Loans and Allowance for Loan Losses
The Company considers a loan impaired when, based upon current
information and events, it is probable that it will be unable to
collect all amounts due for both principal and interest
according to the contractual terms of the loan agreement.
Specific valuation allowances are established for impaired loans
based on the fair value of collateral on an individual loan
basis. The fair value of the collateral is determined by
selecting the most appropriate valuation methodology, or
methodologies, among several generally available and accepted in
the commercial real estate industry. The determination of the
most appropriate valuation methodology is based on the key
characteristics of the collateral type. These methodologies
include the evaluation of operating cash flow from the property
during the projected holding period and the estimated sales
value of the collateral computed by applying an expected
capitalization rate to the stabilized net operating income of
the specific property, less selling costs, discounted at market
discount rates.
If upon completion of the valuation, the fair value of the
underlying collateral securing the impaired loan is less than
the net carrying value of the loan, an allowance is created with
a corresponding charge to the provision for loan losses. The
allowance for each loan is maintained at a level believed
adequate by management to absorb probable losses. The Company
had an allowance for loan losses of $326.3 million at
December 31, 2009 relating to 31 loans with an aggregate
carrying value, before reserves, of approximately
$693.7 million. At December 31, 2008, the Company had
an allowance for loan losses of $130.5 million relating to
ten loans with an aggregate carrying value, before reserves, of
approximately $443.2 million and at December 31, 2007,
the Company had an allowance for loan losses of
$2.5 million relating to two loans with an aggregate
carrying value, before reserves, of approximately
$58.5 million.
Real
Estate Owned and
Held-For-Sale
Real estate owned, shown net of accumulated depreciation, is
comprised of real property acquired by foreclosure or deed in
lieu of foreclosure. Real estate acquired by foreclosure or deed
in lieu of foreclosure is recorded at the lower of the net
carrying value of the loan previously collateralized by the real
estate or estimated fair value of the real estate at the time of
foreclosure or delivery of a deed in lieu of foreclosure. The
net carrying value is the unpaid principal balance of the loan,
adjusted for any unamortized deferred fees, loan loss allowances
and amounts previously due to borrower.
Costs incurred in connection with the foreclosure of the
properties collateralizing the real estate loans are expensed as
incurred and costs subsequently incurred to extend the life or
improve the assets subsequent to foreclosure are capitalized.
The Company allocates the purchase price of operating properties
to land, building, tenant improvements, deferred lease cost for
the origination costs of the in-place leases and to intangibles
for the value of the above or below market leases at fair value.
The Company amortizes the value allocated to the in-place leases
over the remaining lease term. The value allocated to the above
or below market leases are amortized over the remaining lease
term as an adjustment to rental income.
Real estate assets, including assets acquired by foreclosure or
deed in lieu of foreclosure, that are operated for the
production of income, are depreciated using the straight-line
method over their estimated useful lives. Ordinary repairs and
maintenance not reimbursed by the tenants are expensed as
incurred. Major replacements and betterments that improve or
extend the life of the asset are capitalized and depreciated
over their estimated useful life.
The Company recognizes impairment if the undiscounted estimated
cash flows to be generated by the assets are less than the
carrying amount of those assets. Measurement of impairment is
based upon the estimated fair value of the asset. Upon
evaluating a property, many factors are considered, including
estimated current and expected operating cash flow from the
property during the projected holding period, costs necessary to
extend the life or
85
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
improve the asset, expected capitalization rates, projected
stabilized net operating income, selling costs, and the ability
to hold and dispose of such real estate owned in the ordinary
course of business. Valuation adjustments may be necessary in
the event that effective interest rates,
rent-up
periods, future economic conditions, and other relevant factors
vary significantly from those assumed in valuing the property.
If future evaluations result in a diminution in the value of the
property, the reduction will be recognized as an impairment
charge at that time.
Real estate is classified as
held-for-sale
when management commits to a plan of sale, the asset is
available for immediate sale, there is an active program to
locate a buyer, and it is probable the sale will be complete
within one year. Properties classified as
held-for-sale
are not depreciated and the results of their operations are
shown in discontinued operations. Real estate assets that are
expected to be disposed of are valued, on an individual asset
basis, at the lower of the carrying amount or their fair value
less costs to sell.
The Company recognizes sales of real estate properties upon
closing. Payments received from purchasers prior to closing are
recorded as deposits. Profit on real estate sold is recognized
upon closing using the full accrual method when the
collectability of the sale price is reasonably assured and the
Company is not obligated to perform significant activities after
the sale. Profit may be deferred in whole or in part until
collectability of the sales price is reasonably assured and the
earnings process is complete.
Capitalized
Interest
The Company capitalizes interest related to investments (equity,
loans and advances) accounted for by the equity method as
qualifying assets of the investor while the investee has
activities in progress necessary to commence its planned
principal operations, provided that the investees
activities include the use of funds to acquire qualifying assets
for its operations. One of the Companys joint ventures,
which was accounted for using the equity method, acquired
qualifying assets for its planned principal operations. During
2007, the joint venture sold both of the acquired properties and
the Company discontinued the capitalization of interest on its
remaining investment in the joint venture. During the year ended
December 31, 2007, the Company capitalized
$0.3 million of interest relating to this investment. The
Company did not capitalize interest during the years ended
December 31, 2009 and 2008.
Revenue
Recognition
Interest Income Interest income is recognized
on the accrual basis as it is earned from loans, investments and
securities. In many instances, the borrower pays an additional
amount of interest at the time the loan is closed, an
origination fee, and deferred interest upon maturity. In some
cases interest income may also include the amortization or
accretion of premiums and discounts arising from the purchase or
origination of the loan or security. This additional income, net
of any direct loan origination costs incurred, is deferred and
accreted into interest income on an effective yield or
interest method adjusted for actual prepayment
activity over the life of the related loan or security as a
yield adjustment. Income recognition is suspended for loans
when, in the opinion of management, a full recovery of income
and principal becomes doubtful. Income recognition is resumed
when the loan becomes contractually current and performance is
resumed. Several of the loans provide for accrual of interest at
specified rates, which differ from current payment terms.
Interest is recognized on such loans at the accrual rate subject
to managements determination that accrued interest and
outstanding principal are ultimately collectible, based on the
underlying collateral and operations of the borrower. If
management cannot make this determination, interest income above
the current pay rate is recognized only upon actual receipt.
Additionally, interest income is recorded when earned from
equity participation interests, referred to as equity kickers.
These equity kickers have the potential to generate additional
revenues for the Company as a result of excess cash flow
distributions
and/or as
appreciated properties are sold or refinanced. The Company did
not record interest income from such investments for the year
ended December 31, 2009. For the years ended
December 31, 2008 and 2007, the Company recorded
$1.0 million and $30.0 million of interest from such
loans and investments, respectively. These amounts represent
interest collected in accordance with the contractual agreement
with the borrower.
86
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
Property operating income Property operating
income represents income associated with the operation of two
commercial real estate properties recorded as real estate owned.
We generate property operating income from hotel room rental and
other hotel related activities at our commercial real estate
owned properties. We recognize revenue for these activities when
the fees are fixed or determinable, or evidenced by an
arrangement, collection is reasonably assured and the services
under the arrangement have been provided. For the year ended
December 31, 2009, the Company recorded approximately
$0.9 million of property operating income relating to the
Companys real estate owned. During the third quarter of
2009, one of the Companys three real estate investments
was reclassified from real estate owned to real estate
held-for-sale
and resulted in a reclassification from property operating
income to discontinued operations for the current and all prior
periods. As a result, the Company did not have property
operating income for the year ended December 31, 2008 due
to the subsequent reclassification to discontinued operations.
There was no property operating income in 2007. See
Note 7 Real Estate Owned and
Held-for-Sale
for further details.
Other income Other income represents fees
received for loan structuring and defeasance fees, and
miscellaneous asset management fees associated with the
Companys loans and investments portfolio. The Company
recognizes these forms of income when the fees are fixed or
determinable, are evidenced by an arrangement, collection is
reasonably assured and the services under the arrangement have
been provided.
Investment
in Equity Affiliates
The Company invests in joint ventures that are formed to
acquire, develop
and/or sell
real estate assets. These joint ventures are not majority owned
or controlled by the Company, and are not consolidated in its
financial statements. These investments are recorded under
either the equity or cost method of accounting as deemed
appropriate. The Company records its share of the net income and
losses from the underlying properties and any
other-than-temporary
impairment on these investments on a single line item in the
Consolidated Statements of Operations as income or losses from
equity affiliates.
Stock
Based Compensation
The Company records stock-based compensation expense at the
grant date fair value of the related stock-based award. The
Company measures the compensation costs for these shares as of
the date of the grant, with subsequent remeasurement for any
unvested shares granted to non-employees of the Company with
such amounts expensed against earnings, at the grant date (for
the portion that vests immediately) or ratably over the
respective vesting periods. Dividends are paid on the restricted
shares as dividends are paid on shares of the Companys
common stock whether or not they are vested. Stock based
compensation is disclosed in the Companys Consolidated
Statements of Operations under employee compensation and
benefits for employees and under selling and
administrative expense for non-employees.
Income
Taxes
The Company is organized and conducts its operations to qualify
as a REIT and to comply with the provisions of the Internal
Revenue Code with respect thereto. A REIT is generally not
subject to federal income tax on taxable income which is
distributed to its stockholders, provided that the Company
distributes at least 90% of taxable income and meets certain
other requirements. Certain of our assets or operations that
would not otherwise comply with the REIT requirements, are owned
or conducted by our taxable REIT subsidiaries, the income of
which is subject to federal and state income taxes.
Current accounting guidance clarifies the accounting for
uncertainty in income taxes recognized in an enterprises
financial statements. This guidance prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return.
87
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
This guidance also provides clarity on derecognition,
classification, interest and penalties, accounting in interim
periods and disclosure.
Other
Comprehensive Income / (Loss)
The Company divides comprehensive income or loss into net income
(loss) and other comprehensive income (loss), which includes
unrealized gains and losses on
available-for-sale
securities. In addition, to the extent the Companys
derivative instruments qualify as hedges, net unrealized gains
or losses are reported as a component of accumulated other
comprehensive income/(loss), see Derivatives and Hedging
Activities below. At December 31, 2009, accumulated
other comprehensive loss was $53.3 million and consisted of
net unrealized losses on derivatives designated as cash flow
hedges. At December 31, 2008, accumulated other
comprehensive loss was $96.6 million and consisted of net
unrealized losses on derivatives designated as cash flow hedges.
Earnings
(Loss) Per Share
The Company presents both basic and diluted earnings (loss) per
share. Basic earnings (loss) per share excludes dilution and is
computed by dividing net income (loss) available to common
stockholders by the weighted average number of shares
outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock, where such exercise or conversion would result in
a lower per share amount.
Derivatives
and Hedging Activities
The Company recognizes all derivatives as either assets or
liabilities at fair value and these amounts are recorded in
other assets or other liabilities in the Consolidated Balance
Sheets. Additionally, the fair value adjustments will affect
either accumulated other comprehensive income (loss) until the
hedged item is recognized in earnings or net income depending on
whether the derivative instrument qualifies as a hedge for
accounting purposes and, if so, the nature of the hedging
activity. The Company utilizes quotations from a third party to
assist in determining these fair values.
The Company records all derivatives on the balance sheet at fair
value. The accounting for changes in the fair value of
derivatives depends on the intended use of the derivative,
whether a company has elected to designate a derivative in a
hedging relationship and apply hedge accounting and whether the
hedging relationship has satisfied the criteria necessary to
apply hedge accounting. Derivatives designated and qualifying as
a hedge of the exposure to changes in the fair value of an
asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, are considered fair
value hedges. Derivatives designated and qualifying as a hedge
of the exposure to variability in expected future cash flows, or
other types of forecasted transactions, are considered cash flow
hedges. Hedge accounting generally provides for the matching of
the timing of gain or loss recognition on the hedging instrument
with the recognition of the changes in the fair value of the
hedged asset or liability that are attributable to the hedged
risk in a fair value hedge or the earnings effect of the hedged
forecasted transactions in a cash flow hedge. The Company may
enter into derivative contracts that are intended to
economically hedge certain of its risk, even though hedge
accounting does not apply or the Company elects not to apply
hedge accounting.
In the normal course of business, the Company may use a variety
of derivative financial instruments to manage, or hedge,
interest rate risk. These derivative financial instruments must
be effective in reducing its interest rate risk exposure in
order to qualify for hedge accounting. When the terms of an
underlying transaction are modified, or when the underlying
hedged item ceases to exist, all changes in the fair value of
the instrument are
marked-to-market
with changes in value included in net income (loss) for each
period until the derivative instrument matures or is settled.
Any derivative instrument used for risk management that does not
meet the hedging criteria is
marked-to-market
with the changes in value included in net income (loss).
Derivatives are used for hedging purposes rather than
speculation. See Note 11 Derivative
Financial Instruments for further details.
88
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
Variable
Interest Entities
The Company has evaluated its loans and investments, mortgage
related securities and investments in equity affiliates in order
to determine if they are Variable Interest Entities
(VIE). This evaluation resulted in the Company
determining that its bridge loans, junior participation loans,
mezzanine loans, preferred equity investments and investments in
equity affiliates were potential variable interests. For each of
these investments, the Company has evaluated (1) the
sufficiency of the fair value of the entities equity
investments at risk to absorb losses, (2) that, as a group,
the holders of the equity investments at risk have (a) the
direct or indirect ability through voting rights to make
decisions about the entities significant activities,
(b) the obligation to absorb the expected losses of the
entity and their obligations are not protected directly or
indirectly, and (c) the right to receive the expected
residual return of the entity and their rights are not capped,
and (3) substantially all of the entities activities
do not involve or are not conducted on behalf of an investor
that has disproportionately fewer voting rights in terms of its
obligation to absorb the expected losses or its right to receive
expected residual returns of the entity, or both. In addition,
the Company has evaluated its investments in debt securities and
has determined that the issuing entities are VIEs, but has
determined that the Company is not the primary beneficiary
because it does not absorb a majority of any of the VIEs
anticipated losses
and/or a
majority of the expected returns. As of December 31, 2009,
the Company has identified 39 loans and investments made to
entities determined to be VIEs with an aggregate carrying amount
of $807.3 million. These VIEs had exposure to real estate
debt of approximately $3.3 billion at December 31,
2009.
For the 39 VIEs identified, the Company has determined that it
is not the primary beneficiary, and as such the VIEs should not
be consolidated in the Companys financial statements. The
Companys maximum exposure to loss would not exceed the
carrying amount of such investments. For all other investments,
the Company has determined they are not VIEs. As such, the
Company has continued to account for these loans and investments
as loans or investments in equity affiliates, as appropriate.
Entities that issue junior subordinated notes are considered
VIEs. However, it is not appropriate to consolidate these
entities because the equity interests are variable interests
only to the extent that the investment is considered to be at
risk. Since the Companys investments were funded by the
entities that issued the junior subordinated notes, they are not
considered to be at risk.
The Company will be required to follow updated accounting
guidance beginning with the first quarter of 2010, by providing
an ongoing qualitative rather than quantitative assessment of
its ability to direct the activities of a variable interest
entity that most significantly impact the entitys economic
performance and its rights or obligations to receive benefits or
absorb losses, in order to determine whether those entities will
be required to be consolidated in the Companys
Consolidated Financial Statements. See Recently Issued
Accounting Pronouncements below for further details.
Recently
Issued Accounting Pronouncements
In February 2010, the FASB issued updated guidance on subsequent
events which states that disclosure of the date through which
subsequent events have been evaluated, the issuance date of the
financial statements, is no longer required. This guidance is
effective upon issuance and its adoption did not have a material
effect on the Companys Consolidated Financial Statements.
In January 2010, the FASB issued updated guidance on fair value
measurements and disclosures, which requires disclosure of
details of significant asset or liability transfers in and out
of Level 1 and Level 2 measurements within the fair
value hierarchy and inclusion of gross purchases, sales,
issuances, and settlements in the rollforward of assets and
liabilities valued using Level 3 inputs within the fair
value hierarchy. The guidance also clarifies and expands
existing disclosure requirements related to the disaggregation
of fair value disclosures and inputs used in arriving at fair
values for assets and liabilities using Level 2 and
Level 3 inputs within the fair value hierarchy. This
guidance is effective for interim and annual reporting periods
beginning after December 15,
89
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
2009, except for the gross presentation of the Level 3
rollforward, which is required for annual reporting periods
beginning after December 15, 2010 and for interim periods
within those years. The Company does not expect the adoption of
this guidance to have a material effect on its Consolidated
Financial Statements.
In January 2010, the FASB issued updated guidance on accounting
for distributions to shareholders with components of stock and
cash, which clarifies the treatment of the stock portion of a
distribution to shareholders that allows the election to receive
cash or stock. This guidance is effective for interim and annual
reporting periods beginning after December 15, 2009. The
Company does not expect the adoption of this guidance to have a
material effect on its Consolidated Financial Statements.
In August 2009, the FASB issued updated guidance on the fair
value measurement of liabilities not exchanged in an orderly
transaction. This guidance is effective for the first reporting
period (including interim periods) beginning after issuance. The
adoption of this guidance did not have a material effect on the
Companys Consolidated Financial Statements.
In June 2009, the FASB issued The FASB Accounting
Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles (the Codification), which
establishes the exclusive authoritative reference for accounting
principles generally acceptable in the United States. The
Codification simplifies the classification of accounting
guidance into one online database under a common referencing
system. Use of the Codification is effective for interim and
annual periods ending after September 15, 2009. The Company
began to use the Codification on the effective date, and it had
no impact on its Consolidated Financial Statements. However,
throughout this
Form 10-K,
all references to prior accounting pronouncements have been
removed, and all non-SEC accounting guidance is referred to in
terms of the applicable subject matter.
In June 2009, the FASB issued updated guidance related to the
consolidation of variable interest entities, which changes how a
reporting entity determines when an entity that is
insufficiently capitalized or is not controlled through voting,
or similar rights, should be consolidated. The determination of
whether a reporting entity is required to consolidate another
entity is based on, among other things, the other entitys
purpose and design and the reporting entitys ability to
direct the activities of the other entity that most
significantly impact the other entitys economic
performance. This new guidance will require a reporting entity
to provide additional disclosures about its involvement with
variable interest entities and any significant changes in risk
exposure due to that involvement. These new requirements will be
effective at the start of a reporting entitys first fiscal
year beginning after November 15, 2009. Early application
is not permitted. The Company will adopt these new requirements
effective January 1, 2010. The Company does not currently
expect the adoption of this guidance to have a material effect
on its Consolidated Financial Statements.
In June 2009, the FASB issued updated guidance related to the
accounting for transfers of financial assets. This new guidance
will require more information about transfers of financial
assets, including securitization transactions, and where
entities have continuing exposure to the risks related to
transferred financial assets. It eliminates the concept of a
qualifying special-purpose entity, changes the
requirements for derecognizing financial assets and requires
additional disclosures. These requirements are effective at the
start of a reporting entitys first fiscal year beginning
after November 15, 2009. Early application is not
permitted. The Company will adopt these new requirements
effective January 1, 2010. The Company does not expect the
adoption of this guidance to have a material effect on its
Consolidated Financial Statements.
In April 2009, the FASB issued updated guidance on initial
recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. This guidance
applies to all assets or liabilities arising from contingencies
in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The adoption of
this guidance did not have a material effect on the
Companys Consolidated Financial Statements.
90
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
In April 2009, the FASB issued updated guidance on determining
the fair value of an asset or liability when the volume and
level of activity may indicate an inactive market and when
transactions are not orderly. This guidance applies to all fair
value measurements prospectively and is effective for interim
and annual periods ending after June 15, 2009. The adoption
of this guidance did not have a material effect on the
Companys Consolidated Financial Statements.
|
|
Note 3
|
Loans and
Investments
|
The following table sets forth the composition of the
Companys loan and investment portfolio at
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
December 31,
|
|
|
Percent of
|
|
|
Loan
|
|
|
Wtd. Avg.
|
|
|
Months to
|
|
|
|
2009
|
|
|
Total
|
|
|
Count
|
|
|
Pay Rate(1)
|
|
|
Maturity
|
|
|
Bridge loans
|
|
$
|
1,245,497,015
|
|
|
|
61
|
%
|
|
|
56
|
|
|
|
5.00
|
%
|
|
|
25.0
|
|
Mezzanine loans
|
|
|
343,494,118
|
|
|
|
17
|
%
|
|
|
37
|
|
|
|
5.43
|
%
|
|
|
27.2
|
|
Junior participation loans
|
|
|
255,076,554
|
|
|
|
13
|
%
|
|
|
15
|
|
|
|
5.46
|
%
|
|
|
50.3
|
|
Preferred equity investments
|
|
|
190,967,267
|
|
|
|
9
|
%
|
|
|
18
|
|
|
|
2.84
|
%
|
|
|
87.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,035,034,954
|
|
|
|
100
|
%
|
|
|
126
|
|
|
|
4.93
|
%
|
|
|
34.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned revenue
|
|
|
(7,932,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(326,328,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and investments, net
|
|
$
|
1,700,774,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nm not meaningful
|
|
(1)
|
|
Weighted Average Pay
Rate is a weighted average, based on the unpaid principal
balances of each loan in the Companys portfolio, of the
interest rate that is required to be paid monthly as stated in
the individual loan agreements. Certain loans and investments
that require an additional rate of interest Accrual
Rate to be paid at the maturity are not included in the
weighted average pay rate as shown in the table.
|
The following table sets forth the composition of the
Companys loan and investment portfolio at
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wtd. Avg.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
December 31,
|
|
|
Percent of
|
|
|
Loan
|
|
|
Wtd. Avg.
|
|
|
Months to
|
|
|
|
2008
|
|
|
Total
|
|
|
Count
|
|
|
Pay Rate(1)
|
|
|
Maturity
|
|
|
Bridge loans
|
|
$
|
1,441,846,251
|
|
|
|
62
|
%
|
|
|
58
|
|
|
|
6.22
|
%
|
|
|
16.9
|
|
Mezzanine loans
|
|
|
364,937,818
|
|
|
|
16
|
%
|
|
|
42
|
|
|
|
7.03
|
%
|
|
|
32.7
|
|
Junior participation loans
|
|
|
298,278,363
|
|
|
|
13
|
%
|
|
|
16
|
|
|
|
6.60
|
%
|
|
|
48.0
|
|
Preferred equity investments
|
|
|
205,247,126
|
|
|
|
9
|
%
|
|
|
18
|
|
|
|
4.05
|
%
|
|
|
99.5
|
|
Other
|
|
|
12,418,110
|
|
|
|
nm
|
|
|
|
2
|
|
|
|
8.73
|
%
|
|
|
101.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,322,727,668
|
|
|
|
100
|
%
|
|
|
136
|
|
|
|
6.22
|
%
|
|
|
31.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned revenue
|
|
|
(10,544,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(130,500,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and investments, net
|
|
$
|
2,181,683,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nm not meaningful
|
|
(1)
|
|
Weighted Average Pay
Rate is a weighted average, based on the unpaid principal
balances of each loan in the Companys portfolio, of the
interest rate that is required to be paid monthly as stated in
the individual loan agreements. Certain loans and investments
that require an additional rate of interest Accrual
Rate to be paid at the maturity are not included in the
weighted average pay rate as shown in the table.
|
91
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
Bridge loans are loans to borrowers who are typically seeking
short-term capital to be used in an acquisition of property and
are predominantly secured by first mortgage liens on the
property.
Mezzanine loans and junior participating interests in senior
debt are loans that are subordinate to a conventional first
mortgage loan and senior to the borrowers equity in a
transaction. Mezzanine financing may take the form of loans
secured by pledges of ownership interests in entities that
directly or indirectly control the real property or subordinated
loans secured by second mortgage liens on the property.
A preferred equity investment is another method of financing in
which preferred equity investments in entities that directly or
indirectly own real property are formed. In cases where the
terms of a first mortgage prohibit additional liens on the
ownership entity, investments structured as preferred equity in
the entity owning the property serve as viable financing
substitutes. With preferred equity investments, the Company
typically becomes a special limited partner or member in the
ownership entity.
Concentration
of Credit Risk
Loans and investments can potentially subject the Company to
concentrations of credit risk. The Company is subject to
concentration risk in that the unpaid principal balance related
to 32 loans with five unrelated borrowers represented
approximately 31% of total assets as of December 31, 2009.
At December 31, 2008, the unpaid principal balance related
to 34 loans with five unrelated borrowers represented
approximately 28% of total assets. As of December 31, 2009
and 2008, the Company had 126 and 136 loans and investments,
respectively.
In addition, in 2009 and 2008, no single loan or investment
represented 10% of the Companys total assets. In 2009,
2008 and 2007, the Company generated approximately 12%, 9% and
6%, respectively, of revenue from Ezra Beyman.
Geographic
Concentration Risk
As of December 31, 2009, 38%, 13%, and 11% of the
outstanding balance of the Companys loans and investments
portfolio had underlying properties in New York, California and
Florida, respectively. As of December 31, 2008, 40%, 12%,
and 10% of the outstanding balance of the Companys loans
and investments portfolio had underlying properties in New York,
California and Florida, respectively.
Impaired
Loans and Allowance for Loan Losses
The Company considers a loan impaired when, based upon current
information and events, it is probable that it will be unable to
collect both principal and interest according to the contractual
terms of the loan agreement. As a result of the Companys
normal loan review during the year, it was determined that 31
loans with an aggregate carrying value, before reserves, of
$693.7 million were impaired at December 31, 2009. At
December 31, 2008, ten loans with an aggregate carrying
value, before reserves, of $443.2 million were impaired and
at December 31, 2007, two loans with an aggregate carrying
value, before reserves, of $58.5 million were impaired.
The Company performed an evaluation of the impaired loans and
determined that the fair value of the underlying collateral
securing the loans was less than the net carrying value of the
loans, resulting in a $241.3 million provision for loan
losses for the year ended December 31, 2009. Of the
$241.3 million of loan loss reserves recorded during the
year ended December 31, 2009, $77.5 million was on
loans on which the Company had previously recorded reserves,
while $163.8 million of reserves related to other loans in
the Companys portfolio. During the years ended
December 31, 2008 and 2007, the Company recorded provisions
for loan losses of $132.0 million and $2.5 million,
respectively.
As a result of the loan review process at December 31,
2009, the Company identified loans and investments that it
considers higher-risk loans that had a carrying value, before
reserves, of approximately $632.3 million and a weighted
average
loan-to-value
(LTV) ratio after reserves of 99%, compared to
lower-risk loans with a carrying value, before reserves, of
$1.4 billion and a weighted average LTV ratio of 88%. There
were no loans for which the collateral securing the loan was
less than the carrying value of the loan for which the Company
had not recorded a provision for loan loss as of
December 31, 2009 and 2008.
92
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
A summary of the changes in the allowance for loan losses is as
follows:
|
|
|
|
|
|
|
|
|
|
|
For the Twelve
|
|
|
For the Twelve
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
Allowance at beginning of the period
|
|
$
|
130,500,000
|
|
|
$
|
2,500,000
|
|
Provision for loan losses
|
|
|
241,328,039
|
|
|
|
132,000,000
|
|
Charge-offs
|
|
|
(41,250,000
|
)
|
|
|
(2,500,000
|
)
|
Reclassified to real estate owned, net
|
|
|
(4,250,000
|
)
|
|
|
(1,500,000
|
)
|
|
|
|
|
|
|
|
|
|
Allowance at end of the period
|
|
$
|
326,328,039
|
|
|
$
|
130,500,000
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2009, the Company wrote
down five loans with an aggregate carrying value of
$240.8 million to $198.7 million and sold two loans
with a carrying value of $80.1 million, at a discount, for
approximately $32.5 million. The Company also settled a
loan with a carrying value of $1.5 million, at a discount,
for approximately $1.2 million, and received
$11.8 million in principal paydowns on two loans with a
total carrying value of $22.9 million. The Company recorded
charge-offs to reserves of $41.3 million and losses on
restructurings totaling $57.6 million related to these
transactions.
During the fourth quarter of 2009, the Company entered into an
agreement to sell one of its bridge loans for
$35.0 million. The Company received $20.5 million in
non-refundable deposits from the purchaser during the fourth
quarter of 2009, which was recorded in other liabilities on the
Companys Consolidated Balance Sheet as of
December 31, 2009. The remaining purchase price is due to
be collected at the close of the transaction, which is expected
to occur in April 2010. As a result, the Company recorded this
loan at its fair value, equal to the purchase price of the loan
less expected costs to complete the sale, in loans and
investments on the Companys Consolidated Balance Sheet as
of December 31, 2009.
The Company also reclassified a $4.3 million loan loss
reserve related to a bridge loan on a property that was acquired
through foreclosure and recorded to real estate owned. See
Note 7 Real Estate Owned and
Held-For-Sale
for further details.
As of December 31, 2009, 13 loans with a net carrying value
of approximately $110.8 million, net of related loan loss
reserves of $115.0 million, were classified as
non-performing. The Company had previously established loan loss
reserves on all of these loans. Income is recognized on a cash
basis only to the extent it is received. Full income recognition
will resume when the loan becomes contractually current and
performance has recommenced. As of December 31, 2008, four
loans with a net carrying value of approximately
$113.0 million, net of related loan loss reserves of
$20.5 million, were classified as non-performing for which
income recognition had been suspended, of which one loan with a
carrying value of approximately $38.3 million did not have
a loan loss reserve. There were no non-performing loans at
December 31, 2007.
At December 31, 2009, the Company does not have any loans
contractually past due 90 days or more that are still
accruing interest, or any loans which are considered
troubled debt restructuring that are not included
above.
|
|
Note 4
|
Available-For-Sale
Securities
|
The following is a summary of the Companys
available-for-sale
securities at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Face value
|
|
|
Amortized Cost
|
|
|
Impairment
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Common equity securities
|
|
$
|
|
|
|
$
|
529,104
|
|
|
$
|
(440,920
|
)
|
|
$
|
|
|
|
$
|
88,184
|
|
Collateralized debt obligation bonds
|
|
|
25,000,000
|
|
|
|
11,607,136
|
|
|
|
(11,207,136
|
)(1)
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
25,000,000
|
|
|
$
|
12,136,240
|
|
|
$
|
(11,648,056
|
)
|
|
$
|
|
|
|
$
|
488,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Cumulative total includes
$9.8 million in 2009 and $1.4 million in 2008.
|
93
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
The following is a summary of the Companys
available-for-sale
securities at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Amortized Cost
|
|
|
Impairment
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Common equity securities
|
|
$
|
16,715,584
|
|
|
$
|
(16,186,480
|
)
|
|
$
|
|
|
|
$
|
529,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
16,715,584
|
|
|
$
|
(16,186,480
|
)
|
|
$
|
|
|
|
$
|
529,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the underlying credit rating of
the Companys collateralized debt obligation bonds
available-for-sale
at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
Amortized
|
|
|
Percent
|
|
Rating(1)
|
|
#
|
|
|
Cost
|
|
|
of Total
|
|
|
BBB+
|
|
|
1
|
|
|
$
|
10,219,636
|
|
|
|
88
|
%
|
B
|
|
|
1
|
|
|
|
1,387,500
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
$
|
11,607,136
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on the rating published by Standard &
Poors for each security. |
During 2007, the Company purchased 2,939,465 shares of
common stock of Realty Finance Corporation, formerly CBRE Realty
Finance, Inc., a commercial real estate specialty finance
company, for $16.7 million, which had a fair value of
$0.1 million and $0.5 million, at December 31,
2009 and December 31, 2008, respectively.
At December 31, 2009, a BBB+ rated investment grade
commercial real estate (CRE) collateralized debt
obligation bond, with a face value of $20.0 million and a
discount of $9.8 million, and a B rated investment grade
CRE collateralized debt obligation bond, with a face value of
$5.0 million and a discount of $3.6 million, were
reclassified from
held-to-maturity
to
available-for-sale.
The Company exchanged these two bonds in the retirement of a
portion of its own junior subordinated notes in February 2010.
See Note 8 Debt Obligations
Junior Subordinated Notes for further details. These
securities bear interest at a weighted average spread of
56 basis points over LIBOR, have a weighted average stated
maturity of 42.3 years, but have an estimated average
remaining life of 7.3 years due to the maturities of the
underlying assets. See Note 5 Securities
Held-To-Maturity
below.
As of December 31, 2009, all of the
available-for-sale
securities have been in an unrealized loss position for more
than twelve months. Current accounting guidance requires these
securities to be evaluated periodically to determine whether a
decline in their value is
other-than-temporary,
though it is not intended to indicate a permanent decline in
value. Management closely monitors market conditions on which it
bases such decisions. During the years ended December 31,
2009 and 2008, the Company believed that, based on market events
and the unfavorable prospects for near-term recovery of value,
there was a lack of evidence to support the conclusion that the
fair value decline was temporary. Therefore, the Company
concluded that the common equity securities were
other-than-temporarily
impaired and recorded $0.4 million and $16.2 million
of impairment charges to the Consolidated Statements of
Operations during the years ended December 31, 2009 and
2008, respectively. During the fourth quarter of 2009, an
other-than-temporary
impairment of $9.8 million was recognized upon
reclassifying the BBB+ rated CRE collateralized debt obligation
bond from
held-to-maturity
to
available-for-sale.
During the fourth quarter of 2008, the Company determined that
the B rated CRE collateralized debt obligation bond, with an
amortized cost of approximately $1.4 million, was
other-than-temporarily
impaired, resulting in a $1.4 million impairment charge to
the Companys 2008 Consolidated Financial Statements. No
such impairment charges were recorded in 2007.
The Company had a margin loan agreement with a financial
institution related to the purchases of the common equity
securities. In July 2008, the margin loan was repaid in full.
94
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
These securities are carried at their estimated fair value with
unrealized gains and losses reported in accumulated other
comprehensive loss. At December 31, 2009 and 2008, all
losses in fair value were recorded as
other-than-temporary
impairments and recognized in earnings.
|
|
Note 5
|
Securities
Held-To-Maturity
|
The following is a summary of the Companys securities
held-to-maturity
at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face
|
|
|
Amortized
|
|
|
Temporary
|
|
|
Carrying
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Cost
|
|
|
Impairment
|
|
|
Value
|
|
|
Gain
|
|
|
Loss(1)
|
|
|
Fair Value
|
|
|
Collateralized debt obligation bonds
|
|
$
|
54,989,988
|
|
|
$
|
47,823,843
|
|
|
$
|
|
|
|
$
|
47,823,843
|
|
|
$
|
|
|
|
$
|
(31,154,843
|
)
|
|
$
|
16,669,000
|
|
Commercial mortgage-backed securities
|
|
|
17,000,000
|
|
|
|
12,738,965
|
|
|
|
|
|
|
|
12,738,965
|
|
|
|
2,366,955
|
|
|
|
|
|
|
|
15,105,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
held-to-maturity
|
|
$
|
71,989,988
|
|
|
$
|
60,562,808
|
|
|
$
|
|
|
|
$
|
60,562,808
|
|
|
$
|
2,366,955
|
|
|
$
|
(31,154,843
|
)
|
|
$
|
31,774,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
All four collateralized debt
obligation bonds were in an unrealized loss position at
December 31, 2009.
|
The following is a summary of the Companys securities
held-to-maturity
at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face
|
|
|
Amortized
|
|
|
Temporary
|
|
|
Carrying
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Value
|
|
|
Cost
|
|
|
Impairment
|
|
|
Value
|
|
|
Gain
|
|
|
Loss
|
|
|
Fair Value(1)
|
|
|
Collateralized debt obligation bonds
|
|
$
|
82,700,000
|
|
|
$
|
59,631,848
|
|
|
$
|
(1,387,500
|
)
|
|
$
|
58,244,348
|
|
|
$
|
175,000
|
|
|
$
|
(39,684,348
|
)
|
|
$
|
18,735,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
held-to-maturity
|
|
$
|
82,700,000
|
|
|
$
|
59,631,848
|
|
|
$
|
(1,387,500
|
)
|
|
$
|
58,244,348
|
|
|
$
|
175,000
|
|
|
$
|
(39,684,348
|
)
|
|
$
|
18,735,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The aggregate estimated fair value
of five collateralized debt obligation bonds in an unrealized
loss position at December 31, 2008 was $18,560,000.
|
The following is a summary of the underlying credit rating of
the Companys securities
held-to-maturity
at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
Amortized
|
|
|
Percent
|
|
|
|
|
|
Amortized
|
|
|
Percent
|
|
Rating(1)
|
|
#
|
|
|
Cost
|
|
|
of Total
|
|
|
#
|
|
|
Cost
|
|
|
of Total
|
|
|
AAA
|
|
|
3
|
|
|
$
|
32,355,109
|
|
|
|
53
|
%
|
|
|
3
|
|
|
$
|
41,097,282
|
|
|
|
69
|
%
|
AA+
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
7,659,013
|
|
|
|
13
|
%
|
AA
|
|
|
1
|
|
|
|
10,787,743
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
AA-
|
|
|
1
|
|
|
|
7,910,558
|
|
|
|
13
|
%
|
|
|
1
|
|
|
|
9,488,053
|
|
|
|
16
|
%
|
BBB
|
|
|
1
|
|
|
|
9,509,398
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
BB+
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
1,387,500
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
$
|
60,562,808
|
|
|
|
100
|
%
|
|
|
6
|
|
|
$
|
59,631,848
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Based on the rating published by
Standard & Poors for each security at
December 31, 2009 and 2008.
|
During the second quarter of 2008, the Company purchased
$82.7 million of investment grade CRE collateralized debt
obligation bonds for $58.1 million, representing a
$24.6 million discount to their face value. The discount is
accreted into interest income using an effective yield adjusted
for actual prepayment activity over
95
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
the average life of the related security as a yield adjustment.
For the years ended December 31, 2009 and 2008, the Company
accreted approximately $2.5 million and $1.6 million
of this discount into interest income, representing accretion on
approximately $21.0 million of the total discount,
respectively. These securities bear interest at a weighted
average spread of 34 basis points over LIBOR and have a
weighted average stated maturity of 34.2 years, but have an
estimated average remaining life of 3.7 years due to the
maturities of the underlying assets. During the year ended
December 31, 2009, the Company received repayments of
principal of $2.7 million on one of the Companys CDO
bond securities
held-to-maturity.
During 2009, the Company purchased $17.0 million of
investment grade commercial mortgage-backed securities
(CMBS) for $12.4 million plus accrued interest,
representing a $4.6 million discount to their face value.
This discount is accreted into interest income using an
effective yield adjusted for actual prepayment activity over the
average life of the related security as a yield adjustment. For
the year ended December 31, 2009, the Company accreted
approximately $0.3 million of this discount into interest
income. These securities bear interest at a weighted average
coupon rate of 5.80%, have a weighted average stated maturity of
29.6 years but have an estimated average remaining life of
6.0 years due to the maturities of the underlying assets.
At December 31, 2009, a BBB+ rated investment grade CRE
collateralized debt obligation bond, with a face value of
$20.0 million and a discount of $9.8 million, and a B
rated investment grade CRE collateralized debt obligation bond,
with a face value of $5.0 million and a discount of
$3.6 million, were reclassified from
held-to-maturity
to
available-for-sale.
The Company exchanged these two bonds in the retirement of a
portion of its own junior subordinated notes in February 2010.
See Note 4 Securities
Available-For-Sale
above.
For the periods ended December 31, 2009 and 2008, the total
average yield on these securities based on their face values was
4.62% and 6.41%, respectively, including the accretion of
discount. The Company did not have any securities
held-to-maturity
at December 31, 2007.
Securities held to maturity are carried at cost, net of
unamortized premiums and discounts, which are recognized in
interest income using an effective yield or interest
method. GAAP requires
held-to-maturity
securities to be evaluated periodically to determine whether a
decline in their value is
other-than-temporary,
though it is not intended to indicate a permanent decline in
value. The Companys evaluation is based on its assessment
of cash flows, which is supplemented by third-party research
reports, internal review of the underlying assets securing the
investments, levels of subordination and the rating of the
securities and the underlying collateral. As of
December 31, 2009, all of the Companys CDO bond
investments were in an unrealized loss position for more than
twelve months, as the Companys carrying value was in
excess of their market value. However, based on its analysis as
of December 31, 2009, the Company expects to fully recover
the carrying value of these investments and has concluded that
these
held-for-sale
investments are not
other-than-temporarily
impaired. In addition, the Companys CMBS investments were
not in an unrealized loss position for more than twelve months
and were not determined to be
other-than-temporarily
impaired. The Companys estimation of cash flows expected
to be generated by the securities portfolio is based upon an
internal review of the underlying mortgage loans securing the
investments both on an absolute basis and compared to the
Companys initial underwriting for each investment. The
Companys efforts are supplemented by third party research
reports, third party market assessments and dialogue with market
participants. As of December 31, 2009 the Company does not
intend to sell these remaining securities, nor does the Company
believe it is more likely than not that the Company will be
required to sell the securities before recovery of the amortized
cost basis, which may be at maturity. This combined with the
Companys assessment of cash flows, is the basis for the
conclusion that these investments are not impaired despite the
differences between estimated fair value and book value. The
Company attributes the difference between book value and
estimated fair value to the current market dislocation and a
general negative bias against structured financial products such
as CMBS and CDOs.
96
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
|
|
Note 6
|
Investment
in Equity Affiliates
|
As of December 31, 2009 and 2008, the Company had
approximately $64.9 million and $29.3 million of
investments in equity affiliates, respectively, which are
described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Loan
|
|
|
|
|
|
|
Balance to Equity
|
|
|
|
Investment in Equity Affiliates at
|
|
|
Affiliates at
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
Equity Affiliates
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
930 Flushing & 80 Evergreen
|
|
$
|
491,975
|
|
|
$
|
491,975
|
|
|
$
|
24,374,583
|
|
450 West
33rd
Street
|
|
|
1,136,960
|
|
|
|
1,136,960
|
|
|
|
50,000,000
|
|
1107 Broadway
|
|
|
5,720,000
|
|
|
|
5,720,000
|
|
|
|
|
|
Alpine Meadows
|
|
|
|
|
|
|
10,157,018
|
|
|
|
34,000,000
|
|
St. Johns Development
|
|
|
144,605
|
|
|
|
3,500,000
|
|
|
|
25,000,000
|
|
Lightstone Value Plus REIT L.P.
|
|
|
55,988,409
|
|
|
|
|
|
|
|
|
|
JT Prime
|
|
|
851,000
|
|
|
|
|
|
|
|
|
|
Issuers of Junior Subordinated Notes
|
|
|
578,000
|
|
|
|
8,305,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
64,910,949
|
|
|
$
|
29,310,953
|
|
|
$
|
133,374,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company accounts for the 450 West
33rd
Street and Lightstone Value Plus REIT L.P. investments under the
cost method of accounting and the remaining investments under
the equity method.
930
Flushing & 80 Evergreen
In June 2003, ACM invested approximately $0.8 million in
exchange for a 12.5% preferred interest in a joint venture that
owns and operates two commercial properties. The Company
purchased this investment from ACM in August 2003. As of
December 31, 2007, the Company had contributed an
additional $1.2 million to this joint venture.
The Company had a $4.8 million bridge loan and a
$3.5 million mezzanine loan outstanding to affiliated
entities of the joint venture. The loans required monthly
interest payments based on one month LIBOR and matured in
November 2006 and June 2006, respectively. The bridge loan was
extended for two one-year periods and during the second quarter
of 2008, the Company was repaid in full. In addition, in August
2005, the joint venture refinanced one of these properties with
a $25.0 million amortizing bridge loan provided by the
Company. The loan matures in August 2010, has a fixed rate of
6.45%, and has an outstanding principal balance of
$24.4 million at December 31, 2009. Proceeds from this
loan were used to pay off senior debt as well as the
Companys $3.5 million mezzanine loan. Excess proceeds
were distributed to each of the members in accordance with the
operating agreement of which the Company received
$1.3 million, which was recorded as a return of capital in
2005. In addition, during 2008, the Company received a
$0.2 million return of capital from contribution made in
2007. As a result, the Company had a $0.5 million
investment as of December 31, 2009 and 2008.
450 West
33rd
Street
In May 2007, the Company, as part of an investor group for the
450 West 33rd Street partnership, transferred control
of the underlying property (an office building) to Broadway
Partners for a value of approximately $664.0 million. The
investor group, on a pro-rata basis, retained an approximate 2%
ownership interest in the property and 50% of the
propertys air rights which resulted in the Company
retaining an investment in equity affiliates of approximately
$1.1 million related to its 29% interest in the 2% retained
ownership. In accordance with this transaction, the joint
venture members agreed to guarantee $258.1 million of the
$517.0 million of new debt outstanding on the property. The
guarantee expires at the earlier of maturity or prepayment of
the debt and was
97
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
allocated to the members in accordance with their ownership
percentages. The guarantee is callable, on a pro-rata basis, if
the market value of the property declines below the
$258.1 million of guaranteed debt. The Companys
portion of the guarantee is $76.3 million. The transaction
was structured to provide for a tax deferral for an estimated
period of seven years. The Company recorded deferred revenue of
approximately $77.1 million as a result of the guarantee on
a portion of the new debt, and $19.0 million as prepaid
management fees related to the incentive compensation management
fee on the deferred revenue recognized on the transfer of
control of the 450 West
33rd
Street property. See Note 17 Management
Agreement for further details.
In July 2007, the Company purchased a $50.0 million
mezzanine loan secured by this property which has a maturity of
July 2010 and bears interest at LIBOR plus 4.35%. The
outstanding balance on this loan was $50.0 million at
December 31, 2009.
1107
Broadway
In 2005, the Company invested $10.0 million in exchange for
a 20% ownership interest in 200 Fifth LLC, which owned two
properties in New York City. In May 2007, the Company, as part
of an investor group in the 200 Fifth LLC holding
partnership, sold the 200 Fifth Avenue property for net
proceeds of approximately $450.0 million and the investor
group, on a pro-rata basis, retained an adjacent building
located at 1107 Broadway. The partnership used the net proceeds
from the sale to repay the $402.5 million outstanding debt
on both the 200 Fifth Avenue and the 1107 Broadway
properties, and used the remaining proceeds as a return of
invested capital to the partners. As a result of the
transaction, the Company received $9.5 million in proceeds
as a return on invested capital and was repaid in full on its
$137.0 million mezzanine debt, including all applicable
interest. The Company recorded approximately $11.4 million,
net, in income before minority interest related to its 20%
equity interest, which consisted of a $24.2 million gain
recorded as income from equity affiliates, a $9.0 million
provision for income taxes, and a $3.8 million incentive
management fee paid to the Companys manager. The
partnership retained the 1107 Broadway property. In December
2007, the Company received a $0.6 million distribution from
escrow funds related to its interest in the 200 Fifth
Avenue property, which was recorded as income from equity
affiliates.
In October 2007, the partnership sold 50% of its economic
interest in the 1107 Broadway property. The partnership was
recapitalized with financing of approximately
$343.0 million, of which approximately $203.0 million
was funded with the unfunded portion to be used to develop the
property. The Company received net proceeds of approximately
$39.0 million from this transaction as a return on invested
capital. The investor group, on a pro-rata basis, retains a 50%
economic interest in the property, representing approximately
$29.0 million of capital. The Company recorded
approximately $2.3 million, net in income before minority
interest related to its 20% equity interest, which consisted of
$4.8 million as income from equity affiliates, a
$1.8 million provision for income taxes, and a
$0.7 million incentive management fee paid to the
Companys manager. The Company also recorded a
$5.7 million investment in equity affiliate and a net
deferred gain of $3.5 million related to its 10% retained
interest in the 1107 Broadway property. The partnership is in
the process of developing this property into a mix of
residential and retail uses.
Alpine
Meadows
In July 2007, the Company invested $13.2 million in
exchange for a 39% profits interest with an 18% preferred return
in the Alpine Meadows ski resort, which consists of
approximately 2,163 total acres in northwestern Lake Tahoe,
California. The Companys invested capital represents 65%
of the total equity of the transaction and the Company would be
allocated 65% of the profits and losses. The Company also
provided a $30.5 million first mortgage loan which was
extended during 2009 to September 2012 and bears a fixed rate of
interest. For the years ended December 31, 2009 and 2008,
the Company recorded net income of $1.6 million and
$3.1 million in losses from this equity investment,
respectively. This amount reflects Arbors portion of the
joint ventures income and losses, net of depreciation
expense, and was recorded in (loss) income from equity
affiliates and as an increase or
98
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
reduction to the Companys investment in equity affiliates
on the balance sheet. In the second quarter of 2009, the Company
recorded an
other-than-temporary
impairment of $11.7 million for the remaining amount of
this investment in loss from equity affiliates in the
Companys Consolidated Statements of Operations. Current
accounting guidance requires these investments to be evaluated
periodically to determine whether a decline in their value is
other-than-temporary,
though it is not intended to indicate a permanent decline in
value.
In the fourth quarter of 2009, the Company increased by
$3 million its first mortgage loan to $33.5 million
and decreased the invested capital by $3 million to
$10.2 million, as well as providing a $0.5 million
revolver loan. As a result of this modification, the
Companys profits interest was reduced from 39.0% to 35.4%
and the invested capital and allocated percentage of profits and
losses was reduced from 65.0% to 58.9%.
St.
Johns Development
In December 2006, the Company originated a $25.0 million
bridge loan with a maturity date in September 2007 with two
three-month extensions that bore interest at a fixed rate of
12%. The loan is secured by 20.5 acres of usable land and
2.3 acres of submerged land located on the banks of the St.
Johns River in downtown Jacksonville, Florida and is
currently zoned for the development of up to 60 dwellings per
acre. In October 2007, the borrower sold the property to an
investor group, in which the Company has a 50% non-controlling
interest, for $25.0 million. The investor group assumed the
$25.0 million mortgage which matured in October 2009 and
had an interest rate of LIBOR plus 6.48%, with a LIBOR floor of
4.50%. In connection with this transaction, the Company
contributed $0.5 million to cover other operational costs
of acquiring and maintaining the property. During the fourth
quarter of 2009, the mortgage loan was modified to extend the
maturity date to January 2010 and modified the interest rate to
LIBOR plus 6.48%. Subsequent to December 31, 2009, the
mortgage loan was modified to a current maturity date of April
2010 and modified the interest rate to LIBOR plus 2.00%.
The managing member of the investor group is an experienced real
estate developer who retains a 50% interest in the partnership
and funded a $2.9 million interest reserve for the first
year. The Company was required to contribute $2.9 million
to fund the interest reserve for the second year and made an
additional capital contribution of $0.1 million during
2008. Interest received on the $25.0 million loan will be
recorded as a return of capital and reduction of the
Companys equity investment. During the six months ended
June 30, 2009, the Company received $1.6 million of
such interest, reducing the Companys investment to
$1.9 million. In the third quarter of 2009, the Company
recorded an
other-than-temporary
impairment of $1.9 million for the remaining amount of the
investment which was recorded in loss from equity affiliates in
the Companys Consolidated Statements of Operations.
Current accounting guidance requires these investments to be
evaluated periodically to determine whether a decline in their
value is
other-than-temporary,
though it is not intended to indicate a permanent decline in
value. In the fourth quarter of 2009, the Company was able to
recover $0.6 million of the loss and $0.1 million is
still to be received, representing the balance of the investment
at December 31, 2009. No income from this equity interest
was recognized for the year ended December 31, 2008. The
Company accounts for this investment under the equity method.
Lightstone
Value Plus REIT L.P./Prime Outlets/JT Prime
In December 2003, the Company invested approximately
$2.1 million in exchange for a 50% non-controlling interest
in an unconsolidated joint venture, JT Prime, which owned 15% of
Prime Outlets Member, LLC (POM), a real estate
holding company that owns and operates a portfolio of factory
outlet shopping centers. The Company accounted for this
investment under the equity method. Additionally, the Company
owned a 16.67% carried profits interest through a consolidated
entity which has a 25% interest in POM with a third party member
owning the remaining 8.33%.
In 2007, the Company received distributions from POM of
$16.2 million as a result of excess proceeds from
refinancing and sales activities on certain assets in the POM
portfolio. The excess proceeds were distributed to each of the
partners in accordance with POMs operating agreement. The
Company recorded $11.2 million as interest income,
representing the portion attributable to the 16.7% carried
profits interest, and $5.0 million as income from equity
affiliates, representing the portion attributable to the 7.5%
equity interest.
99
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
In June 2008, the Company entered into an agreement (the
agreement) to transfer its 16.67% interest in POM, at a
value of approximately $37.2 million, in exchange for
preferred and common operating partnership units of Lightstone
Value Plus REIT L.P.
In connection with the agreement, the Company borrowed from
Lightstone Value Plus Real Estate Investment Trust, Inc.
approximately $33.0 million, which was initially secured by
its 16.67% interest in POM, has an eight year term, and bears
interest at a fixed rate of 4% with payment of the interest
deferred until the closing of the transaction. As a result,
during the second quarter of 2008, the Company recorded
approximately $33.0 million of cash, $49.5 million of
debt related to the proceeds received from the loan secured by
the consolidated entitys 25% interest in POM, which was
recorded in notes payable, a $16.5 million receivable from
the third party member share of the consolidated entitys
25% interest, which was recorded in other assets, and a deferred
expense related to the incentive management fee of approximately
$7.3 million.
In addition, the Company prepaid the $7.3 million in
incentive management fees to its manager in 2008 related to this
transaction, of which 50% was paid in cash and 50% was paid in
Arbor Realty Trust, Inc. common stock. In accordance with the
amended management agreement, installments of the annual
incentive fee are subject to potential reconciliation at the end
of the fiscal year. Since no incentive fee was earned for 2009,
the prepaid management fee is to be paid back in installments of
25% due by December 31, 2010 and 75% due by June 30,
2012, with an option to make payment in both cash and Arbor
Realty Trust, Inc. common stock provided that at least 50% of
the payment is made in cash, and will be offset against any
future incentive management fees or success-based payments
earned by our manager prior to June 30, 2012. See
Note 17 Management Agreement for
further details.
In the fourth quarter 2008, the Company received a
$1.0 million distribution from POM related to its 24.17%
equity and profits interest, the result of excess proceeds from
the operation of the business. Of the distribution received by
the Company, $1.0 million was recorded as interest income,
representing the distribution received from the 25% profits
interest, $0.3 million was recorded as net income
attributable to noncontrolling interest relating to a third
party members 8.33% minority interest share of the profits
interest and $0.3 million was recorded as income netted in
loss from equity affiliates, representing the portion received
from the Companys 7.5% equity interest. In accordance with
the agreement, $0.7 million of the distribution relating to
the 16.67% profits interest was used to pay down a portion of
the $33.0 million debt and reduced the value of the
Companys interest when exchanged for preferred and common
operating partnership units at closing, thereby reducing the
Companys gain.
In March 2009, the Company exchanged its 16.67% interest in POM
for approximately $37.3 million of preferred and common
operating partnership units in Lightstone Value Plus REIT L.P.
and the $33.4 million loan is now secured by these
preferred and common operating partnership units. The Company
accounts for its Lightstone Value Plus REIT L.P. investment
under the cost method. In June 2013, the preferred units may be
redeemed by Lightstone Value Plus REIT L.P. for cash and the
loan would become due upon such redemption. The preferred
operating partnership units yield 4.63% and the loan bears
interest at a rate of 4%. The Company retained its 7.5% equity
interest in POM. During the year ended December 31, 2009,
the Company recorded $2.0 million of dividends from the
preferred and common operating partnership units which were
reflected in interest income in the Companys Consolidated
Statement of Operations.
Through the consolidated entity that owned the 16.67% interest,
the Company recorded in its first quarter 2009 financial
statements an investment of approximately $56.0 million for
the preferred and common operating partnership units, gain on
exchange of profits interest of approximately
$56.0 million, net income attributable to noncontrolling
interest of approximately $18.7 million related to the
third party members portion of income recorded, noncontrolling
interest due to the third party member of approximately
$2.1 million and a reduction of a $16.5 million
receivable from the third party member which was previously
recorded in other assets. The gain of $56.0 million
reflects the fair value of the investment in preferred and
operating partnership units received in exchange for the 16.67%
profits interest. The Companys profits interest had no
cost basis at the time of the exchange.
100
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
As a result of the $1.0 million of interest expense and
$1.0 million of interest income recorded in 2008 from the
consolidated entity that holds the 25% profits interest in POM,
the Company recorded $(10,981) of noncontrolling interest in
consolidated entity on the Companys Consolidated Balance
Sheet at December 31, 2008. Due to the POM transaction in
March 2009, the Company recorded an additional
$18.7 million of net income attributable to the
noncontrolling interest holder and a distribution to the
noncontrolling interest of $16.6 million, resulting in a
balance of noncontrolling interest in consolidated entity of
$1.9 million on the Companys Consolidated Balance
Sheet at December 31, 2009.
In August 2009, the Company exchanged its remaining 7.5% equity
interest in POM for preferred and common operating partnership
units of Lightstone Value Plus REIT L.P. JT Prime received
preferred and common operating units valued at approximately
$17.0 million, as well as additional cash consideration of
approximately $4.4 million. As there was no remaining basis
in the interest in POM held by the unconsolidated joint venture,
the unconsolidated joint venture recorded a gain of
$21.4 million equal to the value of the operating
partnership units and cash received. In connection with this
transaction, JT Prime borrowed approximately $15.3 million
from Lightstone Value Plus Real Estate Investment Trust, Inc.,
which is secured by the preferred and common operating
partnership units and has an eight-year term. In August 2014,
the preferred units may be redeemed by Lightstone Value Plus
REIT L.P. for cash and the loan would become due upon such
redemption. The preferred operating partnership units yield
4.63% and the loan bears interest at a rate of 4.00%. The
unconsolidated joint venture recorded a nominal amount of
dividends from the preferred and common operating partnership
units and interest expense related to the note. The Company
accounts for their investment in JT Prime under the equity
method. As a result of this transaction, the Company recorded
income from equity affiliates of $10.7 million,
representing the Companys share of the net income recorded
by the unconsolidated joint venture, in its third quarter 2009
financial statements. The Company received distributions
totaling $9.9 million, representing their share of the
proceeds from the note and additional consideration received
from Lightstone by the unconsolidated joint venture. As of
December 31, 2009, the carrying value of the Companys
investment in JT Prime is $0.9 million. The Company has no
continuing involvement with POM after the exchange.
Issuance
of Junior Subordinated Notes
As of December 31, 2008, the Company had invested a total
of $8.3 million for 100% of the common shares of nine
affiliate entities of the Company, which were formed to
facilitate the issuance of $276.1 million of junior
subordinated notes. These entities pay dividends on both the
common shares and preferred securities on a quarterly basis at
fixed and variable rates based on three-month LIBOR.
In March 2009, the Company purchased from its manager, ACM,
approximately $9.4 million of junior subordinated notes
originally issued by a wholly-owned subsidiary of the
Companys operating partnership for $1.3 million. In
addition, in May 2009, the Company exchanged $247.1 million
of its outstanding trust preferred securities, consisting of
$239.7 million of junior subordinated notes issued to third
party investors and $7.4 million of common equity issued to
the Company, which were recorded in investment in equity
affiliates, in exchange for $268.4 million of newly issued
unsecured junior subordinated notes. As a result of these
transactions, the Company retired its $7.7 million of
common equity and corresponding trust preferred securities
reducing its investment in these entities to $0.6 million
during the second quarter of 2009. In July 2009, the Company
restructured its remaining $18.7 million of trust preferred
securities that were not exchanged previously, however, the
transaction did not retire the remaining common equity of
$0.6 million, which remains as of December 31, 2009.
See Note 8 Debt Obligations for
further information relating to these transactions.
Unconsolidated
Financial Statements
The Company has no unconsolidated investments in equity
affiliates accounted for under the equity method that, either
individually or in the aggregate, have assets greater than 10%
of total consolidated assets or (loss) income greater than 10%
of total consolidated (loss) income from continuing operations
before income taxes.
101
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
|
|
Note 7
|
Real
Estate Owned and
Held-For-Sale
|
The Company had a $9.9 million bridge loan secured by a
motel located in Long Beach, California that matured in 2008 and
bore interest at a variable rate of LIBOR plus 4.00%. During
2008, the Company established a $2.5 million provision for
loan loss related to this property reducing the carrying value
to $7.4 million as of June 2009. During the third quarter
of 2009, the Company recorded an additional $1.8 million
provision for loan loss related to this property reducing the
carrying amount to $5.6 million. In August 2009, the
Company was the winning bidder at a UCC foreclosure sale of the
property securing this loan, which was recorded as real estate
owned. The carrying value represented the fair value of the
underlying collateral at the time of the sale. For the year
ended December 31, 2009, the Company recorded property
operating income of $0.2 million and property operating
expenses of $0.2 million. At December 31, 2009, this
investments balance sheet was comprised of land and
building, net of accumulated depreciation, totaling
$5.5 million, other assets of $0.1 million and other
liabilities of $0.1 million.
The Company had a $4.0 million bridge loan secured by a
hotel located in St. Louis, Missouri that matured in 2009
and bore interest at a variable rate of LIBOR plus 5.00%. In
April 2009, the Company foreclosed on the property securing the
loan. As a result, during the second quarter of 2009 the Company
recorded this investment on its balance sheet as real estate
owned at a fair value of $2.9 million. The carrying value
represented the fair value of the underlying collateral at the
time of the foreclosure. For the year ended December 31,
2009, the Company recorded property operating income of
$0.7 million and property operating expenses of
$1.2 million. At December 31, 2009, this
investments balance sheet was comprised of land and
building net of depreciation totaling $2.7 million, other
assets of $0.1 million and other liabilities of
$0.3 million.
The Company had a $5.0 million mezzanine loan secured by an
office building located in Indianapolis, Indiana that was
scheduled to mature in June 2012 and bore interest at a fixed
rate of 10.72%. During the first quarter of 2008, the Company
established a $1.5 million provision for loan loss related
to this property, reducing the carrying value to
$3.5 million at March 31, 2008. In April 2008, the
Company was the winning bidder at a UCC foreclosure sale of the
entity which owns the equity interest in the property securing
this loan and a $41.4 million first mortgage on the
property. As a result, during the second quarter of 2008, the
Company recorded this investment on its balance sheet as real
estate owned at fair value, which included the Companys
$3.5 million carrying value of the loan and
$41.4 million first lien in mortgage notes payable. During
the third quarter of 2009, the Company mutually agreed with a
first mortgage lender to appoint a receiver to operate the
property and we are working to assist in the transfer of title
to the first mortgage lender. As a result, the Company
reclassified this investment from real estate owned to real
estate
held-for-sale
at a fair value of $41.4 million, reclassified property
operating income and expenses for current and prior periods to
discontinued operations in the Companys Consolidated
Financial Statements, and recorded an impairment loss of
$4.9 million. The Company plans to sell the property to the
first mortgage lender within one year of the date of this
transaction.
For the year ended December 31, 2009, loss from
discontinued operations consisted of property operating income
of $3.3 million, property operating expenses of
$3.0 million and depreciation and amortization of
$0.7 million and the investment
held-for-sale
consisted of land, building and leasehold improvements net of
depreciation and allowances totaling $41.4 million as of
December 31, 2009. At December 31, 2009 the Company
also had a mortgage note payable
held-for-sale
of $41.4 million and other liabilities of
$1.2 million. For the year ended December 31, 2008,
the Company previously recorded property operating income of
$1.4 million, property operating expenses of
$1.4 million and depreciation and amortization of
$0.4 million to earnings. At December 31, 2008, this
investments balance sheet was comprised of land of
$6.2 million, building and leasehold improvements of
$40.3 million, cash of $0.3 million, other assets of
$0.2 million, mortgage note payable of $41.4 million,
and other liabilities of $1.2 million. In addition,
discontinued operations have not been segregated in the
Companys Consolidated Statements of Cash Flows.
102
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
|
|
Note 8
|
Debt
Obligations
|
The Company utilizes repurchase agreements, a term credit
agreement with a revolving component, a working capital line,
loan participations, collateralized debt obligations and junior
subordinated notes to finance certain loans and investments.
Borrowings underlying these arrangements are primarily secured
by a significant amount of the Companys loans and
investments.
Repurchase
Agreements
The following table outlines borrowings under the Companys
repurchase agreements as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Debt
|
|
|
Collateral
|
|
|
Debt
|
|
|
Collateral
|
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Repurchase agreement, financial institution, $200 million
committed line, terminated in June 2009, interest was variable
based on one-month LIBOR, the weighted average note rate was
1.50%
|
|
$
|
|
|
|
$
|
|
|
|
$
|
36,961,289
|
|
|
$
|
49,547,947
|
|
Repurchase agreement, financial institution, $2.4 million
committed line at December 31, 2009, expiration June 2010,
interest is variable based on one-month LIBOR; the weighted
average note rate was 2.77% and 3.07%, respectively
|
|
|
2,435,332
|
|
|
|
4,123,938
|
|
|
|
15,554,000
|
|
|
|
19,240,188
|
|
Repurchase agreement, financial institution, an uncommitted
line, expiration May 2010, interest is variable based on one and
three-month
LIBOR; the weighted average note rate was 1.52% and 2.48%,
respectively
|
|
|
222,000
|
|
|
|
10,219,636
|
|
|
|
8,212,500
|
|
|
|
12,089,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total repurchase agreements
|
|
$
|
2,657,332
|
|
|
$
|
14,343,574
|
|
|
$
|
60,727,789
|
|
|
$
|
80,878,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the aggregate weighted average note
rate for the Companys repurchase agreements was 2.66%.
There were no interest rate swaps on these repurchase agreements
at December 31, 2009.
The Company had a $200.0 million repurchase agreement with
a financial institution which had a term expiring in October
2009 and bore interest at pricing over LIBOR, varying on the
type of asset financed. In June 2009, this facility, with
approximately $37.0 million outstanding, was satisfied, at
a discount, for $22.0 million, resulting in a
$15.0 million gain on extinguishment of debt. In connection
with this transaction, the Company sold a bridge loan financed
in this facility with a carrying value of $47.0 million, at
a discount, for approximately $23.2 million and recorded a
loss on restructuring of $23.8 million. The proceeds were
used to satisfy the $22.0 million cash payment.
The Company has a repurchase agreement that bears interest at
250 basis points over LIBOR. In June 2009, the Company
amended this facility extending the maturity to June 2010, with
a one year extension option. In addition, the amendment includes
the removal of all financial covenants and a reduction of the
committed amount to $2.4 million reflecting the one asset
currently financed in this facility. During the year ended
December 31, 2009, the Company paid down approximately
$13.1 million of this facility. At December 31, 2009,
the outstanding balance under this facility was
$2.4 million.
In April 2008, the Company entered into an uncommitted master
repurchase agreement with a financial institution for the
purpose of financing its CRE CDO bond securities. The facility
has a term expiring in May 2010 and bears interest at pricing
over LIBOR, varying on the type of asset financed. During the
year ended December 31,
103
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
2009, the Company paid down approximately $1.3 million of
this debt, due to a decrease in values associated with a change
in the market interest rate spreads and an additional
$6.7 million of principal. At December 31, 2009, the
outstanding balance in this facility was approximately
$0.2 million. In January 2010, the facility was repaid in
full.
In certain circumstances, the Company has financed the purchase
of investments from a counterparty through a repurchase
agreement with that same counterparty. The Company currently
records these investments in the same manner as other
investments financed with repurchase agreements, with the
investment recorded as an asset and the related borrowing under
the repurchase agreement as a liability on the Companys
Consolidated Balance Sheet. Interest income earned on the
investments and interest expense incurred on the repurchase
obligations are reported separately on the Consolidated
Statement of Operations. These transactions may not qualify as a
purchase by the Company under current accounting guidance, which
is effective for fiscal years beginning after November 15,
2008. The Company would be required to present the net
investment on the balance sheet as a derivative with the
corresponding change in fair value of the derivative being
recorded in the statement of operations when certain criteria to
treat these transactions not as part of the same arrangements
(linked transactions) are not met. The value of the derivative
would reflect not only changes in the value of the underlying
investment, but also changes in the value of the underlying
credit provided by the counterparty. However, the guidance
applies to prospective transactions, and no such transactions
have been recorded in this manner in 2009.
Collateralized
Debt Obligations
The following table outlines borrowings under the Companys
collateralized debt obligations as of December 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Debt
|
|
|
Collateral
|
|
|
Debt
|
|
|
Collateral
|
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
CDO I Issued four investment grade tranches
January 19, 2005. Reinvestment period through April 2009.
Stated maturity date of February 2040. Interest is variable
based on three-month LIBOR; the weighted average note rate was
4.22% and 2.41%, respectively
|
|
$
|
254,101,853
|
|
|
$
|
445,473,298
|
|
|
$
|
275,319,000
|
|
|
$
|
426,002,310
|
|
CDO II Issued nine investment grade tranches
January 11, 2006. Reinvestment period through April 2011.
Stated maturity date of April 2038. Interest is variable based
on three-month LIBOR; the weighted average note rate was 3.28%
and 3.03%, respectively
|
|
|
329,549,487
|
|
|
|
486,142,072
|
|
|
|
343,270,000
|
|
|
|
468,850,451
|
|
CDO III Issued 10 investment grade tranches
December 14, 2006. Reinvestment period through January
2012. Stated maturity date of January 2042. Interest is variable
based on three-month LIBOR; the weighted average note rate was
1.76% and 1.65%, respectively
|
|
|
516,863,845
|
|
|
|
612,279,760
|
|
|
|
533,700,000
|
|
|
|
595,213,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CDOs
|
|
$
|
1,100,515,185
|
|
|
$
|
1,543,895,130
|
|
|
$
|
1,152,289,000
|
|
|
$
|
1,490,066,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
At December 31, 2009, the aggregate weighted average
effective rate for the Companys collateralized debt
obligations, including the cost of interest rate swaps on assets
financed in these facilities, was 2.79%. Excluding the effect of
swaps, the weighted average note rate at December 31, 2009
was 0.79%.
On January 19, 2005, the Company completed its first
collateralized debt obligation, issuing to third party investors
four tranches of investment grade collateralized debt
obligations (CDO I) through a newly-formed
wholly-owned subsidiary, Arbor Realty Mortgage Securities
Series 2004-1,
Ltd. (the Issuer). At inception, the Issuer held
assets, consisting primarily of bridge loans, mezzanine loans
and cash totaling approximately $469.0 million, which serve
as collateral for CDO I. The Issuer issued investment grade
notes with an initial principal amount of approximately
$305.0 million and a wholly-owned subsidiary of the Company
purchased the preferred equity interests of the Issuer. The four
investment grade tranches were issued with floating rate coupons
with an initial combined weighted average rate of three-month
LIBOR plus 0.77%. CDO I was replenished with substitute
collateral for loans that were repaid during the first four
years of CDO I, up until April 2009. Thereafter, the
outstanding debt balance will be reduced as loans are repaid.
The Company incurred approximately $7.2 million of issuance
costs which is being amortized on a level yield basis over the
average estimated life of CDO I. As of April 15, 2009, CDO
I has reached the end of its replenishment date and will no
longer make the $2.0 million amortization payments to
investors. Investor capital will be repaid quarterly from
proceeds received from loan repayments held as collateral in
accordance with the terms of the CDO. Proceeds distributed will
be recorded as a reduction of the CDO liability. Proceeds of
$5.1 million and $8.0 million were distributed in 2009
and 2008, respectively. The CDO liability is also reduced as the
investment grade notes are purchased by the Company
see below. The outstanding note balance for CDO I was
$254.1 million and $275.3 million at December 31,
2009 and 2008, respectively.
On January 11, 2006, the Company completed its second
collateralized debt obligation, issuing to third party investors
nine tranches of investment grade collateralized debt
obligations (CDO II) through a newly-formed
wholly-owned subsidiary, Arbor Realty Mortgage Securities
Series 2005-1,
Ltd. (the Issuer II). At inception, the
Issuer II held assets, consisting primarily of bridge
loans, mezzanine loans and cash totaling approximately
$475.0 million, which serve as collateral for CDO II. The
Issuer II issued investment grade notes with an initial
principal amount of approximately $356.0 million and a
wholly-owned subsidiary of the Company purchased the preferred
equity interests of the Issuer II. The nine investment grade
tranches were issued with floating rate coupons with an initial
combined weighted average rate of three-month LIBOR plus 0.74%.
CDO II may be replenished with substitute collateral for loans
that are repaid during the first five years. Thereafter, the
outstanding debt balance will be reduced as loans are repaid.
The Company incurred approximately $6.2 million of issuance
costs which is being amortized on a level yield basis over the
average life of CDO II. Proceeds from CDO II are distributed
quarterly with approximately $1.2 million being paid to
investors as a reduction of their capital invested. Proceeds of
$4.7 million were distributed and recorded as a reduction
of the CDO II liability during both 2009 and 2008, respectively.
The CDO liability is also reduced as the investment grade notes
are purchased by the Company see below. The
outstanding note balance for CDO II was $329.5 million and
$343.3 million at December 31, 2009 and 2008,
respectively.
On December 14, 2006, the Company completed its third
collateralized debt obligation, issuing to third party investors
10 tranches of investment grade collateralized debt obligations
(CDO III) through a newly-formed wholly-owned
subsidiary, Arbor Realty Mortgage Securities
Series 2006-1,
Ltd. (the Issuer III). At inception, the
Issuer III held assets, consisting primarily of bridge
loans, mezzanine loans, junior participation loans, preferred
equity investments and cash totaling approximately
$500.0 million, which serve as collateral for CDO III. The
Issuer III issued investment grade notes with an initial
principal amount of approximately $547.5 million, including
a $100.0 million revolving note class that provides a
revolving note facility and a wholly-owned subsidiary of the
Company purchased the preferred equity interests of the Issuer
III. The 10 investment grade tranches were issued with floating
rate coupons with an initial combined weighted average rate of
three-month LIBOR plus 0.44% and the revolving note facility has
a commitment fee of 0.22% per annum on the undrawn portion of
the facility. CDO
105
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
III may be replenished with substitute collateral for loans that
are repaid during the first five years. Thereafter, the
outstanding debt balance will be reduced as loans are repaid.
The Company incurred approximately $9.7 million of issuance
costs which is being amortized on a level yield basis over the
average life of CDO III. The outstanding note balance for CDO
III was $516.9 million and $533.7 million at
December 31, 2009 and 2008, respectively. CDO III has
$100.0 million revolving note class that provides a
revolving note facility. The CDO liability is also reduced as
the investment grade notes are purchased by the
Company see below. The outstanding revolving note
facility for CDO III was $86.7 million and
$86.2 million at December 31, 2009 and 2008,
respectively.
Proceeds from the sale of the 23 investment grade tranches
issued in CDO I, CDO II and CDO III were used to repay
outstanding debt under the Companys repurchase agreements
and notes payable. The assets pledged as collateral were
contributed from the Companys existing portfolio of assets.
The Company intends to own these portfolios of real
estate-related assets until maturity and accounts for these
transactions on its balance sheet as financing facilities. For
accounting purposes, these CDOs are consolidated in the
Companys financial statements. The investment grade
tranches are treated as secured financings, and are non-recourse
to the Company.
During the year ended December 31, 2009, the Company
purchased, at a discount, approximately $16.1 million of
investment grade rated notes originally issued by the
Companys CDO I issuing entity for a price of
$3.3 million, $9.3 million originally issued by the
Companys CDO II issuing entity for a price of
$3.1 million, and $17.3 million originally issued by
the Companys CDO III issuing entity for a price of
$5.4 million, for a total purchase of $42.8 million of
notes in 2009. Approximately $20.0 million of the CDO notes
were purchased from the Companys manager, ACM, for a price
of $7.8 million. In 2008, ACM purchased these notes from
third party investors for $8.2 million. The remaining notes
were purchased from third party investors. The Company recorded
a net gain on extinguishment of debt of $31.0 million from
these transactions in its Consolidated Statements of Operations.
In the first quarter of 2010, the Company purchased, at a
discount, approximately $4.5 million of investment grade
rated notes originally issued by our CDO I issuing entity for a
price of $1.6 million, $7.9 million of investment
grade rated notes originally issued by the Companys CDO II
issuing entity for a price of $1.6 million and
$7.0 million originally issued by the Companys CDO
III issuing entity for a price of $1.4 million from third
party investors. The Company will record a net gain on
extinguishment of debt of $14.9 million from these
transactions in its 2010 Consolidated Statements of Operations.
In February 2010, the Company re-issued its own CDO bonds it had
acquired throughout 2009 with an aggregate face amount of
$42.8 million as part of an exchange for the retirement of
$114.1 million of its junior subordinated notes. See
Junior Subordinated Notes below for further details.
106
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
Junior
Subordinated Notes
The following table outlines borrowings under the Companys
junior subordinated notes as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Debt
|
|
|
Debt
|
|
|
|
Carrying
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Value
|
|
|
Junior subordinated notes, maturity March 2034, unsecured, face
amount of $29.4 million and $27.1 million,
respectively, interest rate fixed until 2012 then variable based
on three-month LIBOR, the weighted average note rate was 0.50%
and 5.25%, respectively
|
|
$
|
26,291,219
|
|
|
$
|
27,070,000
|
|
Junior subordinated notes, maturity March 2034, unsecured, face
amount of $28.0 million and $25.8 million,
respectively, interest rate fixed until 2012 then variable based
on three-month LIBOR, the weighted average note rate was 0.50%
and 8.32%, respectively
|
|
|
25,057,081
|
|
|
|
25,780,000
|
|
Junior subordinated notes, maturity April 2035, unsecured, face
amount of $7.0 million and $25.8 million,
respectively, interest rate fixed until 2012 then variable based
on three-month LIBOR, the weighted average note rate was 0.50%
and 7.42%, respectively
|
|
|
6,245,736
|
|
|
|
25,774,000
|
|
Junior subordinated notes, maturity March 2034, unsecured, face
amount of $28.0 million and $25.8 million,
respectively, interest rate fixed until 2012 then variable based
on three-month LIBOR, the weighted average note rate was 0.50%
and 6.85%, respectively
|
|
|
25,057,081
|
|
|
|
25,774,000
|
|
Junior subordinated notes, maturity March 2034, unsecured, face
amount of $27.3 million and $51.6 million,
respectively, interest rate fixed until 2012 then variable based
on three-month LIBOR, the weighted average note rate was 0.50%
and 6.85%, respectively
|
|
|
24,430,653
|
|
|
|
51,550,000
|
|
Junior subordinated notes, maturity March 2034, unsecured, face
amount of $28.0 million and $51.6 million,
respectively, interest rate fixed until 2012 then variable based
on three-month LIBOR, the weighted average note rate was 0.50%
and 7.93%, respectively
|
|
|
25,057,081
|
|
|
|
51,550,000
|
|
Junior subordinated notes, maturity June 2036, unsecured, face
amount of $14.6 million and $15.5 million,
respectively, interest rate fixed until 2012 then variable based
on three-month LIBOR, the weighted average note rate was 0.50%
and 7.86%, respectively
|
|
|
13,055,465
|
|
|
|
15,464,000
|
|
Junior subordinated notes, maturity April 2037, unsecured, face
amount of $15.7 million and $14.4 million,
respectively, interest rate fixed until 2012 then variable based
on three-month LIBOR, the weighted average note rate was 0.50%
and 7.22%, respectively
|
|
|
14,028,497
|
|
|
|
14,433,000
|
|
Junior subordinated notes, maturity April 2037, unsecured, face
amount of $31.5 million and $38.7 million,
respectively, interest rate fixed until 2012 then variable based
on three-month LIBOR, the weighted average note rate was 0.50%
and 7.22%, respectively
|
|
|
28,182,248
|
|
|
|
38,660,000
|
|
Junior subordinated notes, maturity March 2034, unsecured, face
amount of $28.0 million, interest rate fixed until 2012
then variable based on three-month LIBOR, the weighted average
note rate was 0.50%
|
|
|
25,057,081
|
|
|
|
|
|
107
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Debt
|
|
|
Debt
|
|
|
|
Carrying
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Value
|
|
|
Junior subordinated notes, maturity March 2034, unsecured, face
amount of $28.7 million, interest rate fixed until 2012
then variable based on three-month LIBOR, the weighted average
note rate was 0.50%
|
|
|
25,683,687
|
|
|
|
|
|
Junior subordinated notes, maturity April 2035, unsecured, face
amount of $21.2 million, interest rate fixed until 2012
then variable based on three-month LIBOR, the weighted average
note rate was 0.50%
|
|
|
18,987,535
|
|
|
|
|
|
Junior subordinated notes, maturity June 2036, unsecured, face
amount of $2.6 million, interest rate fixed until 2012 then
variable based on three-month LIBOR, the weighted average note
rate was 0.50%
|
|
|
2,354,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total junior subordinated notes
|
|
$
|
259,487,421
|
|
|
$
|
276,055,000
|
|
|
|
|
|
|
|
|
|
|
In May 2009, the Company exchanged $247.1 million of its
outstanding trust preferred securities, consisting of
$239.7 million of junior subordinated notes issued to third
party investors and $7.4 million of common equity issued to
the Company, in exchange for $268.4 million of newly issued
unsecured junior subordinated notes, representing 112% of the
original face amount. The new notes bear a fixed interest rate
of 0.50% per annum until April 30, 2012 (the
Modification Period). Thereafter, interest is to be
paid at the rates set forth in the existing trust agreements
until maturity, equal to three month LIBOR plus a weighted
average spread of 2.90%. The Company paid transaction fees of
approximately $1.2 million to the issuers of the junior
subordinated notes related to this restructuring which will be
amortized on an effective yield over the life of the notes.
Furthermore, the 12% increase to the face amount due upon
maturity will be amortized into expense over the life of the
notes in accordance with the interest method of accounting.
In July 2009, the Company restructured its remaining
$18.7 million of trust preferred securities that were not
exchanged from the May 2009 restructuring transaction discussed
above. The Company amended the $18.7 million of junior
subordinated notes to $20.9 million of unsecured junior
subordinated notes, representing 112% of the original face
amount. The amended notes bear a fixed interest rate of 0.50%
per annum for a period of approximately three years, the
modification period. Thereafter, interest is to be paid at the
rates set forth in the existing trust agreements until maturity,
equal to three month LIBOR plus a weighted average spread of
2.74%. The Company paid a transaction fee of approximately
$0.1 million to the issuers of the junior subordinated
notes related to this restructuring. Furthermore, the 12%
increase to the face amount due upon maturity will be amortized
into expense over the life of the notes in accordance with the
interest method of accounting.
During the Modification Periods, the Company will be permitted
to make distributions of up to 100% of taxable income to common
shareholders. The Company has agreed that such distributions
will be paid in the form of the Companys stock to the
maximum extent permissible under the Internal Revenue Service
rules and regulations in effect at the time of such
distribution, with the balance payable in cash. This requirement
regarding distributions in stock can be terminated by the
Company at any time, provided that the Company pays the note
holders the original rate of interest from the time of such
termination.
The junior subordinated notes are unsecured, have a maturity of
25 to 28 years, pay interest quarterly at a fixed rate or
floating rate of interest based on three-month LIBOR and, absent
the occurrence of special events, are not redeemable during the
first two years. In connection with the issuance of the original
variable rate junior subordinated notes, the Company had entered
into various interest rate swap agreements which were
subsequently terminated upon the exchange discussed above,
resulting in a loss on termination of swaps of $8.7 million
in 2009. See Note 11 Derivative Financial
Instruments for further information relating to these
derivatives.
108
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
In March 2009, the Company purchased from its manager, ACM,
approximately $9.4 million of junior subordinated notes
originally issued by a wholly-owned subsidiary of the
Companys operating partnership for $1.3 million. ACM
purchased these notes from third party investors for
$1.3 million in March 2009. The Company recorded a net gain
on extinguishment of debt of $8.1 million and a reduction
of outstanding debt totaling $9.4 million from this
transaction. In connection with this transaction, the Company
retired approximately $0.3 million of common equity related
to these junior subordinated notes.
The carrying value under these facilities was
$259.5 million at December 31, 2009 and
$276.1 million at December 31, 2008. The current
weighted average note rate was 0.50% and 7.21% at
December 31, 2009 and 2008, respectively. However, based
upon the accounting treatment for the restructure, the effective
rate was 3.96% at December 31, 2009. The impact of these
variable interest entities with respect to consolidation is
discussed in Note 10 Variable Interest
Entities.
In February 2010, the Company retired $114.1 million of its
junior subordinated notes, with a carrying value of
$102.1 million, in exchange for the re-issuance of its own
CDO bonds it had acquired throughout 2009 with an aggregate face
amount of $42.8 million, CDO bonds of other issuers it had
acquired in the second quarter of 2008 with an aggregate face
amount of $25.0 million and a carrying value of
$0.4 million, and $10.5 million in cash. In the first
quarter of 2010, this transaction is expected to result in
recording $65.3 million of additional CDO debt, of which
$42.3 million represents the portion of the Companys
CDO bonds that were exchanged and $23.0 million represents
the estimated interest due on the bonds through their maturity,
a reduction to securities
available-for-sale
of $0.4 million representing the fair value of CDO bonds of
other issuers, and a gain on extinguishment of debt of
approximately $26.0 million.
Notes
Payable
The following table outlines borrowings under the Companys
notes payable as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Debt
|
|
|
Collateral
|
|
|
Debt
|
|
|
Collateral
|
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Term credit agreement, Wachovia Bank, National Association,
$269.3 million committed line, $35.3 million revolving
component, expiration July 2012, interest is variable based on
one-month LIBOR; the weighted average note rate was 4.38% and
3.34%, respectively(1)
|
|
$
|
269,256,270
|
|
|
$
|
393,875,807
|
|
|
$
|
280,182,244
|
|
|
$
|
476,593,594
|
|
Revolving credit agreement, Wachovia Bank, National Association,
interest was variable based on one-month LIBOR; the weighted
average note rate was 3.08%(1)
|
|
|
|
|
|
|
|
|
|
|
64,834,510
|
|
|
|
101,260,891
|
|
Term credit agreement, Wachovia Bank, National Association,
interest was variable based on one-month LIBOR; the weighted
average note rate was 2.98%(1)
|
|
|
|
|
|
|
|
|
|
|
32,948,717
|
|
|
|
29,604,167
|
|
109
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Debt
|
|
|
Collateral
|
|
|
Debt
|
|
|
Collateral
|
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Working capital facility, Wachovia Bank, National Association;
$49.5 million committed line, expiration June 2012,
interest is variable based on one-month LIBOR, the weighted
average note rate was 8.35% and 5.51%, respectively(1)
|
|
|
49,505,228
|
|
|
|
|
|
|
|
41,907,965
|
|
|
|
|
|
Bridge loan warehouse, financial institution, $13.5 million
committed line, expiration May 2010, interest rate was variable
based on LIBOR or Prime, the weighted average note rate was
5.15%(2)
|
|
|
|
|
|
|
|
|
|
|
43,762,001
|
|
|
|
53,828,592
|
|
Note payable relating to investment in equity affiliates,
$50.2 million, expiration July 2016, interest is fixed, the
weighted average note rate was 4.06%, respectively
|
|
|
50,157,708
|
|
|
|
55,988,411
|
|
|
|
48,500,000
|
|
|
|
|
|
Junior loan participations, maturity of July 2011, secured by
the Companys interest in first mortgage loans with
principal balances totaling $5.0 million, participation
interest based on a portion of the interest received from the
loans which have fixed rates of 16.00%
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
Junior loan participation, maturity of May 2010, secured by the
Companys interest in a first mortgage loan with a
principal balance of $1.3 million, participation interest
was based on a portion of the interest received from the loan
which has a fixed rate of 9.57%
|
|
|
1,300,000
|
|
|
|
1,300,000
|
|
|
|
1,300,000
|
|
|
|
1,300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$
|
375,219,206
|
|
|
$
|
456,164,218
|
|
|
$
|
518,435,437
|
|
|
$
|
667,587,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In July 2009, the Company amended
and restructured its term credit agreements, revolving credit
agreement and working capital facility with Wachovia Bank,
National Association as discussed below.
|
|
(2)
|
|
In July 2009, this facility was
paid off as discussed below.
|
At December 31, 2009, the aggregate weighted average
effective rate for the Companys notes payable, including
the cost of interest rate swaps on assets financed in these
facilities, was 4.98%. Excluding the effect of swaps, the
weighted average note rate at December 31, 2009 was 4.57%.
In July 2009, the Company amended and restructured its term
credit agreements, revolving credit agreement and working
capital facility with Wachovia Bank, National Association as
follows:
|
|
|
|
|
The term revolving credit agreement, with an outstanding balance
of $64.0 million, was combined with the term debt facility
with an outstanding balance of $237.7 million, along with a
portion of the term debt facility with an outstanding balance of
$30.3 million, and $15.3 million of this term debt
facility was
|
110
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
|
|
|
|
|
combined with the working capital line with an outstanding
balance of $41.9 million. This debt restructuring resulted
in the consolidation of these four facilities into one term debt
facility with an outstanding balance of $316.7 million at
the time of the agreement, which contains a revolving component
with $35.3 million of availability, and one working capital
facility with an outstanding balance of $57.2 million at
the time of the agreement.
|
|
|
|
|
|
The maturity dates of the facilities were extended for three
years, with a working capital facility maturity of June 8,
2012 and a term debt facility maturity of July 23, 2012.
|
|
|
|
The term debt facility requires a $48.1 million reduction
over the three-year term, with approximately $8.0 million
in reductions due every six months beginning in December 2009.
|
|
|
|
Margin call provisions relating to collateral value of the
underlying assets have been eliminated, as long as the term loan
reductions are met, with the exception of limited margin call
capability related to foreclosed or real estate-owned assets.
|
|
|
|
The working capital facility requires quarterly amortization of
up to $3.0 million per quarter, $1.0 million per CDO,
only if both (a) the CDO is cash flowing to the Company and
(b) the Company has a minimum quarterly liquidity level of
$27.5 million.
|
|
|
|
Interest rate of LIBOR plus 350 basis points for the term
loan facility, compared to LIBOR plus approximately
200 basis points previously and LIBOR plus 800 basis
points for the working capital facility, compared to LIBOR plus
500 basis points previously. The Company has also agreed to
pay a commitment fee of 1.00% payable over 3 years.
|
|
|
|
The Company issued Wachovia one million warrants at an average
strike price of $4.00. 500,000 warrants are exercisable
immediately at a price of $3.50, 250,000 warrants are
exercisable after July 23, 2010 at a price of $4.00 and
250,000 warrants are exercisable after July 23, 2011 at a
price of $5.00. All warrants expire on July 23, 2015.
|
|
|
|
Annual dividends are limited to 100% of taxable income to common
shareholders and are required to be paid in the form of the
Companys stock to the maximum extent permissible
(currently 90%), with the balance payable in cash. The Company
will be permitted to pay 100% of taxable income in cash if the
term loan facility balance is reduced to $210.0 million,
the working capital facility is reduced to $30.0 million
and the Company maintains $35.0 million of minimum
liquidity.
|
|
|
|
The Companys CEO and Chairman, Ivan Kaufman, is required
to remain an officer or director of the Company for the term of
the facilities.
|
In addition, the financial covenants were been reduced to the
following (see Debt Covenants section below for
further details):
|
|
|
|
|
Minimum quarterly liquidity of $7.5 million in cash and
cash equivalents.
|
|
|
|
Minimum quarterly GAAP net worth of $150.0 million.
|
|
|
|
Ratio of total liabilities to tangible net worth shall not
exceed 4.5 to 1 quarterly.
|
As a result of the above mentioned amendment, at
December 31, 2009, the Company has one term credit
agreement with Wachovia, which contains a revolving component
with $35.3 million of availability. The facility has a
commitment period of three years to July 2012 and bears an
interest rate of LIBOR plus 350 basis points. Margin call
provisions relating to collateral value of the underlying assets
have been eliminated, as long as the term loan reductions are
met, with the exception of limited margin call capability
related to foreclosed or real estate-owned assets. Subsequent to
the amendment, the Company made net paydowns to the facility of
$47.4 million,
111
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
reducing the $48.1 million balance reduction requirements
to $0.7 million and satisfying the requirements until June
2012. The outstanding balance under this facility was
$269.3 million at December 31, 2009.
In 2010, the Company entered into an agreement with Wachovia
Bank, National Association, owned by Wells Fargo Bank, National
Association, to retire all of its $335.6 million of then
outstanding debt for $176.2 million, representing 52.5% of
the face amount of the debt. The $335.6 million of
indebtedness is comprised of $286.1 million of term debt
and a $49.5 million working capital facility, representing
the outstanding balances in each facility at the time the
parties began to negotiate the agreement. The agreement can be
closed at any time on or before May 31, 2010 and also has
two consecutive 45 day extension options which would extend
the payoff date to August 27, 2010. The agreement provides
the ability to apply paydowns in the Wachovia facilities against
the discounted payoff amount during the term of the agreement
and accordingly, the Company has made payments of
$62.3 million towards the initial discounted payoff amount,
leaving $113.9 million payable to Wachovia to close this
agreement. The closing of this transaction is subject to certain
closing conditions and the ability to obtain the necessary
capital. The Company can make no assurances that it will be able
to access sufficient capital under acceptable terms and
conditions. In addition, the Company has obtained a waiver of
its minimum tangible net worth covenant, as well as the minimum
ratio of total liabilities to tangible net worth covenant, from
this financial institution for December 31, 2009 through
the extended payoff date of August 27, 2010. The Company
has also obtained temporary amendments thereafter until December
2010 for the quarterly minimum GAAP tangible net worth
covenants, from $150.0 million to $50.0 million, and
quarterly maximum ratio of total liabilities to tangible net
worth covenants, from 4.5 to 1 to 5.8 to 1. See Debt
Covenants below for further details.
The working capital facility with Wachovia has a maturity of
June 2012 and an interest rate of LIBOR plus 800 basis
points. At December 31, 2009, the outstanding balance under
this facility was $49.5 million.
The Company had a $70.0 million bridge loan warehouse
agreement which had a maturity date of October 2009. In May
2009, the Company amended this facility, extending the maturity
to May 2010, with a one year extension option, and reduced the
committed amount to $13.5 million. This agreement bore a
rate of interest, payable monthly, based on LIBOR plus 3.75%. In
July 2009, this facility was repaid in full.
In 2008, the Company recorded a $49.5 million note payable
related to the POM exchange of profits interest transaction,
which was paid down to $48.5 million as of
December 31, 2008. The note was initially secured by the
Companys interest in POM, matures in July 2016, and bore
interest at a fixed rate of 4% with payment deferred until the
closing of the transaction. Upon the closing of the POM
transaction in March 2009, the note balance was increased to
$50.2 million, bears interest at a fixed rate of 4% and is
secured by the Companys investment in common and preferred
operating partnership units in Lightstone Value Plus REIT, L.P.
See Note 6 Investment in Equity
Affiliates for further details. At December 31, 2009,
the outstanding balance of this note was $50.2 million.
The Company has three junior loan participations with a total
outstanding balance at December 31, 2009 of
$6.3 million. These participation borrowings have a
maturity date equal to the corresponding mortgage loan and are
secured by the participants interest in the mortgage loan.
Interest expense is based on a portion of the interest received
from the loans.
|
|
Mortgage
Note Payable
|
Held-For-Sale
|
During the second quarter of 2008, the Company recorded a
$41.4 million interest-only first lien mortgage related to
the foreclosure of an entity in which the Company had a
$5.0 million mezzanine loan. The real estate investment was
originally classified as real estate owned and was reclassified
as real estate
held-for-sale
in September 2009. The mortgage bears interest at a fixed rate,
has a maturity date of June 2012 and was recorded in mortgage
note payable
held-for-sale.
The outstanding balance of this mortgage was $41.4 million
at December 31, 2009.
112
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
|
|
Note
Payable
|
Related
Party
|
During the fourth quarter of 2008, the Company borrowed
$4.2 million from the Companys manager, ACM. At
December 31, 2008, the Company had outstanding borrowings
due to ACM totaling $4.2 million, which was recorded in
notes payable related party. In January 2009, the
loan was repaid in full.
Debt
Covenants
Each of the credit facilities contains various financial
covenants and restrictions, including minimum net worth, minimum
liquidity and
debt-to-equity
ratios. The Company was in compliance with all financial
covenants and restrictions for the periods presented with the
exception of a minimum tangible net worth requirement with
Wachovia at December 31, 2009. The Companys tangible
net worth was $98.6 million at December 31, 2009 and
the Company was required to maintain a minimum tangible net
worth of $150.0 million with this financial institution.
The Company has obtained a waiver of this covenant, as well as
the minimum ratio of total liabilities to tangible net worth
covenant, from this financial institution for December 31,
2009 and through an extended payoff date of August 27,
2010, in conjunction with amendments to its credit facilities.
The Company has also obtained temporary amendments thereafter
until December 2010 for the quarterly minimum GAAP tangible net
worth covenants, from $150.0 million to $50.0 million,
and quarterly maximum ratio of total liabilities to tangible net
worth covenants, from 4.5 to 1 to 5.8 to 1.
The Companys CDO bonds contain interest coverage and asset
overcollateralization covenants that must be met as of the
waterfall distribution date in order for the Company to receive
such payments. If the Company fails these covenants in any of
its CDOs, all cash flows from the applicable CDO would be
diverted to repay principal and interest on the outstanding CDO
bonds and the Company would not receive any residual payments
until that CDO regained compliance with such tests. The Company
was in compliance with all such covenants as of
December 31, 2009. In the event of a breach of the CDO
covenants that could not be cured in the near-term, the Company
would be required to fund its non-CDO expenses, including
management fees and employee costs, distributions required to
maintain REIT status, debt costs, and other expenses with
(i) cash on hand, (ii) income from any CDO not in
breach of a CDO covenant test, (iii) income from real
property and unencumbered loan assets, (iv) sale of assets,
(v) or accessing the equity or debt capital markets, if
available. The chart below is a summary of the Companys
CDO compliance tests as of the most recent distribution date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Triggers
|
|
CDO I
|
|
CDO II
|
|
CDO III
|
|
Overcollateralization (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
194.40
|
%
|
|
|
177.72
|
%
|
|
|
111.28
|
%
|
Limit
|
|
|
184.00
|
%
|
|
|
169.50
|
%
|
|
|
105.60
|
%
|
Pass/Fail
|
|
|
Pass
|
|
|
|
Pass
|
|
|
|
Pass
|
|
Interest Coverage (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
653.93
|
%
|
|
|
575.81
|
%
|
|
|
686.74
|
%
|
Limit
|
|
|
160.00
|
%
|
|
|
147.30
|
%
|
|
|
105.60
|
%
|
Pass/Fail
|
|
|
Pass
|
|
|
|
Pass
|
|
|
|
Pass
|
|
|
|
|
(1)
|
|
The overcollateralization ratio
divides the total principal balance of all collateral in the CDO
by the total bonds outstanding for the classes senior to those
retained by the Company. To the extent an asset is considered a
defaulted security, the assets principal balance is
multiplied by the assets recovery rate which is determined
by the rating agencies.
|
|
(2)
|
|
The interest coverage ratio divides
interest income by interest expense for the classes senior to
those retained by the Company.
|
The Company also has certain cross-default provisions whereby
accelerated repayment would occur under the Wachovia Term Credit
and Working Capital facilities if any party defaults under any
indebtedness in a principal amount of at least $5.0 million
in the aggregate beyond any applicable grace period regardless
of whether the
113
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
default has been or is waived. Also, a default under the Junior
Subordinated Indentures or any of the CDOs would trigger a
default under the Companys Wachovia debt agreements, but
not vice versa, and no payment due under the Junior Subordinated
Indentures may be paid if there is a default under any senior
debt and the senior lender has sent notice to the trustee. The
Junior Subordinated Indentures are also cross-defaulted with
each other.
|
|
Note 9
|
Noncontrolling
Interest
|
Noncontrolling interest in a consolidated entity on the
Companys Consolidated Balance Sheet, with a balance of
$1.9 million and $(10,981), respectively, as of
December 31, 2009 and 2008, represents a third partys
interest in the equity of a consolidated subsidiary, and is
related to the POM transaction discussed in
Note 6 Investment in Equity
Affiliates. As a result of the POM transaction in March
2009, the Company recorded $18.7 million of net income
attributable to the noncontrolling interest holder and a
distribution to the noncontrolling interest of
$16.6 million. For the year ended December 31, 2008,
$4.4 million of net income attributable to the
noncontrolling interest on the Companys Consolidated
Statements of Operations primarily represented income allocated
to ACMs noncontrolling interest in the operating
partnership discussed below.
On July 1, 2003, ACM contributed $213.1 million of
structured finance assets and $169.2 million of borrowings
supported by $43.9 million of equity in exchange for a
commensurate equity ownership in ARLP, the Companys
operating partnership. This transaction was accounted for as
noncontrolling interest and initially entitled ACM to a 28%
interest in ARLP. ACMs noncontrolling interest in ARLP was
represented by operating partnership units and was adjusted at
the end of each reporting period to an amount equal to
ACMs ownership percentage of ARLPs net equity. In
April 2004, the Company issued 6,750,000 shares of its
common stock in an initial public offering and a concurrent
offering to one of the Companys directors. In May 2004,
the underwriters of the initial public offering exercised a
portion of their over-allotment option, which resulted in the
issuance of 524,200 additional shares. In addition, the Company
issued 2,700,000 common shares in a public offering in June 2007.
At December 31, 2007, noncontrolling interest in the
Companys operating partnership was $72.9 million
reflecting ACMs 15.5% limited partnership interest in
ARLP. In June 2008, ACM exercised its right to redeem its
3,776,069 operating partnership units (OP units) in
the Companys operating partnership for shares of the
Companys common stock on a
one-for-one
basis. As a result, ACMs operating partnership ownership
interest in the Company and the balance of noncontrolling
interest in the operating partnership were reduced to zero as of
June 30, 2008. The redemption of the noncontrolling
interest in operating partnership in exchange for the
Companys common stock was recorded at book value and
recorded directly to equity in additional paid-in capital. In
addition, the special voting preferred shares paired with each
OP unit, pursuant to a pairing agreement, were redeemed
simultaneously and cancelled by the Company. In connection with
this transaction, the Companys Board of Directors approved
a resolution under the Companys charter allowing Ivan
Kaufman and ACM, in relation to Mr. Kaufmans
controlling equity interest, to own more than the 7% ownership
limitation.
Updated accounting guidance clarifies the classification of
noncontrolling interests in consolidated statements of financial
position and the accounting for and reporting of transactions
between the Company and holders of such noncontrolling
interests. Under the updated accounting guidance, noncontrolling
interests are considered equity and should be reported as an
element of consolidated equity. Net income encompasses the total
income of all consolidated subsidiaries and requires separate
disclosure on the face of the statements of operations of income
attributable to the controlling and noncontrolling interests.
When a subsidiary is deconsolidated, any retained,
noncontrolling equity investment in the former subsidiary and
the gain or loss on the deconsolidation of the subsidiary must
be measured at fair value. The presentation and disclosure
requirements have been applied retrospectively for all periods
presented.
114
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
|
|
Note 10
|
Variable
Interest Entities
|
Current accounting guidance requires a variable interest entity
(VIE) to be consolidated by its primary beneficiary
(PB). The PB is the party that absorbs a majority of
the VIEs anticipated losses
and/or a
majority of the expected returns.
The Company has used significant judgment and assumptions in
evaluating its loans and investments, mortgage-related
securities and investments in equity affiliates to determine
whether they are VIEs. This evaluation resulted in the Company
determining that its bridge loans, junior participation loans,
mezzanine loans, preferred equity investments and investments in
equity affiliates were potential variable interests. For each of
these investments, the Company has evaluated (1) the
sufficiency of the fair value of the entities equity
investments at risk to absorb losses, (2) that as a group
the holders of the equity investments at risk have (a) the
direct or indirect ability through voting rights to make
decisions about the entities significant activities,
(b) the obligation to absorb the expected losses of the
entity and their obligations are not protected directly or
indirectly, (c) the right to receive the expected residual
return of the entity and their rights are not capped,
(3) substantially all of the entities activities do
not involve or are not conducted on behalf of an investor that
has disproportionately fewer voting rights in terms of its
obligation to absorb the expected losses or its right to receive
expected residual returns of the entity, or both. In addition,
the Company has evaluated its investments in collateralized debt
obligation securities and has determined that the issuing
entities are considered VIEs, but has determined that the
Company is not the primary beneficiary. As of December 31,
2009, the Company has identified 39 loans and investments which
were made to entities determined to be VIEs with an aggregate
carrying amount of $807.3 million. These VIEs had exposure
to real estate debt of approximately $3.3 billion at
December 31, 2009. See Note 3 Loans
and Investments, Note 5 Securities
Held-To-Maturity
and Note 6 Investment in Equity
Affiliates for further details.
Entities that issue junior subordinated notes are considered
VIEs. However, it is not appropriate to consolidate these
entities, as equity interests are variable interests only to the
extent that the investment is considered to be at risk. Since
the Companys investments were funded by the entities that
issued the junior subordinated notes, they are not considered to
be at risk.
115
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
The following is a summary of the identified VIEs as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination
|
|
Carrying
|
|
|
|
|
|
Type
|
|
Date
|
|
Amount(1)
|
|
|
Property
|
|
Location
|
|
Loan and investment
|
|
Dec-03
|
|
$
|
51,136,960
|
|
|
Office
|
|
New York
|
Loan
|
|
Aug-05
|
|
|
17,050,000
|
|
|
Office
|
|
New York
|
Loan
|
|
Jan-06
|
|
|
1,600,000
|
|
|
Multifamily
|
|
New York
|
Loan
|
|
Mar-06
|
|
|
10,000,000
|
|
|
Office
|
|
Pennsylvania
|
Loan
|
|
Jun-06
|
|
|
97,812,445
|
|
|
Land
|
|
California
|
Loan
|
|
Aug-06
|
|
|
5,452,137
|
|
|
Multifamily
|
|
Indiana
|
Loan
|
|
Aug-06
|
|
|
6,996,434
|
|
|
Office
|
|
Texas
|
Loan
|
|
Sep-06
|
|
|
2,800,000
|
|
|
Office
|
|
Rhode Island
|
Loan
|
|
Oct-06
|
|
|
1,349,992
|
|
|
Multifamily
|
|
South Carolina
|
Loan
|
|
Oct-06
|
|
|
2,031,012
|
|
|
Multifamily
|
|
North Carolina
|
Loan
|
|
May-08
|
|
|
12,416,980
|
|
|
Multifamily
|
|
Florida
|
Loan
|
|
Dec-06
|
|
|
63,885,000
|
|
|
Multifamily
|
|
New York
|
Loan
|
|
Jan-07
|
|
|
4,123,938
|
|
|
Multifamily
|
|
Texas
|
Loan
|
|
Mar-07
|
|
|
1,960,000
|
|
|
Office
|
|
South Carolina
|
Loan
|
|
Mar-07
|
|
|
67,000,000
|
|
|
Office
|
|
New York
|
Loan
|
|
Apr-08
|
|
|
5,924,306
|
|
|
Multifamily
|
|
Indiana
|
Loan
|
|
Feb-07
|
|
|
64,928,626
|
|
|
Multifamily
|
|
Florida
|
Loan
|
|
Mar-07
|
|
|
2,000,000
|
|
|
Multifamily
|
|
Florida
|
Loan
|
|
Mar-07
|
|
|
6,625,103
|
|
|
Multifamily
|
|
Indiana
|
Loan
|
|
Mar-07
|
|
|
3,686,066
|
|
|
Hotel
|
|
Arizona
|
Loan
|
|
Mar-07
|
|
|
44,500,000
|
|
|
Multifamily
|
|
Michigan
|
Loan
|
|
Jun-07
|
|
|
100,364,308
|
|
|
Hotel
|
|
Various
|
Loan
|
|
Jun-07
|
|
|
9,678,584
|
|
|
Office
|
|
Florida
|
Loan
|
|
Jun-07
|
|
|
27,510,000
|
|
|
Multifamily
|
|
Arizona
|
Loan
|
|
Jul-07
|
|
|
10,938,092
|
|
|
Multifamily
|
|
Texas
|
Loan
|
|
Jul-07
|
|
|
9,471,765
|
|
|
Multifamily
|
|
Texas
|
Loan
|
|
Jul-07
|
|
|
4,654,941
|
|
|
Multifamily
|
|
Texas
|
Loan
|
|
Jul-07
|
|
|
21,017,324
|
|
|
Hotel
|
|
California
|
Loan
|
|
Nov-07
|
|
|
4,509,994
|
|
|
Land
|
|
Hawaii
|
Loan
|
|
Feb-08
|
|
|
56,800,000
|
|
|
Multifamily
|
|
California
|
Loan
|
|
Jul-08
|
|
|
27,500,000
|
|
|
Multifamily
|
|
Maryland
|
Investment
|
|
Apr-08
|
|
|
20,117,755
|
|
|
CDO bond
|
|
N/A
|
Investment
|
|
May-08
|
|
|
8,310,558
|
|
|
CDO bond
|
|
N/A
|
Investment
|
|
May-08
|
|
|
9,007,787
|
|
|
CDO bond
|
|
N/A
|
Investment
|
|
May-08
|
|
|
10,787,743
|
|
|
CDO bond
|
|
N/A
|
Investment
|
|
Apr-09
|
|
|
9,509,398
|
|
|
CDO bond
|
|
N/A
|
Investment
|
|
Apr-09
|
|
|
3,229,568
|
|
|
CDO bond
|
|
N/A
|
Investment
|
|
Apr-05
|
|
|
187,000
|
|
|
Junior subordinated notes(2)
|
|
N/A
|
Investment
|
|
Jun-06
|
|
|
391,000
|
|
|
Junior subordinated notes(2)
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
807,264,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Companys maximum exposure
to loss would not exceed the carrying amount of its investment.
At December 31, 2009, $396.2 million of loans to VIEs
had corresponding loan loss reserves of approximately
$193.6 million and $61.8 million of loans to VIEs were
related to loans classified as non-performing. See
Note 3 Loans and Investments for
further details.
|
|
(2)
|
|
These entities that issued the
junior subordinated notes are VIEs. It is not appropriate to
consolidate these entities as equity interests are variable
interests only to the extent that the investment is considered
to be at risk. Since the Companys investments were funded
by the entities that issued the junior subordinated notes, it is
not considered to be at risk.
|
For the 39 VIEs identified, the Company has determined that it
is not the primary beneficiary and, accordingly, the VIEs should
not be consolidated in the Companys financial statements.
The Companys maximum exposure to loss would not exceed the
carrying amount of such investments. For all other investments,
the Company has determined they are not VIEs. As such, the
Company has continued to account for these loans and investments
as a loan or investment in equity affiliate, as appropriate.
116
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
The Company earns interest income from VIEs classified as loans,
CDO bonds, and junior subordinated notes, and shares in the
profits and losses of VIEs accounted for under the equity method.
The Company will be required to follow updated accounting
guidance beginning with the first quarter of 2010, by providing
an ongoing qualitative rather than quantitative assessment of
its ability to direct the activities of a variable interest
entity that most significantly impact the entitys economic
performance and its rights or obligations to receive benefits or
absorb losses, in order to determine whether those entities will
be required to be consolidated in the Companys
Consolidated Financial Statements. The Company does not expect
the adoption of this guidance to have a material effect on its
Consolidated Financial Statements. See Recently Issued
Accounting Pronouncements in Note 2
Summary of Significant Accounting Policies above for further
details.
|
|
Note 11
|
Derivative
Financial Instruments
|
The Company recognizes all derivatives as either assets or
liabilities in the Consolidated Balance Sheets and measures
those instruments at fair value. Additionally, the fair value
adjustments will affect either accumulated other comprehensive
loss until the hedged item is recognized in earnings, or net
(loss) income attributable to Arbor Realty Trust, Inc.,
depending on whether the derivative instrument qualifies as a
hedge for accounting purposes and, if so, the nature of the
hedging activity.
In connection with the Companys interest rate risk
management, the Company periodically hedges a portion of its
interest rate risk by entering into derivative financial
instrument contracts. Specifically, the Companys
derivative financial instruments are used to manage differences
in the amount, timing, and duration of its expected cash
receipts and its expected cash payments principally related to
its investments and borrowings. The Companys objectives in
using interest rate derivatives are to add stability to net
interest income and to manage its exposure to interest rate
movements. To accomplish this objective, the Company primarily
uses interest rate swaps as part of its interest rate risk
management strategy. Interest rate swaps designated as cash flow
hedges involve the receipt of variable-rate amounts from a
counterparty in exchange for the Company making fixed-rate
payments over the life of the agreements without exchange of the
underlying notional amount. The Company has entered into various
interest rate swap agreements to hedge its exposure to interest
rate risk on (i) variable rate borrowings as it relates to
fixed rate loans; and (ii) the difference between the CDO
investor return being based on the three-month LIBOR index while
the supporting assets of the CDO are based on the one-month
LIBOR index.
Derivative financial instruments must be effective in reducing
the Companys interest rate risk exposure in order to
qualify for hedge accounting. When the terms of an underlying
transaction are modified, or when the underlying hedged item
ceases to exist, all changes in the fair value of the instrument
are
marked-to-market
with changes in value included in net income for each period
until the derivative instrument matures or is settled. Any
derivative instrument used for risk management that does not
meet the hedging criteria is
marked-to-market
with the changes in value included in net income. The Company
does not use derivatives for trading or speculative purposes.
The following is a summary of the derivative financial
instruments held by the Company as of December 31, 2009 and
2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Value
|
|
|
|
|
|
|
|
Fair Value
|
|
Designation\
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Expiration
|
|
|
Balance
|
|
December 31,
|
|
|
December 31,
|
|
Cash Flow
|
|
Derivative
|
|
Count
|
|
|
2009
|
|
|
2008
|
|
|
Date
|
|
|
Sheet Location
|
|
2009
|
|
|
2008
|
|
|
Non-Qualifying
|
|
Basis Swaps
|
|
|
9
|
|
|
$
|
1,061,781
|
|
|
$
|
1,303,631
|
|
|
|
2012 - 2015
|
|
|
Other Assets
|
|
$
|
2,002
|
|
|
$
|
7,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying
|
|
Interest Rate Swaps
|
|
|
1
|
|
|
$
|
45,118
|
|
|
$
|
|
|
|
|
2016
|
|
|
Other Assets
|
|
$
|
514
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying
|
|
Interest Rate Swaps
|
|
|
33
|
|
|
$
|
663,093
|
|
|
$
|
926,428
|
|
|
|
2010 - 2017
|
|
|
Other Liabilities
|
|
$
|
(47,886
|
)
|
|
$
|
(98,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
The fair value of Non-Qualifying Hedges was $2.0 million
and $7.2 million as of December 31, 2009 and
December 31, 2008, respectively, and is recorded in other
assets in the Consolidated Balance Sheet. These basis swaps are
used to manage the Companys exposure to interest rate
movements and other identified risks but do not meet hedge
accounting requirements. The Company is exposed to changes in
the fair value of certain of its fixed rate obligations due to
changes in benchmark interest rates and uses interest rate swaps
to manage its exposure to changes in fair value on these
instruments attributable to changes in the benchmark interest
rate. These interest rate swaps designated as fair value hedges
involve the receipt of fixed-rate amounts from a counterparty in
exchange for the Company making variable rate payments over the
life of the agreements without the exchange of the underlying
notional amount. For the year ended December 31, 2009 and
2008, the change in fair value of the Non-Qualifying Swaps was
$(5.2) million and $4.7 million, respectively and was
recorded in interest expense on the Consolidated Statements of
Operations.
The fair value of Qualifying Cash Flow Hedges as of
December 31, 2009 and 2008 was $(47.4) million and
$(98.2) million, respectively, and was recorded in other
liabilities in the amount of $(47.9) million and in other
assets in the amount of $0.5 million at December 31,
2009, and other liabilities at December 31, 2008, and the
change in accumulated other comprehensive loss in the
Consolidated Balance Sheet. These interest rate swaps are used
to hedge the variable cash flows associated with existing
variable-rate debt, and amounts reported in accumulated other
comprehensive loss related to derivatives will be reclassified
to interest expense as interest payments are made on the
Companys variable-rate debt. During the year ended
December 31, 2009, the Company entered into one new
interest rate swap that qualifies as a cash flow hedge with a
notional value of approximately $45.1 million and paid
$1.7 million, which will be amortized into interest expense
over the life of the swap. During the year ended
December 31, 2009, the Company terminated six interest rate
swaps related to the Companys restructured trust preferred
securities, with a combined notional value of
$140.0 million, for a loss of $8.7 million recorded to
loss on termination of swaps. During the year ended
December 31, 2009, the Company also terminated two interest
rate swaps with a combined notional value of approximately
$78.1 million and a $33.5 million portion of an
interest rate swap with a total notional value of approximately
$67.0 million. Additionally, one basis swap with a notional
amount of $37.2 million matured and one basis swap and one
interest rate swap had partially amortizing maturities totaling
approximately $221.7 million. As of December 31, 2009,
the Company expects to reclassify approximately
$(29.1) million of other comprehensive loss from Qualifying
Cash Flow Hedges to interest expense over the next twelve months
assuming interest rates on that date are held constant.
Gains and losses on terminated swaps are recognized in earnings
over the original life of the hedging instruments as the hedged
item was designated as current and future outstanding LIBOR
based debt, which has an indeterminate life, and the hedged
transaction is still more likely than not to occur. The Company
deferred, through accumulated other comprehensive loss,
approximately $3.3 million of such loss on the termination
of an interest rate swap agreement in the second quarter of 2009
and $5.0 million of such loss on the termination of an
interest rate swap agreement in the first quarter of 2009. As of
December 31, 2009, the Company has a net loss of
$6.0 million in accumulated other comprehensive loss. As of
December 31, 2008, the Company had a net gain of
$1.6 million in accumulated other comprehensive loss. The
Company recorded $1.1 million as additional interest
expense related to the amortization of the loss for the year
ended December 31, 2009 and $0.3 million as a
reduction to interest expense related to the accretion of the
net gains for both the years ended December 31, 2009 and
2008. The Company expects to record approximately
$1.5 million of net deferred loss to interest expense over
the next twelve months. The Company also recorded a loss of
$8.7 million on the termination of the interest rate swaps
related to the restructured trust preferred securities directly
to loss on terminated swaps in the second quarter of 2009 as
interest rate swaps were determined to no longer be effective or
necessary due to the modified interest payment structure of the
newly issued unsecured junior subordinated notes.
118
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
The following table presents the effect of the Companys
derivative financial instruments on the Statements of Operations
as of December 31, 2009 and 2008 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (Loss)
|
|
|
Gain or (Loss)
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
Reclassified from
|
|
|
Reclassified from
|
|
|
|
|
|
|
|
|
Gain or (Loss)
|
|
|
Accumulated Other
|
|
|
Accumulated Other
|
|
|
Amount of
|
|
|
|
|
|
Recognized in
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
Gain or (Loss)
|
|
|
|
|
|
Other
|
|
|
Loss into
|
|
|
Loss into Loss
|
|
|
Recognized in
|
|
|
|
|
|
Comprehensive Loss
|
|
|
Interest Expense
|
|
|
on Terminated Swaps
|
|
|
Interest Expense
|
|
|
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
(Ineffective Portion)
|
|
|
(Ineffective Portion)
|
|
|
|
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
Designation\Cash Flow
|
|
Derivative
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Non-Qualifying
|
|
Basis Swaps
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,538
|
|
|
$
|
11,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualifying
|
|
Interest Rate Swaps
|
|
$
|
43,276
|
|
|
$
|
(68,624
|
)
|
|
$
|
(29,616
|
)
|
|
$
|
(12,582
|
)
|
|
$
|
(8,730
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The cumulative amount of other comprehensive loss related to net
unrealized losses on derivatives designated as Cash Flow Hedges
as of December 31, 2009 and 2008 of $(53.3) million
and $(96.6) million, respectively, is a combination of the
fair value of qualifying cash flow hedges of
$(47.4) million and $(98.2) million, respectively,
deferred losses on terminated interest swaps of
$(7.2) million as of December 31, 2009, and deferred
net gains on termination of interest swaps of $1.2 million
and $1.6 million as of December 31, 2009 and
December 31, 2008, respectively.
The Company has agreements with certain derivative
counterparties that contain a provision whereby if the Company
defaults on any of its indebtedness, including default where
repayment of the indebtedness has not been accelerated by the
lender, then the Company could also be declared in default on
its derivative obligations. As of December 31, 2009, the
fair value of derivatives in a net liability position, which
includes accrued interest but excludes any adjustment for
nonperformance risk, related to these agreements was
$(18.0) million. As of December 31, 2009, the Company
has minimum collateral posting thresholds with certain
derivative counterparties and has posted collateral of
$18.9 million. If the Company had breached any of these
provisions as of December 31, 2009, it could have been
required to settle its obligations under the agreements at their
termination value of $(18.0) million, which is
$0.9 million less than the posted collateral.
|
|
Note 12
|
Commitments
and Contingencies
|
As of December 31, 2009, the Company had the following
material contractual obligations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period(1)
|
|
Contractual Obligations
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
Notes payable
|
|
$
|
1,300
|
|
|
$
|
5,000
|
|
|
$
|
318,761
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50,158
|
|
|
$
|
375,219
|
|
Collateralized debt obligations(2)
|
|
|
96,202
|
|
|
|
75,686
|
|
|
|
366,627
|
|
|
|
217,416
|
|
|
|
206,481
|
|
|
|
138,103
|
|
|
|
1,100,515
|
|
Repurchase agreements
|
|
|
2,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,657
|
|
Junior subordinated notes(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
289,958
|
|
|
|
289,958
|
|
Mortgage note payable -
held-for-sale
|
|
|
|
|
|
|
|
|
|
|
41,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
100,159
|
|
|
$
|
80,686
|
|
|
$
|
726,828
|
|
|
$
|
217,416
|
|
|
$
|
206,481
|
|
|
$
|
478,219
|
|
|
$
|
1,809,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents principal amounts due
based on contractual maturities
|
119
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
|
|
|
(2)
|
|
Comprised of $254.1 million of
CDO I debt, $329.5 million of CDO II debt and
$516.9 million of CDO III debt with an estimated weighted
average remaining maturity of 2.08, 3.35 and 3.15 years,
respectively, as of December 31, 2009. In 2009, the Company
repurchased, at a discount, approximately $42.8 million of
investment grade notes originally issued by the Companys
CDO I, CDO II and CDO III issuers and recorded a reduction
of the outstanding debt balance of $42.8 million. In the
first quarter of 2010, the Company purchased, at a discount,
approximately $19.4 million of investment grade notes
originally issued by our CDO I, CDO II and CDO III issuers
and recorded a reduction of the outstanding debt balance of
$19.4. million. In February 2010, the Company re-issued the
CDO bonds it had acquired throughout 2009 with an aggregate face
amount of $42.8 million in exchange for the retirement of a
portion of its junior subordinated notes.
|
|
(3)
|
|
Represents the face amount due upon
maturity. The carrying value is $259.5 million, which is
net of a deferred amount of $30.5 million. In 2009, the
Company repurchased, at a discount, approximately
$9.4 million of investment grade rated junior subordinated
notes originally issued by the Companys issuing entity and
recorded a reduction of the outstanding debt balance of
$9.4 million. In February 2010, the Company retired
$114.1 million of its junior subordinated notes in exchange
for the re-issuance of certain of its own CDO bonds, as well as
other assets.
|
In accordance with certain loans and investments, the Company
has outstanding unfunded commitments of $66.0 million as of
December 31, 2009, that the Company is obligated to fund as
the borrowers meet certain requirements. Specific requirements
include, but are not limited to, property renovations, building
construction, and building conversions based on criteria met by
the borrower in accordance with the loan agreements. In relation
to the $66.0 million outstanding balance at
December 31, 2009, the Companys restricted cash
balance and CDO III revolver capacity contained approximately
$15.2 million of cash and $13.3 million of capacity
available to fund the portion of the unfunded commitments for
loans financed by the Companys CDO vehicles.
Litigation
The Company currently is neither subject to any material adverse
litigation nor, to managements knowledge, is any material
adverse litigation currently threatened against the company.
|
|
Note 13
|
Stockholders
Equity
|
Preferred
Stock
Concurrent with the formation of the Company, ACM contributed a
portfolio of structured finance investments and related debt to
ARLP, the operating partnership of the Company, in exchange for
3,146,724 units of limited partnership interest in ARLP and
warrants to purchase an additional 629,345 operating partnership
units which were exercised in 2004. Concurrently, the Company,
ARLP and ACM entered into a pairing agreement. Pursuant to the
pairing agreement, each operating partnership unit issued to ACM
and issuable to ACM upon the subsequent exercise of its warrants
for additional operating partnership units was paired with one
share of the Companys special voting preferred stock. Each
share of special voting preferred stock entitled the holder to
one vote on all matters submitted to a vote of the
Companys stockholders. In June 2008, ACM exercised its
right to redeem its 3,776,069 OP units in the Companys
operating partnership for shares of the Companys common
stock on a
one-for-one
basis. As a result, the special voting preferred shares paired
with each OP unit, pursuant to a pairing agreement, were
simultaneously redeemed and cancelled by the Company. At
December 31, 2009 and 2008, the Company had no preferred
shares or OP units outstanding.
Common
Stock
The Companys charter provides for the issuance of up to
500 million shares of common stock, par value $0.01 per
share, and 100 million shares of preferred stock, par value
$0.01 per share. The Company was incorporated in June 2003 and
was initially capitalized through the sale of 67 shares of
common stock for $1,005.
In March 2007, the Company filed a shelf registration statement
on
Form S-3
with the SEC under the 1933 Act with respect to an
aggregate of $500.0 million of debt securities, common
stock, preferred stock, depositary shares and warrants, that may
be sold by the Company from time to time pursuant to
Rule 415 of the 1933 Act. On April 19, 2007, the
Commission declared this shelf registration statement effective.
In June 2007, the Company sold 2,700,000 shares of its
common stock registered on the shelf registration statement in a
public offering at a price of
120
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
$27.65 per share, for net proceeds of approximately
$73.6 million after deducting the underwriting discount and
the other estimated offering expenses. The Company used the
proceeds to pay down debt and finance its loan and investment
portfolio. The underwriters did not exercise their over
allotment option for additional shares. At December 31,
2009, the Company had $425.3 million available under this
shelf registration.
In June 2008, the Company issued 3,776,069 common shares upon
the exchange of OP units by ACM on a
one-for-one
basis. As a result, the special voting preferred shares paired
with each OP unit, pursuant to a pairing agreement, were
simultaneously redeemed and cancelled by the Company. In
connection with this transaction, the Companys Board of
Directors approved a resolution of the Companys charter
allowing ACM and Ivan Kaufman to own more than the 7% ownership
limitation of the Companys outstanding common stock.
In August 2008, the Company entered into an equity placement
program sales agreement with a securities agent whereby the
Company may issue and sell up to 3 million shares of its
common stock through the agent who agrees to use its
commercially reasonable efforts to sell such shares during the
term of the agreement and under the terms set forth therein. To
date, the Company has not utilized this equity placement program.
The Company had 25,387,410 and 25,142,410 shares of common
stock outstanding at December 31, 2009 and 2008,
respectively.
Deferred
Compensation
The Company has a stock incentive plan, under which the board of
directors has the authority to issue shares of stock to certain
directors, officers, and employees of the Company and ACM. As of
December 31, 2008, there were 326,453 unvested shares of
restricted common stock issued under this plan with a weighted
average grant date fair value of $19.91 per share. On
April 21, 2009, the Company issued an aggregate of
245,000 shares of restricted common stock under the Plan,
with a grant date fair value of $1.36 per share of which
155,000 shares were awarded to certain employees of the
Company and ACM and 90,000 shares were issued to members of
the board of directors. As a means of emphasizing retention at a
critical time for the Company and due to their relatively low
value, the 245,000 common shares underlying the restricted stock
awards granted were fully vested as of the date of grant. In
addition, in April 2009, 83,362 shares of previously
unvested restricted common stock vested and the Company
accelerated the vesting of all remaining unvested shares
underlying restricted stock awards totaling 243,091 shares
previously granted to certain employees of the Company and ACM
and non-management members of the board. All of the shares that
vested in 2009 had a weighted average grant date fair value of
$19.91 per share. As a result of these transactions, the Company
recorded approximately $2.1 million of expense in the
Companys Consolidated Statements of Operations during the
second quarter of 2009 of which, $1.7 million was recorded
in employee compensation and benefits and $0.4 million was
recorded in selling and administrative. In May 2009, the
Companys shareholders approved an amendment to the Plan to
authorize the grant of stock options, as well as the
authorization of an additional 1,250,000 shares of the
Companys common stock to be reserved for issuance under
the Plan.
Dividends paid on restricted shares are recorded as dividends on
shares of the Companys common stock whether or not they
are vested. For accounting purposes, the Company measures the
compensation costs for these shares as of the date of the grant,
with subsequent remeasurement for any unvested shares granted to
non-employees of the Company with such amounts expensed against
earnings, at the grant date (for the portion that vest
immediately) or ratably over the respective vesting periods. For
the years ended December 31, 2009, 2008 and 2007,
compensation expense related to this plan totaled
$2.6 million, $3.0 million and $2.5 million,
respectively. Such amounts appear on the Companys
Consolidated Statement of Operations under employee
compensation and benefits for employees and under
selling and administrative expense for non-employees.
Warrants
In connection with the amended and restructured term credit
agreements, revolving credit agreement and working capital
facility with Wachovia Bank, National Association, the Company
issued Wachovia one million
121
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
warrants at an average strike price of $4.00. 500,000 warrants
were exercisable immediately at a price of $3.50, 250,000
warrants are exercisable after July 23, 2010 at a price of
$4.00 and 250,000 warrants are exercisable after July 23,
2011 at a price of $5.00. All of the warrants expire on
July 23, 2015 and no warrants have been exercised to date.
The warrants were valued at approximately $0.6 million
using the Black-Scholes method and will be amortized into
interest expense over the life of the agreement in the
Companys Consolidated Statement of Operations. See
Note 8 Debt Obligations for further
information relating to this transaction.
|
|
Note 14
|
(Loss)
Earnings Per Share
|
Basic (loss) earnings per share (EPS) is calculated
by dividing net (loss) income attributable to Arbor Realty
Trust, Inc. by the weighted average number of shares of common
stock outstanding during each period inclusive of unvested
restricted stock which participate fully in dividends. Diluted
EPS is calculated by dividing income adjusted for noncontrolling
interest in the operating partnership by the weighted average
number of shares of common stock outstanding plus the additional
dilutive effect of common stock equivalents during each period.
The Companys common stock equivalents are the potential
shares from settlement of incentive management fees in common
stock, ARLPs operating partnership units prior to the
redemption for common stock in June 2008, and outstanding
warrants.
During the first six months of 2008, ACM, the manager of the
Company, earned incentive management fees totaling
$10.2 million, of which $7.3 million was prepaid
relating to the incentive management fee earned from the
monetization of the POM equity kicker transaction in June 2008.
Based on the terms of the management agreement, ACM elected to
receive its incentive management fees partially in cash totaling
$5.6 million and partially in common shares totaling
472,582, all of which were issued in 2008. In addition, in June
2008, ACM exercised its right to redeem its 3,776,069 OP units
in the Companys operating partnership for shares of the
Companys common stock on a
one-for-one
basis. For the full year December 31, 2008, these common
stock equivalents were considered anti-dilutive and excluded
from diluted earnings per share, as periods with a net loss
cannot be diluted.
In 2007, ACM earned incentive management fees totaling
$40.8 million. Based on the terms of the management
agreement, ACM elected to be paid its incentive management fees
partially in cash totaling $27.1 million and partially in
common shares totaling 556,631 of which 86,772 were issued in
2008. A portion of these shares were considered dilutive for the
period in which they were earned but not yet issued.
122
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
The following is a reconciliation of the numerator and
denominator of the basic and diluted net (loss) earnings per
share computations for the years ended December 31, 2009,
2008, and 2007, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Basic
|
|
|
Diluted(1)
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Net (loss) income from continuing operations, net of
non-controlling interest
|
|
$
|
(225,355,819
|
)
|
|
$
|
(225,355,819
|
)
|
|
$
|
(80,647,550
|
)
|
|
$
|
(80,647,550
|
)
|
|
$
|
84,533,878
|
|
|
$
|
84,533,878
|
|
Add: net income attributable to noncontrolling interest in
operating partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,989,177
|
|
Net loss from discontinued operations
|
|
|
(5,275,337
|
)
|
|
|
(5,275,337
|
)
|
|
|
(582,294
|
)
|
|
|
(582,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings allocable to common stock
|
|
$
|
(230,631,156
|
)
|
|
$
|
(230,631,156
|
)
|
|
$
|
(81,229,844
|
)
|
|
$
|
(81,229,844
|
)
|
|
$
|
84,533,878
|
|
|
$
|
101,523,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
25,313,574
|
|
|
|
25,313,574
|
|
|
|
22,916,648
|
|
|
|
22,916,648
|
|
|
|
19,022,616
|
|
|
|
19,022,616
|
|
Weighted average number of operating partnership units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,776,069
|
|
Dilutive effect of incentive management fee shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average common shares outstanding
|
|
|
25,313,574
|
|
|
|
25,313,574
|
|
|
|
22,916,648
|
|
|
|
22,916,648
|
|
|
|
19,022,616
|
|
|
|
22,870,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations, net of
noncontrolling interest, per common share
|
|
$
|
(8.90
|
)
|
|
$
|
(8.90
|
)
|
|
$
|
(3.52
|
)
|
|
$
|
(3.52
|
)
|
|
$
|
4.44
|
|
|
$
|
4.44
|
|
Loss from discontinued operations per common share
|
|
|
(0.21
|
)
|
|
|
(0.21
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Arbor Realty Trust, Inc. per
common share
|
|
$
|
(9.11
|
)
|
|
$
|
(9.11
|
)
|
|
$
|
(3.54
|
)
|
|
$
|
(3.54
|
)
|
|
$
|
4.44
|
|
|
$
|
4.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
As of December 31, 2009,
diluted net loss per share excludes one million warrants, which
were anti-dilutive for the period.
|
|
|
Note 15
|
Related
Party Transactions
|
Due from related party was $15.2 million at
December 31, 2009 and consisted of $7.0 million for a
loan paydown received by ACM in December 2009, which was repaid
in the first quarter of 2010, $0.9 million of escrows due
from ACM related to 2009 real estate asset transactions and
$7.3 million reclassified from prepaid management
fee related party, related to the POM transaction
that closed in 2009. See Note 6
Investment in Equity Affiliates for further details.
In accordance with the August 2009 amended management agreement,
since no incentive fee was earned for 2009, the prepaid
management fee is to be paid back in installments of 25% due by
December 31, 2010 and 75% due by June 30, 2012, with
an option to make payment in both cash and Arbor Realty Trust,
Inc. common stock provided that at least 50% of the payment is
made in cash, and will be offset against any future incentive
management fees or success-based payments earned by our manager
prior to June 30, 2012. At
123
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
December 31, 2008, due from related party was
$2.9 million as a result of an overpayment of incentive
management compensation based on the results of the twelve
months ended December 31, 2008. During the second quarter
of 2009, ACM repaid the $2.9 million overpayment in full.
See Note 17 Management Agreement
for further details.
At December 31, 2009, due to related party was
$2.0 million and consisted primarily of base management
fees due to ACM, which will be remitted by the Company in 2010.
At December 31, 2008, due to related party was
$1.0 million and consisted of $0.8 million of base
management fees and $0.2 million of unearned fees due to
ACM that were remitted by the Company in February 2009.
During 2009, the Company purchased from ACM, approximately
$20.0 million of investment grade rated bonds originally
issued by two of its three CDO issuing entities and
approximately $9.4 million of junior subordinated notes
originally issued by a wholly-owned subsidiary of the
Companys operating partnership for $9.1 million and
recorded a net gain on early extinguishment of debt of
$20.3 million. ACM had purchased the CDO notes from third
party investors for $8.2 million in 2008, and the junior
subordinated notes from third party investors for
$1.3 million in 2009. See Note 8
Debt Obligations for further details.
At December 31, 2008, the Company had outstanding
borrowings from ACM totaling $4.2 million. In January 2009,
the loan was repaid in full. See Note 8
Debt Obligations for further details.
During 2006, the Company originated a $7.2 million bridge
loan and a $0.3 million preferred equity investment secured
by garden-style and townhouse apartments in South Carolina. The
Company also had a 25.0% carried profits interest in the
borrowing entity. In January 2008, the borrowing entity
refinanced the property through ACMs Fannie Mae program
and the Company received $0.3 million for its profits
interest as well as full repayment of the $0.3 million
preferred equity investment and the $7.0 million
outstanding balance on the bridge loan. The Company retained the
25% carried profits interest.
At December 31, 2006, the Company had a $7.75 million
first mortgage loan that bore interest at a variable rate of one
month LIBOR plus 4.25% and was scheduled to mature in March
2006. In March 2006, this loan was extended for one year with no
other change in terms. The underlying property was sold to a
third party in March 2007. The Company provided the financing to
the third party and, in conjunction with the sale, the original
loan was repaid in full in March 2007. The original loan was
made to a
not-for-profit
corporation that holds and manages investment property from the
endowment of a private academic institution. Two of the
Companys directors are members of the board of trustees of
the original borrower and the private academic institution.
Interest income recorded from the original loan for the year
ended December 31, 2007 was approximately $0.1 million.
The Company is dependent upon its manager (ACM), with whom it
has a conflict of interest, to provide services to the Company
that are vital to its operations. The Companys chairman,
chief executive officer and president, Mr. Ivan Kaufman, is
also the chief executive officer and president of ACM, and, the
Companys chief financial officer and treasurer,
Mr. Paul Elenio, is the chief financial officer of ACM. In
addition, Mr. Kaufman and the Kaufman entities together
beneficially own approximately 92% of the outstanding membership
interests of ACM and certain of the Companys employees and
directors, also hold an ownership interest in ACM. Furthermore,
one of the Companys directors also serves as the trustee
of one of the Kaufman entities that holds a majority of the
outstanding membership interests in ACM and co-trustee of
another Kaufman entity that owns an equity interest in ACM. ACM
currently holds approximately 5.4 million common shares,
representing 21.2% of the voting power of the Companys
outstanding stock as of December 31, 2009.
The Company must currently distribute at least 90% of its
taxable income in order to qualify as a REIT and must distribute
100% of its taxable income in order not to be subject to
corporate federal income taxes on retained income. Additionally,
the IRS has issued guidance that temporarily allows listed REITs
to offer shareholders
124
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
elective dividends which are paid in a combination of cash and
common stock, even if the amount payable in cash is capped, so
long as that cap is not less than 10% of the total dividend. The
Company anticipates it will distribute all of its taxable income
to its stockholders. Because taxable income differs from cash
flow from operations due to non-cash revenues or expenses (such
as depreciation), in certain circumstances, the Company may
generate operating cash flow in excess of its distributions or,
alternatively, may be required to borrow to make sufficient
distribution payments.
The following table presents dividends paid by the Company on
its common stock for the years ended December 31, 2009,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Tax Purposes
|
|
|
|
|
|
|
Dividend Classified
|
|
|
|
|
|
Dividend Classified
|
|
|
|
|
|
|
as Ordinary Income
|
|
Capital Gain Distribution
|
|
as Return of Capital
|
|
|
|
|
Dividend
|
|
|
|
Dividend
|
|
|
|
|
|
Dividend
|
|
|
|
Dividend
|
|
|
Total
|
|
Paid
|
|
|
|
Paid
|
|
Qualified
|
|
|
|
Paid
|
|
|
|
Paid
|
|
|
Dividends
|
|
Per
|
|
|
|
Per
|
|
Dividend
|
|
|
|
Per
|
|
|
|
Per
|
Year
|
|
Paid
|
|
Share
|
|
Percent
|
|
Share
|
|
Income(1)
|
|
Percent
|
|
Share
|
|
Percent
|
|
Share
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
47,361
|
|
|
$
|
2.10
|
|
|
|
99.05
|
%
|
|
$
|
2.08
|
|
|
|
|
|
|
|
0.95
|
%
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
46,586
|
|
|
$
|
2.46
|
|
|
|
94.31
|
%
|
|
$
|
2.32
|
|
|
|
18.10
|
%
|
|
|
5.69
|
%
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Qualified dividend income is
eligible for reduced dividend rates.
|
The Company declared and paid distributions of $14,500, $14,539
and $14,500 for the years ended December 31, 2009, 2008 and
2007, respectively, representing the 12.5% return on the
preferred shares issued to third parties by its subsidiary REIT.
Under the terms of certain financing agreements, annual
dividends are limited to 100% of taxable income to common
shareholders and are required to be paid in the form of the
Companys stock to the maximum extent permissible
(currently 90%), with the balance payable in cash. The Company
will be permitted to pay 100% of taxable income in cash if
certain conditions are met, as previously disclosed. See
Note 8 Debt Obligations for further
details.
Based on the continued difficult economic environment, the Board
of Directors and the Company have elected not to pay a common
stock dividend for the year ended December 31, 2009. In
January 2009, the Board of Directors elected not to pay a common
stock distribution with respect to the quarter ended
December 31, 2008. The dividends paid in 2008 fully satisfy
its 2008 REIT distribution requirements.
|
|
Note 17
|
Management
Agreement
|
The Company, ARLP and Arbor Realty SR, Inc. have entered into a
management agreement with ACM, which provides that the Company
will pay ACM a base management fee and incentive compensation
fee for performing services under the management agreement.
The Companys chief executive officer is also ACMs
chief executive officer and controlling equity owner and the
Companys chief financial officer and treasurer is also
ACMs chief financial officer. ACM has agreed to provide
the Company with structured finance investment opportunities and
loan servicing as well as other services necessary to operate
its business. The Company relies to a significant extent on the
facilities and resources of ACM to conduct its operations.
ACMs management of the Company is under the direction or
supervision of the Companys board of directors. The
management agreement requires ACM to manage the business affairs
in conformity with the policies and the general investment
guidelines that are approved and monitored by the Companys
board of directors.
125
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
On August 6, 2009, the Company amended its management
agreement with ACM. The amendment was negotiated by a special
committee of the Companys Board of Directors, consisting
solely of independent directors and approved unanimously by all
of the independent directors. JMP Securities LLC served as
financial advisor to the special committee and Skadden, Arps,
Slate, Meagher & Flom LLP served as its special
counsel. The significant components of the amendment, effective
as of January 1, 2009, were as follows:
|
|
|
|
|
The existing base management fee structure, which was calculated
as a percentage of the Companys equity, was replaced with
an arrangement whereby the Company will reimburse ACM for its
actual costs incurred in managing the Companys business
based on the parties agreement in advance on an annual
budget with subsequent quarterly
true-ups to
actual costs. This change was adopted retroactively to
January 1, 2009 and the Company estimated the 2009 base
management fee would be in the range of $8.0 million to
$8.5 million. The 2010 base management fee is estimated to
be in the same range. Concurrent with this change, all future
origination fees on investments will be retained by the Company,
whereas under the prior agreement, origination fees up to 1% of
the loan were retained by ACM. In addition, the Company made a
$3.0 million payment to the manager in consideration of
expenses incurred by the manager in 2008 in managing the
Companys business and certain other services. These
changes were accounted for prospectively as a change in
accounting estimate.
|
|
|
|
The percentage hurdle for the incentive fee will be applied on a
per share basis to the greater of $10.00 and the average gross
proceeds per share, whereas the previous management agreement
provided for such percentage hurdle to be applied only to the
average gross proceeds per share. In addition, only 60% of any
loan loss and other reserve recoveries will be eligible to be
included in the incentive fee calculation, which will be spread
over a three year period, whereas the previous management
agreement did not limit the inclusion of such recoveries in the
incentive fee calculation.
|
|
|
|
The amended management agreement allows the Company to consider,
from time to time, the payment of additional fees to the manager
for accomplishing certain specified corporate objectives. In
accordance with the agreement, success-based
payments were paid in the third quarter of 2009 totaling
$4.1 million, for the trust preferred and Wachovia debt
restructurings.
|
|
|
|
The amended management agreement modifies and simplifies the
provisions related to the termination of the agreement and any
related fees payable in such instances, including for
internalization, with a termination fee of $10.0 million,
rather than payment based on a multiple of base and incentive
fees as previously existed.
|
|
|
|
The amended management agreement will remain in effect until
December 31, 2010, and will be renewed automatically for
successive one-year terms thereafter.
|
The amended management agreement has an initial term up to
December 31, 2010 and is renewable automatically for an
additional one year period every year thereafter, unless
terminated with six months prior written notice. If the
Company terminates or elects not to renew the management
agreement without cause, it is required to pay a termination fee
of $10.0 million.
For performing services under the management agreement, the
Company previously paid ACM an annual base management fee
payable monthly in cash as a percentage of ARLPs equity
and equal to 0.75% per annum of the equity up to
$400.0 million, 0.625% per annum of the equity from
$400.0 million to $800.0 million and 0.50% per annum
of the equity in excess of $800.0 million. For purposes of
calculating the base management fee, equity equaled the month
end value computed in accordance with GAAP of (1) total
partners equity in ARLP, plus or minus (2) any
unrealized gains, losses or other items that do not affect
realized net income. With respect to all loans and investments
originated during the term of the management agreement, the
Company had also agreed to pay ACM an amount equal to 100% of
the origination fees paid by the borrower up to 1% of the
loans principal amount.
126
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
The Company also paid ACM incentive compensation on a quarterly
basis, calculated as (1) 25% of the amount by which
(a) ARLPs funds from operations per unit of
partnership interest in ARLP, adjusted for certain gains and
losses, exceeds (b) the product of (x) 9.5% per annum
or the Ten Year U.S. Treasury Rate plus 3.5%, whichever is
greater, and (y) the weighted average of book value of the
net assets contributed by ACM to ARLP per ARLP partnership unit,
the offering price per share of the Companys common equity
in the private offering on July 1, 2003 and subsequent
offerings and the issue price per ARLP partnership unit for
subsequent contributions to ARLP, multiplied by (2) the
weighted average of ARLPs outstanding partnership units.
The incentive compensation is measured annually in arrears;
provided, however, ACM shall receive quarterly installments
thereof in advance. The quarterly installments are calculated
based on the results for the period of twelve months ending on
the last day of the fiscal quarter with respect to which such
installment is payable. Each quarterly installment payment is
deemed to be an advance of a portion of the incentive fee
payable for the year. At least 25% of this incentive
compensation fee is paid to ACM in shares of the Companys
common stock, subject to ownership limitations in the
Companys charter. For purposes of determining the number
of shares that are paid to ACM to satisfy the common stock
portion of the incentive management fee from and after the date
the Companys common shares are publicly traded, each
common share shall have a value equal to the average closing
price per common share based on the last twenty days of the
fiscal quarter with respect to which the incentive fee is being
paid. The incentive compensation fee is accrued as it is earned.
The expense incurred for incentive fee paid in common stock is
determined using the amount of stock calculated as noted above
and the quoted market price of the stock on the last day of each
quarter. At December 31, the Company remeasures the
incentive fee expense paid to ACM in shares of the
companys common stock in accordance with current
accounting guidance, which discusses how to measure at the
measurement date when certain terms are not known prior to the
measurement date. Accordingly, expense recorded related to
common stock issued as a portion of incentive fee is adjusted to
reflect the fair value of the stock on the measurement date when
the final calculation of total incentive fee is determined. In
the event the calculated incentive compensation for the full
year is an amount less than the total of the installment
payments made to ACM for the year, ACM will refund to the
Company the amount of such overpayment in cash regardless of
whether such installments were paid in cash or common stock. In
such case, the Company would record a negative incentive fee
expense in the quarter when such overpayment is determined.
ACM is responsible for all costs incident to the performance of
its duties under the management agreement, including
compensation of its employees, rent for facilities and other
overhead expenses. The Company is required to pay
ACM management fees as well as reimburse ACM for all expenses
incurred on behalf of the Company in connection with the raising
of capital or the incurrence of debt, interest expenses, taxes
and license fees, litigation and extraordinary or non recurring
expenses.
ACM, pursuant to the management agreement with the Company, and
Mr. Kaufman, pursuant to his non-competition agreement with
the Company, have granted the Company a right of first refusal
to pursue all opportunities identified by them or their
affiliates to invest in multifamily and commercial mortgage
loans and customized financing transactions, including bridge
loans, mezzanine loans, preferred equity investments, note
acquisitions and participation interests in owners of real
properties (collectively, Structured Finance
Investments) as long as such investment opportunities are
consistent with the Companys investment objectives and
guidelines and such investments would not adversely affect the
Companys status as a REIT. These agreements also provide
that ACM or Mr. Kaufman, as the case may be, may pursue any
opportunity in Structured Finance Investments if the opportunity
is rejected by both the Companys credit committee and a
majority of the Companys independent directors.
Pursuant to the management agreement and Mr. Kaufmans
non-competition agreement, the Company has agreed not to pursue,
and to allow ACM and its affiliates, including Mr. Kaufman,
to pursue opportunities to invest in multi-family and commercial
mortgage loans that meet the underwriting and approval
guidelines of Fannie Mae, the Federal Housing Administration and
conduit commercial lending programs secured by first liens on
real property (collectively, the Manager Target
Investments). In addition to its exclusive right to pursue
Manager
127
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
Target Investments, ACM and its affiliates may pursue any other
type of investment (except Structured Finance Investments)
without the Companys consent.
The following table sets forth the Companys base and
incentive compensation management fees for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
Management Fees:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Base
|
|
$
|
15,136,170
|
|
|
$
|
3,539,854
|
|
|
$
|
3,207,116
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
21,797,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expensed
|
|
$
|
15,136,170
|
|
|
$
|
3,539,854
|
|
|
$
|
25,004,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive compensation prepaid
|
|
|
|
|
|
|
7,292,448
|
|
|
|
19,047,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total management fee
|
|
$
|
15,136,170
|
|
|
$
|
10,832,302
|
|
|
$
|
44,052,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, as a result of the
amended management agreement, the Company recorded base
management fees of $15.1 million , or $0.60 per basic and
diluted common share. For the years ended December 31, 2008
and 2007 ACM earned $3.5 million, and $3.2 million,
respectively in base management fees. The new fee structure also
provides for success-based payments to be paid to
the Companys manager upon the completion of specified
corporate objectives in addition to the standard base management
fee. In the third quarter of 2009, the base management fee
included success-based payments which were paid for the trust
preferred and Wachovia debt restructurings totaling an
additional $4.1 million. Of the base management fees
recorded, approximately $2.3 million, $0.8 million,
and $0.3 million was included in due to related party at
December 31, 2009, 2008 and 2007, respectively. These
amounts are paid in the quarters subsequent to each respective
year end.
Installments of the annual incentive compensation are subject to
quarterly recalculation and potential reconciliation at the end
of the fiscal year, and any overpayments are required to be
repaid in accordance with the management agreement. For the year
ended December 31, 2009, ACM did not earn an incentive
compensation installment. During 2008, the Company paid
incentive compensation installments totaling $2.9 million,
of which $1.4 million was elected by ACM to be paid in
116,680 shares of common stock and $1.5 million paid
in cash. For the year ended December 31, 2008, ACM did not
earn an incentive compensation fee and the overpayment of
$2.9 million was recorded and included in due from related
party. In June 2009, ACM repaid the $2.9 million in
accordance with the amended management agreement described above.
In addition, the Company recorded a $7.3 million deferred
management fee related to the incentive compensation fee earned
from the monetization of the POM equity kicker transaction in
June 2008, which was subsequently paid and reclassified to
prepaid management fees. The transaction closed in the second
quarter of 2009. See Note 6 Investment in
Equity Affiliates for further details. The
$7.3 million incentive compensation fee was elected by ACM
to be paid in 355,903 shares of common stock and
$4.1 million paid in cash. In accordance with the amended
management agreement, since no incentive fee was earned for
2009, the prepaid management fee is to be paid back in
installments of 25% due by December 31, 2010 and 75% due by
June 30, 2012, with an option to make payment in both cash
and Arbor Realty Trust, Inc. common stock provided that at least
50% of the payment is made in cash, and will be offset against
any future incentive management fees or success-based payments
earned by our manager prior to June 30, 2012.
In 2007, ACM earned an incentive compensation installment
totaling $40.8 million, of which $13.7 million was
elected by ACM to be paid in 556,631 shares of common stock
and $27.1 million paid in cash. Included in the
$40.8 million of incentive compensation was
$21.8 million recorded as management fee expense and
$19.0 million recorded as prepaid management fees related
to the incentive compensation management fee on the deferred
revenue recognized on the transfer of control of the
450 West
33rd
Street property of one of the Companys equity affiliates.
As provided for in the management agreement, ACM elected to be
paid its fourth quarter incentive
128
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
compensation management fee partially in 86,772 shares of
common stock with the remainder to be paid in cash totaling
$1.5 million, which was subsequently paid in February 2008.
The Company is organized and conducts its operations to qualify
as a real estate investment trust (REIT) and to
comply with the provisions of the Internal Revenue Code with
respect thereto. A REIT is generally not subject to federal
income tax on taxable income which is distributed to its
stockholders, provided that at least 90% of taxable income is
distributed and provided that certain other requirements are
met. Since the Company did not have REIT-taxable income for the
year ended December 31, 2009, and distributed 100% of its
2008 and 2007 REIT taxable income, no provision has been made
for federal income taxes in the accompanying Consolidated
Financial Statements. Certain of the Companys assets or
operations that would not otherwise comply with the REIT
requirements, are owned or conducted by its taxable REIT
subsidiaries, the income of which is subject to federal and
state income taxes. The Company did not record a provision for
income taxes related to the assets that are held in taxable REIT
subsidiaries for the years ended December 31, 2009 and
2008, but did record a provision in 2007.
The taxable REIT subsidiaries provision for income taxes
was comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,949,193
|
|
State
|
|
|
|
|
|
|
|
|
|
|
7,135,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision
|
|
|
|
|
|
|
|
|
|
|
19,085,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
(1,380,415
|
)
|
State
|
|
|
|
|
|
|
|
|
|
|
(819,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax provision
|
|
|
|
|
|
|
|
|
|
|
(2,200,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,885,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The taxable REIT subsidiaries effective income tax rate as
a percentage of pretax income differed from the
U.S. federal statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S. federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal tax benefit
|
|
|
5.7
|
|
|
|
6.0
|
|
|
|
11.3
|
|
Change in valuation allowance
|
|
|
(40.7
|
)
|
|
|
(41.0
|
)
|
|
|
(2.1
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
|
%
|
|
|
|
%
|
|
|
43.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective tax rate for 2009, 2008 and 2007
represents the tax on individual taxable REIT subsidiaries, some
of which are in a net income or net loss position that are not
combined for tax reporting purposes, but have been aggregated
here for financial statement reporting purposes.
129
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
The significant components of deferred tax assets (liabilities)
were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Expenses not currently deductible
|
|
$
|
5,253,373
|
|
|
$
|
494,565
|
|
Net operating loss carryforwards
|
|
|
5,238,973
|
|
|
|
3,377,198
|
|
Interest in equity affiliates net
|
|
|
(2,270,411
|
)
|
|
|
233,121
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
8,221,935
|
|
|
|
4,104,884
|
|
Valuation allowance
|
|
|
(6,021,935
|
)
|
|
|
(1,904,884
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
2,200,000
|
|
|
$
|
2,200,000
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net of deferred tax liabilities, are
included in other assets in the Consolidated Balance Sheet. At
December 31, 2009, the Company has approximately
$10.5 million of deferred tax assets consisting of net
operating loss carryforwards and expenses not currently
deductible. In addition, the Company has approximately
$2.2 million of deferred tax assets resulting from the
Companys investment in equity affiliates. The
Companys deferred tax assets are offset in part by
approximately $4.5 million of deferred tax liabilities
resulting from timing differences relating to investments in
equity affiliates, and a valuation allowance of approximately
$6.0 million.
At December 31, 2008, the Company has approximately
$3.9 million of deferred tax assets consisting of net
operating loss carry forwards and expenses not currently
deductible. In addition, the Company has approximately
$2.2 million of deferred tax assets resulting from our
investment in equity affiliates. The Companys deferred tax
assets are offset in part by approximately $2.0 million of
deferred tax liabilities resulting from timing differences
relating to investments in equity affiliates, and a valuation
allowance of approximately $1.9 million.
The taxable REIT subsidiaries have federal and state net
operating loss carryforwards as of December 31, 2009 and
2008 of approximately $12.8 million and $8.2 million,
respectively, which will expire through 2029 and 2028,
respectively. The Company has concluded that it is more likely
than not that the net operating losses will not be utilized
during the carryforward period, and as such, net of deferred tax
liabilities, the Company has established a valuation allowance
against these net deferred tax assets.
As of December 31, 2009, the Company had approximately
$87.0 million of federal and state net operating losses and
approximately $63.0 million of capital losses. The net
operating losses will expire through 2029 and the capital losses
will expire through 2014.
The Company has assessed its tax positions for all open tax
years, which includes 2006 to 2009, and concluded the there were
no material uncertainties to be recognized. The Companys
accounting policy with respect to interest and penalties related
to tax uncertainties is to classify these amounts as provision
for income taxes. The Company has not recognized any interest
and penalties related to tax uncertainties for the years ended
December 31, 2009, 2008 and 2007.
|
|
Note 19
|
Due to
Borrowers
|
Due to borrowers represents borrowers funds held by the
Company to fund certain expenditures or to be released at the
Companys discretion upon the occurrence of certain
pre-specified events, and to serve as additional collateral for
borrowers loans. While retained, these balances earn
interest in accordance with the specific loan terms with which
they are associated.
130
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
Fair
Value of Financial Instruments
Fair value estimates are dependent upon subjective assumptions
and involve significant uncertainties resulting in variability
in estimates with changes in assumptions. The following table
summarizes the carrying values and the estimated fair values of
financial instruments as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
|
|
|
Estimated
|
|
|
|
Estimated
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and investments, net
|
|
$
|
1,700,774,288
|
|
|
$
|
1,403,364,710
|
|
|
$
|
2,181,683,619
|
|
|
$
|
1,886,787,988
|
|
Available-for-sale
securities
|
|
|
488,184
|
|
|
|
488,184
|
|
|
|
529,104
|
|
|
|
529,104
|
|
Securities
held-to-maturity
|
|
|
60,562,808
|
|
|
|
31,774,920
|
|
|
|
58,244,348
|
|
|
|
18,735,000
|
|
Derivative financial instruments
|
|
|
2,516,424
|
|
|
|
2,516,424
|
|
|
|
7,192,967
|
|
|
|
7,192,967
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements
|
|
$
|
2,657,332
|
|
|
$
|
2,637,909
|
|
|
$
|
60,727,789
|
|
|
$
|
58,390,888
|
|
Collateralized debt obligations
|
|
|
1,100,515,185
|
|
|
|
408,149,036
|
|
|
|
1,152,289,000
|
|
|
|
324,796,811
|
|
Junior subordinated notes
|
|
|
259,487,421
|
|
|
|
80,083,264
|
|
|
|
276,055,000
|
|
|
|
66,061,690
|
|
Notes payable
|
|
|
375,219,206
|
|
|
|
216,637,119
|
|
|
|
518,435,437
|
|
|
|
499,254,876
|
|
Note payable - related party
|
|
|
|
|
|
|
|
|
|
|
4,200,000
|
|
|
|
4,177,373
|
|
Mortgage note payable -
held-for-sale
|
|
|
41,440,000
|
|
|
|
40,510,962
|
|
|
|
41,440,000
|
|
|
|
40,893,904
|
|
Derivative financial instruments
|
|
|
47,886,372
|
|
|
|
47,886,372
|
|
|
|
98,161,523
|
|
|
|
98,161,523
|
|
The following methods and assumptions were used by the Company
in estimating the fair value of each class of financial
instrument:
Loans and investments, net: Fair values of
loans and investments are estimated using discounted cash flow
methodology, using discount rates, which, in the opinion of
management, best reflect current market interest rates that
would be offered for loans with similar characteristics and
credit quality.
Available-for-sale
securities: Fair values are approximated based on
current observed prices received from markets that trade such
securities.
Securities
held-to-maturity: Fair
values are approximated on current market quotes received from
financial sources that trade such securities and are based on
prevailing market data and derived from third party proprietary
models based on well recognized financial principles and
reasonable estimates about relevant future market conditions.
Derivative financial instruments: Fair values
are approximated on current market data received from financial
sources that trade such instruments and are based on prevailing
market data and derived from third party proprietary models
based on well recognized financial principles and reasonable
estimates about relevant future market conditions. These items
are included in other assets and other liabilities on the
Consolidated Balance Sheet. The Company incorporates credit
valuation adjustments in the fair values of its derivative
financial instruments to reflect counterparty nonperformance
risk.
Repurchase agreements, notes payable and mortgage note
payable
held-for-sale: Fair
values are estimated using discounted cash flow methodology,
using discount rates, which, in the opinion of management, best
reflect current market interest rates for financing with similar
characteristics and credit quality. Due to their reasonably
short-term nature, the differences between fair values and
carrying values were relatively small.
Collateralized debt obligations: Fair values
are estimated based on broker quotations, representing the
discounted expected future cash flows at a yield which reflects
current market interest rates and credit spreads.
131
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
Junior subordinated notes: Fair values are
estimated based on broker quotations, representing the
discounted expected future cash flows at a yield which reflects
current market interest rates and credit spreads.
Fair
Value Measurement
Fair value is defined as the price at which an asset could be
exchanged in a current transaction between knowledgeable,
willing parties. A liabilitys fair value is defined as the
amount that would be paid to transfer the liability to a new
obligor, not the amount that would be paid to settle the
liability with the creditor. Where available, fair value is
based on observable market prices or parameters or derived from
such prices or parameters. Where observable prices or inputs are
not available, valuation models are applied. These valuation
techniques involve some level of management estimation and
judgment, the degree of which is dependent on the price
transparency for the instruments or market and the
instruments complexity.
Assets and liabilities disclosed at fair value are categorized
based upon the level of judgment associated with the inputs used
to measure their fair value. Hierarchical levels directly
related to the amount of subjectivity associated with the inputs
to fair valuation of these assets and liabilities are as follows:
|
|
|
|
|
Level 1 Inputs are unadjusted, quoted prices in
active markets for identical assets or liabilities at the
measurement date. The types of assets and liabilities carried at
Level 1 fair value generally are government and agency
securities, equities listed in active markets, investments in
publicly traded mutual funds with quoted market prices and
listed derivatives.
|
|
|
|
Level 2 Inputs (other than quoted prices
included in Level 1) are either directly or indirectly
observable for the asset or liability through correlation with
market data at the measurement date and for the duration of the
instruments anticipated life. Level 2 inputs include
quoted market prices in markets that are not active for an
identical or similar asset or liability, and quoted market
prices in active markets for a similar asset or liability. Fair
valued assets and liabilities that are generally included in
this category are non-government securities, municipal bonds,
certain hybrid financial instruments, certain mortgage and
asset-backed securities including CDO bonds, certain corporate
debt, certain commitments and guarantees, certain private equity
investments and certain derivatives.
|
|
|
|
Level 3 Inputs reflect managements best
estimate of what market participants would use in pricing the
asset or liability at the measurement date. These valuations are
based on significant unobservable inputs that require a
considerable amount of judgment and assumptions. Consideration
is given to the risk inherent in the valuation technique and the
risk inherent in the inputs to the model. Generally, assets and
liabilities carried at fair value and included in this category
are certain mortgage and asset-backed securities, certain
corporate debt, certain private equity investments, certain
municipal bonds, certain commitments and guarantees and certain
derivatives.
|
Determining which category an asset or liability falls within
the hierarchy requires significant judgment and the Company
evaluates its hierarchy disclosures each quarter.
The Company measures certain financial assets and financial
liabilities at fair value on a recurring basis, including
available-for-sale securities and derivative financial
instruments. The fair value of these financial assets and
liabilities was determined using the following inputs as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
Carrying
|
|
Fair
|
|
Using Fair Value Hierarchy
|
|
|
Value
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities(1)(2)
|
|
$
|
488,184
|
|
|
$
|
488,184
|
|
|
$
|
488,184
|
|
|
$
|
|
|
|
$
|
|
|
Derivative financial instruments
|
|
|
2,516,424
|
|
|
|
2,516,424
|
|
|
|
|
|
|
|
2,516,424
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
47,886,372
|
|
|
|
47,886,372
|
|
|
|
|
|
|
|
47,886,372
|
|
|
|
|
|
132
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
|
|
|
(1)
|
|
During the year ended
December 31, 2008, the Companys Realty Finance
Corporation, formerly CBRE, common stock securities were written
to their fair value of $0.5 million, resulting in the
recognition of a $16.2 million impairment that was
considered
other-than-temporary
and included in operations for the period. An additional
impairment charge of $0.4 million was recorded to the
Consolidated Statements of Operations during the year ended
December 31, 2009 to reflect the investment at its market
value as of December 31, 2009.
|
|
(2)
|
|
During the year ended
December 31, 2008, one of the Companys Realty Finance
Corporation, formerly CBRE, CDO bond securities was written down
resulting in the recognition of a $1.4 million impairment
that was considered
other-than-temporary
and included in earnings for the period. An additional
impairment charge of $9.8 million was recorded to the
Consolidated Statements of Operations during the year ended
December 31, 2009 to reflect the reclassification of
another Realty Finance Corporation, formerly CBRE, CDO bond
investment from
held-to-maturity
to
available-for-sale
at market value as of December 31, 2009.
|
Available-for-sale
securities: Fair values are approximated on
current market quotes received from financial sources that trade
such securities.
Derivative financial instruments: Fair values
are approximated based on current market data received from
financial sources that trade such instruments and are based on
prevailing market data and derived from third party proprietary
models based on well recognized financial principles and
reasonable estimates about relevant future market conditions.
These items are included in other assets and other liabilities
on the Consolidated Balance Sheet. The Company incorporates
credit valuation adjustments in the fair values of its
derivative financial instruments to reflect counterparty
nonperformance risk.
The Company measures certain financial assets and financial
liabilities at fair value on a nonrecurring basis, such as
loans. The fair value of these financial assets and liabilities
was determined using the following inputs as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
Carrying
|
|
Fair
|
|
Using Fair Value Hierarchy
|
|
|
Value
|
|
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans, net(1)
|
|
$
|
367,339,444
|
|
|
$
|
326,560,321
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
326,560,321
|
|
|
|
|
(1)
|
|
The Company had an allowance for
loan losses of $326.3 million relating to 31 loans with an
aggregate carrying value, before reserves, of approximately
$693.7 million at December 31, 2009.
|
Loan impairment assessments: Fair values of
loans are estimated using discounted cash flow methodology,
using discount rates, which, in the opinion of management, best
reflect current market interest rates that would be offered for
loans with similar characteristics and credit quality. Loans
held for investment are intended to be held to maturity and,
accordingly, are carried at cost, net of unamortized loan
origination costs and fees, loan purchase discounts, and net of
the allowance for loan losses when such loan or investment is
deemed to be impaired. The Company considers a loan impaired
when, based upon current information and events, it is probable
that it will be unable to collect all amounts due for both
principal and interest according to the contractual terms of the
loan agreement. The Company performs evaluations of its loans to
determine if the value of the underlying collateral securing the
impaired loan is less than the net carrying value of the loan,
which may result in an allowance and corresponding charge to the
provision for loan losses.
|
|
Note 21
|
Summary
Quarterly Consolidated Financial Information
Unaudited
|
The following tables represent summarized quarterly financial
data of the Company for the years ended December 31, 2009
and 2008 which, in the opinion of management, reflects all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the Companys results
of operations.
Net (loss) income shown agrees with the Companys quarterly
report(s) on
Form 10-Q
as filed with the Securities and Exchange Commission. However,
in 2008, individual line items vary from such reports due to the
presentation of discontinued operations being retroactively
reclassified from property operating income and
133
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
expenses due to reclassifying real estate owned to real estate
held-for-sale
in 2009, noncontrolling interest being retroactively
reclassified from net (loss) income attributable to Arbor Realty
Trust, Inc. in 2009 due to updated accounting guidance and
interest income and interest expense were netted in accordance
with Article 9 of
Regulation S-X
due to the relevance in understanding the Companys
operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Net interest income
|
|
$
|
5,594,783
|
|
|
$
|
9,619,201
|
|
|
$
|
10,596,863
|
|
|
$
|
11,349,207
|
|
Total other revenue
|
|
|
349,213
|
|
|
|
386,969
|
|
|
|
973,622
|
|
|
|
16,250
|
|
Total other expenses
|
|
|
140,439,824
|
|
|
|
64,328,844
|
|
|
|
59,967,401
|
|
|
|
81,733,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before gain on exchange of
profits interest, gain on extinguishment of debt, loss on
termination of swaps, income (loss) from equity affiliates and
provision for income taxes
|
|
|
(134,495,828
|
)
|
|
|
(54,322,674
|
)
|
|
|
(48,396,916
|
)
|
|
|
(70,368,160
|
)
|
Gain on exchange of profits Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,988,411
|
|
Gain on extinguishment of debt
|
|
|
|
|
|
|
6,348,128
|
|
|
|
21,464,957
|
|
|
|
26,267,033
|
|
Loss on termination of swaps
|
|
|
|
|
|
|
|
|
|
|
(8,729,408
|
)
|
|
|
|
|
Income (loss) from equity affiliates
|
|
|
862,451
|
|
|
|
8,856,060
|
|
|
|
(12,664,152
|
)
|
|
|
2,507,134
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(133,633,377
|
)
|
|
|
(39,118,486
|
)
|
|
|
(48,325,519
|
)
|
|
|
14,394,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on impairment of real estate
held-for-sale
|
|
|
|
|
|
|
(4,898,295
|
)
|
|
|
|
|
|
|
|
|
Loss on operations of real estate
held-for-sale
|
|
|
|
|
|
|
(59,487
|
)
|
|
|
(174,184
|
)
|
|
|
(143,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(4,957,782
|
)
|
|
|
(174,184
|
)
|
|
|
(143,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(133,633,377
|
)
|
|
|
(44,076,268
|
)
|
|
|
(48,499,703
|
)
|
|
|
14,251,047
|
|
Net income attributable to noncontrolling interest
|
|
|
52,084
|
|
|
|
58,694
|
|
|
|
57,292
|
|
|
|
18,504,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Arbor Realty Trust, Inc
|
|
$
|
(133,685,461
|
)
|
|
$
|
(44,134,962
|
)
|
|
$
|
(48,556,995
|
)
|
|
$
|
(4,253,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations, net of
noncontrolling interest
|
|
$
|
(5.27
|
)
|
|
$
|
(1.54
|
)
|
|
$
|
(1.91
|
)
|
|
$
|
(0.16
|
)
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.20
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Arbor Realty Trust, Inc.
|
|
$
|
(5.27
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(1.92
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations, net of
noncontrolling interest
|
|
$
|
(5.27
|
)
|
|
$
|
(1.54
|
)
|
|
$
|
(1.91
|
)
|
|
$
|
(0.16
|
)
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.20
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Arbor Realty Trust, Inc.
|
|
$
|
(5.27
|
)
|
|
$
|
(1.74
|
)
|
|
$
|
(1.92
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Net interest income
|
|
$
|
24,129,205
|
|
|
$
|
23,225,117
|
|
|
$
|
24,011,842
|
|
|
$
|
24,112,231
|
|
Total other revenue
|
|
|
15,799
|
|
|
|
17,208
|
|
|
|
28,629
|
|
|
|
20,693
|
|
Total other expenses
|
|
|
131,846,141
|
|
|
|
19,018,133
|
|
|
|
9,462,089
|
|
|
|
9,094,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before loss from equity
affiliates and provision for income taxes
|
|
|
(107,701,137
|
)
|
|
|
4,224,192
|
|
|
|
14,578,382
|
|
|
|
15,038,082
|
|
Loss from equity affiliates
|
|
|
(178,791
|
)
|
|
|
(1,606,505
|
)
|
|
|
(562,000
|
)
|
|
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations
|
|
|
(107,879,928
|
)
|
|
|
2,617,687
|
|
|
|
14,016,382
|
|
|
|
15,038,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on operations of real estate
held-for-sale
|
|
|
(191,748
|
)
|
|
|
(219,634
|
)
|
|
|
(170,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
(191,748
|
)
|
|
|
(219,634
|
)
|
|
|
(170,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(108,071,676
|
)
|
|
|
2,398,053
|
|
|
|
13,845,470
|
|
|
|
15,038,082
|
|
Net income (loss) attributable to noncontrolling interest
|
|
|
166,852
|
|
|
|
(177,833
|
)
|
|
|
2,117,464
|
|
|
|
2,333,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Arbor Realty Trust, Inc.
|
|
$
|
(108,238,528
|
)
|
|
$
|
2,575,886
|
|
|
$
|
11,728,006
|
|
|
$
|
12,704,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations, net of
noncontrolling interest
|
|
$
|
(4.29
|
)
|
|
$
|
0.11
|
|
|
$
|
0.57
|
|
|
$
|
0.62
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Arbor Realty Trust, Inc.
|
|
$
|
(4.30
|
)
|
|
$
|
0.10
|
|
|
$
|
0.56
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing operations, net of
noncontrolling interest
|
|
$
|
(4.29
|
)
|
|
$
|
0.11
|
|
|
$
|
0.57
|
|
|
$
|
0.62
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Arbor Realty Trust, Inc.
|
|
$
|
(4.30
|
)
|
|
$
|
0.10
|
|
|
$
|
0.56
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic
|
|
|
|
|
Interest Pay
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
|
|
|
Maturity
|
|
Rate
|
|
|
|
|
Face
|
|
|
Carrying
|
|
Type
|
|
Location
|
|
|
Terms(1)
|
|
|
Date(2)
|
|
Index(3)
|
|
Prior Liens
|
|
|
Amount
|
|
|
Amount(4)
|
|
|
Bridge Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridge loans in excess of 3% of carrying amount of total loans:
|
Office
|
|
|
NY
|
|
|
|
IO
|
|
|
Mar-13
|
|
LIBOR + 3.50%
|
|
$
|
88,500,000
|
|
|
$
|
95,000,000
|
|
|
$
|
95,000,000
|
|
Multi-family
|
|
|
CA
|
|
|
|
IO
|
|
|
Aug-13
|
|
LIBOR + 5.00%
|
|
|
|
|
|
|
56,800,000
|
|
|
|
56,800,000
|
|
Hotel
|
|
|
FL
|
|
|
|
IO
|
|
|
Jul-14
|
|
LIBOR + 2.09%
|
|
|
|
|
|
|
60,000,000
|
|
|
|
60,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,500,000
|
|
|
|
211,800,000
|
|
|
|
211,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridge loans less than 3% of carrying amount of total loans:
|
Commercial
|
|
|
Various
|
|
|
|
IO / PI
|
|
|
2010-2012
|
|
Fixed 3.00% − 12.00%
|
|
|
33,500,000
|
|
|
|
55,374,583
|
|
|
|
55,374,583
|
|
Hotel
|
|
|
Various
|
|
|
|
IO / PI
|
|
|
2010-2013
|
|
LIBOR + 1.79% − 6.87%
Floor 4.00%
|
|
|
55,000,000
|
|
|
|
119,027,684
|
|
|
|
108,543,460
|
|
Land
|
|
|
Various
|
|
|
|
IO
|
|
|
2010-2016
|
|
LIBOR + 1.83% − 6.48%
Floor 5.32%
Fixed 1.77% − 12.21%
|
|
|
|
|
|
|
241,098,809
|
|
|
|
169,949,868
|
|
Multi-family
|
|
|
Various
|
|
|
|
IO
|
|
|
2010-2015
|
|
LIBOR + 2.00% − 8.00%
Floor 0.31% − 5.61%
Fixed 1.10% − 11.40%
|
|
|
|
|
|
|
421,080,435
|
|
|
|
394,266,559
|
|
Office
|
|
|
Various
|
|
|
|
IO
|
|
|
2010-2016
|
|
LIBOR + 1.80% − 4.50%
Floor 4.00% − 5.50%
Fixed 6.29% − 7.50%
|
|
|
|
|
|
|
193,279,868
|
|
|
|
192,798,540
|
|
Retail
|
|
|
PA
|
|
|
|
IO
|
|
|
2010
|
|
LIBOR + 4.50%
|
|
|
|
|
|
|
3,835,636
|
|
|
|
3,235,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,500,000
|
|
|
|
1,033,697,015
|
|
|
|
924,168,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Bridge Loans
|
|
|
|
|
|
|
|
|
|
|
177,000,000
|
|
|
|
1,245,497,015
|
|
|
|
1,135,968,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine loans less than 3% of carrying amount of total loans:
|
Commercial
|
|
|
NY
|
|
|
|
IO
|
|
|
2011
|
|
LIBOR + 3.65%
|
|
|
431,276,256
|
|
|
|
38,297,087
|
|
|
|
28,298,906
|
|
Condo
|
|
|
CA
|
|
|
|
IO
|
|
|
2010
|
|
LIBOR + 2.0%
|
|
|
84,302,321
|
|
|
|
15,869,227
|
|
|
|
1,369,227
|
|
Hotel
|
|
|
Various
|
|
|
|
IO
|
|
|
2010
|
|
LIBOR + 2.50% − 3.50%
|
|
|
595,000,000
|
|
|
|
30,000,000
|
|
|
|
24,000,000
|
|
Land
|
|
|
CA
|
|
|
|
IO
|
|
|
2011
|
|
|
|
|
88,479,477
|
|
|
|
9,332,969
|
|
|
|
9,332,969
|
|
Multi-family
|
|
|
Various
|
|
|
|
IO / PI
|
|
|
2010-2042
|
|
LIBOR + 2.0% − 10.0%
Floor 0.48% − 5.50%
Fixed 6.9% − 16.0%
|
|
|
1,804,756,547
|
|
|
|
140,769,817
|
|
|
|
93,654,223
|
|
Office
|
|
|
Various
|
|
|
|
IO / PI
|
|
|
2010-2017
|
|
LIBOR + 3.25% − 5.45%
Fixed 9.33% − 10.50%
|
|
|
1,859,475,928
|
|
|
|
106,475,018
|
|
|
|
99,313,942
|
|
Retail
|
|
|
KY
|
|
|
|
IO
|
|
|
2010
|
|
LIBOR + 7.00%
Floor 3.85%
|
|
|
14,279,924
|
|
|
|
2,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mezzanine Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,877,570,453
|
|
|
|
343,494,118
|
|
|
|
255,969,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
SCHEDULE IV LOANS AND OTHER LENDING
INVESTMENTS (Continued)
DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic
|
|
|
|
|
Interest Pay
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
|
|
|
Maturity
|
|
Rate
|
|
|
|
|
|
|
|
Carrying
|
|
Type
|
|
Location
|
|
|
Terms(1)
|
|
|
Date(2)
|
|
Index(3)
|
|
Prior Liens
|
|
|
Face Amount
|
|
|
Amount(4)
|
|
|
Junior Participations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior participation loans in excess of 3% of carrying amount of
total loans:
|
Office
|
|
|
NY
|
|
|
|
IO
|
|
|
Mar- 17
|
|
Fixed 7.58%
|
|
|
1,072,000,000
|
|
|
|
67,000,000
|
|
|
|
67,045,364
|
|
Junior participation loans less than 3% of carrying amount of
total loans:
|
Commercial
|
|
|
CT
|
|
|
|
PI
|
|
|
2010
|
|
Fixed 7.89%
|
|
|
|
|
|
|
3,490,948
|
|
|
|
3,502,728
|
|
Hotel
|
|
|
Various
|
|
|
|
IO / PI
|
|
|
2014-2017
|
|
LIBOR + 6.80% − 7.26%
Fixed 9.35%
|
|
|
166,607,053
|
|
|
|
28,686,066
|
|
|
|
28,686,066
|
|
Multi-family
|
|
|
Various
|
|
|
|
IO
|
|
|
2010-2014
|
|
LIBOR + 3.00%
Fixed 4.72% − 10.04%
|
|
|
347,637,078
|
|
|
|
60,549,540
|
|
|
|
41,922,627
|
|
Office
|
|
|
Various
|
|
|
|
IO
|
|
|
2010-2016
|
|
LIBOR + 2.33% − 3.00%
Fixed 5.32% − 12.80%
|
|
|
1,192,950,000
|
|
|
|
95,350,000
|
|
|
|
75,633,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Junior Participations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,779,194,131
|
|
|
|
255,076,554
|
|
|
|
216,790,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Equity Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred equity loans less than 3% of carrying amount of total
loans:
|
Hotel
|
|
|
Various
|
|
|
|
IO
|
|
|
2017
|
|
Fixed 10.00%
|
|
|
7,395,305,000
|
|
|
|
100,364,308
|
|
|
|
2,364,308
|
|
Multi-family
|
|
|
Various
|
|
|
|
IO
|
|
|
2011-2017
|
|
LIBOR + 4.50% − 6.00%
Floor 4.53% − 5.32%
Fixed 6.22% −11.40%
|
|
|
3,416,255,728
|
|
|
|
78,102,959
|
|
|
|
77,181,453
|
|
Office
|
|
|
NY
|
|
|
|
IO
|
|
|
2015
|
|
LIBOR + 5.00%
Floor 4.25%
|
|
|
119,612,012
|
|
|
|
12,500,000
|
|
|
|
12,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Preferred Equity Loans
|
|
|
|
|
|
|
|
|
|
|
10,931,172,740
|
|
|
|
190,967,267
|
|
|
|
92,045,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
|
|
|
|
|
|
|
$
|
18,764,937,324
|
|
|
$
|
2,035,034,954
|
|
|
$
|
1,700,774,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
IO = Interest Only, PI = Principal
and Interest.
|
|
(2)
|
|
Maturity date does not include
possible extensions.
|
|
(3)
|
|
References to LIBOR are to
one-month LIBOR unless specifically stated otherwise.
|
|
(4)
|
|
The federal income tax basis is
approximately $2.0 billion.
|
137
ARBOR
REALTY TRUST, INC. AND SUBSIDIARIES
SCHEDULE IV LOANS AND OTHER LENDING
INVESTMENTS (Continued)
DECEMBER 31, 2009
The following table reconciles the Companys loans and
investments carrying amounts for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
2,181,683,619
|
|
|
$
|
2,592,093,930
|
|
|
$
|
2,001,277,102
|
|
Additions during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
New loan originations
|
|
|
3,000,000
|
|
|
|
290,763,795
|
|
|
|
2,007,838,793
|
|
Funding of unfunded loan commitments(1)
|
|
|
6,081,260
|
|
|
|
125,431,745
|
|
|
|
183,090,231
|
|
Accretion of unearned revenue
|
|
|
2,098,833
|
|
|
|
3,333,929
|
|
|
|
4,207,915
|
|
Reclassification of allowance for loan loss to real estate owned
|
|
|
4,250,000
|
|
|
|
1,500,000
|
|
|
|
|
|
Loan charge-offs
|
|
|
41,250,000
|
|
|
|
2,500,000
|
|
|
|
|
|
Deductions during period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan payoffs
|
|
|
(46,802,008
|
)
|
|
|
(512,419,785
|
)
|
|
|
(1,211,825,279
|
)
|
Loan partial payoffs
|
|
|
(83,948,202
|
)
|
|
|
(167,435,497
|
)
|
|
|
(124,950,640
|
)
|
Loss on restructured loans
|
|
|
(57,579,561
|
)
|
|
|
|
|
|
|
|
|
Reclassification from due to borrowers
|
|
|
(20,684,387
|
)
|
|
|
|
|
|
|
|
|
Proceeds and receivables from sale of loan
|
|
|
(32,648,188
|
)
|
|
|
|
|
|
|
|
|
Use of loan charge-offs
|
|
|
(41,250,000
|
)
|
|
|
(2,500,000
|
)
|
|
|
|
|
Loans converted to real estate owned
|
|
|
(13,850,000
|
)
|
|
|
(5,000,000
|
)
|
|
|
|
|
Provision for loan losses
|
|
|
(241,328,039
|
)
|
|
|
(132,000,000
|
)
|
|
|
(2,500,000
|
)
|
Unfunded loan commitments(1)
|
|
|
(11,617
|
)
|
|
|
(9,708,019
|
)
|
|
|
(263,477,563
|
)
|
Unearned revenue and costs
|
|
|
512,578
|
|
|
|
(4,876,479
|
)
|
|
|
(1,566,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
1,700,774,288
|
|
|
$
|
2,181,683,619
|
|
|
$
|
2,592,093,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In accordance with certain loans
and investments, the Company has outstanding unfunded
commitments that it is obligated to fund as the borrowers meet
certain requirements. Specific requirements include but are not
limited to property renovations, building construction, and
building conversions based on criteria met by the borrower in
accordance with the loan agreements.
|
138
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
Not applicable.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Under the direction of our Chief Executive Officer and Chief
Financial Officer, we have evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2009.
Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls
and procedures were effective as of December 31, 2009.
No change in internal control over financial reporting occurred
during the quarter ended December 31, 2009 that has
materially affected, or is reasonably likely to materially
affect, such internal control over financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Management of Arbor Realty Trust, Inc. is responsible for
establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting
is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934, as amended, as a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers and effected by the Companys Board of Directors,
management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the Company;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made
only in accordance with the authorization of management and
directors of the Company; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Projections of any evaluation of effectiveness to future periods
are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2009. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.
Based on this assessment, management concluded that, as of
December 31, 2009, the Companys internal control over
financial reporting is effective.
The Companys independent registered public accounting firm
has issued a report on managements assessment of the
Companys internal control over financial reporting. This
report appears on the following page of this annual report on
Form 10-K.
139
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Arbor Realty Trust, Inc. and Subsidiaries
We have audited Arbor Realty Trust, Inc. and Subsidiaries
internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Arbor Realty Trust, Inc. and Subsidiaries
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Arbor Realty Trust, Inc. and Subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on
the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Arbor Realty Trust, Inc. and
Subsidiaries as of December 31, 2009 and 2008 and the
related consolidated statements of operations, changes in equity
and cash flows for each of the three years in the period ended
December 31, 2009 of Arbor Realty Trust, Inc. and
Subsidiaries and our report dated March 8, 2010 expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
New York, New York
March 8, 2010
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
Not applicable.
140
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information regarding our directors and executive officers
set forth under the captions Board of Directors and
Executive Officers of the 2010 Proxy Statement is
incorporated herein by reference.
The information regarding compliance with Section 16(a) of
the Securities Exchange Act of 1934 set forth under the caption
Security Ownership of Certain Beneficial Owners and
Management in the 2010 Proxy Statement is incorporated
herein by reference.
The information regarding our code of ethics for our chief
executive and other senior financial officers under the caption
Senior Officer Code of Ethics and Code of Business Conduct
and Ethics in the 2010 Proxy Statement is incorporated
herein by reference.
The information regarding our audit committee under the caption
Audit Committee in the 2010 Proxy Statement is
incorporated herein by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information contained in the section captioned
Executive Compensation of the 2010 Proxy Statement
is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information contained in the section captioned
Security Ownership of Certain Beneficial Owners and
Management of the 2010 Proxy Statement is incorporated
herein by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The information contained in the section captioned Certain
Relationships and Related Transactions and Director
Independence of the 2010 Proxy Statement is incorporated
herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information regarding our independent accountants fees
and services in the sections captioned Independent
Accountants Fees and Audit Committee
Pre-Approval Policy of the 2010 Proxy Statement is
incorporated herein by reference.
141
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
(a)
|
and
(c) Financial Statements and Schedules.
|
See the Index to the Consolidated Financial Statements of
Arbor Realty Trust, Inc. and Subsidiaries included in
Item 8 of this report.
In reviewing the agreements included as exhibits to this Annual
Report on
Form 10-K,
please remember they are included to provide you with
information regarding their terms and are not intended to
provide any other factual or disclosure information about Arbor
or the other parties to the agreements. The agreements contain
representations and warranties by each of the parties to the
applicable agreement. These representations and warranties have
been made solely for the benefit of the other parties to the
applicable agreement and:
|
|
|
|
|
should not in all instances be treated as categorical statements
of fact, but rather as a way of allocating the risk to one of
the parties if those statements prove to be inaccurate;
|
|
|
|
have been qualified by disclosures that were made to the other
party in connection with the negotiation of the applicable
agreement, which disclosures are not necessarily reflected in
the agreement;
|
|
|
|
may apply standards of materiality in a way that is different
from what may be viewed as material to you or other
investors; and
|
|
|
|
were made only as of the date of the applicable agreement or
such other date or dates as may be specified in the agreement
and are subject to more recent developments.
|
Accordingly, these representations and warranties may not
describe the actual state of affairs as of the date they were
made or at any other time. Additional information about Arbor
may be found elsewhere in this report and Arbors other
public filings, which are available without charge through the
SECs website at
http://www.sec.gov.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Articles of Incorporation of Arbor Realty Trust, Inc.*
|
|
3
|
.2
|
|
Articles of Amendment to Articles of Incorporation of Arbor
Realty Trust,
Inc.5
|
|
3
|
.3
|
|
Articles Supplementary of Arbor Realty Trust, Inc.*
|
|
3
|
.4
|
|
Amended and Restated Bylaws of Arbor Realty Trust,
Inc.55
|
|
4
|
.1
|
|
Form of Certificate for Common Stock.*
|
|
4
|
.2
|
|
Common Stock Purchase Warrant, Certificate No. W-1, dated July
23, 2009, issued to Wachovia Bank, National Association.
|
|
4
|
.3
|
|
Common Stock Purchase Warrant, Certificate No. W-2, dated July
23, 2009, issued to Wachovia Bank, National Association.
|
|
4
|
.4
|
|
Common Stock Purchase Warrant, Certificate No. W-3, dated July
23, 2009, issued to Wachovia Bank, National Association.
|
|
10
|
.1
|
|
Second Amended and Restated Management Agreement, dated August
6, 2009, by and among Arbor Realty Trust, Inc., Arbor Commercial
Mortgage, LLC, Arbor Realty Limited Partnership and Arbor Realty
SR,
Inc.vvv
|
|
10
|
.2
|
|
Services Agreement, dated July 1, 2003, by and among Arbor
Realty Trust, Inc., Arbor Commercial Mortgage, LLC and Arbor
Realty Limited Partnership.*
|
|
10
|
.3
|
|
Non-Competition Agreement, dated July 1, 2003, by and among
Arbor Realty Trust, Inc., Arbor Realty Limited Partnership and
Ivan Kaufman.*
|
|
10
|
.4
|
|
Second Amended and Restated Agreement of Limited Partnership of
Arbor Realty Limited Partnership, dated January 18, 2005, by and
among Arbor Commercial Mortgage, LLC, Arbor Realty Limited
Partnership, Arbor Realty LPOP, Inc. and Arbor Realty GPOP,
Inc.
|
142
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.5
|
|
Registration Rights Agreement, dated July 1, 2003, between Arbor
Realty Trust, Inc. and Arbor Commercial Mortgage, LLC.*
|
|
10
|
.6
|
|
Pairing Agreement, dated July 1, 2003, by and among Arbor Realty
Trust, Inc., Arbor Commercial Mortgage, LLC, Arbor Realty
Limited Partnership, Arbor Realty LPOP, Inc. and Arbor Realty
GPOP, Inc.*
|
|
10
|
.7
|
|
2003 Omnibus Stock Incentive Plan, (as amended and restated on
June 18,
2009).vvv
|
|
10
|
.8
|
|
Form of Restricted Stock Agreement.*
|
|
10
|
.9
|
|
Benefits Participation Agreement, dated July 1, 2003,
between Arbor Realty Trust, Inc. and Arbor Management, LLC.*
|
|
10
|
.10
|
|
Form of Indemnification Agreement.*
|
|
10
|
.11
|
|
Structured Facility Warehousing Credit and Security Agreement,
dated July 1, 2003, between Arbor Realty Limited
Partnership and Residential Funding Corporation.*
|
|
10
|
.12
|
|
Amended and Restated Loan Purchase and Repurchase Agreement,
dated July 12, 2004, by and among Arbor Realty Funding LLC,
as seller, Wachovia Bank, National Association, as purchaser,
and Arbor Realty Trust, Inc., as guarantor.**
|
|
10
|
.13
|
|
Master Repurchase Agreement, dated as of November 18, 2002,
by and between Nomura Credit and Capital, Inc. and Arbor
Commercial Mortgage, LLC.*
|
|
10
|
.14
|
|
Revolving Credit Facility Agreement, dated as of
December 7, 2004, by and between Arbor Realty Trust, Inc.,
Arbor Realty Limited Partnership and Watershed Administrative
LLC and the lenders named therein.
|
|
10
|
.15
|
|
Indenture, dated January 19, 2005, by and between Arbor
Realty Mortgage Securities
Series 2004-1,
Ltd., Arbor Realty Mortgage Securities
Series 2004-1
LLC, Arbor Realty SR, Inc. and LaSalle Bank National
Association.
|
|
10
|
.16
|
|
Indenture, dated January 11, 2006, by and between Arbor
Realty Mortgage Securities
Series 2005-1,
Ltd., Arbor Realty Mortgage Securities
Series 2005-1
LLC, Arbor Realty SR, Inc. and LaSalle Bank National
Association.
|
|
10
|
.17
|
|
Master Repurchase Agreement, dated as of October 26, 2006,
by and between Column Financial, Inc. and Arbor Realty SR, Inc.
and Arbor TRS Holding Company Inc., as sellers, Arbor Realty
Trust, Inc., Arbor Realty Limited Partnership, as guarantors,
and Arbor Realty Mezzanine LLC.
|
|
10
|
.18
|
|
Note Purchase Agreement, dated January 19, 2005, by and
between Arbor Realty Mortgage Securities
Series 2004-1,
Ltd., Arbor Realty Mortgage Securities
Series 2004-1
LLC and Wachovia Capital Markets, LLC.
|
|
10
|
.19
|
|
Note Purchase Agreement, dated January 11, 2006, by and
between Arbor Realty Mortgage Securities
Series 2005-1,
Ltd., Arbor Realty Mortgage Securities
Series 2005-1
LLC and Wachovia Capital Markets, LLC.
|
|
10
|
.20
|
|
Indenture, dated December 14, 2006, by and between Arbor
Realty Mortgage Securities
Series 2006-1,
Ltd., Arbor Realty Mortgage Securities
Series 2006-1
LLC, Arbor Realty SR, Inc. and Wells Fargo Bank, National
Association.u
|
|
10
|
.21
|
|
Note Purchase and Placement Agreement, dated December 14,
2006, by and between Arbor Realty Mortgage Securities
Series 2006-1,
Ltd., Arbor Realty Mortgage Securities
Series 2006-1
LLC and Wachovia Capital Markets, LLC and Credit Suisse
Securities (USA)
LLC.u
|
|
10
|
.22
|
|
Note Purchase Agreement, dated December 14, 2006, by and
between Arbor Realty Mortgage Securities
Series 2006-1,
Ltd., Arbor Realty Mortgage Securities
Series 2006-1
LLC and Wells Fargo Bank, National
Association.u
|
|
10
|
.23
|
|
Master Repurchase Agreement, dated as of March 30, 2007, by
and between Variable Funding Capital Company LLC, as purchaser,
Wachovia Bank, National Association, as swingline purchaser,
Wachovia Capital Markets, LLC, as deal agent, Arbor Realty
Funding LLC, Arbor Realty Limited Partnership and ARSR Tahoe,
LLC, as sellers, Arbor Realty Trust, Inc., Arbor Realty Limited
Partnership and Arbor Realty SR, Inc., as
guarantors.uu
|
143
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.24
|
|
Credit Agreement, dated November 6, 2007, by and between
Arbor Realty Funding, LLC, ARSR Tahoe, LLC, Arbor Realty Limited
Partnership, and ART 450 LLC, as Borrowers, Arbor Realty Trust,
Inc., Arbor Realty Limited Partnership, and Arbor Realty SR,
Inc., as Guarantors, and Wachovia Bank, National Association, as
Administrative
Agent.uuu
|
|
10
|
.25
|
|
Equity Placement Program Sales Agreement, dated August 15,
2008, between Arbor Realty Trust, Inc. and JMP Securities
LLC.v
|
|
10
|
.26
|
|
Junior Subordinated Indenture, dated May 6, 2009, between
Arbor Realty SR, Inc. and The Bank of New York Mellon
Trust Company, National Association, as Trustee relating to
$29,400,000 aggregate principal amount of Junior Subordinated
Notes due
2034.vv
|
|
10
|
.27
|
|
Junior Subordinated Indenture, dated May 6, 2009, between
Arbor Realty SR, Inc. and The Bank of New York Mellon
Trust Company, National Association, as Trustee relating to
$168,000,000 aggregate principal amount of Junior Subordinated
Notes due
2034.vv
|
|
10
|
.28
|
|
Junior Subordinated Indenture, dated May 6, 2009, among
Arbor Realty SR, Inc. Arbor Realty Trust, Inc., as Guarantor,
and Wilmington Trust Company, as Trustee, relating to
$21,224,000 aggregate principal amount of Junior Subordinated
Notes due
2035.vv
|
|
10
|
.29
|
|
Junior Subordinated Indenture, dated May 6, 2009, among
Arbor Realty SR, Inc. Arbor Realty Trust, Inc., as Guarantor,
and Wilmington Trust Company, as Trustee, relating to
$2,632,000 aggregate principal amount of Junior Subordinated
Notes due
2036.vv
|
|
10
|
.30
|
|
Junior Subordinated Indenture, dated May 6, 2009, among
Arbor Realty SR, Inc. Arbor Realty Trust, Inc., as Guarantor,
and Wilmington Trust Company, as Trustee, relating to
$47,180,000 aggregate principal amount of Junior Subordinated
Notes due
2037.vv
|
|
10
|
.31
|
|
Exchange Agreement, dated May 6, 2009, among Arbor Realty
Trust, Inc., Arbor Realty SR, Inc., Kodiak CDO II, Ltd.,
Attentus CDO I, Ltd. and Attentus CDO III,
Ltd.vv
|
|
10
|
.32
|
|
Exchange Agreement, dated May 6, 2009, among Arbor Realty
SR, Inc., Arbor Realty Trust, Inc., Taberna Preferred
Funding I, Ltd., Taberna Preferred Funding II, Ltd.,
Taberna Preferred Funding III, Ltd., Taberna Preferred Funding
IV, Ltd., Taberna Preferred Funding V, Ltd., Taberna
Preferred Funding VII, Ltd. and Taberna Preferred Funding VIII,
Ltd.vv
|
|
10
|
.33
|
|
First Amended and Restated Credit Agreement, dated as of
July 23, 2009, among Arbor Realty Funding, LLC, a Delaware
limited liability company, as a Borrower, ARSR Tahoe, LLC, a
Delaware limited liability company, as a Borrower, Arbor ESH II
LLC, a Delaware limited liability company, as a Borrower, Arbor
Realty Limited Partnership, a Delaware limited partnership, as a
Borrower and a Guarantor, ART 450 LLC, a Delaware limited
liability company, as a Borrower, Arbor Realty Trust, Inc., a
Maryland corporation, as a Guarantor, Arbor Realty SR, Inc., a
Maryland corporation, as a Borrower and a Guarantor, the several
Lenders from time to time a party thereto, and Wachovia Bank,
National Association, a national banking association, as
administrative agent for the Lenders
thereunder.vvv
|
|
10
|
.34
|
|
First Amended and Restated Revolving Loan Agreement, dated as of
July 23, 2009, among Arbor Realty Trust, Inc., a Maryland
corporation, Arbor Realty GPOP, Inc., a Delaware corporation,
Arbor Realty LPOP, Inc., a Delaware corporation, Arbor Realty
Limited Partnership, a Delaware limited partnership, Arbor
Realty SR, Inc., a Maryland corporation, Arbor Realty Collateral
Management, LLC, as Borrowers, the several Lenders from time to
time a party thereto, and Wachovia Bank, National Association, a
national banking association, as administrative agent for the
Lenders thereunder and initial
lender.vvv
|
|
10
|
.35
|
|
Registration Rights Agreement, dated as of July 23, 2009,
by and between Arbor Realty Trust, Inc. and Wachovia Bank,
National Association, a national banking association.
|
144
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.36
|
|
First Amendment to First Amended and Restated Credit Agreement,
dated as of December 16, 2009, among Arbor Realty Funding,
LLC, a Delaware limited liability company, as a Borrower, ARSR
Tahoe, LLC, a Delaware limited liability company, as a Borrower,
Arbor ESH II LLC, a Delaware limited liability company, as a
Borrower, Arbor Realty Limited Partnership, a Delaware limited
partnership, as a Borrower and a Guarantor, ART 450 LLC, a
Delaware limited liability company, as a Borrower, Arbor Realty
Trust, Inc., a Maryland corporation, as a Guarantor, Arbor
Realty SR, Inc., a Maryland corporation, as a Borrower and a
Guarantor, the several Lenders from time to time a party
thereto, and Wachovia Bank, National Association, a national
banking association, as administrative agent for the Lenders
thereunder.
|
|
10
|
.37
|
|
Second Amendment to First Amended and Restated Credit Agreement,
dated as of December 24, 2009, among Arbor Realty Funding,
LLC, a Delaware limited liability company, as a Borrower, ARSR
Tahoe, LLC, a Delaware limited liability company, as a Borrower,
Arbor ESH II LLC, a Delaware limited liability company, as a
Borrower, Arbor Realty Limited Partnership, a Delaware limited
partnership, as a Borrower and a Guarantor, ART 450 LLC, a
Delaware limited liability company, as a Borrower, Arbor Realty
Trust, Inc., a Maryland corporation, as a Guarantor, Arbor
Realty SR, Inc., a Maryland corporation, as a Borrower and a
Guarantor, the several Lenders from time to time a party
thereto, and Wachovia Bank, National Association, a national
banking association, as administrative agent for the Lenders and
Wells Fargo Bank, National Association, a national banking
association, as the custodian.
|
|
10
|
.38
|
|
First Amendment to Revolving Loan Agreement, dated as of
December 24, 2009, among Arbor Realty Trust, Inc., a
Maryland corporation, Arbor Realty GPOP, Inc., a Delaware
corporation, Arbor Realty LPOP, Inc., a Delaware corporation,
Arbor Realty Limited Partnership, a Delaware limited
partnership, Arbor Realty SR, Inc., a Maryland corporation,
Arbor Realty Collateral Management, LLC, as Borrowers, the
several Lenders from time to time a party thereto, and Wachovia
Bank, National Association, a national banking association, as
administrative agent for the Lenders thereunder and initial
lender.
|
|
10
|
.39
|
|
Third Amendment and Waiver to First Amended and Restated Credit
Agreement, dated as of January 20, 2010, among Arbor Realty
Funding, LLC, a Delaware limited liability company, as a
Borrower, ARSR Tahoe, LLC, a Delaware limited liability company,
as a Borrower, Arbor ESH II LLC, a Delaware limited liability
company, as a Borrower, Arbor Realty Limited Partnership, a
Delaware limited partnership, as a Borrower and a Guarantor, ART
450 LLC, a Delaware limited liability company, as a Borrower,
Arbor Realty Trust, Inc., a Maryland corporation, as a
Guarantor, Arbor Realty SR, Inc., a Maryland corporation, as a
Borrower and a Guarantor, the several Lenders from time to time
a party thereto, and Wachovia Bank, National Association, a
national banking association, as administrative agent for the
Lenders thereunder.
|
|
10
|
.40
|
|
Waiver to First Amended and Restated Revolving Loan Agreement,
dated as of January 20, 2010, among Arbor Realty Trust,
Inc., a Maryland corporation, Arbor Realty GPOP, Inc., a
Delaware corporation, Arbor Realty LPOP, Inc., a Delaware
corporation, Arbor Realty Limited Partnership, a Delaware
limited partnership, Arbor Realty SR, Inc., a Maryland
corporation, Arbor Realty Collateral Management, LLC, as
Borrowers, the several Lenders from time to time a party
thereto, and Wachovia Bank, National Association, a national
banking association, as administrative agent for the Lenders
thereunder and initial lender.
|
|
10
|
.41
|
|
Second Amendment and Waiver to First Amended and Restated
Revolving Loan Agreement, dated as of February 2, 2010,
among Arbor Realty Trust, Inc., a Maryland corporation, Arbor
Realty GPOP, Inc., a Delaware corporation, Arbor Realty LPOP,
Inc., a Delaware corporation, Arbor Realty Limited Partnership,
a Delaware limited partnership, Arbor Realty SR, Inc., a
Maryland corporation, Arbor Realty Collateral Management, LLC,
as Borrowers, the several Lenders from time to time a party
thereto, and Wachovia Bank, National Association, a national
banking association, as administrative agent for the Lenders
thereunder and initial lender.
|
145
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.42
|
|
Fourth Amendment and Waiver to First Amended and Restated Credit
Agreement, dated as of February 2, 2010, among Arbor Realty
Funding, LLC, a Delaware limited liability company, as a
Borrower, ARSR Tahoe, LLC, a Delaware limited liability company,
as a Borrower, Arbor ESH II LLC, a Delaware limited liability
company, as a Borrower, Arbor Realty Limited Partnership, a
Delaware limited partnership, as a Borrower and a Guarantor, ART
450 LLC, a Delaware limited liability company, as a Borrower,
Arbor Realty Trust, Inc., a Maryland corporation, as a
Guarantor, Arbor Realty SR, Inc., a Maryland corporation, as a
Borrower and a Guarantor, the several Lenders from time to time
a party thereto, and Wachovia Bank, National Association, a
national banking association, as administrative agent for the
Lenders thereunder.
|
|
10
|
.43
|
|
Exchange Agreement, dated as of February 26, 2010, among
Arbor Realty SR, Inc. and Taberna Preferred Funding I,
Ltd., Taberna Preferred Funding V, Ltd., Taberna Preferred
Funding VII, Ltd. and Taberna Preferred Funding VIII, Ltd.
|
|
21
|
.1
|
|
List of Subsidiaries of Arbor Realty Trust, Inc.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP, independent registered
public accounting firm.
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Exchange
Act
Rule 13a-14.
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Exchange
Act
Rule 13a-14.
|
|
32
|
.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Exhibit Index |
|
5 |
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2007. |
|
55 |
|
Incorporated by reference to Exhibit 99.2 of the
Registrants Current Report on
Form 8-K
(No.
001-32136)
which was filed with the Securities and Exchange Commission on
December 11, 2007. |
|
* |
|
Incorporated by reference to the Registrants Registration
Statement on
Form S-11
(Registration
No. 333-110472),
as amended. Such registration statement was originally filed
with the Securities and Exchange Commission on November 13,
2003. |
|
** |
|
Incorporated by reference to the Registrants Quarterly
Report of
Form 10-Q
for the quarter ended September 30, 2004. |
|
|
|
Incorporated by reference to the Registrants Annual Report
of
Form 10-K
for the year ended December 31, 2004. |
|
|
|
Incorporated by reference to the Registrants Annual Report
of
Form 10-K
for the year ended December 31, 2005. |
|
|
|
Incorporated by reference to the Registrants Quarterly
Report of
Form 10-Q
for the quarter ended September 30, 2006. |
|
u |
|
Incorporated by reference to the Registrants Annual Report
of
Form 10-K
for the year ended December 31, 2006. |
|
uu |
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2007. |
|
uuu |
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007. |
|
v |
|
Incorporated by reference to Exhibit 1.1 of the
Registrants Current Report on
Form 8-K
(No.
001-32136)
which was filed with the Securities and Exchange Commission on
August 15, 2008. |
|
vv |
|
Incorporated by reference to the Registrants Quarterly
Report of
Form 10-Q
for the quarter ended March 31, 2009. |
|
vvv |
|
Incorporated by reference to the Registrants Quarterly
Report of
Form 10-Q
for the quarter ended June 30, 2009. |
146
In reviewing the agreements included as exhibits to this Annual
Report on
Form 10-K,
please remember they are included to provide you with
information regarding their terms and are not intended to
provide any other factual or disclosure information about Arbor
or the other parties to the agreements. The agreements contain
representations and warranties by each of the parties to the
applicable agreement. These representations and warranties have
been made solely for the benefit of the other parties to the
applicable agreement and:
|
|
|
|
|
should not in all instances be treated as categorical statements
of fact, but rather as a way of allocating the risk to one of
the parties if those statements prove to be inaccurate;
|
|
|
|
have been qualified by disclosures that were made to the other
party in connection with the negotiation of the applicable
agreement, which disclosures are not necessarily reflected in
the agreement;
|
|
|
|
may apply standards of materiality in a way that is different
from what may be viewed as material to you or other
investors; and
|
|
|
|
were made only as of the date of the applicable agreement or
such other date or dates as may be specified in the agreement
and are subject to more recent developments.
|
Accordingly, these representations and warranties may not
describe the actual state of affairs as of the date they were
made or at any other time. Additional information about Arbor
may be found elsewhere in this report and Arbors other
public filings, which are available without charge through the
SECs website at
http://www.sec.gov.
147
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized on March 8, 2010.
ARBOR REALTY TRUST, INC.
Name: Ivan Kaufman
|
|
|
|
Title:
|
Chief Executive Officer
|
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed
below on behalf of the Registrant in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Ivan
Kaufman
Ivan
Kaufman
|
|
Chairman of the Board of Directors,
Chief Executive Officer and President (Principal Executive
Officer)
|
|
March 8, 2010
|
|
|
|
|
|
/s/ Paul
Elenio
Paul
Elenio
|
|
Chief Financial Officer
(Principal Financial Officer)
|
|
March 8, 2010
|
|
|
|
|
|
/s/ John
Bishar
John
Bishar
|
|
Director
|
|
March 8, 2010
|
|
|
|
|
|
/s/ Archie
R. Dykes
Archie
R. Dykes
|
|
Director
|
|
March 8, 2010
|
|
|
|
|
|
/s/ Karen
Edwards
Karen
Edwards
|
|
Director
|
|
March 8, 2010
|
|
|
|
|
|
/s/ William
Helmreich
William
Helmreich
|
|
Director
|
|
March 8, 2010
|
|
|
|
|
|
/s/ Walter
K. Horn
Walter
K. Horn
|
|
Director
|
|
March 8, 2010
|
|
|
|
|
|
/s/ C.
Michael Kojaian
C.
Michael Kojaian
|
|
Director
|
|
March 8, 2010
|
|
|
|
|
|
/s/ Melvin
F. Lazar
Melvin
F. Lazar
|
|
Director
|
|
March 8, 2010
|
|
|
|
|
|
/s/ Joseph
Martello
Joseph
Martello
|
|
Director
|
|
March 8, 2010
|
|
|
|
|
|
/s/ Kyle
Permut
Kyle
Permut
|
|
Director
|
|
March 8, 2010
|
148
exv4w2
Exhibit 4.2
THIS COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED HEREUNDER
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES
LAWS OF ANY STATE. THIS COMMON STOCK PURCHASE WARRANT HAS BEEN ACQUIRED FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION, AND THIS COMMON STOCK
PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED HEREUNDER MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL THAT THE PROPOSED TRANSACTION DOES NOT
VIOLATE THE SECURITIES ACT OF 1933, AND APPLICABLE STATE SECURITIES LAWS.
ARBOR REALTY TRUST, INC.
COMMON STOCK PURCHASE WARRANT
|
Date of Issuance: July 23, 2009 |
Certificate No. W-1 |
THIS IS TO CERTIFY that WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association (together with its transferees, successors and assigns, the
Holder), for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, is entitled to purchase from ARBOR REALTY TRUST,
INC., a Maryland corporation (the Company), at the price of $3.50 per
share (the Exercise Price), at any time after the date hereof (the
Commencement Date) and expiring on July 23, 2015 (the Expiration
Date), 500,000 shares of fully paid and nonassessable common stock, par value
$0.01 per share (Common Stock) of the Company (as such number may be
adjusted as provided herein). The 500,000 shares of Common Stock which may be
purchased pursuant to this Warrant are referred to herein as the Aggregate
Number. This common stock purchase warrant (this Warrant) is issued
under and in connection with that certain First Amended and Restated Credit
Agreement, dated as of July 23, 2009 (as the same may be amended, modified,
restated, replaced, waived, substituted, supplemented or extended from time to
time, the Credit Agreement), among Arbor Realty Funding, LLC, a Delaware
limited liability company, as a borrower, ARSR Tahoe, LLC, a Delaware limited
liability company, as a borrower, Arbor ESH II LLC, a Delaware limited liability
company, as a borrower, Arbor Realty Limited Partnership, a Delaware limited
partnership, as a borrower and a guarantor, ART 450 LLC, a Delaware limited
liability company, as a borrower, the Company, as a guarantor, Arbor Realty SR,
Inc., a Maryland corporation, as a borrower and a guarantor, the several banks and
other financial institutions as are, or may from time to time become parties
thereto, and Wachovia Bank, National Association, a national banking association,
as administrative agent for the lenders thereunder.
The Aggregate Number and Exercise Price set forth above shall also be adjusted under certain
conditions specified in Section 5 of this Warrant, including, but not limited to, a Stock
Dividend, Stock
Subdivision or Stock Combination. Capitalized terms used herein shall have the meanings
ascribed to such terms in Section 11 hereof unless otherwise defined herein.
SECTION 1. The Warrant; Transfer and Exchange.
(a) The Warrant. This Warrant and the rights and privileges of the Holder hereunder
may be exercised by the Holder in whole or in part as provided herein, shall survive any
termination of the Credit Agreement and, as more fully set forth in Sections 1(b) and
7 hereof, subject to the terms of this Warrant, may be transferred by the Holder to any
other Person or Persons who meet the requirements set forth herein at any time or from time to
time, in whole or in part, regardless of whether the Holder retains any or all rights under the
Credit Agreement.
(b) Transfer and Exchanges. The Company shall initially record this Warrant on a
register to be maintained by the Company and, subject to Section 7 hereof, from time to
time thereafter shall reflect the transfer of this Warrant on such register when surrendered for
transfer in accordance with the terms hereof and properly endorsed, accompanied by appropriate
instructions, and further accompanied by payment in cash or by check, bank draft or money order
payable to the order of the Company, in United States currency, of an amount equal to any stamp or
other tax or governmental charge or fee required to be paid in connection with the transfer
thereof. Upon any such transfer, a new warrant or warrants shall be issued to the transferee and
the Holder (in the event this Warrant is only partially transferred) and the surrendered warrant
shall be canceled. This Warrant may be exchanged at the option of the Holder, when surrendered at
the Principal Office of the Company, for another warrant or other warrants of like tenor and
representing in the aggregate the right to purchase a like number of shares of Common Stock.
SECTION 2. Exercise.
(a) Right to Exercise. At any time after the Commencement Date and on or before the
Expiration Date, the Holder, in accordance with the terms hereof, may exercise this Warrant, in
whole at any time or in part from time to time, by delivering this Warrant to the Company during
normal business hours on any Business Day at the Companys Principal Office, together with the
Notice of Exercise, in the form attached hereto as Exhibit A and made a part hereof (the
Notice of Exercise), duly executed, and payment of the Exercise Price per share for each
share purchased, as specified in the Notice of Exercise. The aggregate Exercise Price (the
Aggregate Exercise Price) to be paid for the shares to be purchased (the Exercise
Amount) shall equal the product of (i) the Exercise Amount multiplied by (ii) the Exercise
Price. If the Expiration Date is not a Business Day, then this Warrant may be exercised on the
next succeeding Business Day.
(b) Payment of the Aggregate Exercise Price. Payment of the Aggregate Exercise Price
shall be made to the Company in cash or other immediately available funds or as provided in
Section 2(c), or a combination thereof. In the case of payment of all or a portion of the
Aggregate Exercise Price pursuant to Section 2(c), the direction by the Holder to make a
Cashless Exercise shall serve as accompanying payment for that portion of the Exercise Price.
(c) Cashless Exercise. The Holder shall have the right to pay all or a portion of the
Aggregate Exercise Price by making a Cashless Exercise, in which case the portion of the
Aggregate Exercise Price to be so paid shall be paid by reducing the number of shares of Common
Stock otherwise issuable pursuant to the Notice of Exercise by an amount equal to (i) the Aggregate
Exercise Price to be so paid divided by (ii) the Fair Market Value Per Share.
(d) Issuance of Shares of Common Stock. Upon receipt by the Company of this Warrant
at its Principal Office in proper form for exercise, and accompanied by the Notice of Exercise and
payment
2
of the Aggregate Exercise Price as aforesaid, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise, notwithstanding that certificates
representing such shares of Common Stock may not then be actually delivered. Within five (5)
Business Days after such surrender of this Warrant, delivery of the Notice of Exercise and payment
of the Aggregate Exercise Price as aforesaid, the Company shall issue and cause to be delivered to,
or upon the written order of, the Holder (and in such name or names as the Holder may designate) a
certificate or certificates for the Exercise Amount, subject to any reduction as provided in
Section 2(c) for a Cashless Exercise.
(e) Fractional Shares. The Company may, but shall not be required to, deliver
fractions of shares of Common Stock upon exercise of this Warrant. If any fraction of a share of
Common Stock would be deliverable upon an exercise of this Warrant, the Company may, in lieu of
delivering such fraction of a share of Common Stock, make a cash payment to the Holder in an amount
equal to the same fraction of the Fair Market Value Per Share determined as of the Business Day
immediately preceding the date of exercise of this Warrant.
(f) Partial Exercise. In the event of a partial exercise of this Warrant, the Company
shall issue to the Holder a Warrant in like form for the unexercised portion thereof which has not
expired.
SECTION 3. Payment of Taxes. The Company shall pay all stamp taxes attributable to
the initial issuance of shares or other securities issuable upon the exercise of this Warrant or
issuable pursuant to Section 5 hereof, excluding any tax or taxes which may be payable
because of the transfer involved in the issuance or delivery of any certificates for shares or
other securities in a name other than that of the Holder in respect of which such shares or
securities are issued.
SECTION 4. Replacement Warrant. In case this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant, or in lieu of and in substitution for this Warrant lost,
stolen or destroyed, a new Warrant of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction of such Warrant and upon receipt of indemnity reasonably satisfactory to the Company
and the Holder; provided, that if the Holder is a financial institution, business
development company or other institutional or fund investor, its own indemnity agreement shall be
satisfactory and no third party indemnity shall be required.
SECTION 5. Adjustments to the Aggregate Number and the Exercise Price.
Under certain conditions, the Aggregate Number and the Exercise Price are subject to
adjustment as set forth in this Section 5.
(a) Adjustments. The Aggregate Number, after taking into consideration any prior
adjustments pursuant to this Section 5, shall be subject to adjustment from time to time as
follows and, thereafter, as adjusted, shall be deemed to be the Aggregate Number hereunder.
(i) Stock Dividends; Subdivisions and Combinations. In case at any time or
from time to time the Company shall:
(A) issue to the holders of its shares of Common Stock a dividend payable in,
or other distribution of, shares of Common Stock (a Stock Dividend);
(B) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, including, without limitation, by means of a stock split (a
Stock Subdivision); or
3
(C) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock (a Stock Combination);
then the Aggregate Number in effect immediately prior thereto shall be (1) proportionately
increased in the case of a Stock Dividend or a Stock Subdivision and (2) proportionately decreased
in the case of a Stock Combination, and the Exercise Price shall be proportionately adjusted. In
the event the Company shall declare or pay, without consideration, any dividend on the shares of
Common Stock payable in any right to acquire shares of Common Stock for no consideration, then the
Company shall be deemed to have made a Stock Dividend in an amount of shares equal to the maximum
number of shares issuable upon exercise of such rights to acquire shares of Common Stock.
(b) Notices.
(i) Notice of Proposed Actions. In case the Company shall propose (A) to pay
any dividend payable in stock of any class to the holders of its Common Stock or to make any
other distribution to the holders of its Common Stock, (B) to offer to the holders of its
Common Stock rights to subscribe for or to purchase any Convertible Securities, rights to
acquire Convertible Securities or capital stock or additional shares of Common Stock or shares of stock of any class or any other securities, warrants, rights or options, (C) to
effect any reclassification of its Common Stock, (D) to effect any recapitalization, stock
subdivision, stock combination or other capital reorganization, (E) to effect any
consolidation or merger, share exchange, or sale, lease or other disposition of all or
substantially all of its property, assets or business, (F) to effect the liquidation,
dissolution or winding up of the Company, (G) to initiate any transaction or be a party to
any transaction (including, without limitation, a merger, consolidation, share exchange,
sale, lease or other disposition of all or substantially all of the Companys assets,
liquidation, recapitalization or reclassification of the Common Stock) in connection with
which the previous Outstanding Common Stock shall be changed into or exchanged for different
securities of the Company or capital stock or other securities of another corporation or
interests in a non-corporate entity or other property (including cash) or any combination of
the foregoing or (H) to effect any other action which would require an adjustment under this
Section 5, then in each such case the Company shall give to the Holder written
notice of such proposed action, which shall specify the proposed date on which a record is
to be taken for the purposes of such stock dividend, distribution or rights, or the proposed
date on which such reclassification, reorganization, consolidation, merger, share exchange,
sale, transfer, disposition, liquidation, dissolution, winding up or other transaction is to
take place and the date of participation therein by the holders of Common Stock, if any such
date is to be fixed, or the proposed date on which the transfer of Common Stock is to occur,
and shall also set forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Common Stock and on the Aggregate Number after
giving effect to any adjustment which will be required as a result of such action. Such
notice shall be so given in the case of any action covered by clause (A) or (B) above at
least twenty (20) calendar days prior to the record date for determining holders of the
Common Stock for purposes of such action and, in the case of any other such action, at least
twenty (20) calendar days prior to the earlier of the date of the taking of such proposed
action or the date of participation therein by the holders of Common Stock.
(ii) Adjustment Notice. Whenever the Aggregate Number is to be adjusted
pursuant to this Section 5, unless otherwise agreed by the Holder, the Company shall
promptly (and in any event within ten (10) Business Days after the event requiring the
adjustment) prepare and deliver to the Holder a certificate signed by the chief financial
officer of the Company, setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment is
4
to be calculated. The certificate shall set forth, if applicable, a description of the
basis on which the board of directors in good faith determined, as applicable, the Fair
Market Value Per Share, the fair market value of any evidences of indebtedness, shares of
stock, other securities, warrants, other subscription or purchase rights, or other property
or the equitable nature of any adjustment under Section 5(b) or (c) hereof,
the new Aggregate Number and, if applicable, any new securities or property to which the
Holder is entitled. Any other determination of fair market value shall first be determined
in good faith by the board of directors and be based upon an arms length sale of such
indebtedness, shares of stock, other securities, warrants, other subscription or purchase
rights or other property, such sale being between a willing buyer and a willing seller. In
the case of any such determination of fair market value, the Holder may object to the
determination in such certificate by giving written notice within ten (10) Business Days of
the receipt of such certificate and, if the Holder and the Company cannot agree to the fair
market value within ten (10) Business Days of the date of the Holders objection, the fair
market value shall be determined by a disinterested appraiser (which may be national or
regional investment bank or a national accounting firm) mutually selected by the Holder and
the Company, the fees and expenses of which shall be paid by the Company.
SECTION 6. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, share exchange, dissolution or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, including, without
limitation, the adjustments required under Section 5 hereof, and will at all times in good
faith assist in the carrying out of all such terms and in taking of all such action as may be
necessary or appropriate to protect the rights of the Holder against dilution or other impairment.
Without limiting the generality of the foregoing and notwithstanding any other provision of this
Warrant to the contrary (including by way of implication), the Company (a) will not increase the
par value of any shares of Common Stock receivable on the exercise of this Warrant above the amount
payable therefor on such exercise and (b) will take all such action as may be necessary or
appropriate so that the Company may validly and legally issue fully paid and nonassessable shares
of Common Stock upon the exercise of this Warrant.
SECTION
7. Transfers of this Warrant. (a) Generally. Subject to the restrictions set forth in this Section 7, the
Holder may at any time and from time to time freely transfer this Warrant and the Warrant Shares in
whole or in part to any Person. This Warrant has not been, and the Warrant Shares at the time of
their issuance may not be, registered under the Securities Act and, except as provided in the
Registration Rights Agreement, nothing herein contained shall be deemed to require the Company to
so register this Warrant and the Warrant Shares. This Warrant and the Warrant Shares are issued or
issuable subject to the provisions and conditions contained herein and to the provisions and
conditions contained in the Registration Rights Agreement, and every Holder hereof by accepting the
same agrees with the Company to such provisions and conditions, and represents to the Company that
this Warrant has been acquired and the Warrant Shares will be acquired for the account of the
Holder for investment and not with a view to or for sale in connection with any distribution
thereof.
(b) Compliance with Securities Laws. The Holder agrees that this Warrant and the
Warrant Shares may not be sold or otherwise disposed of except pursuant to an effective
registration statement under the Securities Act and other applicable Securities Laws or pursuant to
an applicable exemption from the registration requirements of the Securities Act and such other
applicable Securities Laws. In the event that the Holder transfers this Warrant or the Warrant
Shares pursuant to an applicable exemption from registration, the Company may request, at its
expense, that the Holder deliver an opinion of counsel
5
reasonably acceptable to the Company that the proposed transfer does not violate the
Securities Act or other applicable Securities Laws.
(c) Restrictive Securities Legend. (i) The certificate representing the Warrant
Shares shall bear the restrictive legends set forth below:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER THE SECURITIES LAWS OF ANY STATE. NO TRANSFER, SALE OR OTHER DISPOSITION
OF THIS WARRANT MAY BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THIS
WARRANT HAS BECOME EFFECTIVE UNDER SAID ACT, AND SUCH REGISTRATION OR QUALIFICATION
AS MAY BE NECESSARY UNDER THE SECURITIES LAWS OF ANY STATE HAS BECOME EFFECTIVE, OR
BORROWER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO BORROWER
THAT SUCH REGISTRATION IS NOT REQUIRED.
(ii) Certificates evidencing the Warrant Shares shall not contain any legend: (1) while
a registration statement (including the Registration Statement) covering the resale of the
Warrant Shares is effective under the Securities Act, or (2) following any sale of the
Shares pursuant to Rule 144 (other than sales to an Affiliate of Holder), or (3) if such
Warrant Shares are eligible for sale under Rule 144(b), or (4) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). If a legend is
not otherwise required under applicable requirements of the Securities Act (including
judicial interpretations thereof) then any certificates representing the Warrant Shares
shall be issued free of all legends. The Company agrees that following the effective date
of the Registration Statement or at such time as such legend is no longer required under
this Section 7, it will, no later than five (5) Business Days following the delivery
by the Holder to the Companys transfer agent of a certificate representing the Warrant
Shares issued with a restrictive legend, deliver or cause to be delivered to the Holder a
certificate representing such Warrant Shares that is free from all restrictive and other
legends. Unless required by law, the Company may not make any notation on its records or
give instructions to any transfer agent of the Company that enlarge the restrictions on
transfer set forth in this Section 7.
(d) Right of First Refusal.
(i) Holder may not Transfer this Warrant or any portion hereof unless it has complied
with this Section 7(d). If Holder proposes to Transfer this Warrant (or portion
hereof), then Holder shall promptly give written notice (the Sale Notice) to the
Company at least twenty (20) days prior to the closing of such Transfer. The Notice shall
describe in reasonable detail the proposed Transfer including, without limitation, the
portion of this Warrant to be Transferred (the Transfer Amount), the nature of
such Transfer, the consideration to be paid, and the name and address of each prospective
purchaser or transferee.
(ii) For a period of ten (10) days following receipt of any Sale Notice, the Company
shall have the right to purchase all, but not less than all, of the Transfer Amount subject
to such Sale Notice on the same terms and conditions as set forth therein. The Companys
purchase right shall be exercised by written notice signed by an officer of the Company (the
Company Notice) and delivered to the Holder within such ten (10) day period. The
Company shall effect the purchase of the Transfer Amount, including payment of the purchase
price, not more than five (5)
6
business days after delivery of the Companys Notice, and at such time the Holder shall
deliver to the Company this Warrant, properly endorsed for transfer. To the extent that the
Company does not elect to exercise its purchase right pursuant to this Section 7(d),
the Holder may, not later than thirty (30) days following delivery to the Company of the
Sale Notice, enter into an agreement providing for the closing of the Transfer of the
Transfer Amount covered by the Sale Notice within thirty (30) days of such agreement on the
terms and conditions described in the Sale Notice. Any subsequent proposed Transfer of this
Warrant by the Holder, shall again be subject to the first refusal rights of the Company and
shall require compliance by the Holder with the procedures described in this Section
7(d).
(iii) Notwithstanding the foregoing, the purchase rights of the Company set forth in
this Section 7(d) shall not apply to (i) any Transfer by a Holder to an Eligible
Assignee, (ii) any pledge of this Warrant made pursuant to a bona fide loan transaction that
creates a mere security, (iii) any Transfer by Holder in connection with the sale of all or
a portion of any outstanding indebtedness of the Company held by Holder or its Affiliates
pursuant to the Credit Agreement, or (iv) any Transfer that is a bona fide gift approved by
the Holders Board of Directors; provided, in each case, that the pledgee,
transferee or donee shall enter into a written agreement to be bound by and comply with all
provisions of this Warrant as if it were an original Holder hereunder.
(iv) Any purported Transfer by a Holder of this Warrant (or portion thereof) in
violation of this Section 7(d) shall be voidable, and the Company will not effect
such Transfer nor will it treat any alleged transferee as the holder of this Warrant.
(v) By its execution of this Agreement, Wachovia Bank, National Association, as the
Lender under the Credit Agreement, hereby consents to any purchase by the Company of this
Warrant upon the exercise of its rights under this Section 7(d), and acknowledges
and agrees that notwithstanding any provision of the Credit Agreement to the contrary, any
such purchase shall not constitute a breach of any provision of the Credit Agreement.
SECTION 8. Covenants.
The Company hereby covenants to the Holder that so long as Holder holds any Warrant
Securities:
(a) Limitation on Certain Restrictions. Without the prior written consent of the
Required Holders, the Company will not, and will not permit or cause any of its Subsidiaries,
directly or indirectly, to create or otherwise cause or suffer to exist or become effective any
restriction or encumbrance on the ability of the Company and any such Subsidiaries to perform and
comply with their respective obligations under this Warrant.
(b) Regulatory Requirements and Restrictions. In the event of any reasonable
determination by the Holder that, by reason of any existing or future federal or state law,
statute, rule, regulation, guideline, order, court or administrative ruling, request or directive
(whether or not having the force of law and whether or not failure to comply therewith would be
unlawful) (collectively, a Regulatory Requirement), the Holder is effectively restricted
or prohibited from holding this Warrant or the Warrant Shares (including any shares of capital
stock or other securities distributable to the Holder in any merger, reorganization, readjustment
or other reclassification), or otherwise realizing upon or receiving the benefits intended under
this Warrant, the Company shall take such action as the Holder and the Company shall jointly agree
in good faith to be necessary to permit the Holder to comply with such Regulatory
7
Requirement. The reasonable costs of taking such action, whether by the Company, the Holder
or otherwise, shall be borne by the Holder.
(c) Reservation of Shares. The Company shall at all times reserve and keep available
out of the aggregate of its authorized but unissued shares, free of preemptive rights, such number
of its duly authorized shares of Common Stock as shall be sufficient to enable the Company to issue
Common Stock upon exercise of this Warrant.
(d) Affirmative Actions to Permit Exercise and Realization of Benefits. If any shares
of Common Stock reserved or to be reserved for the purpose of the exercise of this Warrant, or any
shares or other securities reserved or to be reserved for the purpose of issuance pursuant to
Section 5 hereof, require registration with or approval of any Governmental Authority under
any federal or state law (other than securities laws) before such shares or other securities may be
validly delivered upon exercise of this Warrant, then the Company covenants that it will, at its
sole expense, secure such registration or approval, as the case may be (including but not limited
to approvals or expirations of waiting periods required under the Hart-Scott-Rodino Antitrust
Improvements Act).
(e) Validly Issued Shares. All shares of Common Stock that may be issued upon
exercise of this Warrant, assuming full payment of the Aggregate Exercise Price (including those
issued pursuant to Section 5 hereof) shall, upon delivery by the Company, be duly
authorized and validly issued, fully paid and nonassessable, free from all stamp taxes, liens and
charges with respect to the issue or delivery thereof and otherwise free of all other security
interests, encumbrances and claims of any nature whatsoever (other than security interests,
encumbrances and claims to which the Holder is subject prior to the issuance of this Warrant and
other transfer restrictions described herein).
(f) Furnishing of Information; Compliance with Rule 144. The Company shall timely
file (or obtain extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. So
long as the Warrant Shares are not registered under an effective registration statement, upon the
request of the Holder, the Company shall deliver to the Holder a written certification of a duly
authorized officer as to whether it has complied with the preceding sentence. As long as the
Holder owns any of the Warrant Shares, if the Company is not required to file reports pursuant to
such laws, it will prepare and furnish to the Holder and make publicly available in accordance with
Rule 144 such information as is required for the Holder to sell the Warrant Shares under Rule 144.
So long as the Warrant Shares are not registered under an effective registration statement, the
Company further covenants that it will take such further action as the Holder may reasonably
request, all to the extent required from time to time to enable the Holder to sell such Warrant
Shares without registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
(g) Integration. The Company shall not, and shall use its commercially reasonable
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of this Warrant in a manner that would require
the registration under the Securities Act of the sale of the Warrant to the Holder, or that would
be integrated with the offer or sale of the Warrant Shares for purposes of the rules and
regulations of any Principal Market.
(h) Listing of the Warrant Shares. The Company shall: (i) take all steps necessary to
cause the Warrant Shares to be approved for listing on the Principal Market as soon as possible
after the Commencement Date, (ii) provide to the Holder evidence of such listing, and (iii) use
reasonable efforts to maintain the listing of the Warrant Shares on such Principal Market or
another Principal Market.
8
(i) Securities Laws Disclosure; Publicity. The Company shall issue a press release or
timely file a report on Form 8-K reasonably acceptable to the Holder disclosing all material terms
of the transactions contemplated hereby. The Company and the Holder shall consult with each other
in issuing any press releases with respect to the transactions contemplated hereby.
Notwithstanding the foregoing, other than in the Registration Statement, the Company shall not
publicly disclose the name of the Holder or the terms hereof, or include the name of the Holder or
the terms hereof in any filing with the Commission or any regulatory agency or Principal Market,
without the prior written consent of such Holder, except to the extent such disclosure is required
by law or Principal Market regulations. The Holder acknowledges that such disclosure may be
required by law in the Companys proxy statement, annual report on Form 10-K, quarterly report on
Form 10-Q, and filings related thereto and will be incorporated by reference to such filings in
currently effective registration statements filed by the Company and will be included in
registration statements that may be filed by the Company in the future.
SECTION 9. No Effect Upon Lending Relationship. Notwithstanding anything herein to
the contrary, nothing contained in this Warrant shall affect, limit or impair the rights and
remedies of the Holder or any of its Affiliates in its capacity as a lender to the Company pursuant
to any agreement under which the Company has borrowed money from the Holder. Without limiting the
generality of the foregoing, the Holder, in exercising its rights as a lender, including making its
decision on whether to foreclose on any collateral security, will have no duty to consider (i) its
status or the status of any of its Affiliates as a direct or indirect equity holder of the Company,
(ii) the equity of the Company or (iii) any duty it may have to any other direct or indirect equity
holder of the Company, except as may be required under the applicable loan documents or by
commercial law applicable to creditors generally.
SECTION 10. Events of Non-Compliance and Remedies.
(a) Events of Non-Compliance. If the Company fails to keep and fully and promptly
perform and observe in all material respects any of the terms, covenants or representations
contained or referenced herein within twenty (20) calendar days from the earlier to occur of (i)
written notice from the Holder specifying what failure has occurred, or requesting that a specified
failure be remedied or (ii) the Company becoming aware of such failure (an Event of
Non-Compliance), the Holder shall be entitled to the remedies set forth in subsection (b)
hereof.
(b) Remedies. On the occurrence of an Event of Non-Compliance, in addition to any
remedies the Holder may have under any Requirement of Law, the Holder may bring any action for
injunctive relief or specific performance of any term or covenant contained herein, the Company
hereby acknowledging that an action for money damages may not be adequate to protect the interests
of the Holder hereunder.
SECTION 11. Definitions.
As used herein, in addition to the terms defined elsewhere herein, the following terms shall
have the following meanings. Capitalized terms not appearing below and not otherwise defined
herein shall have the meaning ascribed to them in the Credit Agreement.
Affiliate has the meaning set forth in the Credit Agreement.
Aggregate Exercise Price has the meaning set forth in Section 2(a).
Aggregate Number has the meaning set forth in the Preamble.
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Approved Fund shall mean any Fund that is administered, managed or underwritten by
(a) Holder, (b) an Affiliate of Holder or (c) an entity or an Affiliate of an entity that
administers or manages Holder.
Articles of Incorporation means the Articles of Incorporation of the Company, as in
effect on the date hereof.
Business Day has the meaning set forth in the Credit Agreement.
Commencement Date has the meaning set forth in the Preamble.
Commission means the Securities and Exchange Commission or any similar agency then
having jurisdiction to enforce the Securities Act or the Exchange Act.
Common Stock includes (a) the Common Stock of the Company, par value $0.01 per
share, as described in the Articles of Incorporation, (b) any other class of capital stock
hereafter authorized having the right to share in distributions either of earnings or assets
without limit as to amount or percentage or (c) any other capital stock into which such Common
Stock is reclassified or reconstituted.
Company has the meaning set forth in the Preamble.
Company Notice has the meaning set forth in Section 7(d)(ii).
Convertible Securities means evidences of indebtedness, shares of stock or other
securities (including, but not limited to options and warrants) which are directly or indirectly
convertible, exercisable or exchangeable, with or without payment of additional consideration in
cash or property, for shares of Common Stock, either immediately or upon the onset of a specified
date or the happening of a specified event.
Credit Agreement has the meaning set forth in the Preamble.
Eligible Assignee shall mean (a) an Affiliate of Holder, and (b) an Approved Fund.
Event of Non-Compliance has the meaning set forth in Section 10(a).
Exchange Act has the meaning set forth in the Credit Agreement.
Exercise Amount has the meaning set forth in Section 2(a).
Exercise Price has the meaning set forth in the Preamble.
Expiration Date has the meaning set forth in the Preamble.
Fair Market Value Per Share means the value, on a particular date, of a share of
Common Stock determined as follows:
(i) If the Common Stock is listed or admitted to trading on such date on the Principal Market,
the mean of the high and low sales prices of a share of Common Stock on the date immediately prior
to such date of determination as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on such Principal Market (if there
were no sales on such date
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reported as provided above, the respective prices on the most recent prior day on which a sale
of a share of Common Stock took place); or
(ii) If the Common Stock is not publicly traded, (a) the fair market value of the Outstanding
Common Stock based upon an arms length sale of the Company on such date (including its ownership
interest in all Persons) as an entirety, such sale being between a willing buyer and a willing
seller and determined without reference to any discount for minority interest, restrictions on
transfer, disparate voting rights among classes of capital stock or lack of marketability with
respect to capital stock divided by (b) the aggregate number of shares of
Outstanding Common Stock. The Fair Market Value Per Share shall be determined by the disinterested
members of the Board of Directors of the Company in good faith within ten (10) Business Days of any
event for which such determination is required and such determination (including the basis
therefor) shall be promptly provided to the Holder. Such determination shall be binding on the
Holder unless the Holder objects thereto in writing within ten (10) Business Days of receipt. In
the event the Holder objects to the determination of Fair Market Value Per Share by the board of
directors of the Company (such objection to be made within ten (10) Business Days of the Holders
receipt of written notice of such determination), then the Fair Market Value Per Share shall be
determined by a disinterested appraiser (which may be a national or regional investment bank or
national accounting firm) mutually selected by the Company and the Holder, the fees and expenses of
which shall be paid by the Company. Any selection of a disinterested appraiser shall be made in
good faith within five (5) Business Days after the Holder provides written notice to the Company of
its objection to the determination of Fair Market Value Per Share and any determination of Fair
Market Value Per Share by a disinterested appraiser shall be made within ten (10) Business Days of
the date of selection.
Fund has the meaning set forth in the Credit Agreement.
Governmental Authority has the meaning set forth in the Credit Agreement.
Holder has the meaning set forth in the Preamble.
Lenders has the meaning set forth in the Credit Agreement.
Notice of Exercise has the meaning set forth in Section 2(a).
Outstanding Common Stock of the Company means, as of the date of determination, the
sum (without duplication) of the following: (a) the number of shares of Common Stock then
outstanding at the date of determination, (b) the number of shares of Common Stock then issuable
upon the exercise of this Warrant (as such number of shares may be adjusted pursuant to the terms
hereof) and (c) the number of shares of Common Stock then issuable upon the exercise or conversion
of Convertible Securities and any warrants, options or other rights to subscribe for or purchase
Common Stock or Convertible Securities (but excluding any unvested options and securities not then
exercisable for or convertible into Common Stock).
Person has the meaning set forth in the Credit Agreement.
Principal Market initially means the New York Stock Exchange and any successor
exchange thereto and shall also include the NASDAQ Global Select Market, the NASDAQ Global Market,
NASDAQ Capital Market, the American Stock Exchange or the OTC Bulletin Board, whichever is at the
time the principal trading exchange or market for the Common Stock, based upon share volume.
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Principal Office means the Companys principal office as set forth in Section
16 hereof or such other principal office of the Company in the United States of America the
address of which first shall have been set forth in a notice to the Holder.
Registration Statement means the registration statements required to be filed under
the Registration Rights Agreement.
Registration Rights Agreement has the meaning set forth in the Credit Agreement.
Regulatory Requirement has the meaning set forth in Section 8(c).
Required Holders means the holders of at least 51.0% of the Warrant Shares then
outstanding.
Requirement of Law has the meaning set forth in the Credit Agreement.
Sale Notice has the meaning set forth in Section 7(d)(i).
Securities Act has the meaning set forth in the Credit Agreement.
Securities Laws has the meaning set forth in the Credit Agreement.
Stock Combination has the meaning set forth in Section 5(a)(i)(C).
Stock Dividend has the meaning set forth in Section 5(a)(i)(A).
Stock Subdivision has the meaning set forth in Section 5(a)(i)(B).
Subsidiary has the meaning set forth in the Credit Agreement.
Transfer means and includes any sale, assignment, encumbrance, hypothecation,
pledge, conveyance in trust, gift, transfer by request, devise or descent, or other transfer or
disposition of any kind, including, but not limited to, transfers to receivers, levying creditors,
trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors,
whether voluntary or by operation of law, directly or indirectly, of this Warrant.
Transfer Amount has the meaning set forth in Section 7(d)(i).
Warrant has the meaning set forth in the Preamble.
Warrant Securities means this Warrant and the Warrant Shares, collectively.
Warrant Shares means (a) the shares of Common Stock issued or issuable upon exercise
of this Warrant in accordance with its terms and (b) all other shares of the Companys capital
stock issued with respect to such shares by way of stock dividend, stock split or other
reclassification or in connection with any merger, consolidation, recapitalization or other
reorganization affecting the Companys capital stock.
SECTION 12. Survival of Provisions. Notwithstanding the full exercise by the Holder
of its rights to purchase Common Stock hereunder, the provisions of Sections 8(f) and
(h) of this Warrant shall survive such exercise and the Expiration Date until such time as
the Holder no longer holds any Warrant Shares.
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SECTION 13. Delays, Omissions and Indulgences. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to the Holder upon any breach or default
of the Company under this Warrant shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It
is further agreed that any waiver, permit, consent or approval of any kind or character on the
Holders part of any breach or default under this Warrant, or any waiver on the Holders part of
any provisions or conditions of this Warrant must be in writing and that all remedies, either under
this Warrant, or by Requirement of Law or otherwise afforded to the Holder, shall be cumulative and
not alternative.
SECTION 14. Rights of Transferees. Subject to Section 7, the rights granted
to the Holder hereunder of this Warrant shall pass to and inure to the benefit of all subsequent
transferees of all or any portion of this Warrant (provided that the Holder and any transferee
shall hold such rights in proportion to their respective ownership of this Warrant and Warrant
Shares) until extinguished pursuant to the terms hereof.
SECTION 15. Section Headings. The titles and captions of the Sections and other
provisions of this Warrant are for convenience of reference only and are not to be considered in
construing this Warrant.
SECTION 16. Notices.
(a) Except in the case of notices and other communications expressly permitted to be given by
telephone (and except as provided in paragraph (b) below), all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopier as follows:
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if to the Company: |
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Arbor Realty Trust, Inc. |
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c/o Arbor Commercial Mortgage LLC |
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333 Earle Ovington Boulevard |
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Uniondale, New York 11553 |
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Attention: Guy Milone, Esq. |
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Facsimile No.: (516) 8326431 |
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with a copy to: |
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Arbor Commercial Mortgage LLC |
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333 Earle Ovington Boulevard |
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Uniondale, New York 11553 |
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Attention: John Natalone |
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Phone No.: (516) 8327409 |
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Facsimile No.: (516) 832-6409 |
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if to the Holder: |
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Wachovia Bank, National Association |
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One Wachovia Center, NC0166 |
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301 South College Street |
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Charlotte, North Carolina 28288 |
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Attention: John Nelson |
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Facsimile No.: (704) 7150066 |
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with a copy to: |
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Moore & Van Allen PLLC |
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100 North Tryon Street |
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Suite 4700 |
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Charlotte, NC 28202 |
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Attention: Kenneth P. Kerr, Esq. |
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Telecopy No.: (704) 3782097 |
Notices sent by hand or overnight courier service, or mailed by certified or registered mail,
shall be deemed to have been given when received; notices sent by telecopier shall be deemed to
have been given when sent (except that, if not given during normal business hours for the
recipient, shall be deemed to have been given at the opening of business on the next Business Day
for the recipient). Notices delivered through electronic communications to the extent provided in
paragraph (b) below shall be effective as provided in said paragraph (b).
(b) Notices and other communications to the Holder hereunder may be delivered or furnished by
electronic communication (including e-mail and internet or intranet websites) pursuant to
procedures approved by the Holder. The Holder or the Company may, in its discretion, agree to
accept notices and other communications to it hereunder by electronic communications pursuant to
procedures approved by it, provided that approval of such procedures may be limited to
particular notices or communications.
Unless the Holder otherwise prescribes, (i) notices and other communications sent to an e-mail
address shall be deemed received upon the senders receipt of an acknowledgement from the intended
recipient (such as by the return receipt requested function, as available, return e-mail or other
written acknowledgement), provided that if such notice or other communication is not sent
during the normal business hours of the recipient, such notice or communication shall be deemed to
have been sent at the opening of business on the next Business Day for the recipient, and
(ii) notices or communications posted to an internet or intranet website shall be deemed received
upon the deemed receipt by the intended recipient at its e-mail address as described in the
foregoing clause (i) of notification that such notice or communication is available and identifying
the website address therefor.
(c) Any party hereto may change its address or telecopier number for notices and other
communications hereunder by notice to the other parties hereto.
SECTION 17. Successors and Assigns. This Warrant shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns, provided that the
Company shall have no right to assign its rights, or to delegate its obligations, hereunder without
the prior written consent of the Holder.
SECTION 18. Amendments. Neither this Warrant nor any term hereof may be amended,
changed, waived, discharged or terminated without the prior written consent of the Holder and the
Company.
SECTION 19. Severability. Any provision of this Warrant which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such
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prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 20. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the law of the State of New York.
SECTION 21. Entire Agreement. This Warrant and the Registration Rights Agreement are
intended by the parties as a final expression of their agreement and are intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein.
SECTION 22. Rules of Construction. Unless the context otherwise requires or is not
exclusive, and references to sections or subsections refer to sections or subsections of this
Warrant. All pronouns and any variations thereof refer to the masculine, feminine or neuter,
singular or plural, as the context may require.
[Remainder of Page Intentionally Omitted.]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be issued and executed in its
corporate name by a duly authorized officer or director as of the date first written above.
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ARBOR REALTY TRUST, INC., a Maryland
corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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S-1
EXHIBIT A
NOTICE OF EXERCISE
1. The undersigned, pursuant to the provisions of the attached Warrant, hereby elects to
exercise this Warrant with respect to shares of Common Stock (the Exercise Amount).
Capitalized terms used but not otherwise defined herein have the meanings ascribed thereto in the
attached Warrant.
2. The undersigned herewith tenders payment for such shares in the following manner (please
check type, or types, of payment and indicate the portion of the Exercise Price to be paid by each
type of payment):
Exercise for Cash
Cashless Exercise
3. Please issue a certificate or certificates representing the shares issuable in respect
hereof under the terms of the attached Warrant, as follows:
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(Name of Record Holder/Transferee) |
and deliver such certificate or certificates to the following address:
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(Address of Record Holder/Transferee) |
4. The undersigned represents that the aforesaid shares are being acquired for the
account of the undersigned for investment and not with a view to, or for resale in connection with,
the distribution thereof and that the undersigned has no present intention of distributing or
reselling such shares.
5. If the Exercise Amount is less than all of the shares of Common Stock purchasable
hereunder, please issue a new warrant representing the remaining balance of such shares, as
follows:
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(Name of Record Holder/Transferee) |
and deliver such warrant to the following address:
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(Address of Record Holder/Transferee) |
exv4w3
Exhibit 4.3
THIS COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED HEREUNDER
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES
LAWS OF ANY STATE. THIS COMMON STOCK PURCHASE WARRANT HAS BEEN ACQUIRED FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION, AND THIS COMMON STOCK
PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED HEREUNDER MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL THAT THE PROPOSED TRANSACTION DOES NOT
VIOLATE THE SECURITIES ACT OF 1933, AND APPLICABLE STATE SECURITIES LAWS.
ARBOR REALTY TRUST, INC.
COMMON STOCK PURCHASE WARRANT
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Date of Issuance: July 23, 2009
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Certificate No. W-2 |
THIS IS TO CERTIFY that WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association (together with its transferees, successors and assigns, the
Holder), for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, is entitled to purchase from ARBOR REALTY TRUST,
INC., a Maryland corporation (the Company), at the price of $5.00 per
share (the Exercise Price), at any time after July 23, 2011 (the
Commencement Date) and expiring on July 23, 2015 (the Expiration
Date), 250,000 shares of fully paid and nonassessable common stock, par value
$0.01 per share (Common Stock) of the Company (as such number may be
adjusted as provided herein). The 250,000 shares of Common Stock which may be
purchased pursuant to this Warrant are referred to herein as the Aggregate
Number. This common stock purchase warrant (this Warrant) is issued
under and in connection with that certain First Amended and Restated Credit
Agreement, dated as of July 23, 2009 (as the same may be amended, modified,
restated, replaced, waived, substituted, supplemented or extended from time to
time, the Credit Agreement), among Arbor Realty Funding, LLC, a Delaware
limited liability company, as a borrower, ARSR Tahoe, LLC, a Delaware limited
liability company, as a borrower, Arbor ESH II LLC, a Delaware limited liability
company, as a borrower, Arbor Realty Limited Partnership, a Delaware limited
partnership, as a borrower and a guarantor, ART 450 LLC, a Delaware limited
liability company, as a borrower, the Company, as a guarantor, Arbor Realty SR,
Inc., a Maryland corporation, as a borrower and a guarantor, the several banks and
other financial institutions as are, or may from time to time become parties
thereto, and Wachovia Bank, National Association, a national banking association,
as administrative agent for the lenders thereunder.
The Aggregate Number and Exercise Price set forth above shall also be adjusted under certain
conditions specified in Section 5 of this Warrant, including, but not limited to, a Stock
Dividend, Stock
Subdivision or Stock Combination. Capitalized terms used herein shall have the meanings
ascribed to such terms in Section 11 hereof unless otherwise defined herein.
SECTION 1. The Warrant; Transfer and Exchange.
(a) The Warrant. This Warrant and the rights and privileges of the Holder hereunder
may be exercised by the Holder in whole or in part as provided herein, shall survive any
termination of the Credit Agreement and, as more fully set forth in Sections 1(b) and
7 hereof, subject to the terms of this Warrant, may be transferred by the Holder to any
other Person or Persons who meet the requirements set forth herein at any time or from time to
time, in whole or in part, regardless of whether the Holder retains any or all rights under the
Credit Agreement.
(b) Transfer and Exchanges. The Company shall initially record this Warrant on a
register to be maintained by the Company and, subject to Section 7 hereof, from time to
time thereafter shall reflect the transfer of this Warrant on such register when surrendered for
transfer in accordance with the terms hereof and properly endorsed, accompanied by appropriate
instructions, and further accompanied by payment in cash or by check, bank draft or money order
payable to the order of the Company, in United States currency, of an amount equal to any stamp or
other tax or governmental charge or fee required to be paid in connection with the transfer
thereof. Upon any such transfer, a new warrant or warrants shall be issued to the transferee and
the Holder (in the event this Warrant is only partially transferred) and the surrendered warrant
shall be canceled. This Warrant may be exchanged at the option of the Holder, when surrendered at
the Principal Office of the Company, for another warrant or other warrants of like tenor and
representing in the aggregate the right to purchase a like number of shares of Common Stock.
SECTION 2. Exercise.
(a) Right to Exercise. At any time after the Commencement Date and on or before the
Expiration Date, the Holder, in accordance with the terms hereof, may exercise this Warrant, in
whole at any time or in part from time to time, by delivering this Warrant to the Company during
normal business hours on any Business Day at the Companys Principal Office, together with the
Notice of Exercise, in the form attached hereto as Exhibit A and made a part hereof (the
Notice of Exercise), duly executed, and payment of the Exercise Price per share for each
share purchased, as specified in the Notice of Exercise. The aggregate Exercise Price (the
Aggregate Exercise Price) to be paid for the shares to be purchased (the Exercise
Amount) shall equal the product of (i) the Exercise Amount multiplied by (ii) the Exercise
Price. If the Expiration Date is not a Business Day, then this Warrant may be exercised on the
next succeeding Business Day.
(b) Payment of the Aggregate Exercise Price. Payment of the Aggregate Exercise Price
shall be made to the Company in cash or other immediately available funds or as provided in
Section 2(c), or a combination thereof. In the case of payment of all or a portion of the
Aggregate Exercise Price pursuant to Section 2(c), the direction by the Holder to make a
Cashless Exercise shall serve as accompanying payment for that portion of the Exercise Price.
(c) Cashless Exercise. The Holder shall have the right to pay all or a portion of the
Aggregate Exercise Price by making a Cashless Exercise, in which case the portion of the
Aggregate Exercise Price to be so paid shall be paid by reducing the number of shares of Common
Stock otherwise issuable pursuant to the Notice of Exercise by an amount equal to (i) the Aggregate
Exercise Price to be so paid divided by (ii) the Fair Market Value Per Share.
(d) Issuance of Shares of Common Stock. Upon receipt by the Company of this Warrant
at its Principal Office in proper form for exercise, and accompanied by the Notice of Exercise and
payment
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of the Aggregate Exercise Price as aforesaid, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise, notwithstanding that certificates
representing such shares of Common Stock may not then be actually delivered. Within five (5)
Business Days after such surrender of this Warrant, delivery of the Notice of Exercise and payment
of the Aggregate Exercise Price as aforesaid, the Company shall issue and cause to be delivered to,
or upon the written order of, the Holder (and in such name or names as the Holder may designate) a
certificate or certificates for the Exercise Amount, subject to any reduction as provided in
Section 2(c) for a Cashless Exercise.
(e) Fractional Shares. The Company may, but shall not be required to, deliver
fractions of shares of Common Stock upon exercise of this Warrant. If any fraction of a share of
Common Stock would be deliverable upon an exercise of this Warrant, the Company may, in lieu of
delivering such fraction of a share of Common Stock, make a cash payment to the Holder in an amount
equal to the same fraction of the Fair Market Value Per Share determined as of the Business Day
immediately preceding the date of exercise of this Warrant.
(f) Partial Exercise. In the event of a partial exercise of this Warrant, the Company
shall issue to the Holder a Warrant in like form for the unexercised portion thereof which has not
expired.
SECTION 3. Payment of Taxes. The Company shall pay all stamp taxes attributable to
the initial issuance of shares or other securities issuable upon the exercise of this Warrant or
issuable pursuant to Section 5 hereof, excluding any tax or taxes which may be payable
because of the transfer involved in the issuance or delivery of any certificates for shares or
other securities in a name other than that of the Holder in respect of which such shares or
securities are issued.
SECTION 4. Replacement Warrant. In case this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant, or in lieu of and in substitution for this Warrant lost,
stolen or destroyed, a new Warrant of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction of such Warrant and upon receipt of indemnity reasonably satisfactory to the Company
and the Holder; provided, that if the Holder is a financial institution, business
development company or other institutional or fund investor, its own indemnity agreement shall be
satisfactory and no third party indemnity shall be required.
SECTION 5. Adjustments to the Aggregate Number and the Exercise Price.
Under certain conditions, the Aggregate Number and the Exercise Price are subject to
adjustment as set forth in this Section 5.
(a) Adjustments. The Aggregate Number, after taking into consideration any prior
adjustments pursuant to this Section 5, shall be subject to adjustment from time to time as
follows and, thereafter, as adjusted, shall be deemed to be the Aggregate Number hereunder.
(i) Stock Dividends; Subdivisions and Combinations. In case at any time or
from time to time the Company shall:
(A) issue to the holders of its shares of Common Stock a dividend payable in,
or other distribution of, shares of Common Stock (a Stock Dividend);
(B) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, including, without limitation, by means of
a stock split (a Stock Subdivision); or
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(C) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock (a Stock Combination);
then the Aggregate Number in effect immediately prior thereto shall be (1) proportionately
increased in the case of a Stock Dividend or a Stock Subdivision and (2) proportionately decreased
in the case of a Stock Combination, and the Exercise Price shall be proportionately adjusted. In
the event the Company shall declare or pay, without consideration, any dividend on the shares of
Common Stock payable in any right to acquire shares of Common Stock for no consideration, then the
Company shall be deemed to have made a Stock Dividend in an amount of shares equal to the maximum
number of shares issuable upon exercise of such rights to acquire shares of Common Stock.
(b) Notices.
(i) Notice of Proposed Actions. In case the Company shall propose (A) to pay
any dividend payable in stock of any class to the holders of its Common Stock or to make any
other distribution to the holders of its Common Stock, (B) to offer to the holders of its
Common Stock rights to subscribe for or to purchase any Convertible Securities, rights to
acquire Convertible Securities or capital stock or additional shares
of Common Stock or shares of stock of any class or any other securities, warrants, rights or options, (C) to
effect any reclassification of its Common Stock, (D) to effect any recapitalization, stock
subdivision, stock combination or other capital reorganization, (E) to effect any
consolidation or merger, share exchange, or sale, lease or other disposition of all or
substantially all of its property, assets or business, (F) to effect the liquidation,
dissolution or winding up of the Company, (G) to initiate any transaction or be a party to
any transaction (including, without limitation, a merger, consolidation, share exchange,
sale, lease or other disposition of all or substantially all of the Companys assets,
liquidation, recapitalization or reclassification of the Common Stock) in connection with
which the previous Outstanding Common Stock shall be changed into or exchanged for different
securities of the Company or capital stock or other securities of another corporation or
interests in a non-corporate entity or other property (including cash) or any combination of
the foregoing or (H) to effect any other action which would require an adjustment under this
Section 5, then in each such case the Company shall give to the Holder written
notice of such proposed action, which shall specify the proposed date on which a record is
to be taken for the purposes of such stock dividend, distribution or rights, or the proposed
date on which such reclassification, reorganization, consolidation, merger, share exchange,
sale, transfer, disposition, liquidation, dissolution, winding up or other transaction is to
take place and the date of participation therein by the holders of Common Stock, if any such
date is to be fixed, or the proposed date on which the transfer of Common Stock is to occur,
and shall also set forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Common Stock and on the Aggregate Number after
giving effect to any adjustment which will be required as a result of such action. Such
notice shall be so given in the case of any action covered by clause (A) or (B) above at
least twenty (20) calendar days prior to the record date for determining holders of the
Common Stock for purposes of such action and, in the case of any other such action, at least
twenty (20) calendar days prior to the earlier of the date of the taking of such proposed
action or the date of participation therein by the holders of Common Stock.
(ii) Adjustment Notice. Whenever the Aggregate Number is to be adjusted
pursuant to this Section 5, unless otherwise agreed by the Holder, the Company shall
promptly (and in any event within ten (10) Business Days after the event requiring the
adjustment) prepare and deliver to the Holder a certificate signed by the chief financial
officer of the Company, setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment is
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to be calculated. The certificate shall set forth, if applicable, a description of the
basis on which the board of directors in good faith determined, as applicable, the Fair
Market Value Per Share, the fair market value of any evidences of indebtedness, shares of
stock, other securities, warrants, other subscription or purchase rights, or other property
or the equitable nature of any adjustment under Section 5(b) or (c) hereof,
the new Aggregate Number and, if applicable, any new securities or property to which the
Holder is entitled. Any other determination of fair market value shall first be determined
in good faith by the board of directors and be based upon an arms length sale of such
indebtedness, shares of stock, other securities, warrants, other subscription or purchase
rights or other property, such sale being between a willing buyer and a willing seller. In
the case of any such determination of fair market value, the Holder may object to the
determination in such certificate by giving written notice within ten (10) Business Days of
the receipt of such certificate and, if the Holder and the Company cannot agree to the fair
market value within ten (10) Business Days of the date of the Holders objection, the fair
market value shall be determined by a disinterested appraiser (which may be national or
regional investment bank or a national accounting firm) mutually selected by the Holder and
the Company, the fees and expenses of which shall be paid by the Company.
SECTION 6. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, share exchange, dissolution or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, including, without
limitation, the adjustments required under Section 5 hereof, and will at all times in good
faith assist in the carrying out of all such terms and in taking of all such action as may be
necessary or appropriate to protect the rights of the Holder against dilution or other impairment.
Without limiting the generality of the foregoing and notwithstanding any other provision of this
Warrant to the contrary (including by way of implication), the Company (a) will not increase the
par value of any shares of Common Stock receivable on the exercise of this Warrant above the amount
payable therefor on such exercise and (b) will take all such action as may be necessary or
appropriate so that the Company may validly and legally issue fully paid and nonassessable shares
of Common Stock upon the exercise of this Warrant.
SECTION 7. Transfers of this Warrant.
(a) Generally. Subject to the restrictions set forth in this Section 7, the
Holder may at any time and from time to time freely transfer this Warrant and the Warrant Shares in
whole or in part to any Person. This Warrant has not been, and the Warrant Shares at the time of
their issuance may not be, registered under the Securities Act and, except as provided in the
Registration Rights Agreement, nothing herein contained shall be deemed to require the Company to
so register this Warrant and the Warrant Shares. This Warrant and the Warrant Shares are issued or
issuable subject to the provisions and conditions contained herein and to the provisions and
conditions contained in the Registration Rights Agreement, and every Holder hereof by accepting the
same agrees with the Company to such provisions and conditions, and represents to the Company that
this Warrant has been acquired and the Warrant Shares will be acquired for the account of the
Holder for investment and not with a view to or for sale in connection with any distribution
thereof.
(b) Compliance with Securities Laws. The Holder agrees that this Warrant and the
Warrant Shares may not be sold or otherwise disposed of except pursuant to an effective
registration statement under the Securities Act and other applicable Securities Laws or pursuant to
an applicable exemption from the registration requirements of the Securities Act and such other
applicable Securities Laws. In the event that the Holder transfers this Warrant or the Warrant
Shares pursuant to an applicable exemption from registration, the Company may request, at its
expense, that the Holder deliver an opinion of counsel
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reasonably acceptable to the Company that the proposed transfer does not violate the
Securities Act or other applicable Securities Laws.
(c) Restrictive Securities Legend. (i) The certificate representing the Warrant
Shares shall bear the restrictive legends set forth below:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER THE SECURITIES LAWS OF ANY STATE. NO TRANSFER, SALE OR OTHER DISPOSITION
OF THIS WARRANT MAY BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THIS
WARRANT HAS BECOME EFFECTIVE UNDER SAID ACT, AND SUCH REGISTRATION OR QUALIFICATION
AS MAY BE NECESSARY UNDER THE SECURITIES LAWS OF ANY STATE HAS BECOME EFFECTIVE, OR
BORROWER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO BORROWER
THAT SUCH REGISTRATION IS NOT REQUIRED.
(ii) Certificates evidencing the Warrant Shares shall not contain any legend: (1) while
a registration statement (including the Registration Statement) covering the resale of the
Warrant Shares is effective under the Securities Act, or (2) following any sale of the
Shares pursuant to Rule 144 (other than sales to an Affiliate of Holder), or (3) if such
Warrant Shares are eligible for sale under Rule 144(b), or (4) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). If a legend is
not otherwise required under applicable requirements of the Securities Act (including
judicial interpretations thereof) then any certificates representing the Warrant Shares
shall be issued free of all legends. The Company agrees that following the effective date
of the Registration Statement or at such time as such legend is no longer required under
this Section 7, it will, no later than five (5) Business Days following the delivery
by the Holder to the Companys transfer agent of a certificate representing the Warrant
Shares issued with a restrictive legend, deliver or cause to be delivered to the Holder a
certificate representing such Warrant Shares that is free from all restrictive and other
legends. Unless required by law, the Company may not make any notation on its records or
give instructions to any transfer agent of the Company that enlarge the restrictions on
transfer set forth in this Section 7.
(d) Right of First Refusal.
(i) Holder may not Transfer this Warrant or any portion hereof unless it has complied
with this Section 7(d). If Holder proposes to Transfer this Warrant (or portion
hereof), then Holder shall promptly give written notice (the Sale Notice) to the
Company at least twenty (20) days prior to the closing of such Transfer. The Notice shall
describe in reasonable detail the proposed Transfer including, without limitation, the
portion of this Warrant to be Transferred (the Transfer Amount), the nature of
such Transfer, the consideration to be paid, and the name and address of each prospective
purchaser or transferee.
(ii) For a period of ten (10) days following receipt of any Sale Notice, the Company
shall have the right to purchase all, but not less than all, of the Transfer Amount subject
to such Sale Notice on the same terms and conditions as set forth therein. The Companys
purchase right shall be exercised by written notice signed by an officer of the Company (the
Company Notice) and delivered to the Holder within such ten (10) day period. The
Company shall effect the purchase of the Transfer Amount, including payment of the purchase
price, not more than five (5)
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business days after delivery of the Companys Notice, and at such time the Holder shall
deliver to the Company this Warrant, properly endorsed for transfer. To the extent that the
Company does not elect to exercise its purchase right pursuant to this Section 7(d),
the Holder may, not later than thirty (30) days following delivery to the Company of the
Sale Notice, enter into an agreement providing for the closing of the Transfer of the
Transfer Amount covered by the Sale Notice within thirty (30) days of such agreement on the
terms and conditions described in the Sale Notice. Any subsequent proposed Transfer of this
Warrant by the Holder, shall again be subject to the first refusal rights of the Company and
shall require compliance by the Holder with the procedures described in this Section
7(d).
(iii) Notwithstanding the foregoing, the purchase rights of the Company set forth in
this Section 7(d) shall not apply to (i) any Transfer by a Holder to an Eligible
Assignee, (ii) any pledge of this Warrant made pursuant to a bona fide loan transaction that
creates a mere security, (iii) any Transfer by Holder in connection with the sale of all or
a portion of any outstanding indebtedness of the Company held by Holder or its Affiliates
pursuant to the Credit Agreement, or (iv) any Transfer that is a bona fide gift approved by
the Holders Board of Directors; provided, in each case, that the pledgee,
transferee or donee shall enter into a written agreement to be bound by and comply with all
provisions of this Warrant as if it were an original Holder hereunder.
(iv) Any purported Transfer by a Holder of this Warrant (or portion thereof) in
violation of this Section 7(d) shall be voidable, and the Company will not effect
such Transfer nor will it treat any alleged transferee as the holder of this Warrant.
(v) By its execution of this Agreement, Wachovia Bank, National Association, as the
Lender under the Credit Agreement, hereby consents to any purchase by the Company of this
Warrant upon the exercise of its rights under this Section 7(d), and acknowledges
and agrees that notwithstanding any provision of the Credit Agreement to the contrary, any
such purchase shall not constitute a breach of any provision of the Credit Agreement.
SECTION 8. Covenants.
The Company hereby covenants to the Holder that so long as Holder holds any Warrant
Securities:
(a) Limitation on Certain Restrictions. Without the prior written consent of the
Required Holders, the Company will not, and will not permit or cause any of its Subsidiaries,
directly or indirectly, to create or otherwise cause or suffer to exist or become effective any
restriction or encumbrance on the ability of the Company and any such Subsidiaries to perform and
comply with their respective obligations under this Warrant.
(b) Regulatory Requirements and Restrictions. In the event of any reasonable
determination by the Holder that, by reason of any existing or future federal or state law,
statute, rule, regulation, guideline, order, court or administrative ruling, request or directive
(whether or not having the force of law and whether or not failure to comply therewith would be
unlawful) (collectively, a Regulatory Requirement), the Holder is effectively restricted
or prohibited from holding this Warrant or the Warrant Shares (including any shares of capital
stock or other securities distributable to the Holder in any merger, reorganization, readjustment
or other reclassification), or otherwise realizing upon or receiving the benefits intended under
this Warrant, the Company shall take such action as the Holder and the Company shall jointly agree
in good faith to be necessary to permit the Holder to comply with such Regulatory
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Requirement. The reasonable costs of taking such action, whether by the Company, the Holder
or otherwise, shall be borne by the Holder.
(c) Reservation of Shares. The Company shall at all times reserve and keep available
out of the aggregate of its authorized but unissued shares, free of preemptive rights, such number
of its duly authorized shares of Common Stock as shall be sufficient to enable the Company to issue
Common Stock upon exercise of this Warrant.
(d) Affirmative Actions to Permit Exercise and Realization of Benefits. If any shares
of Common Stock reserved or to be reserved for the purpose of the exercise of this Warrant, or any
shares or other securities reserved or to be reserved for the purpose of issuance pursuant to
Section 5 hereof, require registration with or approval of any Governmental Authority under
any federal or state law (other than securities laws) before such shares or other securities may be
validly delivered upon exercise of this Warrant, then the Company covenants that it will, at its
sole expense, secure such registration or approval, as the case may be (including but not limited
to approvals or expirations of waiting periods required under the Hart-Scott-Rodino Antitrust
Improvements Act).
(e) Validly Issued Shares. All shares of Common Stock that may be issued upon
exercise of this Warrant, assuming full payment of the Aggregate Exercise Price (including those
issued pursuant to Section 5 hereof) shall, upon delivery by the Company, be duly
authorized and validly issued, fully paid and nonassessable, free from all stamp taxes, liens and
charges with respect to the issue or delivery thereof and otherwise free of all other security
interests, encumbrances and claims of any nature whatsoever (other than security interests,
encumbrances and claims to which the Holder is subject prior to the issuance of this Warrant and
other transfer restrictions described herein).
(f) Furnishing of Information; Compliance with Rule 144. The Company shall timely
file (or obtain extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. So
long as the Warrant Shares are not registered under an effective registration statement, upon the
request of the Holder, the Company shall deliver to the Holder a written certification of a duly
authorized officer as to whether it has complied with the preceding sentence. As long as the
Holder owns any of the Warrant Shares, if the Company is not required to file reports pursuant to
such laws, it will prepare and furnish to the Holder and make publicly available in accordance with
Rule 144 such information as is required for the Holder to sell the Warrant Shares under Rule 144.
So long as the Warrant Shares are not registered under an effective registration statement, the
Company further covenants that it will take such further action as the Holder may reasonably
request, all to the extent required from time to time to enable the Holder to sell such Warrant
Shares without registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
(g) Integration. The Company shall not, and shall use its commercially reasonable
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of this Warrant in a manner that would require
the registration under the Securities Act of the sale of the Warrant to the Holder, or that would
be integrated with the offer or sale of the Warrant Shares for purposes of the rules and
regulations of any Principal Market.
(h) Listing of the Warrant Shares. The Company shall: (i) take all steps necessary to
cause the Warrant Shares to be approved for listing on the Principal Market as soon as possible
after the Commencement Date, (ii) provide to the Holder evidence of such listing, and (iii) use
reasonable efforts to maintain the listing of the Warrant Shares on such Principal Market or
another Principal Market.
8
(i) Securities Laws Disclosure; Publicity. The Company shall issue a press release or
timely file a report on Form 8-K reasonably acceptable to the Holder disclosing all material terms
of the transactions contemplated hereby. The Company and the Holder shall consult with each other
in issuing any press releases with respect to the transactions contemplated hereby.
Notwithstanding the foregoing, other than in the Registration Statement, the Company shall not
publicly disclose the name of the Holder or the terms hereof, or include the name of the Holder or
the terms hereof in any filing with the Commission or any regulatory agency or Principal Market,
without the prior written consent of such Holder, except to the extent such disclosure is required
by law or Principal Market regulations. The Holder acknowledges that such disclosure may be
required by law in the Companys proxy statement, annual report on Form 10-K, quarterly report on
Form 10-Q, and filings related thereto and will be incorporated by reference to such filings in
currently effective registration statements filed by the Company and will be included in
registration statements that may be filed by the Company in the future.
SECTION 9. No Effect Upon Lending Relationship. Notwithstanding anything herein to
the contrary, nothing contained in this Warrant shall affect, limit or impair the rights and
remedies of the Holder or any of its Affiliates in its capacity as a lender to the Company pursuant
to any agreement under which the Company has borrowed money from the Holder. Without limiting the
generality of the foregoing, the Holder, in exercising its rights as a lender, including making its
decision on whether to foreclose on any collateral security, will have no duty to consider (i) its
status or the status of any of its Affiliates as a direct or indirect equity holder of the Company,
(ii) the equity of the Company or (iii) any duty it may have to any other direct or indirect equity
holder of the Company, except as may be required under the applicable loan documents or by
commercial law applicable to creditors generally.
SECTION 10. Events of Non-Compliance and Remedies.
(a) Events of Non-Compliance. If the Company fails to keep and fully and promptly
perform and observe in all material respects any of the terms, covenants or representations
contained or referenced herein within twenty (20) calendar days from the earlier to occur of (i)
written notice from the Holder specifying what failure has occurred, or requesting that a specified
failure be remedied or (ii) the Company becoming aware of such failure (an Event of
Non-Compliance), the Holder shall be entitled to the remedies set forth in subsection (b)
hereof.
(b) Remedies. On the occurrence of an Event of Non-Compliance, in addition to any
remedies the Holder may have under any Requirement of Law, the Holder may bring any action for
injunctive relief or specific performance of any term or covenant contained herein, the Company
hereby acknowledging that an action for money damages may not be adequate to protect the interests
of the Holder hereunder.
SECTION 11. Definitions.
As used herein, in addition to the terms defined elsewhere herein, the following terms shall
have the following meanings. Capitalized terms not appearing below and not otherwise defined
herein shall have the meaning ascribed to them in the Credit Agreement.
Affiliate has the meaning set forth in the Credit Agreement.
Aggregate Exercise Price has the meaning set forth in Section 2(a).
Aggregate Number has the meaning set forth in the Preamble.
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Approved Fund shall mean any Fund that is administered, managed or underwritten by
(a) Holder, (b) an Affiliate of Holder or (c) an entity or an Affiliate of an entity that
administers or manages Holder.
Articles of Incorporation means the Articles of Incorporation of the Company, as in
effect on the date hereof.
Business Day has the meaning set forth in the Credit Agreement.
Commencement Date has the meaning set forth in the Preamble.
Commission means the Securities and Exchange Commission or any similar agency then
having jurisdiction to enforce the Securities Act or the Exchange Act.
Common Stock includes (a) the Common Stock of the Company, par value $0.01 per
share, as described in the Articles of Incorporation, (b) any other class of capital stock
hereafter authorized having the right to share in distributions either of earnings or assets
without limit as to amount or percentage or (c) any other capital stock into which such Common
Stock is reclassified or reconstituted.
Company has the meaning set forth in the Preamble.
Company Notice has the meaning set forth in Section 7(d)(ii).
Convertible Securities means evidences of indebtedness, shares of stock or other
securities (including, but not limited to options and warrants) which are directly or indirectly
convertible, exercisable or exchangeable, with or without payment of additional consideration in
cash or property, for shares of Common Stock, either immediately or upon the onset of a specified
date or the happening of a specified event.
Credit Agreement has the meaning set forth in the Preamble.
Eligible Assignee shall mean (a) an Affiliate of Holder, and (b) an Approved Fund.
Event of Non-Compliance has the meaning set forth in Section 10(a).
Exchange Act has the meaning set forth in the Credit Agreement.
Exercise Amount has the meaning set forth in Section 2(a).
Exercise Price has the meaning set forth in the Preamble.
Expiration Date has the meaning set forth in the Preamble.
Fair Market Value Per Share means the value, on a particular date, of a share of
Common Stock determined as follows:
(i) If the Common Stock is listed or admitted to trading on such date on the Principal Market,
the mean of the high and low sales prices of a share of Common Stock on the date immediately prior
to such date of determination as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on such Principal Market (if there
were no sales on such date
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reported as provided above, the respective prices on the most recent prior day on which a sale
of a share of Common Stock took place); or
(ii) If the Common Stock is not publicly traded, (a) the fair market value of the Outstanding
Common Stock based upon an arms length sale of the Company on such date (including its ownership
interest in all Persons) as an entirety, such sale being between a willing buyer and a willing
seller and determined without reference to any discount for minority interest, restrictions on
transfer, disparate voting rights among classes of capital stock or lack of marketability with
respect to capital stock divided by (b) the aggregate number of shares of
Outstanding Common Stock. The Fair Market Value Per Share shall be determined by the disinterested
members of the Board of Directors of the Company in good faith within ten (10) Business Days of any
event for which such determination is required and such determination (including the basis
therefor) shall be promptly provided to the Holder. Such determination shall be binding on the
Holder unless the Holder objects thereto in writing within ten (10) Business Days of receipt. In
the event the Holder objects to the determination of Fair Market Value Per Share by the board of
directors of the Company (such objection to be made within ten (10) Business Days of the Holders
receipt of written notice of such determination), then the Fair Market Value Per Share shall be
determined by a disinterested appraiser (which may be a national or regional investment bank or
national accounting firm) mutually selected by the Company and the Holder, the fees and expenses of
which shall be paid by the Company. Any selection of a disinterested appraiser shall be made in
good faith within five (5) Business Days after the Holder provides written notice to the Company of
its objection to the determination of Fair Market Value Per Share and any determination of Fair
Market Value Per Share by a disinterested appraiser shall be made within ten (10) Business Days of
the date of selection.
Fund has the meaning set forth in the Credit Agreement.
Governmental Authority has the meaning set forth in the Credit Agreement.
Holder has the meaning set forth in the Preamble.
Lenders has the meaning set forth in the Credit Agreement.
Notice of Exercise has the meaning set forth in Section 2(a).
Outstanding Common Stock of the Company means, as of the date of determination, the
sum (without duplication) of the following: (a) the number of shares of Common Stock then
outstanding at the date of determination, (b) the number of shares of Common Stock then issuable
upon the exercise of this Warrant (as such number of shares may be adjusted pursuant to the terms
hereof) and (c) the number of shares of Common Stock then issuable upon the exercise or conversion
of Convertible Securities and any warrants, options or other rights to subscribe for or purchase
Common Stock or Convertible Securities (but excluding any unvested options and securities not then
exercisable for or convertible into Common Stock).
Person has the meaning set forth in the Credit Agreement.
Principal Market initially means the New York Stock Exchange and any successor
exchange thereto and shall also include the NASDAQ Global Select Market, the NASDAQ Global Market,
NASDAQ Capital Market, the American Stock Exchange or the OTC Bulletin Board, whichever is at the
time the principal trading exchange or market for the Common Stock, based upon share volume.
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Principal Office means the Companys principal office as set forth in Section
16 hereof or such other principal office of the Company in the United States of America the
address of which first shall have been set forth in a notice to the Holder.
Registration Statement means the registration statements required to be filed under
the Registration Rights Agreement.
Registration Rights Agreement has the meaning set forth in the Credit Agreement.
Regulatory Requirement has the meaning set forth in Section 8(c).
Required Holders means the holders of at least 51.0% of the Warrant Shares then
outstanding.
Requirement of Law has the meaning set forth in the Credit Agreement.
Sale Notice has the meaning set forth in Section 7(d)(i).
Securities Act has the meaning set forth in the Credit Agreement.
Securities Laws has the meaning set forth in the Credit Agreement.
Stock Combination has the meaning set forth in Section 5(a)(i)(C).
Stock Dividend has the meaning set forth in Section 5(a)(i)(A).
Stock Subdivision has the meaning set forth in Section 5(a)(i)(B).
Subsidiary has the meaning set forth in the Credit Agreement.
Transfer means and includes any sale, assignment, encumbrance, hypothecation,
pledge, conveyance in trust, gift, transfer by request, devise or descent, or other transfer or
disposition of any kind, including, but not limited to, transfers to receivers, levying creditors,
trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors,
whether voluntary or by operation of law, directly or indirectly, of this Warrant.
Transfer Amount has the meaning set forth in Section 7(d)(i).
Warrant has the meaning set forth in the Preamble.
Warrant Securities means this Warrant and the Warrant Shares, collectively.
Warrant Shares means (a) the shares of Common Stock issued or issuable upon exercise
of this Warrant in accordance with its terms and (b) all other shares of the Companys capital
stock issued with respect to such shares by way of stock dividend, stock split or other
reclassification or in connection with any merger, consolidation, recapitalization or other
reorganization affecting the Companys capital stock.
SECTION 12. Survival of Provisions. Notwithstanding the full exercise by the Holder
of its rights to purchase Common Stock hereunder, the provisions of Sections 8(f) and
(h) of this Warrant shall survive such exercise and the Expiration Date until such time as
the Holder no longer holds any Warrant Shares.
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SECTION 13. Delays, Omissions and Indulgences. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to the Holder upon any breach or default
of the Company under this Warrant shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It
is further agreed that any waiver, permit, consent or approval of any kind or character on the
Holders part of any breach or default under this Warrant, or any waiver on the Holders part of
any provisions or conditions of this Warrant must be in writing and that all remedies, either under
this Warrant, or by Requirement of Law or otherwise afforded to the Holder, shall be cumulative and
not alternative.
SECTION 14. Rights of Transferees. Subject to Section 7, the rights granted
to the Holder hereunder of this Warrant shall pass to and inure to the benefit of all subsequent
transferees of all or any portion of this Warrant (provided that the Holder and any transferee
shall hold such rights in proportion to their respective ownership of this Warrant and Warrant
Shares) until extinguished pursuant to the terms hereof.
SECTION 15. Section Headings. The titles and captions of the Sections and other
provisions of this Warrant are for convenience of reference only and are not to be considered in
construing this Warrant.
SECTION 16. Notices.
(a) Except in the case of notices and other communications expressly permitted to be given by
telephone (and except as provided in paragraph (b) below), all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopier as follows:
if to the Company:
Arbor Realty Trust, Inc.
c/o Arbor Commercial Mortgage LLC
333 Earle Ovington Boulevard
Uniondale, New York 11553
Attention: Guy Milone, Esq.
Facsimile No.: (516) 8326431
with a copy to:
Arbor Commercial Mortgage LLC
333 Earle Ovington Boulevard
Uniondale, New York 11553
Attention: John Natalone
Phone No.: (516) 8327409
Facsimile No.: (516) 832-6409
if to the Holder:
Wachovia Bank, National Association
One Wachovia Center, NC0166
301 South College Street
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Charlotte, North Carolina 28288
Attention: John Nelson
Facsimile No.: (704) 7150066
with a copy to:
Moore & Van Allen PLLC
100 North Tryon Street
Suite 4700
Charlotte, NC 28202
Attention: Kenneth P. Kerr, Esq.
Telecopy No.: (704) 3782097
Notices sent by hand or overnight courier service, or mailed by certified or registered mail,
shall be deemed to have been given when received; notices sent by telecopier shall be deemed to
have been given when sent (except that, if not given during normal business hours for the
recipient, shall be deemed to have been given at the opening of business on the next Business Day
for the recipient). Notices delivered through electronic communications to the extent provided in
paragraph (b) below shall be effective as provided in said paragraph (b).
(b) Notices and other communications to the Holder hereunder may be delivered or furnished by
electronic communication (including e-mail and internet or intranet websites) pursuant to
procedures approved by the Holder. The Holder or the Company may, in its discretion, agree to
accept notices and other communications to it hereunder by electronic communications pursuant to
procedures approved by it, provided that approval of such procedures may be limited to
particular notices or communications.
Unless the Holder otherwise prescribes, (i) notices and other communications sent to an e-mail
address shall be deemed received upon the senders receipt of an acknowledgement from the intended
recipient (such as by the return receipt requested function, as available, return e-mail or other
written acknowledgement), provided that if such notice or other communication is not sent
during the normal business hours of the recipient, such notice or communication shall be deemed to
have been sent at the opening of business on the next Business Day for the recipient, and (ii)
notices or communications posted to an internet or intranet website shall be deemed received upon
the deemed receipt by the intended recipient at its e-mail address as described in the foregoing
clause (i) of notification that such notice or communication is available and identifying the
website address therefor.
(c) Any party hereto may change its address or telecopier number for notices and other
communications hereunder by notice to the other parties hereto.
SECTION 17. Successors and Assigns. This Warrant shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns, provided that the
Company shall have no right to assign its rights, or to delegate its obligations, hereunder without
the prior written consent of the Holder.
SECTION 18. Amendments. Neither this Warrant nor any term hereof may be amended,
changed, waived, discharged or terminated without the prior written consent of the Holder and the
Company.
SECTION 19. Severability. Any provision of this Warrant which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such
14
prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 20. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the law of the State of New York.
SECTION 21. Entire Agreement. This Warrant and the Registration Rights Agreement are
intended by the parties as a final expression of their agreement and are intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein.
SECTION 22. Rules of Construction. Unless the context otherwise requires or is not
exclusive, and references to sections or subsections refer to sections or subsections of this
Warrant. All pronouns and any variations thereof refer to the masculine, feminine or neuter,
singular or plural, as the context may require.
[Remainder of Page Intentionally Omitted.]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be issued and executed in its
corporate name by a duly authorized officer or director as of the date first written above.
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ARBOR REALTY TRUST, INC., a Maryland
corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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S-1
EXHIBIT A
NOTICE OF EXERCISE
1. The undersigned, pursuant to the provisions of the attached Warrant, hereby elects to
exercise this Warrant with respect to shares of Common Stock (the Exercise Amount).
Capitalized terms used but not otherwise defined herein have the meanings ascribed thereto in the
attached Warrant.
2. The undersigned herewith tenders payment for such shares in the following manner (please
check type, or types, of payment and indicate the portion of the Exercise Price to be paid by each
type of payment):
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Exercise for Cash |
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Cashless Exercise |
3. Please issue a certificate or certificates representing the shares issuable in respect
hereof under the terms of the attached Warrant, as follows:
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(Name of Record Holder/Transferee) |
and deliver such certificate or certificates to the following address:
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(Address of Record Holder/Transferee) |
4. The undersigned represents that the aforesaid shares are being acquired for the
account of the undersigned for investment and not with a view to, or for resale in connection with,
the distribution thereof and that the undersigned has no present intention of distributing or
reselling such shares.
5. If the Exercise Amount is less than all of the shares of Common Stock purchasable
hereunder, please issue a new warrant representing the remaining balance of such shares, as
follows:
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(Name of Record Holder/Transferee) |
and deliver such warrant to the following address:
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(Address of Record Holder/Transferee) |
exv4w4
Exhibit 4.4
THIS COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED HEREUNDER
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES
LAWS OF ANY STATE. THIS COMMON STOCK PURCHASE WARRANT HAS BEEN ACQUIRED FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION, AND THIS COMMON STOCK
PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED HEREUNDER MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL THAT THE PROPOSED TRANSACTION DOES NOT
VIOLATE THE SECURITIES ACT OF 1933, AND APPLICABLE STATE SECURITIES LAWS.
ARBOR REALTY TRUST, INC.
COMMON STOCK PURCHASE WARRANT
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Date of Issuance: July 23, 2009
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Certificate No. W-3 |
THIS IS TO CERTIFY that WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association (together with its transferees, successors and assigns, the
Holder), for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, is entitled to purchase from ARBOR REALTY TRUST,
INC., a Maryland corporation (the Company), at the price of $5.00 per
share (the Exercise Price), at any time after July 23, 2011 (the
Commencement Date) and expiring on July 23, 2015 (the Expiration
Date), 250,000 shares of fully paid and nonassessable common stock, par value
$0.01 per share (Common Stock) of the Company (as such number may be
adjusted as provided herein). The 250,000 shares of Common Stock which may be
purchased pursuant to this Warrant are referred to herein as the Aggregate
Number. This common stock purchase warrant (this Warrant) is issued
under and in connection with that certain First Amended and Restated Credit
Agreement, dated as of July 23, 2009 (as the same may be amended, modified,
restated, replaced, waived, substituted, supplemented or extended from time to
time, the Credit Agreement), among Arbor Realty Funding, LLC, a Delaware
limited liability company, as a borrower, ARSR Tahoe, LLC, a Delaware limited
liability company, as a borrower, Arbor ESH II LLC, a Delaware limited liability
company, as a borrower, Arbor Realty Limited Partnership, a Delaware limited
partnership, as a borrower and a guarantor, ART 450 LLC, a Delaware limited
liability company, as a borrower, the Company, as a guarantor, Arbor Realty SR,
Inc., a Maryland corporation, as a borrower and a guarantor, the several banks and
other financial institutions as are, or may from time to time become parties
thereto, and Wachovia Bank, National Association, a national banking association,
as administrative agent for the lenders thereunder.
The Aggregate Number and Exercise Price set forth above shall also be adjusted under certain
conditions specified in Section 5 of this Warrant, including, but not limited to, a Stock
Dividend, Stock
Subdivision or Stock Combination. Capitalized terms used herein shall have the meanings
ascribed to such terms in Section 11 hereof unless otherwise defined herein.
SECTION 1. The Warrant; Transfer and Exchange.
(a) The Warrant. This Warrant and the rights and privileges of the Holder hereunder
may be exercised by the Holder in whole or in part as provided herein, shall survive any
termination of the Credit Agreement and, as more fully set forth in Sections 1(b) and
7 hereof, subject to the terms of this Warrant, may be transferred by the Holder to any
other Person or Persons who meet the requirements set forth herein at any time or from time to
time, in whole or in part, regardless of whether the Holder retains any or all rights under the
Credit Agreement.
(b) Transfer and Exchanges. The Company shall initially record this Warrant on a
register to be maintained by the Company and, subject to Section 7 hereof, from time to
time thereafter shall reflect the transfer of this Warrant on such register when surrendered for
transfer in accordance with the terms hereof and properly endorsed, accompanied by appropriate
instructions, and further accompanied by payment in cash or by check, bank draft or money order
payable to the order of the Company, in United States currency, of an amount equal to any stamp or
other tax or governmental charge or fee required to be paid in connection with the transfer
thereof. Upon any such transfer, a new warrant or warrants shall be issued to the transferee and
the Holder (in the event this Warrant is only partially transferred) and the surrendered warrant
shall be canceled. This Warrant may be exchanged at the option of the Holder, when surrendered at
the Principal Office of the Company, for another warrant or other warrants of like tenor and
representing in the aggregate the right to purchase a like number of shares of Common Stock.
SECTION 2. Exercise.
(a) Right to Exercise. At any time after the Commencement Date and on or before the
Expiration Date, the Holder, in accordance with the terms hereof, may exercise this Warrant, in
whole at any time or in part from time to time, by delivering this Warrant to the Company during
normal business hours on any Business Day at the Companys Principal Office, together with the
Notice of Exercise, in the form attached hereto as Exhibit A and made a part hereof (the
Notice of Exercise), duly executed, and payment of the Exercise Price per share for each
share purchased, as specified in the Notice of Exercise. The aggregate Exercise Price (the
Aggregate Exercise Price) to be paid for the shares to be purchased (the Exercise
Amount) shall equal the product of (i) the Exercise Amount multiplied by (ii) the Exercise
Price. If the Expiration Date is not a Business Day, then this Warrant may be exercised on the
next succeeding Business Day.
(b) Payment of the Aggregate Exercise Price. Payment of the Aggregate Exercise Price
shall be made to the Company in cash or other immediately available funds or as provided in
Section 2(c), or a combination thereof. In the case of payment of all or a portion of the
Aggregate Exercise Price pursuant to Section 2(c), the direction by the Holder to make a
Cashless Exercise shall serve as accompanying payment for that portion of the Exercise Price.
(c) Cashless Exercise. The Holder shall have the right to pay all or a portion of the
Aggregate Exercise Price by making a Cashless Exercise, in which case the portion of the
Aggregate Exercise Price to be so paid shall be paid by reducing the number of shares of Common
Stock otherwise issuable pursuant to the Notice of Exercise by an amount equal to (i) the Aggregate
Exercise Price to be so paid divided by (ii) the Fair Market Value Per Share.
(d) Issuance of Shares of Common Stock. Upon receipt by the Company of this Warrant
at its Principal Office in proper form for exercise, and accompanied by the Notice of Exercise and
payment
2
of the Aggregate Exercise Price as aforesaid, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise, notwithstanding that certificates
representing such shares of Common Stock may not then be actually delivered. Within five (5)
Business Days after such surrender of this Warrant, delivery of the Notice of Exercise and payment
of the Aggregate Exercise Price as aforesaid, the Company shall issue and cause to be delivered to,
or upon the written order of, the Holder (and in such name or names as the Holder may designate) a
certificate or certificates for the Exercise Amount, subject to any reduction as provided in
Section 2(c) for a Cashless Exercise.
(e) Fractional Shares. The Company may, but shall not be required to, deliver
fractions of shares of Common Stock upon exercise of this Warrant. If any fraction of a share of
Common Stock would be deliverable upon an exercise of this Warrant, the Company may, in lieu of
delivering such fraction of a share of Common Stock, make a cash payment to the Holder in an amount
equal to the same fraction of the Fair Market Value Per Share determined as of the Business Day
immediately preceding the date of exercise of this Warrant.
(f) Partial Exercise. In the event of a partial exercise of this Warrant, the Company
shall issue to the Holder a Warrant in like form for the unexercised portion thereof which has not
expired.
SECTION 3. Payment of Taxes. The Company shall pay all stamp taxes attributable to
the initial issuance of shares or other securities issuable upon the exercise of this Warrant or
issuable pursuant to Section 5 hereof, excluding any tax or taxes which may be payable
because of the transfer involved in the issuance or delivery of any certificates for shares or
other securities in a name other than that of the Holder in respect of which such shares or
securities are issued.
SECTION 4. Replacement Warrant. In case this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant, or in lieu of and in substitution for this Warrant lost,
stolen or destroyed, a new Warrant of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction of such Warrant and upon receipt of indemnity reasonably satisfactory to the Company
and the Holder; provided, that if the Holder is a financial institution, business
development company or other institutional or fund investor, its own indemnity agreement shall be
satisfactory and no third party indemnity shall be required.
SECTION 5. Adjustments to the Aggregate Number and the Exercise Price.
Under certain conditions, the Aggregate Number and the Exercise Price are subject to
adjustment as set forth in this Section 5.
(a) Adjustments. The Aggregate Number, after taking into consideration any prior
adjustments pursuant to this Section 5, shall be subject to adjustment from time to time as
follows and, thereafter, as adjusted, shall be deemed to be the Aggregate Number hereunder.
(i) Stock Dividends; Subdivisions and Combinations. In case at any time or
from time to time the Company shall:
(A) issue to the holders of its shares of Common Stock a dividend payable in,
or other distribution of, shares of Common Stock (a Stock Dividend);
(B) subdivide its outstanding shares of Common Stock into a larger number of
shares of Common Stock, including, without limitation, by means of a stock split (a
Stock Subdivision); or
3
(C) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock (a Stock Combination);
then the Aggregate Number in effect immediately prior thereto shall be (1) proportionately
increased in the case of a Stock Dividend or a Stock Subdivision and (2) proportionately decreased
in the case of a Stock Combination, and the Exercise Price shall be proportionately adjusted. In
the event the Company shall declare or pay, without consideration, any dividend on the shares of
Common Stock payable in any right to acquire shares of Common Stock for no consideration, then the
Company shall be deemed to have made a Stock Dividend in an amount of shares equal to the maximum
number of shares issuable upon exercise of such rights to acquire shares of Common Stock.
(b) Notices.
(i) Notice of Proposed Actions. In case the Company shall propose (A) to pay
any dividend payable in stock of any class to the holders of its Common Stock or to make any
other distribution to the holders of its Common Stock, (B) to offer to the holders of its
Common Stock rights to subscribe for or to purchase any Convertible Securities, rights to
acquire Convertible Securities or capital stock or additional shares of Common Stock or
shares of stock of any class or any other securities, warrants, rights or options, (C) to
effect any reclassification of its Common Stock, (D) to effect any recapitalization, stock
subdivision, stock combination or other capital reorganization, (E) to effect any
consolidation or merger, share exchange, or sale, lease or other disposition of all or
substantially all of its property, assets or business, (F) to effect the liquidation,
dissolution or winding up of the Company, (G) to initiate any transaction or be a party to
any transaction (including, without limitation, a merger, consolidation, share exchange,
sale, lease or other disposition of all or substantially all of the Companys assets,
liquidation, recapitalization or reclassification of the Common Stock) in connection with
which the previous Outstanding Common Stock shall be changed into or exchanged for different
securities of the Company or capital stock or other securities of another corporation or
interests in a non-corporate entity or other property (including cash) or any combination of
the foregoing or (H) to effect any other action which would require an adjustment under this
Section 5, then in each such case the Company shall give to the Holder written
notice of such proposed action, which shall specify the proposed date on which a record is
to be taken for the purposes of such stock dividend, distribution or rights, or the proposed
date on which such reclassification, reorganization, consolidation, merger, share exchange,
sale, transfer, disposition, liquidation, dissolution, winding up or other transaction is to
take place and the date of participation therein by the holders of Common Stock, if any such
date is to be fixed, or the proposed date on which the transfer of Common Stock is to occur,
and shall also set forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the Common Stock and on the Aggregate Number after
giving effect to any adjustment which will be required as a result of such action. Such
notice shall be so given in the case of any action covered by clause (A) or (B) above at
least twenty (20) calendar days prior to the record date for determining holders of the
Common Stock for purposes of such action and, in the case of any other such action, at least
twenty (20) calendar days prior to the earlier of the date of the taking of such proposed
action or the date of participation therein by the holders of Common Stock.
(ii) Adjustment Notice. Whenever the Aggregate Number is to be adjusted
pursuant to this Section 5, unless otherwise agreed by the Holder, the Company shall
promptly (and in any event within ten (10) Business Days after the event requiring the
adjustment) prepare and deliver to the Holder a certificate signed by the chief financial
officer of the Company, setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment is
4
to be calculated. The certificate shall set forth, if applicable, a description of the
basis on which the board of directors in good faith determined, as applicable, the Fair
Market Value Per Share, the fair market value of any evidences of indebtedness, shares of
stock, other securities, warrants, other subscription or purchase rights, or other property
or the equitable nature of any adjustment under Section 5(b) or (c) hereof,
the new Aggregate Number and, if applicable, any new securities or property to which the
Holder is entitled. Any other determination of fair market value shall first be determined
in good faith by the board of directors and be based upon an arms length sale of such
indebtedness, shares of stock, other securities, warrants, other subscription or purchase
rights or other property, such sale being between a willing buyer and a willing seller. In
the case of any such determination of fair market value, the Holder may object to the
determination in such certificate by giving written notice within ten (10) Business Days of
the receipt of such certificate and, if the Holder and the Company cannot agree to the fair
market value within ten (10) Business Days of the date of the Holders objection, the fair
market value shall be determined by a disinterested appraiser (which may be national or
regional investment bank or a national accounting firm) mutually selected by the Holder and
the Company, the fees and expenses of which shall be paid by the Company.
SECTION 6. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, share exchange, dissolution or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, including, without
limitation, the adjustments required under Section 5 hereof, and will at all times in good
faith assist in the carrying out of all such terms and in taking of all such action as may be
necessary or appropriate to protect the rights of the Holder against dilution or other impairment.
Without limiting the generality of the foregoing and notwithstanding any other provision of this
Warrant to the contrary (including by way of implication), the Company (a) will not increase the
par value of any shares of Common Stock receivable on the exercise of this Warrant above the amount
payable therefor on such exercise and (b) will take all such action as may be necessary or
appropriate so that the Company may validly and legally issue fully paid and nonassessable shares
of Common Stock upon the exercise of this Warrant.
SECTION 7. Transfers of this Warrant.
(a) Generally. Subject to the restrictions set forth in this Section 7, the
Holder may at any time and from time to time freely transfer this Warrant and the Warrant Shares in
whole or in part to any Person. This Warrant has not been, and the Warrant Shares at the time of
their issuance may not be, registered under the Securities Act and, except as provided in the
Registration Rights Agreement, nothing herein contained shall be deemed to require the Company to
so register this Warrant and the Warrant Shares. This Warrant and the Warrant Shares are issued or
issuable subject to the provisions and conditions contained herein and to the provisions and
conditions contained in the Registration Rights Agreement, and every Holder hereof by accepting the
same agrees with the Company to such provisions and conditions, and represents to the Company that
this Warrant has been acquired and the Warrant Shares will be acquired for the account of the
Holder for investment and not with a view to or for sale in connection with any distribution
thereof.
(b) Compliance with Securities Laws. The Holder agrees that this Warrant and the
Warrant Shares may not be sold or otherwise disposed of except pursuant to an effective
registration statement under the Securities Act and other applicable Securities Laws or pursuant to
an applicable exemption from the registration requirements of the Securities Act and such other
applicable Securities Laws. In the event that the Holder transfers this Warrant or the Warrant
Shares pursuant to an applicable exemption from registration, the Company may request, at its
expense, that the Holder deliver an opinion of counsel
5
reasonably acceptable to the Company that the proposed transfer does not violate the
Securities Act or other applicable Securities Laws.
(c) Restrictive Securities Legend. (i) The certificate representing the Warrant
Shares shall bear the restrictive legends set forth below:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER THE SECURITIES LAWS OF ANY STATE. NO TRANSFER, SALE OR OTHER DISPOSITION
OF THIS WARRANT MAY BE MADE UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THIS
WARRANT HAS BECOME EFFECTIVE UNDER SAID ACT, AND SUCH REGISTRATION OR QUALIFICATION
AS MAY BE NECESSARY UNDER THE SECURITIES LAWS OF ANY STATE HAS BECOME EFFECTIVE, OR
BORROWER HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL SATISFACTORY TO BORROWER
THAT SUCH REGISTRATION IS NOT REQUIRED.
(ii) Certificates evidencing the Warrant Shares shall not contain any legend: (1) while
a registration statement (including the Registration Statement) covering the resale of the
Warrant Shares is effective under the Securities Act, or (2) following any sale of the
Shares pursuant to Rule 144 (other than sales to an Affiliate of Holder), or (3) if such
Warrant Shares are eligible for sale under Rule 144(b), or (4) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). If a legend is
not otherwise required under applicable requirements of the Securities Act (including
judicial interpretations thereof) then any certificates representing the Warrant Shares
shall be issued free of all legends. The Company agrees that following the effective date
of the Registration Statement or at such time as such legend is no longer required under
this Section 7, it will, no later than five (5) Business Days following the delivery
by the Holder to the Companys transfer agent of a certificate representing the Warrant
Shares issued with a restrictive legend, deliver or cause to be delivered to the Holder a
certificate representing such Warrant Shares that is free from all restrictive and other
legends. Unless required by law, the Company may not make any notation on its records or
give instructions to any transfer agent of the Company that enlarge the restrictions on
transfer set forth in this Section 7.
(d) Right of First Refusal.
(i) Holder may not Transfer this Warrant or any portion hereof unless it has complied
with this Section 7(d). If Holder proposes to Transfer this Warrant (or portion
hereof), then Holder shall promptly give written notice (the Sale Notice) to the
Company at least twenty (20) days prior to the closing of such Transfer. The Notice shall
describe in reasonable detail the proposed Transfer including, without limitation, the
portion of this Warrant to be Transferred (the Transfer Amount), the nature of
such Transfer, the consideration to be paid, and the name and address of each prospective
purchaser or transferee.
(ii) For a period of ten (10) days following receipt of any Sale Notice, the Company
shall have the right to purchase all, but not less than all, of the Transfer Amount subject
to such Sale Notice on the same terms and conditions as set forth therein. The Companys
purchase right shall be exercised by written notice signed by an officer of the Company (the
Company Notice) and delivered to the Holder within such ten (10) day period. The
Company shall effect the purchase of the Transfer Amount, including payment of the purchase
price, not more than five (5)
6
business days after delivery of the Companys Notice, and at such time the Holder shall
deliver to the Company this Warrant, properly endorsed for transfer. To the extent that the
Company does not elect to exercise its purchase right pursuant to this Section 7(d),
the Holder may, not later than thirty (30) days following delivery to the Company of the
Sale Notice, enter into an agreement providing for the closing of the Transfer of the
Transfer Amount covered by the Sale Notice within thirty (30) days of such agreement on the
terms and conditions described in the Sale Notice. Any subsequent proposed Transfer of this
Warrant by the Holder, shall again be subject to the first refusal rights of the Company and
shall require compliance by the Holder with the procedures described in this Section
7(d).
(iii) Notwithstanding the foregoing, the purchase rights of the Company set forth in
this Section 7(d) shall not apply to (i) any Transfer by a Holder to an Eligible
Assignee, (ii) any pledge of this Warrant made pursuant to a bona fide loan transaction that
creates a mere security, (iii) any Transfer by Holder in connection with the sale of all or
a portion of any outstanding indebtedness of the Company held by Holder or its Affiliates
pursuant to the Credit Agreement, or (iv) any Transfer that is a bona fide gift approved by
the Holders Board of Directors; provided, in each case, that the pledgee,
transferee or donee shall enter into a written agreement to be bound by and comply with all
provisions of this Warrant as if it were an original Holder hereunder.
(iv) Any purported Transfer by a Holder of this Warrant (or portion thereof) in
violation of this Section 7(d) shall be voidable, and the Company will not effect
such Transfer nor will it treat any alleged transferee as the holder of this Warrant.
(v) By its execution of this Agreement, Wachovia Bank, National Association, as the
Lender under the Credit Agreement, hereby consents to any purchase by the Company of this
Warrant upon the exercise of its rights under this Section 7(d), and acknowledges
and agrees that notwithstanding any provision of the Credit Agreement to the contrary, any
such purchase shall not constitute a breach of any provision of the Credit Agreement.
SECTION 8. Covenants.
The Company hereby covenants to the Holder that so long as Holder holds any Warrant
Securities:
(a) Limitation on Certain Restrictions. Without the prior written consent of the
Required Holders, the Company will not, and will not permit or cause any of its Subsidiaries,
directly or indirectly, to create or otherwise cause or suffer to exist or become effective any
restriction or encumbrance on the ability of the Company and any such Subsidiaries to perform and
comply with their respective obligations under this Warrant.
(b) Regulatory Requirements and Restrictions. In the event of any reasonable
determination by the Holder that, by reason of any existing or future federal or state law,
statute, rule, regulation, guideline, order, court or administrative ruling, request or directive
(whether or not having the force of law and whether or not failure to comply therewith would be
unlawful) (collectively, a Regulatory Requirement), the Holder is effectively restricted
or prohibited from holding this Warrant or the Warrant Shares (including any shares of capital
stock or other securities distributable to the Holder in any merger, reorganization, readjustment
or other reclassification), or otherwise realizing upon or receiving the benefits intended under
this Warrant, the Company shall take such action as the Holder and the Company shall jointly agree
in good faith to be necessary to permit the Holder to comply with such Regulatory
7
Requirement. The reasonable costs of taking such action, whether by the Company, the Holder
or otherwise, shall be borne by the Holder.
(c) Reservation of Shares. The Company shall at all times reserve and keep available
out of the aggregate of its authorized but unissued shares, free of preemptive rights, such number
of its duly authorized shares of Common Stock as shall be sufficient to enable the Company to issue
Common Stock upon exercise of this Warrant.
(d) Affirmative Actions to Permit Exercise and Realization of Benefits. If any shares
of Common Stock reserved or to be reserved for the purpose of the exercise of this Warrant, or any
shares or other securities reserved or to be reserved for the purpose of issuance pursuant to
Section 5 hereof, require registration with or approval of any Governmental Authority under
any federal or state law (other than securities laws) before such shares or other securities may be
validly delivered upon exercise of this Warrant, then the Company covenants that it will, at its
sole expense, secure such registration or approval, as the case may be (including but not limited
to approvals or expirations of waiting periods required under the Hart-Scott-Rodino Antitrust
Improvements Act).
(e) Validly Issued Shares. All shares of Common Stock that may be issued upon
exercise of this Warrant, assuming full payment of the Aggregate Exercise Price (including those
issued pursuant to Section 5 hereof) shall, upon delivery by the Company, be duly
authorized and validly issued, fully paid and nonassessable, free from all stamp taxes, liens and
charges with respect to the issue or delivery thereof and otherwise free of all other security
interests, encumbrances and claims of any nature whatsoever (other than security interests,
encumbrances and claims to which the Holder is subject prior to the issuance of this Warrant and
other transfer restrictions described herein).
(f) Furnishing of Information; Compliance with Rule 144. The Company shall timely
file (or obtain extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. So
long as the Warrant Shares are not registered under an effective registration statement, upon the
request of the Holder, the Company shall deliver to the Holder a written certification of a duly
authorized officer as to whether it has complied with the preceding sentence. As long as the
Holder owns any of the Warrant Shares, if the Company is not required to file reports pursuant to
such laws, it will prepare and furnish to the Holder and make publicly available in accordance with
Rule 144 such information as is required for the Holder to sell the Warrant Shares under Rule 144.
So long as the Warrant Shares are not registered under an effective registration statement, the
Company further covenants that it will take such further action as the Holder may reasonably
request, all to the extent required from time to time to enable the Holder to sell such Warrant
Shares without registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
(g) Integration. The Company shall not, and shall use its commercially reasonable
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of this Warrant in a manner that would require
the registration under the Securities Act of the sale of the Warrant to the Holder, or that would
be integrated with the offer or sale of the Warrant Shares for purposes of the rules and
regulations of any Principal Market.
(h) Listing of the Warrant Shares. The Company shall: (i) take all steps necessary to
cause the Warrant Shares to be approved for listing on the Principal Market as soon as possible
after the Commencement Date, (ii) provide to the Holder evidence of such listing, and (iii) use
reasonable efforts to maintain the listing of the Warrant Shares on such Principal Market or
another Principal Market.
8
(i) Securities Laws Disclosure; Publicity. The Company shall issue a press release or
timely file a report on Form 8-K reasonably acceptable to the Holder disclosing all material terms
of the transactions contemplated hereby. The Company and the Holder shall consult with each other
in issuing any press releases with respect to the transactions contemplated hereby.
Notwithstanding the foregoing, other than in the Registration Statement, the Company shall not
publicly disclose the name of the Holder or the terms hereof, or include the name of the Holder or
the terms hereof in any filing with the Commission or any regulatory agency or Principal Market,
without the prior written consent of such Holder, except to the extent such disclosure is required
by law or Principal Market regulations. The Holder acknowledges that such disclosure may be
required by law in the Companys proxy statement, annual report on Form 10-K, quarterly report on
Form 10-Q, and filings related thereto and will be incorporated by reference to such filings in
currently effective registration statements filed by the Company and will be included in
registration statements that may be filed by the Company in the future.
SECTION 9. No Effect Upon Lending Relationship. Notwithstanding anything herein to
the contrary, nothing contained in this Warrant shall affect, limit or impair the rights and
remedies of the Holder or any of its Affiliates in its capacity as a lender to the Company pursuant
to any agreement under which the Company has borrowed money from the Holder. Without limiting the
generality of the foregoing, the Holder, in exercising its rights as a lender, including making its
decision on whether to foreclose on any collateral security, will have no duty to consider (i) its
status or the status of any of its Affiliates as a direct or indirect equity holder of the Company,
(ii) the equity of the Company or (iii) any duty it may have to any other direct or indirect equity
holder of the Company, except as may be required under the applicable loan documents or by
commercial law applicable to creditors generally.
SECTION 10. Events of Non-Compliance and Remedies.
(a) Events of Non-Compliance. If the Company fails to keep and fully and promptly
perform and observe in all material respects any of the terms, covenants or representations
contained or referenced herein within twenty (20) calendar days from the earlier to occur of (i)
written notice from the Holder specifying what failure has occurred, or requesting that a specified
failure be remedied or (ii) the Company becoming aware of such failure (an Event of
Non-Compliance), the Holder shall be entitled to the remedies set forth in subsection (b)
hereof.
(b) Remedies. On the occurrence of an Event of Non-Compliance, in addition to any
remedies the Holder may have under any Requirement of Law, the Holder may bring any action for
injunctive relief or specific performance of any term or covenant contained herein, the Company
hereby acknowledging that an action for money damages may not be adequate to protect the interests
of the Holder hereunder.
SECTION 11. Definitions.
As used herein, in addition to the terms defined elsewhere herein, the following terms shall
have the following meanings. Capitalized terms not appearing below and not otherwise defined
herein shall have the meaning ascribed to them in the Credit Agreement.
Affiliate has the meaning set forth in the Credit Agreement.
Aggregate Exercise Price has the meaning set forth in Section 2(a).
Aggregate Number has the meaning set forth in the Preamble.
9
Approved Fund shall mean any Fund that is administered, managed or underwritten by
(a) Holder, (b) an Affiliate of Holder or (c) an entity or an Affiliate of an entity that
administers or manages Holder.
Articles of Incorporation means the Articles of Incorporation of the Company, as in
effect on the date hereof.
Business Day has the meaning set forth in the Credit Agreement.
Commencement Date has the meaning set forth in the Preamble.
Commission means the Securities and Exchange Commission or any similar agency then
having jurisdiction to enforce the Securities Act or the Exchange Act.
Common Stock includes (a) the Common Stock of the Company, par value $0.01 per
share, as described in the Articles of Incorporation, (b) any other class of capital stock
hereafter authorized having the right to share in distributions either of earnings or assets
without limit as to amount or percentage or (c) any other capital stock into which such Common
Stock is reclassified or reconstituted.
Company has the meaning set forth in the Preamble.
Company Notice has the meaning set forth in Section 7(d)(ii).
Convertible Securities means evidences of indebtedness, shares of stock or other
securities (including, but not limited to options and warrants) which are directly or indirectly
convertible, exercisable or exchangeable, with or without payment of additional consideration in
cash or property, for shares of Common Stock, either immediately or upon the onset of a specified
date or the happening of a specified event.
Credit Agreement has the meaning set forth in the Preamble.
Eligible Assignee shall mean (a) an Affiliate of Holder, and (b) an Approved Fund.
Event of Non-Compliance has the meaning set forth in Section 10(a).
Exchange Act has the meaning set forth in the Credit Agreement.
Exercise Amount has the meaning set forth in Section 2(a).
Exercise Price has the meaning set forth in the Preamble.
Expiration Date has the meaning set forth in the Preamble.
Fair Market Value Per Share means the value, on a particular date, of a share of
Common Stock determined as follows:
(i) If the Common Stock is listed or admitted to trading on such date on the Principal Market,
the mean of the high and low sales prices of a share of Common Stock on the date immediately prior
to such date of determination as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on such Principal Market (if there
were no sales on such date
10
reported as provided above, the respective prices on the most recent prior day on which a sale
of a share of Common Stock took place); or
(ii) If the Common Stock is not publicly traded, (a) the fair market value of the Outstanding
Common Stock based upon an arms length sale of the Company on such date (including its ownership
interest in all Persons) as an entirety, such sale being between a willing buyer and a willing
seller and determined without reference to any discount for minority interest, restrictions on
transfer, disparate voting rights among classes of capital stock or lack of marketability with
respect to capital stock divided by (b) the aggregate number of shares of
Outstanding Common Stock. The Fair Market Value Per Share shall be determined by the disinterested
members of the Board of Directors of the Company in good faith within ten (10) Business Days of any
event for which such determination is required and such determination (including the basis
therefor) shall be promptly provided to the Holder. Such determination shall be binding on the
Holder unless the Holder objects thereto in writing within ten (10) Business Days of receipt. In
the event the Holder objects to the determination of Fair Market Value Per Share by the board of
directors of the Company (such objection to be made within ten (10) Business Days of the Holders
receipt of written notice of such determination), then the Fair Market Value Per Share shall be
determined by a disinterested appraiser (which may be a national or regional investment bank or
national accounting firm) mutually selected by the Company and the Holder, the fees and expenses of
which shall be paid by the Company. Any selection of a disinterested appraiser shall be made in
good faith within five (5) Business Days after the Holder provides written notice to the Company of
its objection to the determination of Fair Market Value Per Share and any determination of Fair
Market Value Per Share by a disinterested appraiser shall be made within ten (10) Business Days of
the date of selection.
Fund has the meaning set forth in the Credit Agreement.
Governmental Authority has the meaning set forth in the Credit Agreement.
Holder has the meaning set forth in the Preamble.
Lenders has the meaning set forth in the Credit Agreement.
Notice of Exercise has the meaning set forth in Section 2(a).
Outstanding Common Stock of the Company means, as of the date of determination, the
sum (without duplication) of the following: (a) the number of shares of Common Stock then
outstanding at the date of determination, (b) the number of shares of Common Stock then issuable
upon the exercise of this Warrant (as such number of shares may be adjusted pursuant to the terms
hereof) and (c) the number of shares of Common Stock then issuable upon the exercise or conversion
of Convertible Securities and any warrants, options or other rights to subscribe for or purchase
Common Stock or Convertible Securities (but excluding any unvested options and securities not then
exercisable for or convertible into Common Stock).
Person has the meaning set forth in the Credit Agreement.
Principal Market initially means the New York Stock Exchange and any successor
exchange thereto and shall also include the NASDAQ Global Select Market, the NASDAQ Global Market,
NASDAQ Capital Market, the American Stock Exchange or the OTC Bulletin Board, whichever is at the
time the principal trading exchange or market for the Common Stock, based upon share volume.
11
Principal Office means the Companys principal office as set forth in Section
16 hereof or such other principal office of the Company in the United States of America the
address of which first shall have been set forth in a notice to the Holder.
Registration Statement means the registration statements required to be filed under
the Registration Rights Agreement.
Registration Rights Agreement has the meaning set forth in the Credit Agreement.
Regulatory Requirement has the meaning set forth in Section 8(c).
Required Holders means the holders of at least 51.0% of the Warrant Shares then
outstanding.
Requirement of Law has the meaning set forth in the Credit Agreement.
Sale Notice has the meaning set forth in Section 7(d)(i).
Securities Act has the meaning set forth in the Credit Agreement.
Securities Laws has the meaning set forth in the Credit Agreement.
Stock Combination has the meaning set forth in Section 5(a)(i)(C).
Stock Dividend has the meaning set forth in Section 5(a)(i)(A).
Stock Subdivision has the meaning set forth in Section 5(a)(i)(B).
Subsidiary has the meaning set forth in the Credit Agreement.
Transfer means and includes any sale, assignment, encumbrance, hypothecation,
pledge, conveyance in trust, gift, transfer by request, devise or descent, or other transfer or
disposition of any kind, including, but not limited to, transfers to receivers, levying creditors,
trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors,
whether voluntary or by operation of law, directly or indirectly, of this Warrant.
Transfer Amount has the meaning set forth in Section 7(d)(i).
Warrant has the meaning set forth in the Preamble.
Warrant Securities means this Warrant and the Warrant Shares, collectively.
Warrant Shares means (a) the shares of Common Stock issued or issuable upon exercise
of this Warrant in accordance with its terms and (b) all other shares of the Companys capital
stock issued with respect to such shares by way of stock dividend, stock split or other
reclassification or in connection with any merger, consolidation, recapitalization or other
reorganization affecting the Companys capital stock.
SECTION 12. Survival of Provisions. Notwithstanding the full exercise by the Holder
of its rights to purchase Common Stock hereunder, the provisions of Sections 8(f) and
(h) of this Warrant shall survive such exercise and the Expiration Date until such time as
the Holder no longer holds any Warrant Shares.
12
SECTION 13. Delays, Omissions and Indulgences. It is agreed that no delay or
omission to exercise any right, power or remedy accruing to the Holder upon any breach or default
of the Company under this Warrant shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It
is further agreed that any waiver, permit, consent or approval of any kind or character on the
Holders part of any breach or default under this Warrant, or any waiver on the Holders part of
any provisions or conditions of this Warrant must be in writing and that all remedies, either under
this Warrant, or by Requirement of Law or otherwise afforded to the Holder, shall be cumulative and
not alternative.
SECTION 14. Rights of Transferees. Subject to Section 7, the rights granted
to the Holder hereunder of this Warrant shall pass to and inure to the benefit of all subsequent
transferees of all or any portion of this Warrant (provided that the Holder and any transferee
shall hold such rights in proportion to their respective ownership of this Warrant and Warrant
Shares) until extinguished pursuant to the terms hereof.
SECTION 15. Section Headings. The titles and captions of the Sections and other
provisions of this Warrant are for convenience of reference only and are not to be considered in
construing this Warrant.
SECTION 16. Notices.
(a) Except in the case of notices and other communications expressly permitted to be given by
telephone (and except as provided in paragraph (b) below), all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopier as follows:
if to the Company:
Arbor Realty Trust, Inc.
c/o Arbor Commercial Mortgage LLC
333 Earle Ovington Boulevard
Uniondale, New York 11553
Attention: Guy Milone, Esq.
Facsimile No.: (516) 8326431
with a copy to:
Arbor Commercial Mortgage LLC
333 Earle Ovington Boulevard
Uniondale, New York 11553
Attention: John Natalone
Phone No.: (516) 8327409
Facsimile No.: (516) 832-6409
if to the Holder:
Wachovia Bank, National Association
One Wachovia Center, NC0166
301 South College Street
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Charlotte, North Carolina 28288
Attention: John Nelson
Facsimile No.: (704) 7150066
with a copy to:
Moore & Van Allen PLLC
100 North Tryon Street
Suite 4700
Charlotte, NC 28202
Attention: Kenneth P. Kerr, Esq.
Telecopy No.: (704) 3782097
Notices sent by hand or overnight courier service, or mailed by certified or registered mail,
shall be deemed to have been given when received; notices sent by telecopier shall be deemed to
have been given when sent (except that, if not given during normal business hours for the
recipient, shall be deemed to have been given at the opening of business on the next Business Day
for the recipient). Notices delivered through electronic communications to the extent provided in
paragraph (b) below shall be effective as provided in said paragraph (b).
(b) Notices and other communications to the Holder hereunder may be delivered or furnished by
electronic communication (including e-mail and internet or intranet websites) pursuant to
procedures approved by the Holder. The Holder or the Company may, in its discretion, agree to
accept notices and other communications to it hereunder by electronic communications pursuant to
procedures approved by it, provided that approval of such procedures may be limited to
particular notices or communications.
Unless the Holder otherwise prescribes, (i) notices and other communications sent to an e-mail
address shall be deemed received upon the senders receipt of an acknowledgement from the intended
recipient (such as by the return receipt requested function, as available, return e-mail or other
written acknowledgement), provided that if such notice or other communication is not sent
during the normal business hours of the recipient, such notice or communication shall be deemed to
have been sent at the opening of business on the next Business Day for the recipient, and (ii)
notices or communications posted to an internet or intranet website shall be deemed received upon
the deemed receipt by the intended recipient at its e-mail address as described in the foregoing
clause (i) of notification that such notice or communication is available and identifying the
website address therefor.
(c) Any party hereto may change its address or telecopier number for notices and other
communications hereunder by notice to the other parties hereto.
SECTION 17. Successors and Assigns. This Warrant shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns, provided that the
Company shall have no right to assign its rights, or to delegate its obligations, hereunder without
the prior written consent of the Holder.
SECTION 18. Amendments. Neither this Warrant nor any term hereof may be amended,
changed, waived, discharged or terminated without the prior written consent of the Holder and the
Company.
SECTION 19. Severability. Any provision of this Warrant which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such
14
prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 20. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the law of the State of New York.
SECTION 21. Entire Agreement. This Warrant and the Registration Rights Agreement are
intended by the parties as a final expression of their agreement and are intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein.
SECTION 22. Rules of Construction. Unless the context otherwise requires or is not
exclusive, and references to sections or subsections refer to sections or subsections of this
Warrant. All pronouns and any variations thereof refer to the masculine, feminine or neuter,
singular or plural, as the context may require.
[Remainder of Page Intentionally Omitted.]
15
IN WITNESS WHEREOF, the Company has caused this Warrant to be issued and executed in its
corporate name by a duly authorized officer or director as of the date first written above.
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ARBOR REALTY TRUST, INC., a Maryland
corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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S-1
EXHIBIT A
NOTICE OF EXERCISE
1. The undersigned, pursuant to the provisions of the attached Warrant, hereby elects to
exercise this Warrant with respect to ___shares of Common Stock (the Exercise Amount).
Capitalized terms used but not otherwise defined herein have the meanings ascribed thereto in the
attached Warrant.
2. The undersigned herewith tenders payment for such shares in the following manner (please
check type, or types, of payment and indicate the portion of the Exercise Price to be paid by each
type of payment):
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Exercise for Cash |
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Cashless Exercise |
3. Please issue a certificate or certificates representing the shares issuable in respect
hereof under the terms of the attached Warrant, as follows:
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(Name of Record Holder/Transferee)
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and deliver such certificate or certificates to the following address:
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(Address of Record Holder/Transferee)
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4. The undersigned represents that the aforesaid shares are being acquired for the
account of the undersigned for investment and not with a view to, or for resale in connection with,
the distribution thereof and that the undersigned has no present intention of distributing or
reselling such shares.
5. If the Exercise Amount is less than all of the shares of Common Stock purchasable
hereunder, please issue a new warrant representing the remaining balance of such shares, as
follows:
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(Name of Record Holder/Transferee) |
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and deliver such warrant to the following address:
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(Address of Record Holder/Transferee) |
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exv10w35
EXHIBIT 10.35
EXECUTION VERSION
Registration Rights Agreement
By and Between
Arbor Realty Trust, Inc.
and
Wachovia Bank, National Association
Dated
July 23, 2009
ARBOR REALTY TRUST, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this Agreement) is made and entered into as of
July 23, 2009, by and between ARBOR REALTY TRUST, INC., a Maryland corporation (the
Company), and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association
(Holder).
This Agreement is made pursuant to that certain Credit Agreement, dated as of the date hereof
by and among the Company and Holder (the Credit Agreement).
The Company and Holder hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are defined in the Credit
Agreement shall have the meanings given such terms in the Credit Agreement. As used in this
Agreement, the following terms shall have the following meanings:
Advice shall have the meaning set forth in Section 7(e) hereof.
Capital Stock means the Companys Common Stock and any other class of
securities which the Companys Common Stock is converted or reclassified into or any other
securities created by the Company in the future.
Commission means the Securities and Exchange Commission.
Effectiveness Date means the 90th calendar day following the
Closing Date with respect to the 2009 Warrant, the first anniversary of the Closing Date
with respect to the 2010 Warrant, the second anniversary of the Closing Date with respect to
the 2011 Warrant, and, with respect to any additional Registration Statements which may be
required pursuant to Section 3(b), the 45th calendar day following the date on
which the Company first knows, or reasonably should have known, that such additional
Registration Statement is required hereunder; provided, however, in the
event the Company is notified by the Commission that one of the above Registration
Statements will not be reviewed or is no longer subject to further review and comments, the
Effectiveness Date as to such Registration Statement shall be the fifth Trading Day
following the date on which the Company is so notified if such date precedes the dates
required above.
Effectiveness Period shall have the meaning set forth in Section 2(a)
hereof.
Filing Date means the 45th calendar day following the Closing Date
with respect to the 2009 Warrant, 45 days prior to the first anniversary of the Closing Date
with respect to the 2010 Warrant, 45 days prior to the second anniversary of the Closing
Date with respect to the 2011 Warrant, and with respect to any additional Registration
Statements which may be required pursuant to Section 3(b), the 10th day
following the
2
date on which the Company first knows, or reasonably should have known, that such
additional Registration Statement is required hereunder.
Holder or Holders means the holder or holders, as the case may be,
from time to time of Registrable Securities.
Indemnified Party shall have the meaning set forth in Section 5(c)
hereof.
Indemnifying Party shall have the meaning set forth in Section 5(c)
hereof.
Losses shall have the meaning set forth in Section 5(a) hereof.
Proceeding shall mean any threatened, pending or completed claim, action,
suit, arbitration, alternate dispute resolution process, investigation, administrative
hearing, appeal, or any other proceeding, whether civil, criminal, administrative or
investigative, whether formal or informal, including a proceeding initiated by an
Indemnified Party pursuant to Section 5 hereof to enforce such Indemnified Partys
rights hereunder.
Prospectus means the prospectus included in a Registration Statement
(including, without limitation, a prospectus that includes any information previously
omitted from a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference in such Prospectus.
Registrable Securities means (i) any Capital Stock issued or issuable to
Holder pursuant to any Warrant (ii) any Capital Stock issued or issuable with respect to the
Capital Stock referred to in clause (i) above by way of a stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger, consolidation or other
reorganization and (iii) all other shares of Capital Stock held by (or issued, pursuant to
clause (ii) above, to) Holder.
Registration Statement means the registration statements required to be filed
hereunder and any additional registration statements contemplated by Section 3(b),
including (in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 415 means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same purpose and
effect as such rule.
Rule 424 means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar rule or
3
regulation hereafter adopted by the Commission having substantially the same purpose
and effect as such rule.
Stock Exchange means the New York Stock Exchange, NASDAQ or any other
nationally recognized stock exchange.
Suspension Period shall have the meaning set forth in Section 3(b)
hereof.
Trading Day means, a day on which the Companys Common Stock is traded on the
applicable Stock Exchange.
Violation shall have the meaning set forth in Section 5(a) hereof.
Warrants means any of: (i) the common stock purchase warrant, of even date
herewith and fully exercisable as of the date hereof, issued by the Company to Holder,
initially to acquire 500,000 shares of the Companys Common Stock (the 2009
Warrant); (ii) the common stock purchase warrant, of even date herewith and fully
exercisable as of the first anniversary of the Closing Date, issued by the Company to
Holder, initially to acquire 250,000 shares of the Companys Common Stock (the 2010
Warrant) and (iii) the common stock purchase warrant, of even date herewith and fully
exercisable as of the second anniversary of the Closing Date, issued by the Company to
Holder, initially to acquire 250,000 shares of the Companys Common Stock (the 2011
Warrant).
2. Shelf Registration
(a) On or prior to each Filing Date, the Company shall prepare and file with the
Commission a Shelf Registration Statement covering the resale of the Registrable
Securities outstanding on such Filing Date for an offering to be made on a continuous basis
pursuant to Rule 415. The Registration Statement shall be on Form S-3 (unless the Company
is not then eligible to register the Registrable Securities for resale on Form S-3, in which
case such registration shall be on another appropriate form in accordance herewith) and
shall contain (unless otherwise directed by Holders and except to the extent the Company
determines that modifications thereto are required under applicable law) substantially the
Plan of Distribution attached hereto as Annex A. Subject to the terms of this
Agreement, the Company shall use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the applicable Effectiveness Date, and shall use its best
efforts to keep such Registration Statement continuously effective under the Securities Act
until the date which is two years after the date that such Registration Statement is
declared effective by the Commission or such earlier date when all Registrable Securities
covered by such Registration Statement have been sold or may be sold without volume
restrictions pursuant to Rule 144 as determined by the counsel to the Company pursuant to a
written opinion letter to such effect, addressed and acceptable to the Companys transfer
agent and the affected Holders (the Effectiveness Period).
(b) The Company shall not be required to effect a registration pursuant to Section 2(a)
and shall have the right to defer the filing of any Registration Statement if
4
the Company shall furnish to Holders a certificate signed by the Chairman of the Board of
the Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders for such
registration statement to be effected at such time, in which event the Company shall have
the right to defer such filing for a period of not more than ninety (90) days after the
applicable Filing Date; provided that such right to delay a request shall be exercised by
the Company not more than once in any twelve (12) month period.
(c) It shall be a condition precedent to the obligations of the Company to take any
action pursuant to Sections 2(a) that the Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them and the intended
method of disposition of such securities as shall be reasonably required to effect the
registration of their Registrable Securities.
3. Registration Procedures
In connection with the Companys registration obligations hereunder, the Company shall:
(a) Not less than five Trading Days prior to the filing of each Registration Statement
or any related Prospectus or any amendment or supplement thereto (excluding any document
that would be incorporated or deemed incorporated therein by reference), (i) furnish to each
Holder copies of all such documents proposed to be filed, which documents (other than those
incorporated or deemed to be incorporated by reference) will be subject to the review of
such Holders, and (ii) cause its officers and directors, counsel and independent certified
public accountants to respond to such inquiries as shall be necessary, in the reasonable
opinion of respective counsel to conduct a reasonable investigation within the meaning of
the Securities Act. The Company shall not file the Registration Statement or any such
Prospectus or any amendments or supplements thereto to which Holders of a majority of the
Registrable Securities shall reasonably and in good faith object, provided, the Company is
notified of such objection in writing no later than 5 Trading Days after Holders have been
so furnished copies of such documents. In the event of any such objection, the Filing Date
and the Effectiveness Date shall be extended on a day by day basis until such objection has
been resolved.
(b) (i) Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in connection therewith as
may be necessary to keep a Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and file with the
Commission such additional Registration Statements as may be necessary in order to register
for resale under the Securities Act all of the Registrable Securities; (ii) cause the
related Prospectus to be amended or supplemented by any required Prospectus supplement
(subject to the terms of this Agreement), and as so supplemented or amended to be filed
pursuant to Rule 424; (iii) respond as promptly as reasonably possible, and in any event
within 15 Trading Days, to any comments received from the Commission with respect to a
Registration Statement or any amendment thereto and as promptly as reasonably possible
provide Holders true and complete copies of all correspondence from and to the Commission
relating to a Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the
5
Exchange Act with respect to the disposition of all Registrable Securities covered by a
Registration Statement during the applicable period in accordance (subject to the terms of
this Agreement) with the intended methods of disposition by Holders thereof set forth in
such Registration Statement as so amended or in such Prospectus as so supplemented.
Notwithstanding the foregoing, at any time, upon written notice to the Holders and for
a period not to exceed sixty (60) days thereafter (the Suspension Period), the
Company may delay the filing or effectiveness of any Registration Statement or suspend the
use or effectiveness of any Registration Statement (and the Holders hereby agree not to
offer or sell any Registrable Securities pursuant to such registration statement during the
Suspension Period) if the Company reasonably believes that there is or may be in existence
material nonpublic information or events involving the Company, the failure of which to be
disclosed in the prospectus included in the registration statement could result in a
Violation. In the event that the Company shall exercise its right to delay or suspend the
filing or effectiveness of a registration hereunder, the applicable time period during which
the Registration Statement is to remain effective shall be extended by a period of time
equal to the duration of the Suspension Period. The Company may extend the Suspension
Period for an additional consecutive sixty (60) days with the consent of the holders of a
majority of the Registrable Securities registered under the applicable registration
statement, which consent shall not be unreasonably withheld. No more than one (1) such
Suspension Period shall occur in any twelve (12) month period.
(c) Notify Holders of Registrable Securities to be sold (which notice shall, pursuant
to clauses (ii) through (vi) hereof be accompanied by an instruction to suspend the use of
the Prospectus until the requisite changes have been made) as promptly as reasonably
possible (and, in the case of (i)(A) below, not less than five Trading Days prior to such
filing) and (if requested by any such Person) confirm such notice in writing no later than
one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a review of such Registration
Statement and whenever the Commission comments in writing on such Registration Statement
(the Company shall provide true and complete copies thereof and all written responses
thereto to each of Holders); and (C) with respect to a Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any request by the
Commission or any other Federal or state governmental authority for amendments or
supplements to a Registration Statement or Prospectus or for additional information; (iii)
of the issuance by the Commission of any stop order suspending the effectiveness of a
Registration Statement covering any or all of the Registrable Securities or the initiation
of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from qualification of any
of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening
of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time
that makes the financial statements included in a Registration Statement ineligible for
inclusion therein or any statement made in a Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to a Registration Statement, Prospectus or
other documents so that, in the case of a Registration Statement or the Prospectus, as the
case may be, it will not contain any
6
untrue statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and (vi) the occurrence or existence of any
pending corporate development with respect to the Company that the Company believes may be
material and that, in the determination of the Company, makes it not in the best interests
of the Company to allow continued availability or the Registration Statement or Prospectus.
(d) Promptly deliver to each Holder, without charge, an electronic copy of the
Prospectus or Prospectuses (including each form of prospectus) and each amendment or
supplement thereto. Filing on the Commissions EDGAR system shall be deemed to satisfy such
delivery requirement. Subject to the terms of this Agreement, the Company hereby consents
to the use of such Prospectus and each amendment or supplement thereto by each of the
selling Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(e) Use commercially reasonable efforts to register or qualify the resale of such
Registrable Securities as required under applicable securities or Blue Sky laws of each
State within the United States as any Holder requests in writing, and to keep each such
registration or qualification (or exemption therefrom) effective during the Effectiveness
Period; provided, that the Company shall not be required to qualify generally to do business
in any jurisdiction where it is not then so qualified or subject the Company to any material
tax in any such jurisdiction where it is not then so subject.
(f) Cooperate with Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a transferee pursuant to
a Registration Statement, which certificates shall be free, to the extent permitted by the
applicable Warrant, of all restrictive legends, and in such denominations and registered in
such names as any such Holders may request.
(g) Upon the occurrence of any event contemplated in Section 3(c)(ii)-(vi), as
promptly as reasonably possible, prepare a supplement or amendment including a
post-effective amendment; to a Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by reference,
and file any other required document so that, as thereafter delivered, neither a
Registration Statement nor such Prospectus will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made, not
misleading. If the Company notifies Holders in accordance with clauses (ii) through (v) of
Section 3(c) above to suspend the use of any Prospectus until the requisite changes
to such Prospectus have been made, or the Company otherwise notifies Holders of its election
to suspend the availability of a Registration Statement and Prospectus pursuant to clause
(vi) of Section 3(c), then Holders shall suspend use of such Prospectus. The
Company will use its best efforts to ensure that the use of the Prospectus may be resumed as
promptly as is practicable, except that in the case of suspension of the availability of a
Registration Statement and Prospectus pursuant to clause (vi) of Section 3(c), the
Company shall not be required to take such action until such time as it shall determine
7
that the continued availability of the Registration Statement and Prospectus is no
longer not in the best interests of the Company.
(h) Comply with all applicable rules and regulations of the Commission.
(i) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of, (i) any order suspending the effectiveness of a Registration Statement, or (ii) any
suspension of the qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.
(j) Require each Holder to furnish to the Company a statement as to the number of
shares of the Companys Common Stock beneficially owned by such Holder and, if requested by
the Commission, the controlling Person thereof.
4. Registration Expenses. All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect to filings required
to be made with the Stock Exchange, and (B) in compliance with applicable state securities or Blue
Sky laws (including, without limitation, fees and disbursements of counsel for the Company in
connection with Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as requested by Holders )); (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of printing
prospectuses requested by Holders; (iii) messenger, telephone and delivery expenses; (iv) fees and
disbursements of counsel for the Company; and (v) fees and expenses of all other Persons retained
by the Company in connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for (i) all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities exchange as required
hereunder and (ii) reasonable fees and expenses of one counsel to Holders in connection with this
Agreement. In no event shall the Company be responsible for any broker or similar commissions or,
except to the extent provided for in the Credit Documents or other agreements between the parties,
any legal fees or other costs of Holders.
5. Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding any termination
of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents,
brokers (including brokers who offer and sell Registrable Securities as principal as a
result of a pledge or any failure to perform under a margin call of the Companys Common
Stock), investment advisors and employees of each of them, each Person who controls any such
Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable
8
law, from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, costs of preparation and reasonable attorneys fees) and
expenses (collectively, Losses), as incurred, arising out of or relating to any
untrue or alleged untrue statement of a material fact contained in a Registration Statement,
any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading (a Violation), except to
the extent, but only to the extent, that (1) such untrue statements or omissions or alleged
untrue statements or omissions are based upon information regarding such Holder furnished in
writing to the Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holders proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or
in any amendment or supplement thereto or (2) in the case of an occurrence of an event of
the type specified in Section 3(c)(ii)-(vi), such Holder used an outdated or defective
Prospectus after the Company had notified such Holder in writing that the Prospectus was
outdated or defective and prior to the receipt by such Holder of the Advice contemplated in
Section 7(e). The Company shall notify Holders promptly of the institution, threat
or assertion of any Proceeding arising from or in connection with the transactions
contemplated by this Agreement of which the Company is aware.
(b) Indemnification by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and employees, each
Person who controls the Company (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from and against all
Losses (as determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising out of or based upon any untrue statement of a material fact
contained in any Registration Statement, any Prospectus, or any form of prospectus, or in
any amendment or supplement thereto, or arising out of or based upon: (i) such Holders
failure to comply with the prospectus delivery requirements of the Securities Act or (ii)
any untrue statement of a material fact contained in a Registration Statement, any
Prospectus or in any amendment or supplement thereto, or arising out of or relating to any
omission of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading to the extent but only to the
extent, such untrue statement or omission is contained in any information so furnished in
writing by such Holder to the Company specifically for inclusion in such Registration
Statement or such Prospectus or to the extent that (1) such untrue statements or omissions
are based upon information regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein, or to the extent such information relates to such Holder
or such Holders proposed method of distribution of Registrable Securities and was reviewed
and expressly approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or supplement
thereto or (2) in the case of an occurrence of an event of the type specified in Section
3(c)(ii)-(vi), such Holder used an
9
outdated or defective Prospectus after the Company has notified such Holder in writing
that the Prospectus was outdated or defective and prior to the receipt by such Holder of the
Advice contemplated in Section 8(e). In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net proceeds received by
such Holder upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an Indemnified
Party), such Indemnified Party shall promptly notify the Person from whom indemnity is
sought (the Indemnifying Party) in writing, and the Indemnifying Party shall
assume the defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses incurred in connection with
defense thereof provided, that the failure of any Indemnified Party to give such notice
shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this
Agreement, except (and only) to the extent that such failure shall have prejudiced the
Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the
Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the
Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and
to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding;
or (3) the named parties to any such Proceeding (including any impleaded parties) include
both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall
have been advised by counsel that a material conflict of interest is likely to exist if the
same counsel were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party
shall not have the right to assume the defense thereof and the expense of one such counsel
for each Holder shall be at the expense of the Indemnifying Party). The Indemnifying Party
shall not be liable for any settlement of any such Proceeding effected without its written
consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all liability on
claims that are the subject matter of such Proceeding.
Subject to the terms of this Agreement, all fees and expenses of the Indemnified Party
(including reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not inconsistent with this
Section 5(c)) shall be paid to the Indemnified Party, as incurred, within ten
Trading Days of written notice thereof to the Indemnifying Party (regardless of whether it
is ultimately determined that an Indemnified Party is not entitled to indemnification
hereunder; provided, that the Indemnifying Party may require such Indemnified Party to
10
undertake to reimburse all such fees and expenses to the extent it is finally
judicially determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a result of such
Losses, in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified Party shall
be determined by reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties relative intent, knowledge, access
to information and opportunity to correct or prevent such action, statement or omission.
The amount paid or payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in Section 5(c), any reasonable attorneys or
other reasonable fees or expenses incurred by such party in connection with any Proceeding
to the extent such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section were available to such party in accordance with
its terms.
The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any other
method of allocation that does not take into account the equitable considerations referred
to in the immediately preceding paragraph. Notwithstanding the provisions of this
Section 5(d), no Holder shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the proceeds actually received by such Holder from
the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
The indemnity and contribution agreements contained in this Section 5 are in
addition to any liability that the Indemnifying Parties may otherwise have to the
Indemnified Parties.
6. Reporting.
(a) Reports Under The Exchange Act. With a view to making available to Holders the
benefits of Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit Holders to sell securities of the
Company to the public without registration (Rule 144), the Company shall use
reasonable efforts to:
(i) make and keep current public information available, as those terms are
understood and defined in Rule 144;
11
(ii) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act; and
(iii) furnish to each Holder, so long as such Holder owns Registrable
Securities, promptly upon request, (A) a written statement by the Company, if true,
that it has complied with the applicable reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (B) a copy of the most recent annual or
quarterly report of the Company and copies of such other reports and documents so
filed by the Company, and (C) such other information as may be reasonably requested
to permit Holders to sell such securities pursuant to Rule 144 without registration.
(b) Rule 144A Information. If applicable, the Company shall, upon request of any
Holder, make available to such Holder the information required by Rule 144A(d)(4) (or any
successor rule), under the Securities Act, if any.
7. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement, including the provisions
of this sentence, may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the same shall be in writing
and signed by the Company and all of Holders of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions, hereof
with respect to a matter that relates exclusively to the rights of certain Holders and that
does not directly or indirectly affect the rights of other Holders may be given by Holders
of all of the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the immediately
preceding sentence.
(b) No Inconsistent Agreements. Neither the Company nor any of its Subsidiaries has
entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or
after the date of this Agreement, enter into any agreement with respect to its securities,
that would have the effect of impairing the rights granted to Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as and to the extent specified in
Schedule 7(b) hereto, neither the Company nor any of its Subsidiaries has previously
entered into any agreement granting any registration rights with respect to any of its
securities to any Person that have not been satisfied in full.
(c) Compliance. Each Holder covenants and agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in connection
with sales of Registrable Securities pursuant to the Registration Statement.
(d) Discontinued Disposition. Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Sections 3(c)(ii), (iii) or (vi),
such Holder will forthwith discontinue disposition of such Registrable Securities under a
Registration
12
Statement until such Holders receipt of the copies of the supplemented Prospectus
and/or amended Registration Statement contemplated by Section 3(g), or until it is
advised in writing (the Advice) by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by reference in such
Prospectus or Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph.
(e) Piggy-Back Registrations. If at any time during the Effectiveness Period there is
not an effective Registration Statement covering all of the Registrable Securities and the
Company shall determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the Securities
Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated
under the Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit plans, then
the Company shall send to each Holder written notice of such determination and, if within
fifteen days after receipt of such notice, any such Holder shall so request in writing, the
Company shall include in such registration statement all or any part of such Registrable
Securities such Holder requests to be registered; provided, that, the Company shall not be
required to register any Registrable Securities pursuant to this Section 7(e) that
are then eligible for resale pursuant to Rule 144(b) promulgated under the Securities Act.
(f) Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be delivered as set forth in the applicable
Warrant.
(g) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors and permitted assigns of each of the parties and shall inure to
the benefit of each Holder. The Company may not assign its rights or obligations hereunder
without the prior written consent of all of Holders of the then-outstanding Registrable
Securities. Each Holder may assign its respective rights hereunder in the manner and to the
Persons as permitted under the applicable Warrant.
(h) Counterparts. This Agreement may be executed in any number of counterparts, each
of which when so executed shall be deemed to be an original, and all of which taken together
shall constitute one and the same Agreement. In the event that any signature is delivered
by facsimile transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) with the same force and
effect as if such facsimile signature were the original thereof.
(i) Governing Law; Venue. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof or of any other jurisdiction. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST THE PARTIES WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN ANY
STATE OR
13
FEDERAL COURT OF COMPETENT JURISDICTION IN THE CITY OF NEW YORK IN THE STATE OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES ACCEPTS, FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY
FINAL JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT FROM WHICH NO APPEAL HAS
BEEN TAKEN OR IS AVAILABLE. EACH OF THE PARTIES IRREVOCABLY AGREES THAT ALL SERVICE OF
PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT MAY BE EFFECTED BY MAILING A COPY THEREOF
BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO IT AT ITS ADDRESS OR AT SUCH OTHER ADDRESS OF WHICH THE PARTIES SHALL HAVE BEEN
NOTIFIED PURSUANT THERETO, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE PARTIES TO BE
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH JURISDICTION. NOTHING HEREIN SHALL
AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF HOLDER TO BRING PROCEEDINGS AGAINST THE PARTIES IN THE COURT OF ANY OTHER
JURISDICTION. Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law. Each party hereto hereby irrevocably waives,
to the fullest extent permitted by applicable law, any and all right to trial by jury in any
legal proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby. If any party shall commence a Proceeding to enforce any provisions of
this Agreement, then the prevailing party in such Proceeding shall be reimbursed by the
other party for its attorneys fees and other costs and expenses incurred in connection with
the investigation, preparation and prosecution of such Proceeding.
(j) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive
of any remedies provided by law.
(k) Severability. If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or invalidated thereby,
and the parties hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
14
(l) Headings. The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
[Signature pages follow.]
15
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the
date first written above.
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COMPANY:
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ARBOR REALTY TRUST, INC.
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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S-1
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HOLDER:
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WACHOVIA BANK, NATIONAL ASSOCIATION
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By: |
/s/ Olga V. Kelly
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Name: |
Olga V. Kelly |
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Title: |
Director |
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S-2
Annex A
Plan of Distribution
The selling shareholders and any of their pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. The selling shareholders may use
any one or more of the following methods when selling shares:
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ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers; |
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block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to facilitate the
transaction; |
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purchases by a broker-dealer as principal and resale by the broker-dealer for
its account; |
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an exchange distribution in accordance with the rules of the applicable
exchange; |
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privately negotiated transactions; |
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settlement of short sales; |
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the sales pursuant to an agreement of the selling shareholders with
broker-dealers, of a specified number of such shares at a stipulated price per share; |
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a combination of any such methods of sale; and |
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any other method permitted pursuant to applicable law. |
The selling shareholders may also sell shares under Rule 144 of the Securities Act, if
available, rather than under this prospectus. Broker-dealers engaged by the selling shareholders
may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling shareholders (or, if any broker-dealer acts as agent for
the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling shareholders
do not expect these commissions and discounts to exceed what is customary in the types of
transactions involved.
The selling shareholders may from time to time pledge or grant a security interest in some or
all of the shares owned by them and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling shareholders to
include the pledgee, transferee or other successors in interest as selling shareholders under this
prospectus.
Annex A-1
The selling shareholders also may transfer the shares of common stock in other circumstances,
in which case the transferees, pledges, donees, assignees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus.
The selling shareholders and any broker-dealers or agents that are involved in selling the
shares may be deemed to be underwriters within the meaning of the Securities Act in connection
with such sales. In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be underwriting commissions
or discounts under the Securities Act. The selling shareholders have informed the Company that
none of them have any agreement or understanding, directly or indirectly, with any person to
distribute the common stock.
The Company is required to pay all fees and expenses incurred by the Company incident to the
registration of the shares. The Company has agreed to indemnify the selling shareholders against
certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Annex A-2
Schedules
Schedule 7(b)
None.
Schedule 7(c) None.
exv10w36
EXHIBIT 10.36
EXECUTION VERSION
FIRST AMENDMENT TO
FIRST AMENDED AND RESTATED CREDIT AGREEMENT AND OTHER CREDIT DOCUMENTS
(Wachovia/Arbor)
THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT AND OTHER CREDIT
DOCUMENTS, dated as of December 16, 2009 (this Amendment No. 1), is entered into by and
among ARBOR REALTY FUNDING LLC, a Delaware limited liability company (together with its successors
and permitted assigns, Arbor Realty Funding), as a borrower, ARSR TAHOE, LLC, a Delaware
limited liability company (together with its successors and permitted assigns, ARSR
Tahoe), as a borrower, ARBOR REALTY LIMITED PARTNERSHIP, a Delaware limited partnership
(together with its successors and permitted assigns, Arbor Realty), as a borrower, ART
450 LLC, a Delaware limited liability company (together with its successors and permitted assigns,
ART 450), as a borrower, ARBOR REALTY SR, INC., a Maryland corporation (together with its
successors and permitted assigns, ARSR), as a borrower, ARBOR ESH II LLC (together with
its successors and permitted assigns, Arbor ESH and, together with Arbor Realty Funding,
ARSR Tahoe, Arbor Realty and ARSR, each individually referred to herein as a Borrower and
collectively referred to herein as the Borrowers), as a borrower, ARBOR REALTY TRUST,
INC., a Maryland corporation (together with its successors and permitted assigns, ART),
as a guarantor, Arbor Realty, as a guarantor, ARSR, as a guarantor (ARSR, together with ART and
Arbor Realty, the Guarantors), the several banks and other financial institutions party
to the Credit Agreement (each, together with its successors and assigns, a Lender and,
collectively, the Lenders), and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association, as administrative agent for the Lenders (together with its successors and assigns in
such capacity, the Administrative Agent), and consented to by ARSR, as the pledgor
(together with its successors and permitted assigns, the Pledgor). Capitalized terms
used and not otherwise defined herein shall have the meanings given to such terms in the Credit
Agreement (as defined below and as amended hereby).
R E C I T A L S
WHEREAS, the Borrowers, the Guarantors, the Lenders and the Administrative Agent are parties
to that certain First Amended and Restated Credit Agreement, dated as of July 23, 2009 (as amended,
modified, restated, replaced, waived, substituted, supplemented or extended from time to time,
including by this Amendment No. 1, the Credit Agreement);
WHEREAS, the Borrowers and the Guarantors desire to make certain modifications to the Credit
Agreement and the other Credit Documents;
WHEREAS, the Administrative Agent and the Lenders are willing to modify the Credit Agreement
and the other Credit Documents as requested by the Borrowers and the Guarantors on the terms and
conditions specified herein;
WHEREAS, each Guarantor desires to evidence its agreement to the amendments and modifications
set forth herein and to reaffirm its obligations under the Guaranty; and
First Amendment to Credit Agreement and other Credit Documents
(Wachovia/Arbor)
WHEREAS, the Pledgor is a party to other Credit Documents and related agreements that may
be affected, directly or indirectly, by this Amendment No. 1 and desires to evidence its agreement
to the amendments and modifications set forth herein.
NOW THEREFORE, in consideration of the foregoing recitals, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
Section 1. Amendments to Credit Agreement.
(a) The following new definitions are added to Section 1.1 of the Credit Agreement (to
be inserted in the correct alphabetical order):
Amendment No. 1 means that certain First Amendment to First Amended and Restated
Credit Agreement, dated as of December 16, 2009, by and among the Borrowers, the Guarantors, the
Administrative Agent and the lenders party thereto, as consented to by the Pledgor and Custodian.
Golf Terrace Mortgage Asset means the Mezzanine Loan known as Golf Terrace in the
original face amount of $5,921,700, as amended, modified, waived, supplemented, extended, restated
or replaced from time to time.
Golf Terrace Intercreditor Agreement means the Intercreditor Agreement, dated as of
November 30, 2005, by and among Arbor Commercial Funding, LLC, Arbor Realty Funding, Park at Laurel
Oaks Associates LLC, Laurel Oaks, LLC, TTF VI REIT, Randy Ferreira and Reuven Odel, as amended,
modified, waived, supplemented, extended, restated or replaced from time to time.
Lake Shore Mortgage Asset means the Junior Interest (Participation A-1 Interest)
known as Lake Shore in the original face amount of $17,000,000, as amended, modified, waived,
supplemented, extended, restated or replaced from time to time.
Lexford Mortgage Asset means the Mortgage Asset known as Lexford in the original
face amount of $30,000,000, as amended, modified, waived, supplemented, extended, restated or
replaced from time to time.
Substituted Assets means the Golf Terrace Mortgage Asset and the Lake Shore
Mortgage Asset, as such Mortgage Assets are substituted in accordance with Section 2.2(e) of the
Credit Agreement.
(b) Section 2.2(e) of the Credit Agreement is hereby amended and restated in its
entirety as follows:
(e) Notwithstanding anything set forth in the Credit Documents to the contrary, on the date
of Amendment No. 1., each Term Loan Lender and the Administrative Agent shall permit the Borrowers
to substitute the Lexford Mortgage Asset with the Substituted Assets. In connection therewith, the
Borrowers shall execute and deliver a Confirmation with respect to each such Substituted Asset and
otherwise satisfy the requirements of Section 2.2 and the Credit Documents in connection with the
making of a Term Loan. Upon satisfaction of such conditions, the Substituted Assets shall be
Pledged
Mortgage Assets for all purposes of this Agreement and the other Credit Documents. Following
the satisfaction of such conditions and such other conditions as the Administrative Agent may
require in its discretion, the Administrative Agent shall release the Lexford Mortgage Asset from
the Lien created by
First Amendment to Credit Agreement
(Wachovia/Arbor)
2
the Security Documents. For the avoidance of doubt, the Borrowers have no right to
substitute any Pledged Mortgage Asset without the prior written consent of the Administrative
Agent, which consent may be withheld in the discretion of the Administrative Agent.
(c) A new Section 2.4(b)(ix) is hereby added to the Credit Agreement as follows:
Notwithstanding anything set forth in the Credit Documents to the contrary, if the Lake Shore
Mortgage Asset is subject to a Collateral Default prior to the occurrence of an Asset Valuation
Period, the Borrowers shall pay to the Administrative Agent, within one (1) Business Day of the
occurrence of such Collateral Default, fifty percent (50%) of the Allocated Term Loan Amount for
the Lake Shore Mortgage Asset and, if either (A) such Collateral Default is not resolved to the
Administrative Agents satisfaction in its discretion within ninety (90) calendar days of the
occurrence of such Collateral Default or (B) (1) the Administrative Agent makes any recommendations
(regardless of whether the Administrative Agent or the Borrowers have the right to make such
recommendations) regarding the matters set forth in Sections 3(e) or 3(g) of the Amended and
Restated Participation and Servicing Agreement, dated as of February 15, 2008 (the Lake Shore
Participation Agreement), among Arbor Realty Participation, LLC, as the seller, Arbor Realty
SR, Inc., as the participant A, and Arbor Realty Participation, LLC, as the participant B (as such
agreement is modified or amended from time to time), which are not followed or (2) the
Administrative Agent does not approve of an action taken by the Seller or any Qualified
Servicer (in each case, as defined in the Lake Shore Participation Agreement) with respect to the
Lake Shore Mortgage Asset (the actions referred to in clauses (A) and (B) hereinafter referred to
as Non-Approved Actions), the Borrowers shall, within one (1) Business Day of the
occurrence of any Non-Approved Actions, pay to the Administrative Agent the balance of the
Allocated Term Loan Amount for the Lake Shore Mortgage Asset plus accrued and unpaid interest and
other amounts owed with respect to the Lake Shore Mortgage Asset. If the Lake Shore Mortgage Asset
is subject to a Collateral Default during an Asset Valuation Period, then the provisions of Section
2.5(b)(v) of this Agreement shall apply.
(d) A new Section 5.30 is hereby added to the Credit Agreement as follows:
Section 5.30 Golf Terrace. Within ninety (90) days of the date of Amendment No. 1,
the Borrowers shall obtain the written consent from the Senior Lender (as defined in the Golf
Terrace Intercreditor Agreement) with respect to the applicable Borrowers pledge of the Golf
Terrace Mortgage Asset to the Administrative Agent and its successors and assigns in accordance
with the terms of this Agreement and the other Credit Documents, which consent shall also include
confirmation that the Administrative Agent (together with its successors and assigns) is a Loan
Pledgee under paragraph 15 of the Golf Terrace Intercreditor Agreement, as such consent is
required by the terms of the Golf Terrace Intercreditor Agreement.
Section 2. Amendments to the Fee Letter.
Schedule 1-B to the Fee Letter is amended and restated in its entirety with Exhibit A
attached hereto.
Section 3. Credit Documents in Full Force and Effect as Modified.
Except as specifically modified hereby, the Credit Documents shall remain in full force and
effect in accordance with their terms. All references to any Credit Document shall be deemed to
mean each Credit Document as modified by this Amendment No. 1. This Amendment No. 1 shall not
constitute a novation of the Credit Documents, but shall constitute modifications thereof. The
parties hereto agree to be bound by the terms and conditions of the Credit Documents, as modified
by this Amendment No. 1, as
First Amendment to Credit Agreement
(Wachovia/Arbor)
3
though such terms and conditions were set forth herein. Each of the Borrowers, the
Guarantors and the Pledgor hereby ratifies the Credit Agreement and the other Credit Documents and
acknowledges and reaffirms (a) that it is bound by all terms of the Credit Agreement and the other
Credit Documents applicable to it and (b) that it is responsible for the observance and full
performance of its respective Obligations. This Amendment No. 1 is a Credit Document executed
pursuant to the Credit Agreement and shall be construed, administered and applied in accordance
with the terms and provisions of the Credit Agreement.
Section 4. Representations.
Each of the Borrowers, the Guarantors and the Pledgor represents and warrants, as of the date
of this Amendment No. 1, as follows:
(a) it is duly incorporated or organized, validly existing and in good standing under the laws
of its jurisdiction of organization and each jurisdiction where it conducts business;
(b) the execution, delivery and performance by it of this Amendment No. 1 is within its
corporate, company or partnership powers, has been duly authorized and does not contravene (1) its
Authority Documents or its applicable resolutions, (2) any Requirements of Law or (3) any
Contractual Obligation, Indebtedness or Guarantee Obligation;
(c) no consent, license, permit, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority or other Person is required in connection with the
execution, delivery, performance, validity or enforceability by or against it of this Amendment
No. 1 or the Fee Letter;
(d) this Amendment No. 1 has been duly executed and delivered by it;
(e) this Amendment No. 1 and each of the Credit Documents as modified thereby constitute its
legal, valid and binding obligation, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors rights generally or by general principles of
equity;
(f) the Security Documents continue to create a valid security interest in, and Lien upon, the
Collateral, in favor of the Administrative Agent, for the benefit of the Secured Parties, which
security interests and Liens are perfected in accordance with the terms of the Security Documents
and prior to all Liens subject to Permitted Liens;
(g) no Default or Event of Default exists or will exist after giving effect to this Amendment
No. 1;
(h) each of the Credit Documents is in full force and effect and neither the Borrowers, the
Guarantors nor the Pledgor has any defense, offset, counterclaim, abatement, right of rescission or
other claims, actions, causes of action, demands, damages or liabilities of any kind or nature, in
all cases whether legal or equitable, available to the Borrowers, the Guarantors, the Pledgor or
any other Person with respect to (i) this Amendment No. 1, the Credit Agreement, the Credit
Documents or any other instrument, document and/or agreement described herein or therein, as
modified and amended hereby, (ii) the obligation of the Borrowers and the Guarantors to repay the
Obligations and other amounts due under
the Credit Documents or (iii) the Administrative Agent, the Lenders or the Administrative
Agents or the Lenders respective officers, employees, representatives, agents, counsel or
directors arising out of or
First Amendment to Credit Agreement
(Wachovia/Arbor)
4
from or in any way related to or in connection with the Credit Agreement or the Credit
Documents, including, without limitation, any action by such Persons, or failure of such Persons to
act, under the Credit Agreement or the other Credit Documents on or prior to the date hereof; and
(i) except as specifically provided in this Amendment No. 1, the Obligations are not reduced
or modified by this Amendment No. 1.
Section 5. Conditions Precedent.
The effectiveness of this Amendment No. 1 is subject to the following conditions precedent:
(i) delivery to the Administrative Agent of this Amendment No. 1 duly executed by each of the
parties hereto; (ii) the payment of all legal fees and expenses of Moore & Van Allen PLLC, as
counsel to the Administrative Agent, in the amount to be set forth on a separate invoice; (iii)
execution and delivery of Confirmations with respect to the Substituted Assets; and (iv) delivery
to the Administrative Agent of such other documents, agreements or certifications as the
Administrative Agent may reasonably require.
Section 6. Miscellaneous.
(a) This Amendment No. 1 may be executed in any number of counterparts (including by
facsimile), and by the different parties hereto on the same or separate counterparts, each of which
shall be deemed to be an original instrument but all of which together shall constitute one and the
same agreement.
(b) The descriptive headings of the various sections of this Amendment No. 1 are inserted for
convenience of reference only and shall not be deemed to affect the meaning or construction of any
of the provisions hereof.
(c) This Amendment No. 1 may not be amended or otherwise modified, waived or supplemented
except as provided in the Credit Agreement.
(d) The interpretive provisions of Sections 1.2 through 1.8 of the Credit
Agreement are incorporated herein mutatis mutandis.
(e) This Amendment No. 1 and the Fee Letter represents the final agreement among the parties
and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements
between the parties. There are no unwritten oral agreements between the parties.
(f) THIS AMENDMENT NO. 1 AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT
NO. 1 SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.
(g) Each provision of this Amendment No. 1 shall be valid, binding and enforceable to the
fullest extent permitted by Requirements of Law. In case any provision in or obligation under this
Amendment No. 1 shall be invalid, illegal or unenforceable in any jurisdiction (either in its
entirety or as
applied to any Person, fact, circumstance, action or inaction), the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction or as applied to any Person, fact, circumstance, action or inaction, shall
not in any way be affected or impaired thereby.
First Amendment to Credit Agreement
(Wachovia/Arbor)
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(h) In consideration of the Lenders and the Administrative Agent entering into this
Amendment No. 1, each of the Borrowers, each of the Guarantors and the Pledgor hereby waives,
releases and discharges the Administrative Agent, the Lenders and the Administrative Agents and
the Lenders respective officers, employees, representatives, agents, counsel and directors from
any and all actions, causes of action, claims, demands, damages and liabilities of whatever kind or
nature, in law or in equity, now known or unknown, suspected or unsuspected to the extent that any
of the foregoing arises out of or from or in any way relating to or in connection with the Credit
Agreement or the Credit Documents, including but not limited to, any action or failure to act under
the Credit Agreement or the other Credit Documents on or prior to the date hereof, except, with
respect to any such Person being released hereby, any actions, causes of action, claims, demands,
damage and liabilities arising out of such Persons gross negligence or willful misconduct in
connection with the Credit Agreement or the other Credit Documents.
(i) Each Guarantor (i) agrees to and consents to the terms and provisions of this Amendment
No. 1, (ii) acknowledges and confirms that the Guaranty remains in full force and effect
notwithstanding this Amendment No. 1, and (iii) reaffirms its obligations under the Guaranty.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
First Amendment to Credit Agreement
(Wachovia/Arbor)
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IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be executed by their
respective officers thereunto duly authorized, as of the date first above written.
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BORROWERS: |
ARBOR REALTY FUNDING, LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARSR TAHOE, LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LIMITED PARTNERSHIP, a Delaware limited
partnership
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ART 450 LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY SR, INC., a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR ESH II LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
First Amendment to Credit Agreement
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GUARANTORS: |
ARBOR REALTY TRUST, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
First Amendment to Credit Agreement
(Wachovia/Arbor)
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ADMINISTRATIVE AGENT: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Administrative Agent on behalf of the Lenders
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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LENDER: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Lender
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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[Signatures Continued on the Following Page]
First Amendment to Credit Agreement
(Wachovia/Arbor)
CONSENTED TO BY:
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PLEDGOR: |
ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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First Amendment to Credit Agreement
(Wachovia/Arbor)
Exhibit A
Schedule 1B
ESH
Release Amounts
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ASSET |
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ESH RELEASE AMOUNT |
26 Broadway
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$2,000,000 |
5 Times Square
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$953,343.53 |
1760 Third Avenue
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$750,000 |
James Hotel Chicago
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$500,000 |
DRA
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$375,000 |
Alpine Asset
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$9,000,000 |
Water Street
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$500,000 |
First Amendment to Credit Agreement
(Wachovia/Arbor)
exv10w37
EXHIBIT 10.37
EXECUTION COPY
SECOND AMENDMENT TO
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
(Wachovia/Arbor)
THIS SECOND AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 24,
2009 (this Amendment No. 2), is entered into by and among ARBOR REALTY FUNDING LLC, a
Delaware limited liability company (together with its successors and permitted assigns, Arbor
Realty Funding), as a borrower, ARSR TAHOE, LLC, a Delaware limited liability company
(together with its successors and permitted assigns, ARSR Tahoe), as a borrower, ARBOR
REALTY LIMITED PARTNERSHIP, a Delaware limited partnership (together with its successors and
permitted assigns, Arbor Realty), as a borrower, ART 450 LLC, a Delaware limited
liability company (together with its successors and permitted assigns, ART 450), as a
borrower, ARBOR REALTY SR, INC., a Maryland corporation (together with its successors and permitted
assigns, ARSR), as a borrower, ARBOR ESH II LLC (together with its successors and
permitted assigns, Arbor ESH and, together with Arbor Realty Funding, ARSR Tahoe, Arbor
Realty and ARSR, each individually referred to herein as a Borrower and collectively
referred to herein as the Borrowers), as a borrower, ARBOR REALTY TRUST, INC., a Maryland
corporation (together with its successors and permitted assigns, ART), as a guarantor,
Arbor Realty, as a guarantor, ARSR, as a guarantor (ARSR, together with ART and Arbor Realty, the
Guarantors), the several banks and other financial institutions party to the Credit
Agreement (each, together with its successors and assigns, a Lender and, collectively,
the Lenders), and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as
administrative agent for the Lenders (together with its successors and assigns in such capacity,
the Administrative Agent), and consented to by ARSR, as the pledgor (together with its
successors and permitted assigns, the Pledgor), and WELLS FARGO BANK, NATIONAL
ASSOCIATION, a national banking association (together with its successors and permitted assigns,
Custodian), as the custodian. Capitalized terms used and not otherwise defined herein
shall have the meanings given to such terms in the Credit Agreement (as defined below and as
amended hereby).
R E C I T A L S
WHEREAS, the Borrowers, the Guarantors, the Lenders and the Administrative Agent are parties
to that certain First Amended and Restated Credit Agreement, dated as of July 23, 2009 (as amended,
modified, restated, replaced, waived, substituted, supplemented or extended from time to time,
including pursuant to that First Amendment to First Amended and Restated Credit Agreement and Other
Credit Documents, dated as of December 16, 2009 and by this Amendment No. 2, the Credit
Agreement);
WHEREAS, concurrently herewith, the Borrowers, the Guarantors and the Administrative Agent are
entering into that certain Second Amended and Restated Fee Letter, dated as of the date hereof;
WHEREAS, the Borrowers and the Guarantors desire to make certain modifications to the Credit
Agreement;
Second Amendment to Credit Agreement
(Wachovia/Arbor)
WHEREAS, the Administrative Agent and the Lenders are willing to modify the Credit
Agreement as requested by the Borrowers and the Guarantors on the terms and conditions specified
herein;
WHEREAS, each Guarantor desires to evidence its agreement to the amendments and modifications
set forth herein and to reaffirm its obligations under the Guaranty; and
WHEREAS, the Pledgor is a party to other Credit Documents and related agreements that may be
affected, directly or indirectly, by this Amendment No. 2 and desires to evidence its agreement to
the amendments and modifications set forth herein.
NOW THEREFORE, in consideration of the foregoing recitals, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
Section 1. Amendments to Credit Agreement.
(a) The following new definitions are added to Section 1.1 of the Credit Agreement (to
be inserted in the correct alphabetical order):
Amendment No. 2 means that certain Second Amendment to First Amended and Restated
Credit Agreement, dated as of December 24, 2009, by and among the Borrowers, the Guarantors, the
Administrative Agent and the lenders party thereto, as consented to by the Pledgor and Custodian.
Credit Obligations means the outstanding obligations under the Loans, the Credit
Agreement, the Notes and any other Credit Document and the Aggregate Unpaids (as defined in the
Working Capital Facility). For the avoidance of doubt, Credit Obligations does not include any
Credit Party-Related Obligation that does not arise under the Credit Agreement or the other Credit
Documents or under the Working Capital Facility.
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Discounted Payoff Amount shall have the meaning set forth in the Fee Letter. |
Excess Principal Amount means the difference (if positive) between the amount of
any principal payment or prepayment received from an Obligor with respect to a Pledged Mortgage
Asset and the Release Amount for such Pledged Mortgage Asset.
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Payoff Extension Amount shall have the meaning set forth in the Fee Letter. |
(b) The definition of Fee Letter contained in Section 1.1 of the Credit Agreement is
hereby amended and restated in its entirety as follows:
Fee Letter shall mean the Second Amended and Restated Fee Letter, dated as of
December 24, 2009, by the Administrative Agent, as acknowledged and agreed by the Borrowers and the
Guarantors, as amended, modified, extended, restated, replaced, or supplemented from time to time.
(c) Clause (EIGHTH) of Subsection 2.9(a)(ii) of the Credit Agreement is hereby amended
and restated in its entirety as follows, new clauses (NINTH) and (TENTH) are hereby added to
Subsection 2.9(a)(ii) of the Credit Agreement and the proviso appearing at the end of
Subsection 2.9(a)(ii) of the Credit Agreement is hereby amended and restated in its
entirety:
Second Amendment to Credit Agreement
(Wachovia/Arbor)
2
EIGHTH, to the extent amounts owed pursuant to clauses FIRST through SEVENTH above have
been paid in full from all sources of Income (including, but not limited to, the application of
principal payments and prepayments received from Obligors) to the Borrowers, any remaining Excess
Principal Amount with respect to any Pledged Mortgage Asset deposited into the Collection Account
since the previous Payment Date;
NINTH, pari passu and pro rata (based on the amounts owed to such Persons under this clause),
to the principal amount of the Loans outstanding and not repaid pursuant to clauses FIRST through
SEVENTH above and the Aggregate Outstanding Principal (as defined in the Working Capital
Facility), in each case, in such manner and order as the Administrative Agent shall determine in
its discretion; and
TENTH, pari passu and pro rata (based on the amounts owed to such Persons under this clause)
to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus;
provided, however, that if a Default or Event of Default has occurred and is
continuing or a mandatory prepayment under Section 2.5 is due but the applicable time period for
payment of such amount has not expired, amounts available pursuant to clause EIGHTH or TENTH
shall not be transferred to the Borrowers but shall remain in the Collection Account and be applied
(i) in the case of a mandatory prepayment under Sections 2.2 or 2.5, in reduction of such mandatory
prepayments when due and payable, with the balance being remitted to the Borrowers, and (ii) in the
case of a Default or Event of Default, in reduction of the Obligations in accordance with
Section 2.9(b).
(d)The following new Section 2.18 is hereby added to the Credit Agreement:
Section 2.18 Discounted Payoff Amount.
(a) Notwithstanding anything set forth in the Credit Documents to the contrary, subject to the
terms of this Section 2.18, Lender will accept the Discounted Payoff Amount in full satisfaction of
the Credit Obligations provided, that (i) no Event of Default has occurred and is
continuing, (ii) the Lender has received the Discounted Payoff Amount in immediately available
funds on or before May 31, 2010 (as such date may be extended as set forth in clause (b) below, the
Payoff Date), (iii) the Borrowers and the Guarantors deliver to the Lender and the
Administrative Agent on or before the Payoff Date an executed agreement terminating the Credit
Documents (subject to any provisions which by the terms expressly survive termination) other than
the Warrant Agreements and Registration Rights Agreement, which shall continue in full force and
effect, in the form of Exhibit A attached hereto, and (iv) the conditions set forth in
Section 2.16(a) of the Working Capital Facility Loan Agreement have been satisfied.
(b) Upon written notice by the Borrowers to the Administrative Agent delivered to the
Administrative Agent no later than ten (10) calendar days prior to the Payoff Date, provided no
Event of Default has occurred and is continuing and the Borrowers pay the Payoff Extension Amount
before the effective date of the extension, the Borrowers shall be entitled to up to two 45 day
extensions of the Payoff Date. To the extent applicable, the first extension shall extend the
Payoff Date to July 15, 2010
and shall be effective, provided no Event of Default has occurred and is continuing, upon the
payment of the Payoff Extension Amount no later than May 28, 2010, which amount shall be applied to
the principal amount of the Loans outstanding and the Aggregate Outstanding Principal (as defined
in the Working Capital Facility) in such order and manner as the Administrative Agent determines in
its discretion and credited against the Discounted Payoff Amount. To the extent applicable, the
second extension shall
Second Amendment to Credit Agreement
(Wachovia/Arbor)
3
extend the Payoff Date to August 27, 2010 and shall be effective, provided no Event of
Default has occurred and is continuing, upon the payment of the Payoff Extension Amount no later
than July 14, 2010, which amount shall be applied to the principal amount of the Loans outstanding
and the Aggregate Outstanding Principal (as defined in the Working Capital Facility) in such order
and manner as the Administrative Agent determines in its discretion and credited against the
Discounted Payoff Amount.
(c) In the event that any of the conditions set forth in this Section 2.18 are not satisfied
on or before Payoff Date (as the same may be extended in accordance with the terms hereof), the
Lender shall have no obligation whatsoever under this Section 2.18 or otherwise to accept the
Discounted Payoff Amount in satisfaction of the outstanding Credit Obligations. For the avoidance
of doubt, until the conditions precedent set forth in this Section 2.18 are satisfied, the Lender
and the Administrative Agent shall have the right to exercise all of its rights and remedies under
the Credit Documents, the Loan Documents (as defined in the Working Capital Facility) and
Requirements of Law. Notwithstanding anything set forth in the Credit Documents, the
Administrative Agent shall apply any amounts received under this Section 2.18 to the principal
amount of the Loans outstanding and the Aggregate Outstanding Principal (as defined in the Working
Capital Facility) in such order and manner as the Administrative Agent determines in its
discretion. For the avoidance of doubt, until the Borrowers pay the Discounted Payoff Amount and
comply with the other provisions of this Section 2.18, all obligations, duties and agreements of
the Borrowers and Guarantors continue to remain in full force and effect.
(d) All principal payments received and applied to the outstanding principal under the Credit
Documents or the Loan Documents (as defined in the Working Capital Facility) on and after December
11, 2009 shall be credited against the Discounted Payoff Amount.
(e) The parties acknowledge that pursuant to Transactions on December 11, 2009 and December
16, 2009, the Borrowers have made principal payments in the net aggregate amount of $16,854,428,
which amount shall be credited against the Discounted Payoff Amount.
(f) Promptly after application by the Administrative Agent of payments to reduce the Release
Amounts of any Collateral pursuant to the terms hereof, the Administrative Agent shall give the
Borrowers notice of the Pledged Mortgage Assets to which such payments have been applied.
(e) Section 10.2(a)(i) f the Credit Agreement is hereby amended and restated in its entirety
as follows:
(i) If to the Borrowers or any other Credit Party:
c/o Arbor Commercial Mortgage LLC
333 Earle Ovington Boulevard
Uniondale, New York 11553
Attention: John Bishar, Esq.
Phone No.: (516) 506-4590
Facsimile No.: (516) 542-2561
With a copy to:
Arbor Commercial Mortgage LLC
333 Earle Ovington Boulevard
Uniondale, New York 11553
Attention: John Natalone
Phone No.: (516) 506-4409
Facsimile No.: (516) 832-6409
Second Amendment to Credit Agreement
(Wachovia/Arbor)
4
Section 2. Credit Documents in Full Force and Effect as Modified.
Except as specifically modified hereby or the Fee Letter, the Credit Documents shall remain in
full force and effect in accordance with their terms. All references to any Credit Document shall
be deemed to mean each Credit Document as modified by this Amendment No. 2 and the Fee Letter.
This Amendment No. 2 and the Fee Letter shall not constitute a novation of the Credit Documents,
but shall constitute modifications thereof. The parties hereto agree to be bound by the terms and
conditions of the Credit Documents, as modified by this Amendment No. 2 and the Fee Letter, as
though such terms and conditions were set forth herein. Each of the Borrowers, the Guarantors and
the Pledgor hereby ratifies the Credit Agreement and the other Credit Documents and acknowledges
and reaffirms (a) that it is bound by all terms of the Credit Agreement and the other Credit
Documents applicable to it and (b) that it is responsible for the observance and full performance
of its respective Obligations. This Amendment No. 2 is a Credit Document executed pursuant to the
Credit Agreement and shall be construed, administered and applied in accordance with the terms and
provisions of the Credit Agreement.
Section 3. Representations.
Each of the Borrowers, the Guarantors and the Pledgor represents and warrants, as of the date
of this Amendment No. 2, as follows:
(a) it is duly incorporated or organized, validly existing and in good standing under the laws
of its jurisdiction of organization and each jurisdiction where it conducts business;
(b) the execution, delivery and performance by it of this Amendment No. 2 and the Fee Letter
is within its corporate, company or partnership powers, has been duly authorized and does not
contravene (1) its Authority Documents or its applicable resolutions, (2) any Requirements of Law
or (3) any Contractual Obligation, Indebtedness or Guarantee Obligation;
(c) no consent, license, permit, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority or other Person is required in connection with the
execution, delivery, performance, validity or enforceability by or against it of this Amendment No.
2 or the Fee Letter;
(d) this Amendment No. 2 and the Fee Letter have been duly executed and delivered by it;
(e) this Amendment No. 2, the Fee Letter and each of the Credit Documents as modified thereby
constitute its legal, valid and binding obligation, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally
or by general principles of equity;
(f) the Security Documents continue to create a valid security interest in, and Lien upon, the
Collateral, in favor of the Administrative Agent, for the benefit of the Secured Parties, which
security interests and Liens are perfected in accordance with the terms of the Security Documents
and prior to all Liens subject to Permitted Liens;
Second Amendment to Credit Agreement
(Wachovia/Arbor)
5
(g) no Default or Event of Default exists or will exist after giving effect to this
Amendment No. 2;
(h) each of the Credit Documents is in full force and effect and neither the Borrowers, the
Guarantors nor the Pledgor has any defense, offset, counterclaim, abatement, right of rescission or
other claims, actions, causes of action, demands, damages or liabilities of any kind or nature, in
all cases whether legal or equitable, available to the Borrowers, the Guarantors, the Pledgor or
any other Person with respect to (i) this Amendment No. 2, the Credit Agreement, the Credit
Documents or any other instrument, document and/or agreement described herein or therein, as
modified and amended hereby, (ii) the obligation of the Borrowers and the Guarantors to repay the
Obligations and other amounts due under the Credit Documents or (iii) the Administrative Agent, the
Lenders or the Administrative Agents or the Lenders respective officers, employees,
representatives, agents, counsel or directors arising out of or from or in any way related to or in
connection with the Credit Agreement or the Credit Documents, including, without limitation, any
action by such Persons, or failure of such Persons to act, under the Credit Agreement or the other
Credit Documents on or prior to the date hereof; and
(i) except as specifically provided in this Amendment No. 2, the Obligations are not reduced
or modified by this Amendment No. 2.
Section 4. Conditions Precedent.
The effectiveness of this Amendment No. 2 and the Fee Letter is subject to the following
conditions precedent: (i) delivery to the Administrative Agent of this Amendment No. 2 and the Fee
Letter duly executed by each of the parties hereto; (ii) the payment of all legal fees and expenses
of Moore & Van Allen PLLC, as counsel to the Administrative Agent, in the amount to be set forth on
a separate invoice; and (iii) delivery to the Administrative Agent of such other documents,
agreements or certifications as the Administrative Agent may reasonably require.
Section 5. Miscellaneous.
(a) This Amendment No. 2 may be executed in any number of counterparts (including by
facsimile), and by the different parties hereto on the same or separate counterparts, each of which
shall be deemed to be an original instrument but all of which together shall constitute one and the
same agreement.
(b) The descriptive headings of the various sections of this Amendment No. 2 are inserted for
convenience of reference only and shall not be deemed to affect the meaning or construction of any
of the provisions hereof.
(c) This Amendment No. 2 may not be amended or otherwise modified, waived or supplemented
except as provided in the Credit Agreement.
(d) The interpretive provisions of Sections 1.2 through 1.8 of the Credit
Agreement are incorporated herein mutatis mutandis.
(e) This Amendment No. 2 and the Fee Letter represents the final agreement among the parties
and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements
between the parties. There are no unwritten oral agreements between the parties.
Second Amendment to Credit Agreement
(Wachovia/Arbor)
6
(f) THIS AMENDMENT NO. 2 AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
AMENDMENT NO. 2 SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
(g) Each provision of this Amendment No. 2 shall be valid, binding and enforceable to the
fullest extent permitted by Requirements of Law. In case any provision in or obligation under this
Amendment No. 2 shall be invalid, illegal or unenforceable in any jurisdiction (either in its
entirety or as applied to any Person, fact, circumstance, action or inaction), the validity,
legality and enforceability of the remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction or as applied to any Person, fact, circumstance, action or
inaction, shall not in any way be affected or impaired thereby.
(h) In consideration of the Lenders and the Administrative Agent entering into this Amendment
No. 2, each of the Borrowers, each of the Guarantors and the Pledgor hereby waives, releases and
discharges the Administrative Agent, the Lenders and the Administrative Agents and the Lenders
respective officers, employees, representatives, agents, counsel and directors from any and all
actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in
law or in equity, now known or unknown, suspected or unsuspected to the extent that any of the
foregoing arises out of or from or in any way relating to or in connection with the Credit
Agreement or the Credit Documents, including but not limited to, any action or failure to act under
the Credit Agreement or the other Credit Documents on or prior to the date hereof, except, with
respect to any such Person being released hereby, any actions, causes of action, claims, demands,
damage and liabilities arising out of such Persons gross negligence or willful misconduct in
connection with the Credit Agreement or the other Credit Documents.
(i) Each Guarantor (i) agrees to and consents to the terms and provisions of this Amendment
No. 2, (ii) acknowledges and confirms that the Guaranty remains in full force and effect
notwithstanding this Amendment No. 2, and (iii) reaffirms its obligations under the Guaranty.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Second Amendment to Credit Agreement
(Wachovia/Arbor)
7
IN WITNESS WHEREOF, the parties have caused this Amendment No. 2 to be executed by their
respective officers thereunto duly authorized, as of the date first above written.
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BORROWERS:
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ARBOR REALTY FUNDING, LLC, a Delaware |
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limited liability company |
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARSR TAHOE, LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LIMITED PARTNERSHIP, a Delaware limited
partnership
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ART 450 LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY SR, INC., a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR ESH II LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Second Amendment to Credit Agreement
(Wachovia/Arbor)
S-1
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GUARANTORS:
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ARBOR REALTY TRUST, INC., |
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a Maryland corporation |
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Second Amendment to Credit Agreement
(Wachovia/Arbor)
S-2
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ADMINISTRATIVE AGENT:
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WACHOVIA BANK, NATIONAL ASSOCIATION, |
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as Administrative Agent on behalf of the Lenders |
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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LENDER:
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WACHOVIA BANK, NATIONAL ASSOCIATION, |
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as Lender |
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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[Signatures Continued on the Following Page]
Second Amendment to Credit Agreement
(Wachovia/Arbor)
S-3
CONSENTED TO BY:
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PLEDGOR:
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ARBOR REALTY SR, INC., |
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a Maryland corporation |
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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Second Amendment to Credit Agreement
(Wachovia/Arbor)
S-4
CONSENTED TO BY:
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THE CUSTODIAN:
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WELLS FARGO BANK, NATIONAL ASSOCIATION |
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By: |
/s/ Kathleen Marshall
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Name: |
Kathleen Marshall |
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Title: |
Vice President |
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Address for Notices: |
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Wells Fargo Bank, National Association |
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1055 10th Avenue SE |
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Minneapolis, Minnesota 55414 |
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Attention:
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Kathleen Marshall |
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Vice President |
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Facsimile No:
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(612) 4665416 |
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Confirmation No:
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(612) 667-8032 |
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Second Amendment to Credit Agreement
(Wachovia/Arbor)
S-5
Exhibit A
Form of Release Agreement
TERMINATION AND RELEASE AGREEMENT
(Wachovia/Arbor)
THIS TERMINATION AND RELEASE AGREEMENT, dated as of [ ], 2010 (this
Release Agreement), is entered into by and among ARBOR REALTY FUNDING LLC, a Delaware
limited liability company (together with its successors and permitted assigns, Arbor Realty
Funding), as a borrower, ARSR TAHOE, LLC, a Delaware limited liability company (together with
its successors and permitted assigns, ARSR Tahoe), as a borrower, ARBOR REALTY LIMITED
PARTNERSHIP, a Delaware limited partnership (together with its successors and permitted assigns,
Arbor Realty), as a borrower, ART 450 LLC, a Delaware limited liability company (together
with its successors and permitted assigns, ART 450), as a borrower, ARBOR REALTY SR,
INC., a Maryland corporation (together with its successors and permitted assigns, ARSR),
as a borrower and as pledgor, ARBOR ESH II LLC (together with its successors and permitted assigns,
Arbor ESH and, together with Arbor Realty Funding, ARSR Tahoe, Arbor Realty and ARSR,
each individually referred to herein as a Borrower and collectively referred to herein as
the Borrowers), as a borrower, ARBOR REALTY TRUST, INC., a Maryland corporation (together
with its successors and permitted assigns, ART), as a guarantor, Arbor Realty, as a
guarantor, ARSR, as a guarantor (ARSR, together with ART and Arbor Realty, the
Guarantors), the several banks and other financial institutions party to the Credit
Agreement (each, together with its successors and assigns, a Lender and, collectively,
the Lenders), WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as
administrative agent for the Lenders (together with its successors and assigns in such capacity,
the Administrative Agent), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking
association (together with its successors and permitted assigns, Custodian), as the
custodian. Capitalized terms used and not otherwise defined herein shall have the meanings given
to such terms in the Credit Agreement (as defined below).
R E C I T A L S
WHEREAS, the Borrowers, the Guarantors, the Lenders and the Administrative Agent are parties
to that certain First Amended and Restated Credit Agreement, dated as of July 23, 2009 (as amended,
modified, restated, replaced, waived, substituted, supplemented or extended from time to time,
including, but not limited to, pursuant to that First Amendment to First Amended and Restated
Credit Agreement and Other Credit Documents, dated as of December 16, 2009, and that Second
Amendment to First Amended and Restated Credit Agreement, dated as of December 24, 2009 (the
Second Amendment), the Credit Agreement);
WHEREAS, the Borrower has requested, and the Lender and the Administrative Agent have agreed,
subject to all covenants, terms and conditions provided for in the Second Amendment, to accept the
Discounted Payoff Amount, which amount is less than the outstanding principal amount of the Loan,
in full satisfaction of the Credit Obligations, provided that the Borrowers pay to the
Lender such Discounted Payoff Amount and the other amounts required under the Second Amendment in a
timely manner, the Borrowers, the Guarantors and the Pledgors execute this Release Agreement and
the other requirements of the Second Amendment are satisfied;
Termination
and Release Agreement
(Wachovia/Arbor)
WHEREAS, the Custodian is party to a Credit Document and desires to evidence its agreement to
the termination set forth herein; and
WHEREAS, the Borrowers, the Guarantors, the Pledgors, the Lender, the Administrative Agent and
the Custodian desire to terminate their rights, duties and obligations under the Credit Agreement
and the other Credit Documents (other than the Warrant Agreements and Registration Rights
Agreement, which shall continue in full force and effect) (such terminated documents hereinafter
referred to as the Terminated Documents; for the avoidance of doubt, agreements
evidencing or relating to Credit-Party-Related Obligations which are unrelated to the Credit
Agreement and/or Credit Documents are not being terminated hereby and are not part of the
Terminated Documents).
NOW THEREFORE, in consideration of the foregoing recitals, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
Section 1. Release of Lender and Administrative Agent.
Each of the Borrowers, the Guarantors and the Pledgor hereby waives, releases and discharges
the Lender, the Administrative Agent and the Lenders and the Administrative Agents successors,
assigns, affiliates, officers, employees, representatives, agents, counsel and directors from any
and all actions, causes of action, claims, demands, damages, liabilities, controversies, duties,
covenants, responsibilities, obligations, costs, losses and /or expenses of whatever kind or
nature, in law or in equity, now known or unknown, suspected or unsuspected, whether existing now
or hereafter, arising out of, from or in any way relating to or in connection with, directly or
indirectly, the Credit Agreement or the other Credit Documents including, but not limited to, any
action or failure to act under the Credit Agreement or the other Credit Documents, on or prior to
the date hereof.
Section 2. Termination of Credit Documents.
(a) Subject to Section 4 of this Release Agreement, the rights, duties and obligations
(except those rights, duties and obligations that expressly survive termination, as set forth in
the Terminated Documents) of each party under the Credit Agreement and the other Terminated
Documents, are hereby terminated, and each of the parties hereto agrees that all duties and
obligations (except such duties and obligations that expressly survive termination, as set forth in
the Credit Agreement and the other Terminated Documents) of each party shall be released hereby.
(b) On and after the effective date of this Release Agreement, the Borrowers and the Custodian
shall execute and/or deliver such other certifications, documents and agreements as the
Administrative Agent shall from time to time reasonably require to give effect to this Release
Agreement.
Section 3. Representations.
Each of the Borrowers, the Guarantors and the Pledgor represents and warrants, as of the date
of this Release Agreement, as follows:
(a) it is duly incorporated or organized, validly existing and in good standing under the laws
of its jurisdiction of organization and each jurisdiction where it conducts business;
(b) the execution, delivery and performance by it of this Release Agreement is within its
corporate, company or partnership powers, has been duly authorized and does not contravene (1) its
Termination
and Release Agreement
(Wachovia/Arbor)
Exh A - 2
Authority Documents or its applicable resolutions, (2) any Requirements of Law or (3) any
Contractual Obligation, Indebtedness or Guarantee Obligation;
(c) no consent, license, permit, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority or other Person is required in connection with the
execution, delivery, performance, validity or enforceability by or against it of this Release
Agreement;
(d) this Release Agreement has been duly executed and delivered by it;
(e) this Release Agreement constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of
creditors rights generally or by general principles of equity;
(f) neither the Borrowers, the Guarantors nor the Pledgor has any defense, offset,
counterclaim, abatement, right of rescission or other claims, actions, causes of action, demands,
damages or liabilities of any kind or nature, in all cases whether legal or equitable, available to
the Borrowers, the Guarantors, the Pledgor or any other Person with respect to (i) this Release
Agreement, the Credit Agreement, the Credit Documents or any other instrument, document and/or
agreement described herein or therein, as modified and amended hereby, or (ii) the Administrative
Agent, the Lenders or the Administrative Agents or the Lenders respective officers, employees,
representatives, agents, counsel or directors arising out of or from or in any way related to or in
connection with the Credit Agreement or the Credit Documents, including, without limitation, any
action by such Persons, or failure of such Persons to act, under the Credit Agreement or the other
Credit Documents on or prior to the date hereof; and
(g) the Recitals set forth herein are true and correct.
Section 4.
Conditions Precedent.
The effectiveness of this Release Agreement is subject to the following conditions precedent:
(i) delivery to the Administrative Agent of this Release Agreement duly executed by each of the
parties hereto and the Termination and Release Agreement, dated as of the date hereof (the
Working Capital Facility Release), by and among ART, as a borrower, Arbor Realty GPOP,
Inc., as a borrower, Arbor Realty LPOP, Inc., as a borrower, Arbor Realty, as a borrower, ARSR, as
a borrower, Arbor Realty Collateral Management, LLC, as a borrower, Wachovia Bank, National
Association, as a lender and administrative agent, and Wells Fargo Bank, National Association, as
the custodian, which agreements shall be held in escrow by the Administrative Agents counsel
pending satisfaction of the other conditions set forth in this Section 4; (ii) payment to the
Lender and the Administrative Agent of the Discounted Payoff Amount in a timely manner and the
Borrowers satisfaction of all other conditions contained in the Second Amendment; (iii) the
representations and warranties set forth in Section 3 are true and correct in all material
respects; (iv) the payment of all legal fees and expenses of Moore & Van Allen PLLC, as counsel to
the Administrative Agent, in the amount to be set forth on a separate invoice; and (v) delivery to
the Administrative Agent of such other documents, agreements or certifications as the
Administrative Agent may reasonably require. Upon satisfaction of the foregoing conditions, which
satisfaction must be confirmed in writing by the Administrative Agent and the Administrative
Agents release from escrow to all parties copies of this Release Agreement and the Working Capital
Facility Release executed by all parties, the Borrowers are authorized (at the Borrowers expense)
to terminate the relevant UCC financing statements filed against the Borrowers and the Pledgor in
connection with the Terminated Documents and the Custodian is authorized to release to the
Borrowers all Mortgage Asset Files and other documents held pursuant to the Custodial Agreement.
Termination
and Release Agreement
(Wachovia/Arbor)
Exh A - 3
Section 5. Miscellaneous.
(a) This Release Agreement may be executed in any number of counterparts (including by
facsimile), and by the different parties hereto on the same or separate counterparts, each of which
shall be deemed to be an original instrument but all of which together shall constitute one and the
same agreement.
(b) The descriptive headings of the various sections of this Release Agreement are inserted
for convenience of reference only and shall not be deemed to affect the meaning or construction of
any of the provisions hereof.
(c) This Release Agreement may not be amended or otherwise modified, waived or supplemented
except as provided in the Credit Agreement.
(d) The interpretive provisions of Sections 1.2 through 1.8 of the Credit
Agreement are incorporated herein mutatis mutandis.
(e) This Release Agreement represents the final agreement among the parties and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements between the
parties. There are no unwritten oral agreements between the parties.
(f) THIS RELEASE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS RELEASE
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
(g) Each provision of this Release Agreement shall be valid, binding and enforceable to the
fullest extent permitted by Requirements of Law. In case any provision in or obligation under this
Release Agreement shall be invalid, illegal or unenforceable in any jurisdiction (either in its
entirety or as applied to any Person, fact, circumstance, action or inaction), the validity,
legality and enforceability of the remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction or as applied to any Person, fact, circumstance, action or
inaction, shall not in any way be affected or impaired thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Termination
and Release Agreement
(Wachovia/Arbor)
Exh A - 4
IN WITNESS WHEREOF, the parties have caused this Release Agreement to be executed by their
respective officers thereunto duly authorized, as of the date first above written.
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BORROWERS:
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ARBOR REALTY FUNDING, LLC, a Delaware |
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limited liability company |
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By: |
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Name: |
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Title: |
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ARSR TAHOE, LLC, a Delaware limited liability company
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By: |
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Name: |
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Title: |
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ARBOR REALTY LIMITED PARTNERSHIP, a Delaware limited partnership
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By: |
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Name: |
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Title: |
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ART 450 LLC, a Delaware limited liability company
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By: |
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Name: |
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Title: |
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ARBOR REALTY SR, INC., a Maryland corporation
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By: |
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Name: |
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Title: |
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ARBOR ESH II LLC, a Delaware limited liability company
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By: |
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Name: |
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Title: |
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[Signatures Continued on the Following Page]
Termination
and Release Agreement
(Wachovia/Arbor)
Exh A - 1
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GUARANTORS:
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ARBOR REALTY TRUST, INC., |
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a Maryland corporation |
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By: |
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Name: |
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Title: |
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ARBOR REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
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By: |
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Name: |
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Title: |
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ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
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Name: |
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Title: |
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PLEDGOR:
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ARBOR REALTY SR, INC., |
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a Maryland corporation |
[Signatures Continued on the Following Page]
Termination
and Release Agreement
(Wachovia/Arbor)
Exh A - 2
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ADMINISTRATIVE AGENT:
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WACHOVIA BANK, NATIONAL ASSOCIATION, |
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as Administrative Agent on behalf of the Lenders |
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By: |
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Name: |
John Nelson |
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Title: |
Managing Director |
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LENDER:
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WACHOVIA BANK, NATIONAL ASSOCIATION, |
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as Lender |
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By: |
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Name: |
John Nelson |
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Title: |
Managing Director |
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[Signatures Continued on the Following Page]
Termination
and Release Agreement
(Wachovia/Arbor)
Exh A - 3
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THE CUSTODIAN:
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WELLS FARGO BANK, NATIONAL ASSOCIATION |
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Address for Notices: |
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Wells Fargo Bank, National Association |
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1055 10th Avenue SE |
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Minneapolis, Minnesota 55414 |
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Attention:
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Karolyn Kleingartner |
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Trust Officer |
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Facsimile No:
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(612) 4665416 |
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Confirmation No:
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(612) 4665895 |
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Termination
and Release Agreement
(Wachovia/Arbor)
Exh A - 4
exv10w38
EXHIBIT 10.38
EXECUTION VERSION
FIRST AMENDMENT TO REVOLVING LOAN AGREEMENT
(Wachovia/Arbor)
THIS FIRST AMENDMENT TO REVOLVING LOAN AGREEMENT, dated as of December 24, 2009 (this
Amendment No. 1), is entered into by and among ARBOR REALTY TRUST, INC., a Maryland
corporation, as a borrower (together with its successors and permitted assigns, ART),
ARBOR REALTY GPOP, INC., a Delaware corporation, as a borrower (together with its successors and
permitted assigns, GPOP), ARBOR REALTY LPOP, INC., a Delaware corporation, as a borrower
(together with its successors and permitted assigns, LPOP), ARBOR REALTY LIMITED
PARTNERSHIP, a Delaware limited partnership, as a borrower (together with its successors and
permitted assigns, ARLP), ARBOR REALTY SR, INC., a Maryland corporation, as a borrower
(together with its successors and permitted assigns, ARSR), ARBOR REALTY COLLATERAL
MANAGEMENT, LLC, a Delaware limited liability company, as a borrower (together with its successors
and permitted assigns, ARCM, and, together with ART, GPOP, LPOP, ARLP and ARSR, each as
the Borrower), WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association
(together with its successors and assigns, Wachovia), in its capacity as initial lender
(together with its successors and assigns in such capacity, the Lender) and in its
capacity as administrative agent (together with its successors and assigns in such capacity, the
Administrative Agent). Capitalized terms used and not otherwise defined herein shall
have the meanings given to such terms in the Loan Agreement (as defined below).
R E C I T A L S
WHEREAS, the Borrower, the Lender and the Administrative Agent are parties to that certain
First Amended and Restated Revolving Loan Agreement, dated as of July 23, 2009, as amended by this
Amendment No. 1, the Loan Agreement;
WHEREAS, the Borrower desires to make certain modifications to the Loan Documents; and
WHEREAS, the Lender and the Administrative Agent are willing to modify the Loan Documents as
requested by the Borrower on the terms and conditions specified herein.
NOW THEREFORE, in consideration of the foregoing recitals, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
Section 1. Amendment to Loan Agreement.
(a) The following definition of Credit Obligations is hereby added to Subsection 1.1
of the Loan Agreement:
Credit Obligations: Defined in the Arbor Credit Agreement.
(b) The following definition of Discounted Payoff Amount is hereby added to Subsection
1.1 of the Loan Agreement:
Discounted Payoff Amount: Defined in the Arbor Credit Agreement.
(c)The
following new Section 2.16 is hereby added to the Credit Agreement:
Section 2.16
Discounted Payoff Amount.
(a) Notwithstanding anything set forth in the Loan Documents to the contrary, subject to the
terms of this Section 2.16, Lender will accept the Discounted Payoff Amount in full satisfaction of
the Credit Obligations provided, that (i) no Event of Default has occurred and is
continuing, (ii) the Lender has received the Discounted Payoff Amount in immediately available
funds on or before May 31, 2010 (as such date may be extended as set forth in Section 2.18(b) of
the Arbor Credit Agreement, the Payoff Date), (iii) the Borrowers and the Guarantors
deliver to the Lender and the Administrative Agent on or before the Payoff Date an executed
agreement terminating the Loan Documents (subject to any provisions which by the terms expressly
survive termination) in the form of Exhibit A attached hereto, and (iv) the conditions set
forth in Section 2.18(a) of the Arbor Credit Agreement have been satisfied.
(b) In the event that any of the conditions set forth in this Section 2.16 are not satisfied
on or before Payoff Date (as the same may be extended in accordance with the terms hereof), the
Lender shall have no obligation whatsoever under this Section 2.16 or otherwise to accept the
Discounted Payoff Amount in satisfaction of the outstanding Credit Obligations. For the avoidance
of doubt, until the conditions precedent set forth in this Section 2.16 are satisfied, the Lender
and the Administrative Agent shall have the right to exercise all of its rights and remedies under
the Arbor Loan Documents, the Loan Documents and Requirements of Law. For the avoidance of doubt,
until the Borrowers pay the Discounted Payoff Amount and comply with the other provisions of this
Section 2.16, all obligations, duties and agreements of the Borrowers and Guarantors continue to
remain in full force and effect.
Section 2.
[Reserved].
Section 3.
Loan Documents in Full Force and Effect as Modified.
Except as specifically modified hereby, the Loan Documents shall remain in full force and
effect. All references to any Loan Document shall be deemed to mean each Loan Document as modified
by this Amendment No. 1. This Amendment No. 1 shall not constitute a novation of the Loan
Documents, but shall constitute a modification thereof. The parties hereto agree to be bound by
the terms and conditions of the Loan Documents, as modified by this Amendment No. 1, as though such
terms and conditions were set forth herein.
Section 4. Representations.
Each Borrower represents and warrants, as of the date of this Amendment No. 1, as follows:
(a) it is duly incorporated or organized, validly existing and in good standing under the laws
of its jurisdiction of organization and each jurisdiction where it conducts business;
(b) the execution, delivery and performance by it of this Amendment No. 1 is within its
corporate, company or partnership powers, has been duly authorized and does not contravene (1) its
Authority Documents or its applicable resolutions, (2) any Applicable Law or (3) any Contractual
Obligation, Indebtedness or Guarantee Obligation;
Amendment No. 1 to
Revolving Loan Agreement
(Wachovia/Arbor)
2
(c) no consent, license, permit, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority or other Person is required in connection with the
execution, delivery, performance, validity or enforceability by or against it of this Amendment No.
1;
(d) this Amendment No. 1 has been duly executed and delivered by it;
(e) this Amendment No. 1, as well as each of the Loan Documents as modified by this Amendment
No. 1, constitutes its legal, valid and binding obligation, enforceable against it in accordance
with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally
or by general principles of equity;
(f) no Default or Event of Default exists or will exist after giving effect to this Amendment
No. 1; and
(g) each of the Loan Documents is in full force and effect and no Borrower has any defense,
offset, counterclaim, abatement, right of rescission or other claims, actions, causes of action,
demands, damages or liabilities of any kind or nature, in all cases whether legal or equitable,
available to the Borrower or any other Person with respect to (i) this Amendment No. 1, the Loan
Agreement, the Loan Documents or any other instrument, document and/or agreement described herein
or therein, as modified and amended hereby, (ii) the obligation of the Borrowers to repay the
Obligations and other amounts due under the Loan Documents or (iii) the Administrative Agent, the
Lenders or the Administrative Agents or the Lenders respective officers, employees,
representatives, agents, counsel or directors arising out of or from or in any way related to or in
connection with the Loan Agreement or the Loan Documents, including, without limitation, any action
by such Persons, or failure of such Persons to act, under the Loan Agreement or the other Loan
Documents on or prior to the date hereof.
Section 5. Conditions Precedent.
The effectiveness of this Amendment No. 1 is subject to the following conditions precedent:
(i) delivery to the Administrative Agent of this Amendment No. 1 duly executed by each of the
parties hereto; (ii) the payment of all reasonable legal fees and expenses of Moore & Van Allen
PLLC, as counsel to the Administrative Agent, in the amount to be set forth on a separate invoice;
and (iii) delivery to the Administrative Agent of such other documents, agreements or
certifications as the Administrative Agent may reasonably require.
Section 6. Miscellaneous.
(a) This Amendment No. 1 may be executed in any number of counterparts (including by
facsimile), and by the different parties hereto on the same or separate counterparts, each of which
shall be
deemed to be an original instrument but all of which together shall constitute one and the
same agreement.
(b) The descriptive headings of the various sections of this Amendment No. 1 are inserted for
convenience of reference only and shall not be deemed to affect the meaning or construction of any
of the provisions hereof.
Amendment No. 1 to
Revolving Loan Agreement
(Wachovia/Arbor)
3
(c) This Amendment No. 1 may not be amended or otherwise modified, waived or supplemented
except as provided in the Loan Agreement.
(d) The interpretive provisions of Sections 1.2, 1.3 and 1.4 of the
Loan Agreement are incorporated herein mutatis mutandis.
(e) This Amendment No. 1 represents the final agreement among the parties and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements between the
parties. There are no unwritten oral agreements between the parties.
(f) THIS AMENDMENT NO. 1 AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT
NO. 1 SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Amendment No. 1 to
Revolving Loan Agreement
(Wachovia/Arbor)
4
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be executed by their
respective officers thereunto duly authorized, as of the date first above written.
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THE BORROWERS: |
ARBOR REALTY TRUST, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY GPOP, INC.,
a Delaware corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LPOP, INC.,
a Delaware corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
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By: |
Arbor Realty GPOP, Inc.,
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its General Partner |
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Amendment No. 1 to
Revolving Loan Agreement
(Wachovia/Arbor)
S-1
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THE BORROWERS (cont.): |
ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President
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ARBOR REALTY COLLATERAL MANAGEMENT, LLC,
a Delaware
limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Amendment No. 1 to
Revolving Loan Agreement
(Wachovia/Arbor)
S-2
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THE LENDER: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
a national banking association
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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THE ADMINISTRATIVE AGENT: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
a national banking association
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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Amendment No. 1 to
Revolving Loan Agreement
(Wachovia/Arbor)
S-3
Form of Release Agreement
TERMINATION AND RELEASE AGREEMENT
(Wachovia/Arbor Working Capital Facility)
THIS
TERMINATION AND RELEASE AGREEMENT, dated as of [__________],
2010 (this
Release Agreement), is entered into by and among ARBOR REALTY TRUST, INC., a Maryland
corporation, as a borrower (together with its successors and permitted assigns, ART),
ARBOR REALTY GPOP, INC., a Delaware corporation, as a borrower (together with its successors and
permitted assigns, GPOP), ARBOR REALTY LPOP, INC., a Delaware corporation, as a borrower
(together with its successors and permitted assigns, LPOP), ARBOR REALTY LIMITED
PARTNERSHIP, a Delaware limited partnership, as a borrower (together with its successors and
permitted assigns, ARLP), ARBOR REALTY SR, INC., a Maryland corporation, as a borrower
(together with its successors and permitted assigns, ARSR), ARBOR REALTY COLLATERAL
MANAGEMENT, LLC, a Delaware limited liability company, as a borrower (together with its successors
and permitted assigns, ARCM, and, together with ART, GPOP, LPOP, ARLP and ARSR, each as
the Borrower), WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association
(together with its successors and assigns, Wachovia), in its capacity as initial lender
(together with its successors and assigns in such capacity, the Lender) and in its
capacity as administrative agent (together with its successors and assigns in such capacity, the
Administrative Agent), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking
association (together with its successors and permitted assigns, Custodian), as the
custodian. Capitalized terms used and not otherwise defined herein shall have the meanings given
to such terms in the Loan Agreement (as defined below).
R E C I T A L S
WHEREAS, the Borrower, the Lender and the Administrative Agent are parties to that certain
First Amended and Restated Revolving Loan Agreement, dated as of July 23, 2009 (as amended,
modified, restated, replaced, waived, substituted, supplemented or extended from time to time,
including, but not limited to, pursuant to that First Amendment to First Amended and Restated
Revolving Loan Agreement dated as of December 24, 2009 (the First Amendment), the
Loan Agreement);
WHEREAS, the Borrower has requested, and the Lender and the Administrative Agent have agreed,
subject to all covenants, terms and conditions provided for in the First Amendment, to accept the
Discounted Payoff Amount, which amount is less than the outstanding principal amount of the Loan,
in full satisfaction of the Credit Obligations, provided that the Borrowers pay to the
Lender such Discounted Payoff Amount and the other amounts required under the First Amendment in a
timely manner, the Borrowers execute this Release Agreement and the other requirements of the First
Amendment are satisfied;
WHEREAS, the Custodian is party to a Loan Document and desires to evidence its agreement to
the termination set forth herein; and
WHEREAS, the Borrowers, the Lender, the Administrative Agent and the Custodian desire to
terminate their rights, duties and obligations under the Loan Agreement and the other Loan
Documents (such terminated documents hereinafter referred to as the Terminated Documents;
for the avoidance of doubt, agreements evidencing or relating to Borrower-Related Obligations which
are unrelated to the
Termination and Release Agreement
(Wachovia/Arbor)
Loan Agreement and/or Loan Documents are not being terminated hereby and are not part of the
Terminated Documents).
NOW THEREFORE, in consideration of the foregoing recitals, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
Section 1. Release of Lender and Administrative Agent.
Each Borrower hereby waives, releases and discharges the Lender, the Administrative Agent and
the Lenders and the Administrative Agents successors, assigns, affiliates, officers, employees,
representatives, agents, counsel and directors from any and all actions, causes of action, claims,
demands, damages, liabilities, controversies, duties, covenants, responsibilities, obligations,
costs, losses and /or expenses of whatever kind or nature, in law or in equity, now known or
unknown, suspected or unsuspected, whether existing now or hereafter, arising out of, from or in
any way relating to or in connection with, directly or indirectly, the Loan Agreement or the other
Loan Documents including, but not limited to, any action or failure to act under the Loan Agreement
or the other Loan Documents, on or prior to the date hereof.
Section 2. Termination of Loan Documents.
(a) Subject to Section 4 of this Release Agreement, the rights, duties and obligations
(except those rights, duties and obligations that expressly survive termination, as set forth in
the Terminated Documents) of each party under the Loan Agreement and the other Terminated
Documents, are hereby terminated, and each of the parties hereto agrees that all duties and
obligations (except such duties and obligations that expressly survive termination, as set forth in
the Loan Agreement and the other Terminated Documents) of each party shall be released hereby.
(b) On and after the effective date of this Release Agreement, the Borrowers and the Custodian
shall execute and/or deliver such other certifications, documents and agreements as the
Administrative Agent shall from time to time reasonably require to give effect to this Release
Agreement.
Section 3. Representations.
Each Borrower represents and warrants, as of the date of this Release Agreement, as follows:
(a) it is duly incorporated or organized, validly existing and in good standing under the laws
of its jurisdiction of organization and each jurisdiction where it conducts business;
(b) the execution, delivery and performance by it of this Release Agreement is within its
corporate, company or partnership powers, has been duly authorized and does not contravene (1) its
Authority Documents or its applicable resolutions, (2) any Requirements of Law or (3) any
Contractual Obligation, Indebtedness or Guarantee Obligation;
(c) no consent, license, permit, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority or other Person is required in connection with the
execution, delivery, performance, validity or enforceability by or against it of this Release
Agreement;
(d) this Release Agreement has been duly executed and delivered by it;
Termination and Release Agreement
(Wachovia/Arbor)
2
(e) this Release Agreement constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors rights generally or by general principles of equity;
(f) no Borrower has any defense, offset, counterclaim, abatement, right of rescission or other
claims, actions, causes of action, demands, damages or liabilities of any kind or nature, in all
cases whether legal or equitable, available to any Borrower or any other Person with respect to (i)
this Release Agreement, the Loan Agreement, the Loan Documents or any other instrument, document
and/or agreement described herein or therein, as modified and amended hereby, or (ii) the
Administrative Agent, the Lenders or the Administrative Agents or the Lenders respective
officers, employees, representatives, agents, counsel or directors arising out of or from or in any
way related to or in connection with the Loan Agreement or the Loan Documents, including, without
limitation, any action by such Persons, or failure of such Persons to act, under the Loan Agreement
or the other Loan Documents on or prior to the date hereof; and
(g) the Recitals set forth herein are true and correct.
Section 4.
Conditions Precedent.
The effectiveness of this Release Agreement is subject to the following conditions precedent:
(i) delivery to the Administrative Agent of this Release Agreement duly executed by each of the
parties hereto and the Termination and Release Agreement, dated as of the date hereof (the
Credit Agreement Release), by and among Arbor Realty Funding LLC, as a borrower, ARSR
Tahoe, LLC, as a borrower, ARLP, as a borrower and guarantor , ART 450 LLC, as a borrower, ARSR, as
a borrower, pledgor and guarantor, Arbor ESH II LLC, as a borrower, ART, as a gurantor, Wachovia
Bank, National Association, as a lender and the administrative agent, and Wells Fargo Bank,
National Association, as custodian, which agreements shall be held in escrow by the Administrative
Agents counsel pending satisfaction of the other conditions set forth in this Section 4; (ii)
payment to the Lender and the Administrative Agent of the Discounted Payoff Amount in a timely
manner and the Borrowers satisfaction of all other conditions contained in the First Amendment;
(iii) the representations and warranties set forth in Section 3 are true and correct in all
material respects; (iv) the payment of all legal fees and expenses of Moore & Van Allen PLLC, as
counsel to the Administrative Agent, in the amount to be set forth on a separate invoice; and (v)
delivery to the Administrative Agent of such other documents, agreements or certifications as the
Administrative Agent may reasonably require. Upon satisfaction of the foregoing conditions, which
satisfaction must be confirmed in writing by the Administrative Agent and the Administrative
Agents release from escrow to all parties copies of this Release Agreement and the Credit
Agreement Release executed by all parties, the Borrowers are authorized (at the Borrowers expense)
to terminate the relevant UCC financing statements filed against the Borrowers in connection with
the Terminated Documents and
the Custodian is authorized to release to the Borrowers all Mortgage Asset Files and other
documents held pursuant to the Custodial Agreement.
Section 5. Miscellaneous.
(a) This Release Agreement may be executed in any number of counterparts (including by
facsimile), and by the different parties hereto on the same or separate counterparts, each of which
shall be deemed to be an original instrument but all of which together shall constitute one and the
same agreement.
Termination and Release Agreement
(Wachovia/Arbor)
3
(b) The descriptive headings of the various sections of this Release Agreement are
inserted for convenience of reference only and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.
(c) This Release Agreement may not be amended or otherwise modified, waived or supplemented
except as provided in the Loan Agreement.
(d) The interpretive provisions of Sections 1.2, 1.3 and 1.4 of the
Loan Agreement are incorporated herein mutatis mutandis.
(e) This Release Agreement represents the final agreement among the parties and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements between the
parties. There are no unwritten oral agreements between the parties.
(f) THIS RELEASE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS RELEASE
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
(g) Each provision of this Release Agreement shall be valid, binding and enforceable to the
fullest extent permitted by Requirements of Law. In case any provision in or obligation under this
Release Agreement shall be invalid, illegal or unenforceable in any jurisdiction (either in its
entirety or as applied to any Person, fact, circumstance, action or inaction), the validity,
legality and enforceability of the remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction or as applied to any Person, fact, circumstance, action or
inaction, shall not in any way be affected or impaired thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Termination and Release Agreement
(Wachovia/Arbor)
4
IN WITNESS WHEREOF, the parties have caused this Release Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first above written.
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THE BORROWERS: |
ARBOR REALTY TRUST, INC.,
a Maryland corporation
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By: |
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Name: |
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Title: |
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ARBOR REALTY GPOP, INC.,
a Delaware corporation
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By: |
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Name: |
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Title: |
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ARBOR REALTY LPOP, INC.,
a Delaware corporation
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By: |
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Name: |
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Title: |
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ARBOR REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
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By: |
Arbor Realty GPOP, Inc.,
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its General Partner |
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By: |
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Name: |
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Title: |
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[Signatures Continued on the Following Page]
Termination and Release Agreement
(Wachovia/Arbor)
1
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THE BORROWERS (cont.): |
ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
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Name: |
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Title: |
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ARBOR REALTY COLLATERAL MANAGEMENT, LLC,
a Delaware
limited liability company
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By: |
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Name: |
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Title: |
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[Signatures Continued on the Following Page]
Termination and Release Agreement
(Wachovia/Arbor)
2
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THE LENDER: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
a national banking association
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By: |
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Name: |
John Nelson |
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Title: |
Managing Director |
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THE ADMINISTRATIVE AGENT: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
a national banking association
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By: |
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Name: |
John Nelson |
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Title: |
Managing Director |
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[Signatures Continued on the Following Page]
Termination and Release Agreement
(Wachovia/Arbor)
3
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THE CUSTODIAN: |
WELLS FARGO BANK, NATIONAL ASSOCIATION
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By: |
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Name: |
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Title: |
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Address for Notices:
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Wells Fargo Bank, National Association |
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1055 10th Avenue SE |
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Minneapolis, Minnesota 55414 |
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Attention:
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Karolyn Kleingartner |
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Trust Officer |
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Facsimile No:
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(612) 4665416 |
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Confirmation No:
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(612) 4665895 |
Termination and Release Agreement
(Wachovia/Arbor)
4
exv10w39
EXHIBIT 10.39
EXECUTION VERSION
THIRD AMENDMENT AND WAIVER TO
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
(Wachovia/Arbor)
THIS THIRD AMENDMENT AND WAIVER TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
January 20, 2010 (this Amendment No. 3), is entered into by and among ARBOR REALTY
FUNDING LLC, a Delaware limited liability company (together with its successors and permitted
assigns, Arbor Realty Funding), as a borrower, ARSR TAHOE, LLC, a Delaware limited
liability company (together with its successors and permitted assigns, ARSR Tahoe), as a
borrower, ARBOR REALTY LIMITED PARTNERSHIP, a Delaware limited partnership (together with its
successors and permitted assigns, Arbor Realty), as a borrower, ART 450 LLC, a Delaware
limited liability company (together with its successors and permitted assigns, ART 450),
as a borrower, ARBOR REALTY SR, INC., a Maryland corporation (together with its successors and
permitted assigns, ARSR), as a borrower, ARBOR ESH II LLC (together with its successors
and permitted assigns, Arbor ESH and, together with Arbor Realty Funding, ARSR Tahoe,
Arbor Realty and ARSR, each individually referred to herein as a Borrower and
collectively referred to herein as the Borrowers), as a borrower, ARBOR REALTY TRUST,
INC., a Maryland corporation (together with its successors and permitted assigns, ART),
as a guarantor, Arbor Realty, as a guarantor, ARSR, as a guarantor (ARSR, together with ART and
Arbor Realty, the Guarantors), the several banks and other financial institutions party
to the Credit Agreement (each, together with its successors and assigns, a Lender and,
collectively, the Lenders), and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association, as administrative agent for the Lenders (together with its successors and assigns in
such capacity, the Administrative Agent), and consented to by ARSR, as the pledgor
(together with its successors and permitted assigns, the Pledgor). Capitalized terms
used and not otherwise defined herein shall have the meanings given to such terms in the Credit
Agreement (as defined below and as amended hereby).
R E C I T A L S
WHEREAS, the Borrowers, the Guarantors, the Lenders and the Administrative Agent are parties
to that certain First Amended and Restated Credit Agreement, dated as of July 23, 2009 (as amended,
modified, restated, replaced, waived, substituted, supplemented or extended from time to time,
including pursuant to that First Amendment to First Amended and Restated Credit Agreement and Other
Credit Documents, dated as of December 16, 2009, that Second Amendment to First Amended and
Restated Credit Agreement, dated as of December 24, 2009 and by this Amendment No. 3, the
"Credit Agreement);
WHEREAS, the Borrowers and the Guarantors desire to make certain modifications to the Credit
Agreement;
WHEREAS, the Borrowers and the Guarantors have requested that the Administrative Agent and the
Lenders waive certain provisions in the Credit Agreement;
Third Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
WHEREAS, the Administrative Agent and the Lenders are willing to waive certain provisions of
and modify the Credit Agreement as requested by the Borrowers and the Guarantors on the terms and
conditions specified herein;
WHEREAS, each Guarantor desires to evidence its agreement to the amendments and modifications
set forth herein and to reaffirm its obligations under the Guaranty; and
WHEREAS, the Pledgor is a party to other Credit Documents and related agreements that may be
affected, directly or indirectly, by this Amendment No. 3 and desires to evidence its agreement to
the amendments and modifications set forth herein.
NOW THEREFORE, in consideration of the foregoing recitals, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
Section 1. Waiver.
The Borrowers and the Guarantors acknowledge and agree that ART has not complied with the
Financial Covenant related to Tangible Net Worth contained in Subsection 5.9(b) of the
Credit Agreement for the Test Period ending December 31, 2009 and may not comply with such
Financial Covenant in 2010 (the Acknowledged Non-Compliance). Notwithstanding such
Acknowledged Non-Compliance, the Administrative Agent and the Lenders hereby agree to waive, solely
through the Payoff Date, the Acknowledged Non-Compliance. All parties acknowledge and agree that
the Administrative Agents and the Lenders one-time waiver of the Acknowledged Non-Compliance as
set forth herein shall not be deemed to be a waiver of any other term, provision, duty, obligation,
liability, right, power, remedy or covenant of any party to the Credit Documents or a waiver of any
other non-compliance with Subsection 5.9(b) of the Credit Agreement or any other Financial
Covenant for any other period of time. The waiver set forth herein shall be effective only to the
extent specifically set forth herein and shall not (a) be construed as a waiver of any breach or
default other than as specifically waived herein nor as a waiver of any breach or default of which
the Administrative Agent or the Lenders have not been informed by the Borrowers, the Guarantors or
the Pledgor, (b) affect the right of the Administrative Agent and/or the Lenders to demand
compliance by the Borrowers, the Guarantors and the Pledgor with all terms and conditions of the
Credit Documents, except as specifically modified or waived by this Amendment No. 3, (c) be deemed
a waiver of any transaction or future action on the part of the Borrowers, the Guarantors or the
Pledgor requiring the Administrative Agents, the Lenders or the Required Lenders consent or
approval under the Credit Documents, or (d) except as waived hereby, be deemed or construed to be a
waiver or release of, or a limitation upon, the Administrative Agents or the Lenders exercise of
any rights or remedies under the Credit Agreement or any other Credit Document, whether arising as
a consequence of any Event of Default which may now exist or otherwise, all such rights and
remedies hereby being expressly reserved.
Section 2. Amendments to Credit Agreement.
(a) The definition of Excess Principal Amount contained in Section 1.1 of the Credit
Agreement is hereby amended and restated in its entirety as follows:
Excess Principal Amount means the excess, if any, of (a) the amount of any
repayment or prepayment (in whole or in part) received by the Borrower from or on behalf of the
related Obligor in connection with, or purchase price paid by a third party (which may be an
Affiliate of the Borrower) for
Third Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
2
all or a portion of, a Pledged Mortgage Asset over (b) the amount the Borrowers are required
to pay to the Lender in connection with such repayment, prepayment or release in accordance with
Section 2.5(b)(vi).
(b) Clauses (FOURTH), (FIFTH) and (SIXTH) of Subsection 2.9(a)(ii) of the Credit
Agreement are hereby amended and restated in its entirety as:
FOURTH, without limiting the Borrowers obligations to make mandatory prepayments or other
principal payments under Section 2.2(b), Section 2.5(b) or any other provision of the Credit
Documents in a timely manner as provided in this Article II, pari passu and pro rata (based on the
amounts owed to such Persons under this clause) for the payment of the amounts and Loans provided
for in Section 2.2(b), Section 2.5(b) or any other provision of the Credit Documents;
FIFTH, [reserved];
SIXTH, [reserved];
Section 3. Credit Documents in Full Force and Effect as Modified.
Except as specifically modified hereby, the Credit Documents shall remain in full force and
effect in accordance with their terms. All references to any Credit Document shall be deemed to
mean each Credit Document as modified by this Amendment No. 3. This Amendment No. 3 shall not
constitute a novation of the Credit Documents, but shall constitute modifications thereof. The
parties hereto agree to be bound by the terms and conditions of the Credit Documents, as modified
by this Amendment No. 3, as though such terms and conditions were set forth herein. Each of the
Borrowers, the Guarantors and the Pledgor hereby ratifies the Credit Agreement and the other Credit
Documents and acknowledges and reaffirms (a) that it is bound by all terms of the Credit Agreement
and the other Credit Documents applicable to it and (b) that it is responsible for the observance
and full performance of its respective Obligations. This Amendment No. 3 is a Credit Document
executed pursuant to the Credit Agreement and shall be construed, administered and applied in
accordance with the terms and provisions of the Credit Agreement.
Section 4. Representations.
Each of the Borrowers, the Guarantors and the Pledgor represents and warrants, as of the date
of this Amendment No. 3, as follows:
(a) it is duly incorporated or organized, validly existing and in good standing under the laws
of its jurisdiction of organization and each jurisdiction where it conducts business;
(b) the execution, delivery and performance by it of this Amendment No. 3 is within its
corporate, company or partnership powers, has been duly authorized and does not contravene (1) its
Authority Documents or its applicable resolutions, (2) any Requirements of Law or (3) any
Contractual Obligation, Indebtedness or Guarantee Obligation;
(c) no consent, license, permit, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority or other Person is required in connection with the
execution, delivery, performance, validity or enforceability by or against it of this Amendment No.
3;
(d) this Amendment No. 3 have been duly executed and delivered by it;
Third Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
3
(e) this Amendment No. 3 and each of the Credit Documents as modified thereby constitute its
legal, valid and binding obligation, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors rights generally or by general principles of
equity;
(f) the Security Documents continue to create a valid security interest in, and Lien upon, the
Collateral, in favor of the Administrative Agent, for the benefit of the Secured Parties, which
security interests and Liens are perfected in accordance with the terms of the Security Documents
and prior to all Liens subject to Permitted Liens;
(g) no Default or Event of Default exists or will exist after giving effect to this Amendment
No. 3;
(h) each of the Credit Documents is in full force and effect and neither the Borrowers, the
Guarantors nor the Pledgor has any defense, offset, counterclaim, abatement, right of rescission or
other claims, actions, causes of action, demands, damages or liabilities of any kind or nature, in
all cases whether legal or equitable, available to the Borrowers, the Guarantors, the Pledgor or
any other Person with respect to (i) this Amendment No. 3, the Credit Agreement, the Credit
Documents or any other instrument, document and/or agreement described herein or therein, as
modified and amended hereby, (ii) the obligation of the Borrowers and the Guarantors to repay the
Obligations and other amounts due under the Credit Documents or (iii) the Administrative Agent, the
Lenders or the Administrative Agents or the Lenders respective officers, employees,
representatives, agents, counsel or directors arising out of or from or in any way related to or in
connection with the Credit Agreement or the Credit Documents, including, without limitation, any
action by such Persons, or failure of such Persons to act, under the Credit Agreement or the other
Credit Documents on or prior to the date hereof; and
(i) except as specifically provided in this Amendment No. 3, the Obligations are not reduced
or modified by this Amendment No. 3.
Section 5. Conditions Precedent.
The effectiveness of this Amendment No. 3 is subject to the following conditions precedent:
(i) delivery to the Administrative Agent of this Amendment No. 3 duly executed by each of the
parties hereto; (ii) the payment of all legal fees and expenses of Moore & Van Allen PLLC, as
counsel to the Administrative Agent, in the amount to be set forth on a separate invoice; and (iii)
delivery to the Administrative Agent of such other documents, agreements or certifications as the
Administrative Agent may reasonably require.
Section 6. Miscellaneous.
(a) This Amendment No. 3 may be executed in any number of counterparts (including by
facsimile), and by the different parties hereto on the same or separate counterparts, each of which
shall be deemed to be an original instrument but all of which together shall constitute one and the
same agreement.
(b) The descriptive headings of the various sections of this Amendment No. 3 are inserted for
convenience of reference only and shall not be deemed to affect the meaning or construction of any
of the provisions hereof.
Third Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
4
(c) This Amendment No. 3 may not be amended or otherwise modified, waived or supplemented
except as provided in the Credit Agreement.
(d) The interpretive provisions of Sections 1.2 through 1.8 of the Credit
Agreement are incorporated herein mutatis mutandis.
(e) This Amendment No. 3 represents the final agreement among the parties and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements between the
parties. There are no unwritten oral agreements between the parties.
(f) THIS AMENDMENT NO. 3 AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT
NO. 3 SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.
(g) Each provision of this Amendment No. 3 shall be valid, binding and enforceable to the
fullest extent permitted by Requirements of Law. In case any provision in or obligation under this
Amendment No. 3 shall be invalid, illegal or unenforceable in any jurisdiction (either in its
entirety or as applied to any Person, fact, circumstance, action or inaction), the validity,
legality and enforceability of the remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction or as applied to any Person, fact, circumstance, action or
inaction, shall not in any way be affected or impaired thereby.
(h) In consideration of the Lenders and the Administrative Agent entering into this Amendment
No. 3, each of the Borrowers, each of the Guarantors and the Pledgor hereby waives, releases and
discharges the Administrative Agent, the Lenders and the Administrative Agents and the Lenders
respective officers, employees, representatives, agents, counsel and directors from any and all
actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in
law or in equity, now known or unknown, suspected or unsuspected to the extent that any of the
foregoing arises out of or from or in any way relating to or in connection with the Credit
Agreement or the Credit Documents, including but not limited to, any action or failure to act under
the Credit Agreement or the other Credit Documents on or prior to the date hereof, except, with
respect to any such Person being released hereby, any actions, causes of action, claims, demands,
damage and liabilities arising out of such Persons gross negligence or willful misconduct in
connection with the Credit Agreement or the other Credit Documents.
(i) Each Guarantor (i) agrees to and consents to the terms and provisions of this Amendment
No. 3, (ii) acknowledges and confirms that the Guaranty remains in full force and effect
notwithstanding this Amendment No. 3, and (iii) reaffirms its obligations under the Guaranty.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Third Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
5
IN WITNESS WHEREOF, the parties have caused this Amendment No. 3 to be executed by their
respective officers thereunto duly authorized, as of the date first above written.
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BORROWERS: |
ARBOR REALTY FUNDING, LLC, a Delaware
limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARSR TAHOE, LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LIMITED PARTNERSHIP,
a Delaware limited
partnership
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ART 450 LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY SR, INC., a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR ESH II LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Third Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
S - 1
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GUARANTORS: |
ARBOR REALTY TRUST, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Third Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
S - 2
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ADMINISTRATIVE AGENT: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Administrative Agent on behalf of the Lenders
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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LENDER: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Lender
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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[Signatures Continued on the Following Page]
Third Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
S - 3
CONSENTED TO BY:
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PLEDGOR: |
ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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Third Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
S - 4
exv10w40
EXHIBIT 10.40
EXECUTION VERSION
WAIVER TO FIRST AMENDED AND RESTATED REVOLVING LOAN AGREEMENT
(Wachovia/Arbor)
THIS WAIVER TO FIRST AMENDED AND RESTATED REVOLVING LOAN AGREEMENT, dated as of January 20,
2010 (this Waiver), ), is entered into by and among ARBOR REALTY TRUST, INC., a Maryland
corporation, as a borrower (together with its successors and permitted assigns, ART),
ARBOR REALTY GPOP, INC., a Delaware corporation, as a borrower (together with its successors and
permitted assigns, GPOP), ARBOR REALTY LPOP, INC., a Delaware corporation, as a borrower
(together with its successors and permitted assigns, LPOP), ARBOR REALTY LIMITED
PARTNERSHIP, a Delaware limited partnership, as a borrower (together with its successors and
permitted assigns, ARLP), ARBOR REALTY SR, INC., a Maryland corporation, as a borrower
(together with its successors and permitted assigns, ARSR), ARBOR REALTY COLLATERAL
MANAGEMENT, LLC, a Delaware limited liability company, as a borrower (together with its successors
and permitted assigns, ARCM, and, together with ART, GPOP, LPOP, ARLP and ARSR, each as
the Borrower), WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association
(together with its successors and assigns, Wachovia), in its capacity as initial lender
(together with its successors and assigns in such capacity, the Lender) and in its
capacity as administrative agent (together with its successors and assigns in such capacity, the
Administrative Agent). Capitalized terms used and not otherwise defined herein shall
have the meanings given to such terms in the Loan Agreement (as defined below).
R E C I T A L S
WHEREAS, the Borrower, the Lender and the Administrative Agent are parties to that certain
First Amended and Restated Revolving Loan Agreement, dated as of July 23, 2009, as amended by that
certain First Amendment to First Amended and Restated Revolving Loan Agreement, dated as of
December 24, 2009, the Loan Agreement;
WHEREAS, the Borrowers have requested that the Administrative Agent and the Lenders waive
certain provisions in the Loan Agreement;
WHEREAS, the Administrative Agent and the Lenders have agreed to do so, pursuant to the terms
and conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing recitals, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
Section 1. Waiver.
The Borrowers and the Guarantors acknowledge and agree that ART has not complied with the
Financial Covenant related to Tangible Net Worth contained in Subsection 5.1(w)(ii) of the
Loan Agreement for the Test Period ending December 31, 2009 and may not comply with such Financial
Covenant in 2010 (the Acknowledged Non-Compliance). Notwithstanding such Acknowledged
Non-Compliance, the Administrative Agent and the Lenders hereby agree to waive, solely through the
Payoff Date, the Acknowledged Non-Compliance. All parties acknowledge and agree that the
Administrative
Agents and the Lenders one-time waiver of the Acknowledged Non-Compliance as set forth
herein shall not be deemed to be a waiver of any other term, provision, duty, obligation,
liability, right, power, remedy or covenant of any party to the Loan Documents or a waiver of any
other non-compliance with Subsection 5.1(w)(ii) of the Loan Agreement or any other
Financial Covenant for any other period of time. The waiver set forth herein shall be effective
only to the extent specifically set forth herein and shall not (a) be construed as a waiver of any
breach or default other than as specifically waived herein nor as a waiver of any breach or default
of which the Administrative Agent or the Lenders have not been informed by the Borrowers, the
Guarantors or the Pledgor, (b) affect the right of the Administrative Agent and/or the Lenders to
demand compliance by the Borrowers, the Guarantors and the Pledgor with all terms and conditions of
the Loan Documents, except as specifically modified or waived by this Waiver, (c) be deemed a
waiver of any transaction or future action on the part of the Borrowers, the Guarantors or the
Pledgor requiring the Administrative Agents, the Lenders or the Required Lenders consent or
approval under the Loan Documents, or (d) except as waived hereby, be deemed or construed to be a
waiver or release of, or a limitation upon, the Administrative Agents or the Lenders exercise of
any rights or remedies under the Loan Agreement or any other Loan Document, whether arising as a
consequence of any Event of Default which may now exist or otherwise, all such rights and remedies
hereby being expressly reserved.
Section 2. [Reserved].
Section 3. Loan Documents in Full Force and Effect as Modified.
Except as specifically modified hereby, the Loan Documents shall remain in full force and
effect in accordance with their terms. All references to any Loan Document shall be deemed to mean
each Loan Document as modified by this Waiver. This Waiver shall not constitute a novation of the
Loan Documents, but shall constitute modifications thereof. The parties hereto agree to be bound
by the terms and conditions of the Loan Documents, as modified by this Waiver, as though such terms
and conditions were set forth herein. Each Borrower hereby ratifies the Loan Agreement and the
other Loan Documents and acknowledges and reaffirms (a) that it is bound by all terms of the Loan
Agreement and the other Loan Documents applicable to it and (b) that it is responsible for the
observance and full performance of its respective Obligations. This Waiver is a Loan Document
executed pursuant to the Loan Agreement and shall be construed, administered and applied in
accordance with the terms and provisions of the Loan Agreement.
Section 4. Representations.
Each Borrower represents and warrants, as of the date of this Waiver, as follows:
(a) it is duly incorporated or organized, validly existing and in good standing under the laws
of its jurisdiction of organization and each jurisdiction where it conducts business;
(b) the execution, delivery and performance by it of this Waiver is within its corporate,
company or partnership powers, has been duly authorized and does not contravene (1) its Authority
Documents or its applicable resolutions, (2) any Applicable Law or (3) any Contractual Obligation,
Indebtedness or Guarantee Obligation;
(c) no consent, license, permit, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority or other Person is required in connection with the
execution, delivery, performance, validity or enforceability by or against it of this Waiver;
Waiver to
First Amended and Restated Revolving Loan Agreement
(Wachovia/Arbor)
2
(d) this Waiver has been duly executed and delivered by it;
(e) this Waiver, as well as each of the Loan Documents as modified by this Waiver, constitutes
its legal, valid and binding obligation, enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors rights generally or by general
principles of equity;
(f) no Default or Event of Default exists or will exist after giving effect to this Waiver;
and
(g) each of the Loan Documents is in full force and effect and no Borrower has any defense,
offset, counterclaim, abatement, right of rescission or other claims, actions, causes of action,
demands, damages or liabilities of any kind or nature, in all cases whether legal or equitable,
available to the Borrower or any other Person with respect to (i) this Waiver, the Loan Agreement,
the Loan Documents or any other instrument, document and/or agreement described herein or therein,
as modified and amended hereby, (ii) the obligation of the Borrowers to repay the Obligations and
other amounts due under the Loan Documents or (iii) the Administrative Agent, the Lenders or the
Administrative Agents or the Lenders respective officers, employees, representatives, agents,
counsel or directors arising out of or from or in any way related to or in connection with the Loan
Agreement or the Loan Documents, including, without limitation, any action by such Persons, or
failure of such Persons to act, under the Loan Agreement or the other Loan Documents on or prior to
the date hereof.
Section 5. Conditions Precedent.
The effectiveness of this Waiver is subject to the following conditions precedent: (i)
delivery to the Administrative Agent of this Waiver duly executed by each of the parties hereto;
(ii) the payment of all reasonable legal fees and expenses of Moore & Van Allen PLLC, as counsel to
the Administrative Agent, in the amount to be set forth on a separate invoice; and (iii) delivery
to the Administrative Agent of such other documents, agreements or certifications as the
Administrative Agent may reasonably require.
Section 6. Miscellaneous.
(a) This Waiver may be executed in any number of counterparts (including by facsimile), and by
the different parties hereto on the same or separate counterparts, each of which shall be deemed to
be an original instrument but all of which together shall constitute one and the same agreement.
(b) The descriptive headings of the various sections of this Waiver are inserted for
convenience of reference only and shall not be deemed to affect the meaning or construction of any
of the provisions hereof.
(c) This Waiver may not be amended or otherwise modified, waived or supplemented except as
provided in the Loan Agreement.
(d) The interpretive provisions of Section 1.2, 1.3 and 1.4 of the
Loan Agreement are incorporated herein mutatis mutandis.
Waiver to
First Amended and Restated Revolving Loan Agreement
(Wachovia/Arbor)
3
(e) This Waiver and the other Loan Documents represent the final agreement among the parties
and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements
between the parties. There are no unwritten oral agreements between the parties.
(f) THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS WAIVER SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(g) In consideration of the Administrative Agent and the Lender entering into this Waiver,
each Borrower hereby waives, releases and discharges the Administrative Agent and the Lender and
the Administrative Agents and the Lenders respective officers, employees, representatives,
agents, counsel and directors from any and all actions, causes of action, claims, demands, damages
and liabilities of whatever kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises out of or from or in any way relating to
or in connection with the Loan Agreement or the Loan Documents, including but not limited to, any
action or failure to act under the Loan Agreement or the other Loan Documents on or prior to the
date hereof, except, with respect to any such Person being released hereby, any actions, causes of
action, claims, demands, damage and liabilities arising out of such Persons gross negligence or
willful misconduct in connection with the Loan Agreement or the other Loan Documents.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Waiver to
First Amended and Restated Revolving Loan Agreement
(Wachovia/Arbor)
4
IN WITNESS WHEREOF, the parties have caused this Waiver to be executed by their respective
officers thereunto duly authorized, as of the date first above written.
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THE BORROWERS: |
ARBOR REALTY TRUST, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
|
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Title: |
Executive Vice President |
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ARBOR REALTY GPOP, INC.,
a Delaware corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LPOP, INC.,
a Delaware corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
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By: |
Arbor Realty GPOP, Inc.,
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its General Partner |
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Waiver to
First Amended and Restated Revolving Loan Agreement
(Wachovia/Arbor)
S-1
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THE BORROWERS (cont.): |
ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY COLLATERAL MANAGEMENT, LLC, a Delaware
limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
|
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Waiver to
First Amended and Restated Revolving Loan Agreement
(Wachovia/Arbor)
S-2
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THE LENDER: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
a national banking association
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
|
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THE ADMINISTRATIVE AGENT: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
a national banking association
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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|
Waiver to
First Amended and Restated Revolving Loan Agreement
(Wachovia/Arbor)
S-3
exv10w41
EXHIBIT 10.41
EXECUTION VERSION
SECOND AMENDMENT AND WAIVER TO
FIRST AMENDED AND RESTATED REVOLVING LOAN AGREEMENT
(Wachovia/Arbor)
THIS SECOND AMENDMENT AND WAIVER TO FIRST AMENDED AND RESTATED REVOLVING LOAN AGREEMENT, dated
as of February 2, 2010 (this Amendment No. 2), is entered into by and among ARBOR REALTY
TRUST, INC., a Maryland corporation, as a borrower (together with its successors and permitted
assigns, ART), ARBOR REALTY GPOP, INC., a Delaware corporation, as a borrower (together
with its successors and permitted assigns, GPOP), ARBOR REALTY LPOP, INC., a Delaware
corporation, as a borrower (together with its successors and permitted assigns, LPOP),
ARBOR REALTY LIMITED PARTNERSHIP, a Delaware limited partnership, as a borrower (together with its
successors and permitted assigns, ARLP), ARBOR REALTY SR, INC., a Maryland corporation,
as a borrower (together with its successors and permitted assigns, ARSR), ARBOR REALTY
COLLATERAL MANAGEMENT, LLC, a Delaware limited liability company, as a borrower (together with its
successors and permitted assigns, ARCM, and, together with ART, GPOP, LPOP, ARLP and
ARSR, each as the Borrower), WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association (together with its successors and assigns, Wachovia), in its capacity as
initial lender (together with its successors and assigns in such capacity, the Lender)
and in its capacity as administrative agent (together with its successors and assigns in such
capacity, the Administrative Agent). Capitalized terms used and not otherwise defined
herein shall have the meanings given to such terms in the Loan Agreement (as defined below).
R E C I T A L S
WHEREAS, the Borrower, the Lender and the Administrative Agent are parties to that certain
First Amended and Restated Revolving Loan Agreement, dated as of July 23, 2009 (as amended,
modified, restated, replaced, waived, substituted, supplemented or extended from time to time,
including pursuant to that certain First Amendment to First Amended and Restated Revolving Loan
Agreement, dated as of December 24, 2009, that certain Waiver to First Amended and Restated
Revolving Loan Agreement, dated as of January 20, 2010 and this Amendment No. 2, the Loan
Agreement);
WHEREAS, the Borrowers desire to make certain modifications to the Loan Agreement;
WHEREAS, the Borrowers have requested that the Administrative Agent and the Lenders waive
certain provisions in the Loan Agreement; and
WHEREAS, the Administrative Agent and the Lenders are willing to waive certain provisions of
and modify the Loan Agreement as requested by the Borrowers on the terms and conditions specified
herein.
NOW THEREFORE, in consideration of the foregoing recitals, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
Second Amendment and Waiver to Loan Agreement
(Wachovia/Arbor)
Section 1. Waiver.
The Borrowers and the Guarantors acknowledge and agree that ART may not comply with the
Financial Covenant related to the ratio of its Net Total Liabilities to Adjusted Tangible Net Worth
contained in Section 5.1(w)(iii) of the Loan Agreement for the Test Period ending December
31, 2009 and may not comply with such Financial Covenant in 2010 (the Acknowledged
Non-Compliance). Notwithstanding such Acknowledged Non-Compliance, the Administrative Agent
and the Lenders hereby agree to waive, solely through the Payoff Date, the Acknowledged
Non-Compliance. All parties acknowledge and agree that the Administrative Agents and the Lenders
one-time waiver of the Acknowledged Non-Compliance as set forth herein shall not be deemed to be a
waiver of any other term, provision, duty, obligation, liability, right, power, remedy or covenant
of any party to the Loan Documents or a waiver of any other non-compliance with Section
5.1(w)(iii) of the Loan Agreement or any other Financial Covenant for any other period of time.
The waiver set forth herein shall be effective only to the extent specifically set forth herein
and shall not (a) be construed as a waiver of any breach or default other than as specifically
waived herein nor as a waiver of any breach or default of which the Administrative Agent or the
Lenders have not been informed by the Borrowers, the Guarantors or the Pledgor, (b) affect the
right of the Administrative Agent and/or the Lenders to demand compliance by the Borrowers, the
Guarantors and the Pledgor with all terms and conditions of the Loan Documents, except as
specifically modified or waived by this Amendment No. 2, (c) be deemed a waiver of any transaction
or future action on the part of the Borrowers, the Guarantors or the Pledgor requiring the
Administrative Agents, the Lenders or the Required Lenders consent or approval under the Loan
Documents, or (d) except as waived hereby, be deemed or construed to be a waiver or release of, or
a limitation upon, the Administrative Agents or the Lenders exercise of any rights or remedies
under the Loan Agreement or any other Loan Document, whether arising as a consequence of any Event
of Default which may now exist or otherwise, all such rights and remedies hereby being expressly
reserved.
Section 2. Amendments to Loan Agreement.
(a) The following new definition is added to Section 1.1 of the Loan Agreement (to be
inserted in the correct alphabetical order):
Payoff Date shall have the meaning set forth in Section 2.18 of the Arbor Credit
Agreement Agreement.
(b) Sections 5.w(ii) and (iii) of the Loan Agreement are hereby amended and
restated in their entirety as follows:
(ii) Maintenance of Tangible Net Worth. (i) For any Test Period other than
the Test Periods ending on September 30, 2010 and December 31, 2010, ART shall not permit
Tangible Net Worth at any time to be less than $150,000,000, and, (ii) for the Tests Periods
ending on September 30, 2010 and December 31, 2010, ART shall not permit Tangible Net Worth
at any time to be less than $50,000,000.
(iii) Maintenance of Ratio of Net Total Liabilities to Adjusted Tangible Net
Worth. (i) For any Test Period other than the Test Periods ending on September 30, 2010
and December 31, 2010, ART shall not permit the ratio of its Net Total Liabilities to
Adjusted Tangible Net Worth at any time to be greater than 4.5 to 1.0, and, (ii) for the
Tests Periods ending on September 30, 2010 and December 31, 2010, ART shall not permit the
ratio of its Net Total Liabilities to Adjusted Tangible Net Worth at any time to be greater
than 5.8 to 1.0.
Second Amendment and Waiver to Loan Agreement
(Wachovia/Arbor)
2
Section 3. Loan Documents in Full Force and Effect as Modified.
Except as specifically modified hereby, the Loan Documents shall remain in full force and
effect in accordance with their terms. All references to any Loan Document shall be deemed to mean
each Loan Document as modified by this Amendment No. 2. This Amendment No. 2 shall not constitute
a novation of the Loan Documents, but shall constitute modifications thereof. The parties hereto
agree to be bound by the terms and conditions of the Loan Documents, as modified by this Amendment
No. 2, as though such terms and conditions were set forth herein. Each Borrower hereby ratifies
the Loan Agreement and the other Loan Documents and acknowledges and reaffirms (a) that it is bound
by all terms of the Loan Agreement and the other Loan Documents applicable to it and (b) that it is
responsible for the observance and full performance of its respective Obligations. This Amendment
No. 2 is a Loan Document executed pursuant to the Loan Agreement and shall be construed,
administered and applied in accordance with the terms and provisions of the Loan Agreement.
Section 4. Representations.
Each Borrower represents and warrants, as of the date of this Amendment No. 2, as follows:
(a) it is duly incorporated or organized, validly existing and in good standing under the laws
of its jurisdiction of organization and each jurisdiction where it conducts business;
(b) the execution, delivery and performance by it of this Amendment No. 2 is within its
corporate, company or partnership powers, has been duly authorized and does not contravene (1) its
Authority Documents or its applicable resolutions, (2) any Applicable Law or (3) any Contractual
Obligation, Indebtedness or Guarantee Obligation;
(c) no consent, license, permit, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority or other Person is required in connection with the
execution, delivery, performance, validity or enforceability by or against it of this Amendment No.
2;
(d) this Amendment No. 2 has been duly executed and delivered by it;
(e) this Amendment No. 2, as well as each of the Loan Documents as modified by this Amendment
No. 2, constitutes its legal, valid and binding obligation, enforceable against it in accordance
with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally
or by general principles of equity;
(f) no Default or Event of Default exists or will exist after giving effect to this Amendment
No. 2; and
(g) each of the Loan Documents is in full force and effect and no Borrower has any defense,
offset, counterclaim, abatement, right of rescission or other claims, actions, causes of action,
demands, damages or liabilities of any kind or nature, in all cases whether legal or equitable,
available to the Borrower or any other Person with respect to (i) this Amendment No. 2, the Loan
Agreement, the Loan Documents or any other instrument, document and/or agreement described herein
or therein, as modified and amended hereby, (ii) the obligation of the Borrowers to repay the
Obligations and other amounts due under the Loan Documents or (iii) the Administrative Agent, the
Lenders or the Administrative Agents or the Lenders respective officers, employees,
representatives, agents, counsel or directors arising out of or from or in any way related to or in
connection with the Loan Agreement or the Loan Documents,
Second Amendment and Waiver to Loan Agreement
(Wachovia/Arbor)
3
including, without limitation, any action by such Persons, or failure of such Persons to act,
under the Loan Agreement or the other Loan Documents on or prior to the date hereof.
Section 5. Conditions Precedent.
The effectiveness of this Amendment No. 2 is subject to the following conditions precedent:
(i) delivery to the Administrative Agent of this Amendment No. 2 duly executed by each of the
parties hereto; (ii) the payment of all legal fees and expenses of Moore & Van Allen PLLC, as
counsel to the Administrative Agent, in the amount to be set forth on a separate invoice; and (iii)
delivery to the Administrative Agent of such other documents, agreements or certifications as the
Administrative Agent may reasonably require.
Section 6. Miscellaneous.
(a) This Amendment No. 2 may be executed in any number of counterparts (including by
facsimile), and by the different parties hereto on the same or separate counterparts, each of which
shall be deemed to be an original instrument but all of which together shall constitute one and the
same agreement.
(b) The descriptive headings of the various sections of this Amendment No. 2 are inserted for
convenience of reference only and shall not be deemed to affect the meaning or construction of any
of the provisions hereof.
(c) This Amendment No. 2 may not be amended or otherwise modified, waived or supplemented
except as provided in the Loan Agreement.
(d) The interpretive provisions of Section 1.2, 1.3 and 1.4 of the
Loan Agreement are incorporated herein mutatis mutandis.
(e) This Amendment No. 2 and the other Loan Documents represent the final agreement among the
parties and may not be contradicted by evidence of prior, contemporaneous or subsequent oral
agreements between the parties. There are no unwritten oral agreements between the parties.
(f) THIS AMENDMENT NO. 2 AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT
NO. 2 SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.
(g) In consideration of the Administrative Agent and the Lender entering into this Amendment
No. 2, each Borrower hereby waives, releases and discharges the Administrative Agent and the Lender
and the Administrative Agents and the Lenders respective officers, employees, representatives,
agents, counsel and directors from any and all actions, causes of action, claims, demands, damages
and liabilities of whatever kind or nature, in law or in equity, now known or unknown, suspected or
unsuspected to the extent that any of the foregoing arises out of or from or in any way relating to
or in connection with the Loan Agreement or the Loan Documents, including but not limited to, any
action or failure to act under the Loan Agreement or the other Loan Documents on or prior to the
date hereof, except, with respect to any such Person being released hereby, any actions, causes of
action, claims, demands, damage and liabilities arising out of such Persons gross negligence or
willful misconduct in connection with the Loan Agreement or the other Loan Documents.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Second Amendment and Waiver to Loan Agreement
(Wachovia/Arbor)
4
IN WITNESS WHEREOF, the parties have caused this Amendment No. 2 to be executed by their
respective officers thereunto duly authorized, as of the date first above written.
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THE BORROWERS: |
ARBOR REALTY TRUST, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY GPOP, INC.,
a Delaware corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LPOP, INC.,
a Delaware corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
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By: |
Arbor Realty GPOP, Inc.,
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its General Partner |
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Second Amendment and Waiver to Loan Agreement
(Wachovia/Arbor)
S-1
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THE BORROWERS (cont.): |
ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY COLLATERAL
MANAGEMENT, LLC,
a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Second Amendment and Waiver to Loan Agreement
(Wachovia/Arbor)
S-2
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THE LENDER: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
a national banking association
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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THE ADMINISTRATIVE AGENT: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
a national banking association
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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Second Amendment and Waiver to Loan Agreement
(Wachovia/Arbor)
S-3
exv10w42
EXHIBIT 10.42
EXECUTION VERSION
FOURTH AMENDMENT AND WAIVER TO
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
(Wachovia/Arbor)
THIS FOURTH AMENDMENT AND WAIVER TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
February 2, 2010 (this Amendment No. 4), is entered into by and among ARBOR REALTY
FUNDING LLC, a Delaware limited liability company (together with its successors and permitted
assigns, Arbor Realty Funding), as a borrower, ARSR TAHOE, LLC, a Delaware limited
liability company (together with its successors and permitted assigns, ARSR Tahoe), as a
borrower, ARBOR REALTY LIMITED PARTNERSHIP, a Delaware limited partnership (together with its
successors and permitted assigns, Arbor Realty), as a borrower, ART 450 LLC, a Delaware
limited liability company (together with its successors and permitted assigns, ART 450),
as a borrower, ARBOR REALTY SR, INC., a Maryland corporation (together with its successors and
permitted assigns, ARSR), as a borrower, ARBOR ESH II LLC (together with its successors
and permitted assigns, Arbor ESH and, together with Arbor Realty Funding, ARSR Tahoe,
Arbor Realty and ARSR, each individually referred to herein as a Borrower and
collectively referred to herein as the Borrowers), as a borrower, ARBOR REALTY TRUST,
INC., a Maryland corporation (together with its successors and permitted assigns, ART),
as a guarantor, Arbor Realty, as a guarantor, ARSR, as a guarantor (ARSR, together with ART and
Arbor Realty, the Guarantors), the several banks and other financial institutions party
to the Credit Agreement (each, together with its successors and assigns, a Lender and,
collectively, the Lenders), and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking
association, as administrative agent for the Lenders (together with its successors and assigns in
such capacity, the Administrative Agent), and consented to by ARSR, as the pledgor
(together with its successors and permitted assigns, the Pledgor). Capitalized terms
used and not otherwise defined herein shall have the meanings given to such terms in the Credit
Agreement (as defined below and as amended hereby).
R E C I T A L S
WHEREAS, the Borrowers, the Guarantors, the Lenders and the Administrative Agent are parties
to that certain First Amended and Restated Credit Agreement, dated as of July 23, 2009 (as amended,
modified, restated, replaced, waived, substituted, supplemented or extended from time to time,
including pursuant to that First Amendment to First Amended and Restated Credit Agreement and Other
Credit Documents, dated as of December 16, 2009, that Second Amendment to First Amended and
Restated Credit Agreement, dated as of December 24, 2009, that Third Amendment and Waiver to First
Amended and Restated Credit Agreement, dated as of January 20, 2010 and by this Amendment No. 4,
the Credit Agreement);
WHEREAS, the Borrowers and the Guarantors desire to make certain modifications to the Credit
Agreement;
WHEREAS, the Borrowers and the Guarantors have requested that the Administrative Agent and the
Lenders waive certain provisions in the Credit Agreement;
Fourth Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
WHEREAS, the Administrative Agent and the Lenders are willing to waive certain provisions of
and modify the Credit Agreement as requested by the Borrowers and the Guarantors on the terms and
conditions specified herein;
WHEREAS, each Guarantor desires to evidence its agreement to the amendments and modifications
set forth herein and to reaffirm its obligations under the Guaranty; and
WHEREAS, the Pledgor is a party to other Credit Documents and related agreements that may be
affected, directly or indirectly, by this Amendment No. 4 and desires to evidence its agreement to
the amendments and modifications set forth herein.
NOW THEREFORE, in consideration of the foregoing recitals, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
Section 1. Waiver.
The Borrowers and the Guarantors acknowledge and agree that ART may not comply with the
Financial Covenant related to the ratio of its Net Total Liabilities to Adjusted Tangible Net Worth
contained in Subsection 5.9(c) of the Credit Agreement for the Test Period ending December
31, 2009 and may not comply with such Financial Covenant in 2010 (the Acknowledged
Non-Compliance). Notwithstanding such Acknowledged Non-Compliance, the Administrative Agent
and the Lenders hereby agree to waive, solely through the Payoff Date, the Acknowledged
Non-Compliance. All parties acknowledge and agree that the Administrative Agents and the Lenders
one-time waiver of the Acknowledged Non-Compliance as set forth herein shall not be deemed to be a
waiver of any other term, provision, duty, obligation, liability, right, power, remedy or covenant
of any party to the Credit Documents or a waiver of any other non-compliance with Subsection
5.9(c) of the Credit Agreement or any other Financial Covenant for any other period of time.
The waiver set forth herein shall be effective only to the extent specifically set forth herein and
shall not (a) be construed as a waiver of any breach or default other than as specifically waived
herein nor as a waiver of any breach or default of which the Administrative Agent or the Lenders
have not been informed by the Borrowers, the Guarantors or the Pledgor, (b) affect the right of the
Administrative Agent and/or the Lenders to demand compliance by the Borrowers, the Guarantors and
the Pledgor with all terms and conditions of the Credit Documents, except as specifically modified
or waived by this Amendment No. 4, (c) be deemed a waiver of any transaction or future action on
the part of the Borrowers, the Guarantors or the Pledgor requiring the Administrative Agents, the
Lenders or the Required Lenders consent or approval under the Credit Documents, or (d) except as
waived hereby, be deemed or construed to be a waiver or release of, or a limitation upon, the
Administrative Agents or the Lenders exercise of any rights or remedies under the Credit
Agreement or any other Credit Document, whether arising as a consequence of any Event of Default
which may now exist or otherwise, all such rights and remedies hereby being expressly reserved.
Section 2. Amendments to Credit Agreement.
(a) The following new definition is added to Section 1.1 of the Credit Agreement (to
be inserted in the correct alphabetical order):
Payoff Date shall have the meaning set forth in Section 2.18 of the Credit
Agreement.
(b) Sections 5.9(b) and (c) of the Credit Agreement are hereby amended and
restated in their entirety as follows:
Fourth Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
2
(b) Maintenance of Tangible Net Worth. (i) For any Test Period other than the
Test Periods ending on September 30, 2010 and December 31, 2010, ART shall not permit
Tangible Net Worth at any time to be less than $150,000,000, and, (ii) for the Tests Periods
ending on September 30, 2010 and December 31, 2010, ART shall not permit Tangible Net Worth
at any time to be less than $50,000,000.
(c) Maintenance of Ratio of Net Total Liabilities to Adjusted Tangible Net
Worth. (i) For any Test Period other than the Test Periods ending on September 30, 2010
and December 31, 2010, ART shall not permit the ratio of its Net Total Liabilities to
Adjusted Tangible Net Worth at any time to be greater than 4.5 to 1.0, and, (ii) for the
Tests Periods ending on September 30, 2010 and December 31, 2010, ART shall not permit the
ratio of its Net Total Liabilities to Adjusted Tangible Net Worth at any time to be greater
than 5.8 to 1.0.
Section 3. Credit Documents in Full Force and Effect as Modified.
Except as specifically modified hereby, the Credit Documents shall remain in full force and
effect in accordance with their terms. All references to any Credit Document shall be deemed to
mean each Credit Document as modified by this Amendment No. 4. This Amendment No. 4 shall not
constitute a novation of the Credit Documents, but shall constitute modifications thereof. The
parties hereto agree to be bound by the terms and conditions of the Credit Documents, as modified
by this Amendment No. 4, as though such terms and conditions were set forth herein. Each of the
Borrowers, the Guarantors and the Pledgor hereby ratifies the Credit Agreement and the other Credit
Documents and acknowledges and reaffirms (a) that it is bound by all terms of the Credit Agreement
and the other Credit Documents applicable to it and (b) that it is responsible for the observance
and full performance of its respective Obligations. This Amendment No. 4 is a Credit Document
executed pursuant to the Credit Agreement and shall be construed, administered and applied in
accordance with the terms and provisions of the Credit Agreement.
Section 4. Representations.
Each of the Borrowers, the Guarantors and the Pledgor represents and warrants, as of the date
of this Amendment No. 4, as follows:
(a) it is duly incorporated or organized, validly existing and in good standing under the laws
of its jurisdiction of organization and each jurisdiction where it conducts business;
(b) the execution, delivery and performance by it of this Amendment No. 4 is within its
corporate, company or partnership powers, has been duly authorized and does not contravene (1) its
Authority Documents or its applicable resolutions, (2) any Requirements of Law or (3) any
Contractual Obligation, Indebtedness or Guarantee Obligation;
(c) no consent, license, permit, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority or other Person is required in connection with the
execution, delivery, performance, validity or enforceability by or against it of this Amendment No.
4;
(d) this Amendment No. 4 have been duly executed and delivered by it;
(e) this Amendment No. 4 and each of the Credit Documents as modified thereby constitute its
legal, valid and binding obligation, enforceable against it in accordance with its terms, except as
Fourth Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
3
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors rights generally or by general principles
of equity;
(f) the Security Documents continue to create a valid security interest in, and Lien upon, the
Collateral, in favor of the Administrative Agent, for the benefit of the Secured Parties, which
security interests and Liens are perfected in accordance with the terms of the Security Documents
and prior to all Liens subject to Permitted Liens;
(g) no Default or Event of Default exists or will exist after giving effect to this Amendment
No. 4;
(h) each of the Credit Documents is in full force and effect and neither the Borrowers, the
Guarantors nor the Pledgor has any defense, offset, counterclaim, abatement, right of rescission or
other claims, actions, causes of action, demands, damages or liabilities of any kind or nature, in
all cases whether legal or equitable, available to the Borrowers, the Guarantors, the Pledgor or
any other Person with respect to (i) this Amendment No. 4, the Credit Agreement, the Credit
Documents or any other instrument, document and/or agreement described herein or therein, as
modified and amended hereby, (ii) the obligation of the Borrowers and the Guarantors to repay the
Obligations and other amounts due under the Credit Documents or (iii) the Administrative Agent, the
Lenders or the Administrative Agents or the Lenders respective officers, employees,
representatives, agents, counsel or directors arising out of or from or in any way related to or in
connection with the Credit Agreement or the Credit Documents, including, without limitation, any
action by such Persons, or failure of such Persons to act, under the Credit Agreement or the other
Credit Documents on or prior to the date hereof; and
(i) except as specifically provided in this Amendment No. 4, the Obligations are not reduced
or modified by this Amendment No. 4.
Section 5. Conditions Precedent.
The effectiveness of this Amendment No. 4 is subject to the following conditions precedent:
(i) delivery to the Administrative Agent of this Amendment No. 4 duly executed by each of the
parties hereto; (ii) the payment of all legal fees and expenses of Moore & Van Allen PLLC, as
counsel to the Administrative Agent, in the amount to be set forth on a separate invoice; and (iii)
delivery to the Administrative Agent of such other documents, agreements or certifications as the
Administrative Agent may reasonably require.
Section 6. Miscellaneous.
(a) This Amendment No. 4 may be executed in any number of counterparts (including by
facsimile), and by the different parties hereto on the same or separate counterparts, each of which
shall be deemed to be an original instrument but all of which together shall constitute one and the
same agreement.
(b) The descriptive headings of the various sections of this Amendment No. 4 are inserted for
convenience of reference only and shall not be deemed to affect the meaning or construction of any
of the provisions hereof.
(c) This Amendment No. 4 may not be amended or otherwise modified, waived or supplemented
except as provided in the Credit Agreement.
Fourth Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
4
(d) The interpretive provisions of Sections 1.2 through 1.8 of the Credit
Agreement are incorporated herein mutatis mutandis.
(e) This Amendment No. 4 represents the final agreement among the parties and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements between the
parties. There are no unwritten oral agreements between the parties.
(f) THIS AMENDMENT NO. 4 AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT
NO. 4 SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.
(g) Each provision of this Amendment No. 4 shall be valid, binding and enforceable to the
fullest extent permitted by Requirements of Law. In case any provision in or obligation under this
Amendment No. 4 shall be invalid, illegal or unenforceable in any jurisdiction (either in its
entirety or as applied to any Person, fact, circumstance, action or inaction), the validity,
legality and enforceability of the remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction or as applied to any Person, fact, circumstance, action or
inaction, shall not in any way be affected or impaired thereby.
(h) In consideration of the Lenders and the Administrative Agent entering into this Amendment
No. 4, each of the Borrowers, each of the Guarantors and the Pledgor hereby waives, releases and
discharges the Administrative Agent, the Lenders and the Administrative Agents and the Lenders
respective officers, employees, representatives, agents, counsel and directors from any and all
actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in
law or in equity, now known or unknown, suspected or unsuspected to the extent that any of the
foregoing arises out of or from or in any way relating to or in connection with the Credit
Agreement or the Credit Documents, including but not limited to, any action or failure to act under
the Credit Agreement or the other Credit Documents on or prior to the date hereof, except, with
respect to any such Person being released hereby, any actions, causes of action, claims, demands,
damage and liabilities arising out of such Persons gross negligence or willful misconduct in
connection with the Credit Agreement or the other Credit Documents.
(i) Each Guarantor (i) agrees to and consents to the terms and provisions of this Amendment
No. 4, (ii) acknowledges and confirms that the Guaranty remains in full force and effect
notwithstanding this Amendment No. 4, and (iii) reaffirms its obligations under the Guaranty.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Fourth Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
5
IN WITNESS WHEREOF, the parties have caused this Amendment No. 4 to be executed by their
respective officers thereunto duly authorized, as of the date first above written.
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BORROWERS: |
ARBOR REALTY FUNDING, LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARSR TAHOE, LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LIMITED PARTNERSHIP, a Delaware limited
partnership
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ART 450 LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY SR, INC., a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR ESH II LLC, a Delaware limited liability company
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Fourth Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
S - 1
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GUARANTORS: |
ARBOR REALTY TRUST, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY LIMITED PARTNERSHIP,
a Delaware limited partnership
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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[Signatures Continued on the Following Page]
Fourth Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
S - 2
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ADMINISTRATIVE AGENT: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Administrative Agent on behalf of the Lenders
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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LENDER: |
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Lender
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By: |
/s/ John Nelson
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Name: |
John Nelson |
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Title: |
Managing Director |
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[Signatures Continued on the Following Page]
Fourth Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
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CONSENTED TO BY:
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PLEDGOR: |
ARBOR REALTY SR, INC.,
a Maryland corporation
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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Fourth Amendment and Waiver to Credit Agreement
(Wachovia/Arbor)
S - 4
exv10w43
Exhibit 10.43
EXCHANGE AGREEMENT
among
ARBOR REALTY SR, INC.
and
TABERNA PREFERRED FUNDING I, LTD.,
TABERNA PREFERRED FUNDING V, LTD.,
TABERNA PREFERRED FUNDING VII, LTD.,
and
TABERNA PREFERRED FUNDING VIII, LTD.
Dated as of February 26, 2010
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT, dated as of February 26, 2010 (this Agreement), is entered into by
and among ARBOR REALTY SR, INC., a Maryland corporation (the Company), and TABERNA PREFERRED
FUNDING I, LTD. (Taberna I), TABERNA PREFERRED FUNDING V, LTD. (Taberna V), TABERNA PREFERRED
FUNDING VII, LTD. (Taberna VII) and TABERNA PREFERRED FUNDING VIII, LTD. (Taberna VIII,
together with Taberna I, Taberna V and Taberna VII, collectively, Taberna).
R E
C I T A L:
A. Reference is made to (i) that certain Junior Subordinated Indenture I dated as of May 6,
2009 (Indenture I) and (ii) that certain Junior Subordinated Indenture II dated as of May 6, 2009
(Indenture II, together with Indenture I, collectively, the Existing Indentures), each by and
between the Company, Arbor Realty Trust, Inc., as guarantor, and The Bank of New York Mellon Trust
Company, National Association (BNYM), as trustee (the Existing Indenture Trustee).
B. Taberna I is the holder of a junior subordinated note in the aggregate principal amount of
$29,400,000 issued by the Company pursuant to Indenture I, a copy of which is attached hereto as
Ehibit A-1 (Note 1).
C. Taberna V is the holder of a junior subordinated note in the aggregate principal amount of
$28,000,000 issued by the Company pursuant to Indenture II, a copy of which is attached hereto as
Exhibit A-2 ( Note 2).
D. Taberna VII is the holder of a junior subordinated note in the aggregate principal amount
of $28,000,000 issued by the Company pursuant to Indenture II, a copy of which is attached hereto
as Exhibit A-3 ( Note 3).
E. Taberna VIII is the holder of a junior subordinated note in the aggregate principal amount
of $28,700,000 issued by the Company pursuant to Indenture II, a copy of which is attached hereto
as Exhibit A-4 ( Note 4; and together with Note 1, Note 2 and Note 3, collectively, the
Notes).
F. On the terms and subject to the conditions set forth in this Agreement, the Company and
Taberna have agreed to exchange the Notes for (x) certain bonds currently owned by the Company, a
schedule of which is set forth on Exhibit B attached hereto (the Bonds), and (y) cash in
the amount of Nine Million Two Hundred Sixty-Seven Thousand Eight Hundred Seventy-One and 08/100
Dollars ($9,267,871.08) (the Cash Payment), in each case to be allocated and distributed to the
Taberna entities pro rata based on the outstanding principal balance of each of the Notes as
specified on Exhibit B.
NOW, THEREFORE, in consideration of the mutual agreements and subject to the terms and
conditions herein set forth, the parties hereto agree as follows:
1. Definitions. All capitalized terms used but not defined in this Agreement shall have the respective
meanings ascribed thereto in the Existing Indentures.
Bankruptcy Code means the Bankruptcy Reform Act of 1978, 11 U.S.C. §§101 et seq., as
amended.
BNYM has the meaning set forth in the Recitals.
Bonds has the meaning set forth in the Recitals.
Cash Payment has the meaning set forth in the Recitals.
CDO Trustee has the meaning set forth in Section 2(b)(i).
Closing Date has the meaning set forth in Section 2(b).
Closing Room has the meaning set forth in Section 2(b).
Company has the meaning set forth in the introductory paragraph hereof.
Company Counsel has the meaning set forth in Section 3(b).
Exchange has the meaning set forth in Section 2(b).
Exchange Act means the Securities Exchange Act of 1934.
Existing Indentures has the meaning set forth in the Recitals.
Existing Indenture Trustee has the meaning set forth in the Recitals.
Financial Statements means the audited consolidated financial statements (including the
notes thereto) and schedules of the Company for the fiscal year ended December 31 2008.
Governmental Entities has the meaning set forth in Section 4(f).
Indemnified Party has the meaning set forth in Section 8(b). Indemnified Parties shall
have the correlative meaning.
Indenture I has the meaning set forth in the Recitals.
Indenture II has the meaning set forth in the Recitals.
Lien means any pledge, security interest, claim, lien or other encumbrance of any kind.
Material Adverse Effect means a material adverse effect on the condition (financial or
otherwise), earnings, business, liabilities or assets of the Company and its Significant
Subsidiaries taken as a whole.
Memorandum means that certain Memorandum dated January 27, 2010 between the Company and
Taberna Capital Management, LLC (as collateral manager for each of the Taberna entities).
- 2 -
Note 1 has the meaning set forth in the Recitals.
Note 2 has the meaning set forth in the Recitals.
Note 3 has the meaning set forth in the Recitals.
Note 4 has the meaning set forth in the Recitals.
Notes has the meaning set forth in the Recitals.
Securities Act means the Securities Act of 1933, 15 U.S.C. §§77a et seq., as
amended, and the rules and regulations promulgated under it.
Taberna has the meaning set forth in the introductory paragraph hereof.
Taberna I has the meaning set forth in the introductory paragraph hereof.
Taberna V has the meaning set forth in the introductory paragraph hereof.
Taberna VII has the meaning set forth in the introductory paragraph hereof.
Taberna VIII has the meaning set forth in the introductory paragraph hereof.
Taberna Transferred Rights means any and all of each Taberna entitys right, title, and
interest in, to and under the Notes, together with the following:
(i) the Existing Indentures;
(ii) all amounts payable to Taberna under the Notes and the Existing Indentures;
(iii) all claims (including claims as defined in Bankruptcy Code §101(5)), suits,
causes of action, and any other right of Taberna, whether known or unknown, against the
Company or any of its affiliates, agents, representatives, contractors, advisors, or any
other entity that in any way is based upon, arises out of or is related to any of the
foregoing, including all claims (including contract claims, tort claims, malpractice claims,
and claims under any law governing the exchange of, purchase and sale of, or indentures for,
securities), suits, causes of action, and any other right of Taberna against any attorney,
accountant, financial advisor, or other entity arising under or in connection with the
Notes, the Existing Indentures or the transactions related thereto or contemplated thereby;
(iv) all guarantees and all collateral and security of any kind for or in respect of
the foregoing;
(v) all cash, securities, or other property, and all setoffs and recoupments, to be
received, applied, or effected by or for the account of Taberna under the Notes, other than
fees, costs and expenses payable to Taberna hereunder and all cash,
- 3 -
securities, interest, dividends, and other property that may be exchanged for, or distributed or collected with
respect to, any of the foregoing; and
(vi) all proceeds of the foregoing.
2. Exchange of Notes for the Bonds.
(a) The Company has requested that Taberna accept the Bonds and Cash Payment in exchange for,
and discharge of, the Notes and Taberna hereby accepts such Bonds and Cash Payment in exchange for,
and discharge of, the Notes upon the terms and conditions set forth herein.
(b) The closing of the exchange contemplated herein shall occur at the offices of Nixon
Peabody, LLP in New York, New York (the Closing Room), or such other place as the parties hereto
and BNYM shall agree, at 11:00 a.m. New York time, on February 26, 2010 or such later date as the
parties may agree (such date and time of delivery the Closing Date). The Company and Taberna
hereby agree that the exchange (the Exchange) will occur in accordance with the following
requirements:
(i) Taberna Capital Management, LLC (as collateral manager for each of the Taberna
entities) shall have delivered an issuer order instructing each trustee (in each such
capacity, a CDO Trustee) under the applicable indenture pursuant to which such CDO Trustee
serves as trustee for the holders of the Notes, to exchange the Notes for the Bonds and Cash
Payment.
(ii) The Company shall have provided instructions through its DTC participant to
transfer the Bonds to the applicable CDO Trustee. The CDO Trustee shall have confirmed
through its DTC participant that such transfer has occurred.
(iii) The Company shall have paid to the Existing Indenture Trustee, for applications
upon the Notes and for distribution to the applicable Taberna entities holding such Notes
pursuant to the terms of the Existing Indentures, all accrued interest for the period
commencing on the most recent interest payment date under the Notes and continuing through
and including the day immediately preceding the Closing Date in the amounts set forth on
Exhibit D.
(iv) The Company shall have paid to each CDO Trustee, by wire transfer, its applicable
portion of the Cash Payment.
(v) All of BNYMs legal fees, costs and other expenses in connection with the Exchange
shall have been paid in accordance with Section 7 hereof.
(vi) Upon satisfaction of all the requirements set forth in this Section 2, and the
other requirements set forth herein (including Section 3 hereof), (A) each Taberna entity
holding a Note irrevocably transfers, assigns, grants and conveys the related Taberna
Transferred Rights to the Company, and the Company assumes all rights and obligations of
Taberna with respect to the applicable Note and the Taberna Transferred Rights, and (B) the
Company irrevocably transfers, assigns, grants and conveys to the
-4-
CDO Trustee, on behalf of the Taberna entities, (pro rata based on the outstanding principal balance of the Notes),
all of the rights, title and interest to the Bonds.
(c) Concurrently upon completion of the Exchange the Company shall transmit Note 1 to BNYM,
acting as Existing Indenture Trustee under Indenture I, and shall direct BNYM to cancel Note 1 in
accordance with Section 3.8 of Indenture I. The form of direction letter to be used by the Company
shall be substantially similar to the form attached as Exhibit E. Following cancellation of Note
1, the Company shall provide such other documentation to the Existing Indenture Trustee as may be
necessary or advisable to discharge Indenture 1. Concurrently upon completion of the Exchange, the
Company shall transmit Note 2, Note 3 and Note 4 to BNYM, acting as Existing Indenture Trustee
under Indenture II, and shall direct BNYM to cancel Note 2, Note 3 and Note 4 in accordance with
Section 3.8 of Indenture II. The form of direction letter to be used by the Company shall be
substantially similar to the form attached as Exhibit E.
3. Conditions Precedent. The obligations of the parties under this Agreement are
subject to the following conditions precedent:
(a) The representations and warranties contained herein shall be accurate as of the Closing
Date.
(b) Cooley, Godward, Kronish LLP, counsel for the Company (the Company Counsel), shall have
delivered an opinion, dated the Closing Date, addressed to each Taberna entity and its successors
and assigns and to the CDO Trustee, in substantially the form set out in Annex A-1 hereto
and the Company shall have delivered opinions of the Companys General Counsel addressed to each
Taberna entity and its successors and assigns and to the CDO Trustee, in substantially the form set
out in Annex A-2 hereto. In rendering its opinion, the Company Counsel may rely as to
factual matters upon certificates or other documents furnished by officers, directors and trustees
of the Company and by government officials; provided, however, that copies of any such certificates
or documents are delivered to the Taberna entities) and by and upon such other documents as such
counsel may, in its reasonable opinion, deem appropriate as a basis for the Company Counsels
opinion. The Company Counsel may specify the jurisdictions in which it is admitted to practice and
that it is not admitted to practice in any other jurisdiction and is not an expert in the law of
any other jurisdiction. Such Company Counsel Opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA
Section of Business Law (1991).
(c) The Company shall have furnished to the Taberna entities a certificate of the Company,
signed by the Chief Executive Officer, President or an Executive Vice President, and Chief
Financial Officer, Treasurer or Assistant Treasurer of the Company, dated as of the Closing Date,
certifying that the representations and warranties in this Agreement are true and correct on and as
of the Closing Date, and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing Date.
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(d) Prior to the Closing Date, the Company shall have furnished to the Taberna entities and
their counsel such further information, certificates and documents as the Taberna entities or such
counsel may reasonably request.
(e) The requirements set forth in Section 2(b) are satisfied on the Closing Date.
If any of the conditions specified in this Section 3 shall not have been fulfilled
when and as provided in this Agreement, or if any of the opinions, certificates and documents
mentioned above or elsewhere in this Agreement shall not be reasonably satisfactory in form and
substance to the Taberna entities or their counsel, this Agreement and any obligations of Taberna
hereunder, may be canceled at, or at any time prior to, the Closing Date by Taberna. Notice of
such cancellation shall be given to the Company in writing or by telephone and confirmed in
writing, or by e-mail or facsimile.
Each certificate signed by any officer of the Company and delivered to the Taberna entities or
their counsel in connection with this Agreement and the transactions contemplated hereby shall be
deemed to be a representation and warranty of the Company and not by such officer in any individual
capacity.
4. Representations and Warranties of the Company. The Company represents and warrants
to, and agrees with the Taberna, and its successors and assigns, as follows:
(a) It (i) is duly organized and validly existing under the laws of its jurisdiction of
organization or incorporation, (ii) is in good standing under such laws and (iii) has full power
and authority to execute, deliver and perform its obligations under this Agreement.
(b) The Exchange, is not and may not be void or voidable as an actual or constructive
fraudulent transfer. The Company has no current intention to initiate any bankruptcy or insolvency
proceedings. The Company (i) has not entered into the Exchange with the actual intent to hinder,
delay, or defraud any creditor and (ii) received reasonably equivalent value in exchange for its
obligations under this Exchange Agreement. The Company does not intend to incur debt and
liabilities (including contingent liabilities and other commitments) beyond its ability to pay such
debt and liabilities as they mature.
(c) It (i) is a sophisticated entity with respect to the Exchange, (ii) has such knowledge and
experience, and has made investments of a similar nature, so as to be aware of the risks and
uncertainties inherent in the Exchange and (iii) has independently and without
reliance upon Taberna, Taberna Capital Management, LLC, the Existing Indenture Trustee or the
CDO Trustee or any of their affiliates, and based on such information as it has deemed appropriate,
made its own analysis and decision to enter into this Agreement, except that it has relied upon
Tabernas express representations, warranties, covenants and agreements in this Agreement. The
Company acknowledges that none of Taberna, Taberna Capital Management, LLC or the Existing
Indenture Trustee or any of their affiliates has given it any investment advice, credit information
or opinion on whether the Exchange is prudent.
(d) It has not engaged any broker, finder or other entity acting under the authority of it or
any of its affiliates that is entitled to any brokers commission or other fee in
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connection with the transaction for which Taberna, the Existing Indenture Trustee or any of their affiliates could
be responsible.
(e) Each of this Agreement and the consummation of the transactions contemplated herein and
therein have been duly authorized by the Company and, on the Closing Date, will have been duly
executed and delivered by the Company, and, assuming due authorization, execution and delivery by
Taberna, will be a legal, valid and binding obligations of the Company enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting
creditors rights generally and to general principles of equity.
(f) None of the exchange of the Bonds and Cash Payment for the Notes, the cancellation of the
Notes nor the execution and delivery of and compliance with this Agreement by the Company, (i) will
conflict with or constitute a violation or breach of (x) the charter or bylaws or similar
organizational documents of the Company or any subsidiary of the Company or (y) any applicable law,
statute, rule, regulation, judgment, order, writ or decree of any government, governmental
authority, agency or instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or their respective properties or assets (collectively, the
Governmental Entities), or (ii) will conflict with or constitute a violation or breach of any
contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or any of them may be bound.
(g) Neither the Company nor any of its subsidiaries is (i) in violation of its respective
charter or by-laws or similar organizational documents or (ii) in default in the performance or
observance of any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or instrument to which the
Company or any such subsidiary is a party or by which it or any of them may be bound or to which
any of the property or assets of any of them is subject, except, in the case of clause (ii), where
such violation or default would not, singly or in the aggregate, have a Material Adverse Effect.
(h) There is no action, suit or proceeding before or by any Governmental Entity, arbitrator or
court, domestic or foreign, now pending or, to the knowledge of the Company after due inquiry,
threatened against or affecting the Company or any of its subsidiaries, except for such actions,
suits or proceedings that, if adversely determined, would not, singly or in the aggregate, adversely affect the consummation of the transactions
contemplated by this Agreement or have a Material Adverse Effect.
(i) No filing with, or authorization, approval, consent, license, order, registration,
qualification or decree of, any Governmental Entity, other than those that have been made or
obtained, is necessary or required for the performance by the Company of its obligations hereunder.
(j) The Company has good and marketable title to the Bonds free and clear of all Liens and
defects to the title thereof.
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(k) The information provided by the Company pursuant to this Agreement does not, as of the
date hereof, and will not as of the Closing Date, contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Except as expressly stated herein or any of the other documents delivered by the company in
connection herewith, the Company makes no representations or warranties, express or implied, with
respect to the Exchange or any other matter.
5. Representations and Warranties of Taberna. Each Taberna entity, for itself,
represents and warrants to, and agrees with, the Company as follows:
(a) It is a company duly formed, validly existing and in good standing under the laws of the
jurisdiction in which it is organized with all requisite (i) power and authority to execute,
deliver and perform under this Agreement, to make the representations and warranties specified
herein and to consummate the transactions contemplated herein.
(b) This Agreement and the consummation of the transactions contemplated herein has been duly
authorized by it and, on the Closing Date, will have been duly executed and delivered by it and,
assuming due authorization, execution and delivery by the Company of this Agreement, will be a
legal, valid and binding obligation of such Taberna, enforceable against such Taberna in accordance
with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors
rights generally and to general principles of equity.
(c) No filing with, or authorization, approval, consent, license, order registration,
qualification or decree of, any Governmental Entity or any other Person, other than those that have
been made or obtained, is necessary or required for the performance by such Taberna of its
obligations under this Agreement or to consummate the transactions contemplated herein.
(d) Taberna I is the legal and beneficial owner of Note 1 and the related Taberna Transferred
Rights and shall deliver Note 1 and the related Taberna Transferred Rights free and clear of any
Lien.
(e) Taberna V is the legal and beneficial owner of Note 2 and the related Taberna Transferred
Rights and shall deliver Note 2 and the related Taberna Transferred Rights free and clear of any
Lien.
(f) Taberna VII is the legal and beneficial owner of Note 3 and the related Taberna
Transferred Rights and shall deliver Note 3 and the related Taberna Transferred Rights free and
clear of any Lien.
(g) Taberna VIII is the legal and beneficial owner of Note 4 and the related Taberna
Transferred Rights and shall deliver Note 4 and the related Taberna Transferred Rights free and
clear of any Lien.
(h) There is no action, suit or proceeding before or by any Governmental Entity, arbitrator or
court, domestic or foreign, now pending or, to its knowledge, threatened
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against or affecting it, except for such actions, suits or proceedings that, if adversely determined, would not, singly or
in the aggregate, adversely affect the consummation of the transactions contemplated by this
Agreement.
(i) The outstanding principal amount of its respective Notes is the face amount as set forth
in such Notes.
(j) It has not engaged any broker, finder or other entity acting under its authority that is
entitled to any brokers commission or other fee in connection with this Agreement and the
consummation of transactions contemplated in this Agreement for which the Company could be
responsible.
(k) It (i) is a sophisticated entity with respect to the Exchange, (ii) has such knowledge and
experience, and has made investments of a similar nature, so as to be aware of the risks and
uncertainties inherent in the Exchange and (iii) has independently and without reliance upon the
Company or any of their affiliates, and based on such information as it has deemed appropriate,
made its own analysis and decision to enter into this Agreement, except that it has relied upon the
Companys express representations, warranties, covenants and agreements in this Agreement and the
other documents delivered by the Company in connection therewith. It acknowledges that none of the
Company or the Existing Indenture Trustee or any of their affiliates has given it any investment
advice, credit information or opinion on whether the Exchange is prudent. It further acknowledges
that neither the Company nor any of the Companys affiliates have made any representation or
warranty as to the value of the Bonds (or the underlying collateral for the Bonds) or as to the
collectability or marketability of the Bonds.
(l) None of the exchange of the Bonds and Cash Payment for the Notes, the discharge of the
Notes nor the execution and delivery of and compliance with this Agreement by it will conflict with
or constitute a violation or breach of (x) its charter or bylaws or similar organizational
documents or (y) any applicable law, statute, rule, regulation, judgment, order, writ or decree of
any Governmental Entities.
(m) It is not (i) in violation of its respective charter or by-laws or similar organizational
documents or (ii) in default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument to which it is a party or by which it
may be bound or to which any of the property or assets is subject, except, in the case of clause
(ii), where such violation or default would not, singly or in the aggregate, have a Material
Adverse Effect.
(n) No filing with, or authorization, approval, consent, license, order, registration,
qualification or decree of, any Governmental Entity, other than those that have been made or
obtained, is necessary or required for the performance by it of its obligations hereunder.
(o) The information provided by it pursuant to this Agreement does not, as of the date hereof,
and will not as of the Closing Date, contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
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Except as expressly stated in this Agreement, Taberna make no representations or warranties,
express or implied, with respect to the Exchange, the Taberna Transferred Rights, the Notes, the
Existing Indentures, or any other matter.
6. Covenants and Agreements .
(a) The Company agrees with the Taberna entities and their successors and assigns as follows:
(i) The Company has taken all action reasonably necessary or appropriate to cause its
representations and warranties contained in Section 4 hereof to be true as of the
Closing Date and after giving effect to the Exchange.
(ii) The Company will not identify BNYM, Taberna, Taberna Capital Management, LLC,
Taberna Securities, LLC and their respective affiliates, in a press release or any other
public statement without the prior written consent of such Indemnified Party.
(b) The Taberna entities agree with the Company and its successors and assigns as follows:
(i) The Taberna entities have taken all action reasonably necessary or appropriate to
cause their representations and warranties contained in Section 5 hereof to be true as of
the Closing Date and after giving effect to the Exchange.
7. Payment of Expenses. On or before the Closing Date, the Company shall have paid
the Expense Payment (as defined in the Memorandum) to Taberna Capital Management, LLC. In
consideration of the payment of the Expense Payment, Taberna agrees to pay all costs and expenses
incident to the performance of the obligations of Taberna under this Agreement and all costs and
expenses of the Existing Indenture Trustee and each CDO Trustee in connection with the Exchange,
including all costs and expenses incident to (i) the transfer and delivery of the Bonds; (ii)
the fees and expenses of counsel, accountants and any other experts or advisors retained by
Taberna; and (iii) the fees and all reasonable expenses of the Existing Indenture Trustee and each
CDO Trustee, including the fees and disbursements of counsel for such trustee.
8. Intentionally Omitted.
9. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company and/or its officers
set forth in or made pursuant to this Agreement will remain in full force and effect and will
survive the Exchange. The provisions of Sections 7 and 8 shall survive the termination or
cancellation of this Agreement.
10. Amendments. This Agreement may not be modified, amended, altered or supplemented,
except upon the execution and delivery of a written agreement by each of the parties hereto.
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11. Notices. All communications hereunder will be in writing and effective only on
receipt, and will be mailed, delivered by hand or courier or sent by facsimile and confirmed or by
any other reasonable means of communication, including by electronic mail, to the relevant party at
its address specified in Exhibit C.
12. Successors and Assigns. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to give any person other
than the parties hereto and the affiliates, directors, officers, employees, agents and controlling
persons referred to in Section 8 hereof and their successors, assigns, heirs and legal
representatives, any right or obligation hereunder. None of the rights or obligations of the
Company under this Agreement may be assigned, whether by operation of law or otherwise, without
Tabernas prior written consent. The rights and obligations of the Taberna entities under this
Agreement may be assigned by the Taberna entities without the Companys consent; provided that the
assignee assumes the obligations of any such Taberna entity under this Agreement.
13. Applicable Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF
LAW (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW).
14. Submission to Jurisdiction. ANY LEGAL ACTION OR PROCEEDING BY OR AGAINST ANY
PARTY HERETO OR WITH RESPECT TO OR ARISING OUT OF THIS AGREEMENT MAY BE BROUGHT IN OR REMOVED TO
THE COURTS OF THE STATE OF NEW YORK, IN AND FOR THE COUNTY OF NEW YORK, OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK (IN EACH CASE SITTING IN THE BOROUGH OF MANHATTAN).
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS (AND COURTS OF
APPEALS THEREFROM) FOR LEGAL PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
15. Counterparts and Facsimile. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument. This Agreement
may be executed by any one or more of the parties hereto by facsimile.
16. Entire Agreement. This Agreement constitutes the entire agreement of the parties
to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements,
understandings and negotiations with respect to the subject matter hereof.
[Signature Page Follows]
- 11 -
IN WITNESS WHEREOF, this Agreement has been entered into as of the date first written above.
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ARBOR REALTY SR, INC.
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By: |
/s/ John Natalone
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Name: |
John Natalone |
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Title: |
Executive Vice President |
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(Signatures continue on the next page)
-12-
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TABERNA:
TABERNA PREFERRED FUNDING I LTD.
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By: |
/s/ Mora Goddard
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Name: |
Mora Goddard |
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Title: |
Director |
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TABERNA PREFERRED FUNDING V, LTD.
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By: |
/s/ Mora Goddard
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Name: |
Mora Goddard |
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Title: |
Director |
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TABERNA PREFERRED FUNDING VII, LTD.
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By: |
/s/ Mora Goddard
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Name: |
Mora Goddard |
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Title: |
Director |
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TABERNA PREFERRED FUNDING VIII, LTD.
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By: |
/s/ Mora Goddard
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Name: |
Mora Goddard |
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Title: |
Director |
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- 13 -
EXHIBIT
A-1
Copy of Note 1
Indenture I TPF I
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES
ACT), AND SUCH SECURITIES, AND ANY INTEREST THEREIN, MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF ANY SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF THE SECURITIES MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A UNDER THE SECURITIES ACT.
THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITIES MAY BE OFFERED, RESOLD OR OTHERWISE TRANSFERRED ONLY (I) TO
THE COMPANY OR (II) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
PURCHASER (AS DEFINED IN SECTION 2(a)(51) OF THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED), AND (B) THE HOLDER WILL NOTIFY ANY PURCHASER OF ANY SECURITIES FROM IT OF THE
RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
THE SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF NOT LESS THAN $100,000. TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
ATTEMPTED TRANSFER OF SECURITIES, OR ANY INTEREST THEREIN, IN A BLOCK HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF SHALL BE
DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH SECURITIES FOR
ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PRINCIPAL OF OR INTEREST ON SUCH
SECURITIES, OR ANY INTEREST THEREIN, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE
NO INTEREST WHATSOEVER IN SUCH SECURITIES.
THE HOLDER OF THIS SECURITY, OR ANY INTEREST THEREIN, BY ITS ACCEPTANCE HEREOF OR THEREOF
ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL
RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA), OR SECTION 4975 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE) (EACH A PLAN), OR AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY PLANS INVESTMENT IN THE ENTITY,
AND NO PERSON INVESTING PLAN ASSETS OF ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY
INTEREST THEREIN. ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE
DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT IT IS NOT
Indenture I TPF I
AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH
SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN
EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY
EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE.
Indenture I TPF I
ARBOR REALTY SR, INC.
Junior Subordinated Note due 2034
Arbor Realty SR, Inc., a corporation organized and existing under the laws of Maryland (hereinafter
called the Company, which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Hare & Co., the principal sum of Twenty
Nine Million Four Hundred Thousand Dollars ($29,400,000) or such other principal amount represented
hereby as may be set forth in the records of the Securities Registrar hereinafter referred to in
accordance with the Indenture, on March 30, 2034. The Company further promises to pay interest on
said principal sum from May 6, 2009, or from the most recent date on and to which interest has been
paid or duly provided for, quarterly in arrears on June 30, September 30, December 30 and March 30,
of each year, or if any such day is not a Business Day, on the next succeeding Business Day (and no
interest shall accrue in respect of the amounts whose payment is so delayed for the period from and
after such Interest Payment Date until such next succeeding Business Day), except that, if such
Business Day falls in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case, with the same force and effect as if made on the
Interest Payment Date, at the Fixed Rate during the Modification Period, and thereafter at a
variable rate equal to LIBOR plus 3.75% per annum until the principal hereof is paid or duly
provided for or made available for payment; provided, further, that any overdue principal, premium,
if any, and any overdue installment of interest shall bear Additional Interest at the Fixed Rate
during the Modification Period, and thereafter at a variable rate equal to LIBOR plus 3.75% per
annum (in each case, to the extent that the payment of such interest shall be legally enforceable),
compounded quarterly, from the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand.
Payments of interest on the Securities shall include interest accrued to but excluding the
respective Interest Payment Dates. During the Modification Period, the amount of interest payable
shall be computed on the basis of a 360-day year of twelve 30-day months and the amount payable for
any partial period shall be computed on the basis of the number of days elapsed in a 360-day year
of twelve 30-day months. Upon expiration of the Modification Period, the amount of interest
payable for any Interest Period shall be computed on the basis of a 360-day year and the actual
number of days elapsed in the relevant Interest Period. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date shall, as provided in the Indenture, be
paid to the Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest installment. Any
such interest not so punctually paid or duly provided for shall forthwith cease to be payable to
the Holder on such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than ten (10) days prior to such Special
Record Date, or be paid at any time in any other lawful manner not
Indenture I TPF I
inconsistent with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more fully provided in the
Indenture.
Payment of principal of, premium, if any, and interest on this Security shall be made in such
coin or currency of the United States of America as at the time of payment is legal tender for
payment of public and private debts. Payments of principal, premium, if any, and interest due at
the Maturity of this Security shall be made at the Place of Payment upon surrender of such
Securities to the Paying Agent, and payments of interest shall be made, subject to such surrender
where applicable, by wire transfer at such place and to such account at a banking institution in
the United States as may be designated in writing to the Paying Agent at least ten (10) Business
Days prior to the date for payment by the Person entitled thereto unless proper written transfer
instructions have not been received by the relevant record date, in which case such payments shall
be made by check mailed to the address of such Person as such address shall appear in the Security
Register.
The indebtedness evidenced by this Security is, to the extent provided in the Indenture,
subordinate and junior in right of payment to the prior payment in full of all Senior Debt, and
this Security is issued subject to the provisions of the Indenture with respect thereto. Each
Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take such actions as may
be necessary or appropriate to effectuate the subordination so provided and (c) appoints the
Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or
her acceptance hereof, waives all notice of the acceptance of the subordination provisions
contained herein and in the Indenture by each holder of Senior Debt, whether now outstanding or
hereafter incurred, and waives reliance by each such holder upon said provisions.
Unless the certificate of authentication hereon has been executed by the Trustee by manual
signature, this Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
[FORM OF REVERSE OF SECURITY]
This Security is one of a duly authorized issue of securities of the Company (the
Securities) issued under the Junior Subordinated Indenture, dated as of May 6, 2009 (the
Indenture), between the Company and The Bank of New York Mellon Trust Company, National
Association, as Trustee (in such capacity, the Trustee, which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto reference is
hereby made for a statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee, the holders of Senior Debt and the Holders of the
Securities and of the terms upon which the Securities are, and are to be, authenticated and
delivered.
All terms used in this Security that are defined in the Indenture shall have the meanings
assigned to them in the Indenture. The Company may, on any Interest Payment Date, at its option,
upon not less than thirty (30) days nor more than sixty (60) days written notice to the Holders
of the Securities (unless a shorter notice period shall be satisfactory to the Trustee) on or
Indenture I TPF I
after March 30, 2010 and subject to the terms and conditions of Article XI of the Indenture,
redeem this Security in whole at any time or in part from time to time at a Redemption Price equal
to one hundred percent (100%) of the principal amount hereof, together, in the case of any such
redemption, with accrued interest, including any Additional Interest, through but excluding the
date fixed as the Redemption Date.
In addition, upon the occurrence and during the continuation of a Special Event, the Company
may, at its option, upon not less than thirty (30) days nor more than sixty (60) days written
notice to the Holders of the Securities (unless a shorter notice period shall be satisfactory to
the Trustee), redeem this Security, in whole but not in part, subject to the terms and conditions
of Article XI of the Indenture at a Redemption Price equal to one hundred seven and one
half percent (107.5%) of the principal amount hereof, together, in the case of any such redemption,
with accrued interest, including any Additional Interest, through but excluding the date fixed as
the Redemption Date.
In the event of redemption of this Security in part only, a new Security or Securities for the
unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation
hereof. If less than all the Securities are to be redeemed, the particular Securities to be
redeemed shall be selected not more than sixty (60) days prior to the Redemption Date by the
Trustee from the Outstanding Securities not previously called for redemption, by such method as the
Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a
portion of the principal amount of any Security.
The Indenture permits, with certain exceptions as therein provided, the Company and the
Trustee at any time to enter into a supplemental indenture or indentures for the purpose of
modifying in any manner the rights and obligations of the Company and of the Holders of the
Securities, with the consent of the Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities, on behalf of the Holders of all
Securities, to waive compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder
of this Security shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture
shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay
the principal of and any premium, if any, and interest, including any Additional Interest (to the
extent legally enforceable), on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the
transfer of this Security is restricted to transfers to Qualified Purchasers (as such term is
defined in the Investment Company Act of 1940, as amended), and is registrable in the Securities
Register, upon surrender of this Security for registration of transfer at the office or agency of
the Company maintained for such purpose, duly endorsed by, or accompanied by a written
Indenture I TPF I
instrument of transfer in form satisfactory to the Company and the Securities Registrar and
duly executed by, the Holder hereof or such Holders attorney duly authorized in writing, and
thereupon one or more new Securities, of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in minimum denominations
of $100,000 and any integral multiple of $1,000 in excess thereof. As provided in the Indenture and
subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate
principal amount of Securities and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
The Company and, by its acceptance of this Security or a beneficial interest herein, the
Holder of, and any Person that acquires a beneficial interest in, this Security agree that, for
United States federal, state and local tax purposes, it is intended that this Security constitute
indebtedness.
This Security shall be construed and enforced in accordance with and governed by the laws of
the State of New York, without reference to its conflict of laws provisions (other than Section
5-1401 of the General Obligations Law).
Indenture I TPF I
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed on this
6th day of May, 2009.
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ARBOR REALTY SR, INC.,
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By: |
/s/ Paul Elenio
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Name: |
Paul Elenio |
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Title: |
Chief Financial Officer |
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Signature Page Note 1 (Taberna I)
Indenture I TPF I
This is one of the within mentioned Securities referred to in the within mentioned Indenture.
Dated: May 6, 2009
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THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual capacity, but
solely as Trustee
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By: |
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Authorized signatory |
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A-1
EXHIBIT A-2
Copy of Note 2
Indenture II TPF V
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES
ACT), AND SUCH SECURITIES, AND ANY INTEREST THEREIN, MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF ANY SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF THE SECURITIES MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A UNDER THE SECURITIES ACT.
THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITIES MAY BE OFFERED, RESOLD OR OTHERWISE TRANSFERRED ONLY (I) TO
THE COMPANY OR (II) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
PURCHASER (AS DEFINED IN SECTION 2(a)(51) OF THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED), AND (B) THE HOLDER WILL NOTIFY ANY PURCHASER OF ANY SECURITIES FROM IT OF THE
RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
THE SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF NOT LESS THAN $100,000. TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
ATTEMPTED TRANSFER OF SECURITIES, OR ANY INTEREST THEREIN, IN A BLOCK HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF SHALL BE
DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH SECURITIES FOR
ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PRINCIPAL OF OR INTEREST ON SUCH
SECURITIES, OR ANY INTEREST THEREIN, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE
NO INTEREST WHATSOEVER IN SUCH SECURITIES.
THE HOLDER OF THIS SECURITY, OR ANY INTEREST THEREIN, BY ITS ACCEPTANCE HEREOF OR THEREOF
ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL
RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA), OR SECTION 4975 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE) (EACH A PLAN), OR AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY PLANS INVESTMENT IN THE ENTITY,
AND NO PERSON INVESTING PLAN ASSETS OF ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY
INTEREST THEREIN. ANY PURCHASER OR HOLDER OF
Indenture II TPF V
THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE
AND HOLDING THEREOF THAT IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION
3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER
PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY
USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE.
Indenture II TPF V
ARBOR REALTY SR, INC.
Junior Subordinated Note due 2034
Arbor Realty SR, Inc., a corporation organized and existing under the laws of Maryland (hereinafter
called the Company, which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Embassy & Co., the principal sum of
Twenty-Eight Million Dollars ($28,000,000) or such other principal amount represented hereby as may
be set forth in the records of the Securities Registrar hereinafter referred to in accordance with
the Indenture, on March 30, 2034. The Company further promises to pay interest on said principal
sum from May 6, 2009, or from the most recent date on and to which interest has been paid or duly
provided for, quarterly in arrears on July 30, October 30, January 30 and April 30 of each year, or
if any such day is not a Business Day, on the next succeeding Business Day (and no interest shall
accrue in respect of the amounts whose payment is so delayed for the period from and after such
Interest Payment Date until such next succeeding Business Day), except that, if such Business Day
falls in the next succeeding calendar year, such payment shall be made on the immediately preceding
Business Day, in each case, with the same force and effect as if made on the Interest Payment Date,
at the Fixed Rate during the Modification Period, and thereafter at a variable rate equal to LIBOR
plus 2.87% per annum until the principal hereof is paid or duly provided for or made available for
payment; provided, further, that any overdue principal, premium, if any, and any overdue
installment of interest shall bear Additional Interest at the Fixed Rate during the Modification
Period, and thereafter at a variable rate equal to LIBOR plus 2.87% per annum (in each case, to the
extent that the payment of such interest shall be legally enforceable), compounded quarterly, from
the dates such amounts are due until they are paid or made available for payment, and such interest
shall be payable on demand.
Payments of interest on the Securities shall include interest accrued to but excluding the
respective Interest Payment Dates. During the Modification Period, the amount of interest payable
shall be computed on the basis of a 360-day year of twelve 30-day months and the amount payable for
any partial period shall be computed on the basis of the number of days elapsed in a 360-day year
of twelve 30-day months. Upon expiration of the Modification Period, the amount of interest
payable for any Interest Period shall be computed on the basis of a 360-day year and the actual
number of days elapsed in the relevant Interest Period. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date shall, as provided in the Indenture, be
paid to the Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest installment. Any
such interest not so punctually paid or duly provided for shall forthwith cease to be payable to
the Holder on such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than ten (10) days prior to such Special
Record Date, or be paid at any time in any other lawful manner not
Indenture II TPF V
inconsistent with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more fully provided in the
Indenture.
Payment of principal of, premium, if any, and interest on this Security shall be made in such
coin or currency of the United States of America as at the time of payment is legal tender for
payment of public and private debts. Payments of principal, premium, if any, and interest due at
the Maturity of this Security shall be made at the Place of Payment upon surrender of such
Securities to the Paying Agent, and payments of interest shall be made, subject to such surrender
where applicable, by wire transfer at such place and to such account at a banking institution in
the United States as may be designated in writing to the Paying Agent at least ten (10) Business
Days prior to the date for payment by the Person entitled thereto unless proper written transfer
instructions have not been received by the relevant record date, in which case such payments shall
be made by check mailed to the address of such Person as such address shall appear in the Security
Register.
The indebtedness evidenced by this Security is, to the extent provided in the Indenture,
subordinate and junior in right of payment to the prior payment in full of all Senior Debt, and
this Security is issued subject to the provisions of the Indenture with respect thereto. Each
Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take such actions as may
be necessary or appropriate to effectuate the subordination so provided and (c) appoints the
Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or
her acceptance hereof, waives all notice of the acceptance of the subordination provisions
contained herein and in the Indenture by each holder of Senior Debt, whether now outstanding or
hereafter incurred, and waives reliance by each such holder upon said provisions.
Unless the certificate of authentication hereon has been executed by the Trustee by manual
signature, this Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
[FORM OF REVERSE OF SECURITY]
This Security is one of a duly authorized issue of securities of the Company (the
Securities) issued under the Junior Subordinated Indenture, dated as of May 6, 2009 (the
Indenture), between the Company and The Bank of New York Mellon Trust Company, National
Association, as Trustee (in such capacity, the Trustee, which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto reference is
hereby made for a statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee, the holders of Senior Debt and the Holders of the
Securities and of the terms upon which the Securities are, and are to be, authenticated and
delivered.
All terms used in this Security that are defined in the Indenture shall have the meanings
assigned to them in the Indenture. The Company may, on any Interest Payment Date, at its option,
upon not less than thirty (30) days nor more than sixty (60) days written notice to the Holders
of the Securities (unless a shorter notice period shall be satisfactory to the Trustee) on or
Indenture II TPF V
after July 30, 2011 and subject to the terms and conditions of Article XI of the Indenture,
redeem this Security in whole at any time or in part from time to time at a Redemption Price equal
to one hundred percent (100%) of the principal amount hereof, together, in the case of any such
redemption, with accrued interest, including any Additional Interest, through but excluding the
date fixed as the Redemption Date.
In addition, upon the occurrence and during the continuation of a Special Event, the Company
may, at its option, upon not less than thirty (30) days nor more than sixty (60) days written
notice to the Holders of the Securities (unless a shorter notice period shall be satisfactory to
the Trustee), redeem this Security, in whole but not in part, subject to the terms and conditions
of Article XI of the Indenture at a Redemption Price equal to one hundred seven and one
half percent (107.5%) of the principal amount hereof, together, in the case of any such redemption,
with accrued interest, including any Additional Interest, through but excluding the date fixed as
the Redemption Date.
In the event of redemption of this Security in part only, a new Security or Securities for the
unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation
hereof. If less than all the Securities are to be redeemed, the particular Securities to be
redeemed shall be selected not more than sixty (60) days prior to the Redemption Date by the
Trustee from the Outstanding Securities not previously called for redemption, by such method as the
Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a
portion of the principal amount of any Security.
The Indenture permits, with certain exceptions as therein provided, the Company and the
Trustee at any time to enter into a supplemental indenture or indentures for the purpose of
modifying in any manner the rights and obligations of the Company and of the Holders of the
Securities, with the consent of the Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities, on behalf of the Holders of all
Securities, to waive compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder
of this Security shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture
shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay
the principal of and any premium, if any, and interest, including any Additional Interest (to the
extent legally enforceable), on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the
transfer of this Security is restricted to transfers to Qualified Purchasers (as such term is
defined in the Investment Company Act of 1940, as amended), and is registrable in the Securities
Register, upon surrender of this Security for registration of transfer at the office or agency of
the Company maintained for such purpose, duly endorsed by, or accompanied by a written
Indenture II TPF V
instrument of transfer in form satisfactory to the Company and the Securities Registrar and
duly executed by, the Holder hereof or such Holders attorney duly authorized in writing, and
thereupon one or more new Securities, of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in minimum denominations
of $100,000 and any integral multiple of $1,000 in excess thereof. As provided in the Indenture and
subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate
principal amount of Securities and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
The Company and, by its acceptance of this Security or a beneficial interest herein, the
Holder of, and any Person that acquires a beneficial interest in, this Security agree that, for
United States federal, state and local tax purposes, it is intended that this Security constitute
indebtedness.
This Security shall be construed and enforced in accordance with and governed by the laws of
the State of New York, without reference to its conflict of laws provisions (other than Section
5-1401 of the General Obligations Law).
Indenture II TPF V
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed on this
6th day of May, 2009.
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ARBOR REALTY SR, INC.,
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By: |
/s/ Paul Elenio
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Name: |
Paul Elenio |
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Title: |
Chief Financial Officer |
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Signature Page Note 7 (Taberna V)
Indenture II TPF V
This is one of the within mentioned Securities referred to in the within mentioned Indenture.
Dated: May , 2009
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THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual capacity, but
solely as Trustee
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By: |
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Authorized signatory |
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A -10
EXHIBIT A-3
Copy of Note 3
Indenture II TPF VII
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE SECURITIES
ACT), AND SUCH SECURITIES, AND ANY INTEREST THEREIN, MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF ANY SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF THE SECURITIES MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A UNDER THE SECURITIES ACT.
THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITIES MAY BE OFFERED, RESOLD OR OTHERWISE TRANSFERRED ONLY (I) TO
THE COMPANY OR (II) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
PURCHASER (AS DEFINED IN SECTION 2(a)(51) OF THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED), AND (B) THE HOLDER WILL NOTIFY ANY PURCHASER OF ANY SECURITIES FROM IT OF THE
RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
THE SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF NOT LESS THAN $100,000. TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
ATTEMPTED TRANSFER OF SECURITIES, OR ANY INTEREST THEREIN, IN A BLOCK HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF SHALL BE
DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH SECURITIES FOR
ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PRINCIPAL OF OR INTEREST ON SUCH
SECURITIES, OR ANY INTEREST THEREIN, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE
NO INTEREST WHATSOEVER IN SUCH SECURITIES.
THE HOLDER OF THIS SECURITY, OR ANY INTEREST THEREIN, BY ITS ACCEPTANCE HEREOF OR THEREOF
ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL
RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA), OR SECTION 4975 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE) (EACH A PLAN), OR AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY PLANS INVESTMENT IN THE ENTITY,
AND NO PERSON INVESTING PLAN ASSETS OF ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY
INTEREST THEREIN. ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE
DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT IT IS NOT
Indenture II TPF VII
AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH
SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN
EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY
EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE.
Indenture II TPF VII
ARBOR REALTY SR, INC.
Junior Subordinated Note due 2034
Arbor Realty SR, Inc., a corporation organized and existing under the laws of Maryland (hereinafter
called the Company, which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Hare & Co., the principal sum of
Twenty-Eight Million Dollars ($28,000,000) or such other principal amount represented hereby as may
be set forth in the records of the Securities Registrar hereinafter referred to in accordance with
the Indenture, on March 30, 2034. The Company further promises to pay interest on said principal
sum from May 6, 2009, or from the most recent date on and to which interest has been paid or duly
provided for, quarterly in arrears on July 30, October 30, January 30 and April 30, of each year,
or if any such day is not a Business Day, on the next succeeding Business Day (and no interest
shall accrue in respect of the amounts whose payment is so delayed for the period from and after
such Interest Payment Date until such next succeeding Business Day), except that, if such Business
Day falls in the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case, with the same force and effect as if made on the Interest
Payment Date, at the Fixed Rate during the Modification Period, and thereafter at a variable rate
equal to LIBOR plus 2.87% per annum until the principal hereof is paid or duly provided for or made
available for payment; provided, further, that any overdue principal, premium, if any, and any
overdue installment of interest shall bear Additional Interest at the Fixed Rate during the
Modification Period, and thereafter at a variable rate equal to LIBOR plus 2.87% per annum (in each
case, to the extent that the payment of such interest shall be legally enforceable), compounded
quarterly, from the dates such amounts are due until they are paid or made available for payment,
and such interest shall be payable on demand.
Payments of interest on the Securities shall include interest accrued to but excluding the
respective Interest Payment Dates. During the Modification Period, the amount of interest payable
shall be computed on the basis of a 360-day year of twelve 30-day months and the amount payable for
any partial period shall be computed on the basis of the number of days elapsed in a 360-day year
of twelve 30-day months. Upon expiration of the Modification Period, the amount of interest
payable for any Interest Period shall be computed on the basis of a 360-day year and the actual
number of days elapsed in the relevant Interest Period. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date shall, as provided in the Indenture, be
paid to the Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest installment. Any
such interest not so punctually paid or duly provided for shall forthwith cease to be payable to
the Holder on such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than ten (10) days prior to such Special
Record Date, or be paid at any time in any other lawful manner not
Indenture II TPF VII
inconsistent with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more fully provided in the
Indenture.
Payment of principal of, premium, if any, and interest on this Security shall be made in such
coin or currency of the United States of America as at the time of payment is legal tender for
payment of public and private debts. Payments of principal, premium, if any, and interest due at
the Maturity of this Security shall be made at the Place of Payment upon surrender of such
Securities to the Paying Agent, and payments of interest shall be made, subject to such surrender
where applicable, by wire transfer at such place and to such account at a banking institution in
the United States as may be designated in writing to the Paying Agent at least ten (10) Business
Days prior to the date for payment by the Person entitled thereto unless proper written transfer
instructions have not been received by the relevant record date, in which case such payments shall
be made by check mailed to the address of such Person as such address shall appear in the Security
Register.
The indebtedness evidenced by this Security is, to the extent provided in the Indenture,
subordinate and junior in right of payment to the prior payment in full of all Senior Debt, and
this Security is issued subject to the provisions of the Indenture with respect thereto. Each
Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take such actions as may
be necessary or appropriate to effectuate the subordination so provided and (c) appoints the
Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or
her acceptance hereof, waives all notice of the acceptance of the subordination provisions
contained herein and in the Indenture by each holder of Senior Debt, whether now outstanding or
hereafter incurred, and waives reliance by each such holder upon said provisions.
Unless the certificate of authentication hereon has been executed by the Trustee by manual
signature, this Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
[FORM OF REVERSE OF SECURITY]
This Security is one of a duly authorized issue of securities of the Company (the
Securities) issued under the Junior Subordinated Indenture, dated as of May 6, 2009 (the
Indenture), between the Company and The Bank of New York Mellon Trust Company, National
Association, as Trustee (in such capacity, the Trustee, which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto reference is
hereby made for a statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee, the holders of Senior Debt and the Holders of the
Securities and of the terms upon which the Securities are, and are to be, authenticated and
delivered.
All terms used in this Security that are defined in the Indenture shall have the meanings
assigned to them in the Indenture. The Company may, on any Interest Payment Date, at its option,
upon not less than thirty (30) days nor more than sixty (60) days written notice to the Holders
of the Securities (unless a shorter notice period shall be satisfactory to the Trustee) on or
Indenture II TPF VII
after July 30, 2011 and subject to the terms and conditions of Article XI of the Indenture,
redeem this Security in whole at any time or in part from time to time at a Redemption Price equal
to one hundred percent (100%) of the principal amount hereof, together, in the case of any such
redemption, with accrued interest, including any Additional Interest, through but excluding the
date fixed as the Redemption Date.
In addition, upon the occurrence and during the continuation of a Special Event, the Company
may, at its option, upon not less than thirty (30) days nor more than sixty (60) days written
notice to the Holders of the Securities (unless a shorter notice period shall be satisfactory to
the Trustee), redeem this Security, in whole but not in part, subject to the terms and conditions
of Article XI of the Indenture at a Redemption Price equal to one hundred seven and one
half percent (107.5%) of the principal amount hereof, together, in the case of any such redemption,
with accrued interest, including any Additional Interest, through but excluding the date fixed as
the Redemption Date.
In the event of redemption of this Security in part only, a new Security or Securities for the
unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation
hereof. If less than all the Securities are to be redeemed, the particular Securities to be
redeemed shall be selected not more than sixty (60) days prior to the Redemption Date by the
Trustee from the Outstanding Securities not previously called for redemption, by such method as the
Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a
portion of the principal amount of any Security.
The Indenture permits, with certain exceptions as therein provided, the Company and the
Trustee at any time to enter into a supplemental indenture or indentures for the purpose of
modifying in any manner the rights and obligations of the Company and of the Holders of the
Securities, with the consent of the Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities, on behalf of the Holders of all
Securities, to waive compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder
of this Security shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture
shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay
the principal of and any premium, if any, and interest, including any Additional Interest (to the
extent legally enforceable), on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the
transfer of this Security is restricted to transfers to Qualified Purchasers (as such term is
defined in the Investment Company Act of 1940, as amended), and is registrable in the Securities
Register, upon surrender of this Security for registration of transfer at the office or agency of
the Company maintained for such purpose, duly endorsed by, or accompanied by a written
Indenture II TPF VII
instrument of transfer in form satisfactory to the Company and the Securities Registrar and
duly executed by, the Holder hereof or such Holders attorney duly authorized in writing, and
thereupon one or more new Securities, of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in minimum denominations
of $100,000 and any integral multiple of $1,000 in excess thereof. As provided in the Indenture and
subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate
principal amount of Securities and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
The Company and, by its acceptance of this Security or a beneficial interest herein, the
Holder of, and any Person that acquires a beneficial interest in, this Security agree that, for
United States federal, state and local tax purposes, it is intended that this Security constitute
indebtedness.
This Security shall be construed and enforced in accordance with and governed by the laws of
the State of New York, without reference to its conflict of laws provisions (other than Section
5-1401 of the General Obligations Law).
Indenture II TPF VII
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed on this
6th day of May, 2009.
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ARBOR REALTY SR, INC.,
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By: |
/s/ Paul Elenio
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Name: |
Paul Elenio |
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Title: |
Chief Financial Officer |
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Signature Page Note 5 (Taberna VII)
Indenture II TPF VII
This is one of the within mentioned Securities referred to in the within mentioned Indenture.
Dated: May , 2009
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THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual capacity, but
solely as Trustee
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By: |
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Authorized signatory |
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A-3
EXHIBIT A-4
Copy of Note 4
Indenture II TPF VIII
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES
ACT), AND SUCH SECURITIES, AND ANY INTEREST THEREIN, MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF ANY SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF THE SECURITIES MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A UNDER THE SECURITIES ACT.
THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITIES MAY BE OFFERED, RESOLD OR OTHERWISE TRANSFERRED ONLY (I) TO
THE COMPANY OR (II) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
PURCHASER (AS DEFINED IN SECTION 2(a)(51) OF THE INVESTMENT COMPANY ACT OF 1940, AS
AMENDED), AND (B) THE HOLDER WILL NOTIFY ANY PURCHASER OF ANY SECURITIES FROM IT OF THE
RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
THE SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF NOT LESS THAN $100,000. TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
ATTEMPTED TRANSFER OF SECURITIES, OR ANY INTEREST THEREIN, IN A BLOCK HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF LESS THAN $100,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF SHALL BE
DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH SECURITIES FOR
ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PRINCIPAL OF OR INTEREST ON SUCH
SECURITIES, OR ANY INTEREST THEREIN, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE
NO INTEREST WHATSOEVER IN SUCH SECURITIES.
THE HOLDER OF THIS SECURITY, OR ANY INTEREST THEREIN, BY ITS ACCEPTANCE HEREOF OR THEREOF
ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL
RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA), OR SECTION 4975 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE) (EACH A PLAN), OR AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF ANY PLANS INVESTMENT IN THE ENTITY,
AND NO PERSON INVESTING PLAN ASSETS OF ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY
INTEREST THEREIN. ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE
DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT IT IS NOT
Indenture II TPF VIII
AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH
SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN
EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY
EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE.
Indenture II TPF VIII
ARBOR REALTY SR, INC.
Junior Subordinated Note due 2034
Arbor Realty SR, Inc., a corporation organized and existing under the laws of Maryland (hereinafter
called the Company, which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Hare & Co., the principal sum of
Twenty-Eight Million Seven Hundred Thousand Dollars ($28,700,000) or such other principal amount
represented hereby as may be set forth in the records of the Securities Registrar hereinafter
referred to in accordance with the Indenture, on March 30, 2034. The Company further promises to
pay interest on said principal sum from May 6, 2009, or from the most recent date on and to which
interest has been paid or duly provided for, quarterly in arrears on July 30, October 30, January
30 and April 30, of each year, or if any such day is not a Business Day, on the next succeeding
Business Day (and no interest shall accrue in respect of the amounts whose payment is so delayed
for the period from and after such Interest Payment Date until such next succeeding Business Day),
except that, if such Business Day falls in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day, in each case, with the same force and effect as if
made on the Interest Payment Date, at the Fixed Rate during the Modification Period, and thereafter
at a variable rate equal to LIBOR plus 2.87% per annum until the principal hereof is paid or duly
provided for or made available for payment; provided, further, that any overdue principal, premium,
if any, and any overdue installment of interest shall bear Additional Interest at the Fixed Rate
during the Modification Period, and thereafter at a variable rate equal to LIBOR plus 2.87% per
annum (in each case, to the extent that the payment of such interest shall be legally enforceable),
compounded quarterly, from the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand.
Payments of interest on the Securities shall include interest accrued to but excluding the
respective Interest Payment Dates. During the Modification Period, the amount of interest payable
shall be computed on the basis of a 360-day year of twelve 30-day months and the amount payable for
any partial period shall be computed on the basis of the number of days elapsed in a 360-day year
of twelve 30-day months. Upon expiration of the Modification Period, the amount of interest
payable for any Interest Period shall be computed on the basis of a 360-day year and the actual
number of days elapsed in the relevant Interest Period. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date shall, as provided in the Indenture, be
paid to the Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest installment. Any
such interest not so punctually paid or duly provided for shall forthwith cease to be payable to
the Holder on such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than ten (10) days prior to such Special
Record Date, or be paid at any time in any other lawful manner not
Indenture II TPF VIII
inconsistent with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more fully provided in the
Indenture.
Payment of principal of, premium, if any, and interest on this Security shall be made in such
coin or currency of the United States of America as at the time of payment is legal tender for
payment of public and private debts. Payments of principal, premium, if any, and interest due at
the Maturity of this Security shall be made at the Place of Payment upon surrender of such
Securities to the Paying Agent, and payments of interest shall be made, subject to such surrender
where applicable, by wire transfer at such place and to such account at a banking institution in
the United States as may be designated in writing to the Paying Agent at least ten (10) Business
Days prior to the date for payment by the Person entitled thereto unless proper written transfer
instructions have not been received by the relevant record date, in which case such payments shall
be made by check mailed to the address of such Person as such address shall appear in the Security
Register.
The indebtedness evidenced by this Security is, to the extent provided in the Indenture,
subordinate and junior in right of payment to the prior payment in full of all Senior Debt, and
this Security is issued subject to the provisions of the Indenture with respect thereto. Each
Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take such actions as may
be necessary or appropriate to effectuate the subordination so provided and (c) appoints the
Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or
her acceptance hereof, waives all notice of the acceptance of the subordination provisions
contained herein and in the Indenture by each holder of Senior Debt, whether now outstanding or
hereafter incurred, and waives reliance by each such holder upon said provisions.
Unless the certificate of authentication hereon has been executed by the Trustee by manual
signature, this Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
[FORM OF REVERSE OF SECURITY]
This Security is one of a duly authorized issue of securities of the Company (the
Securities) issued under the Junior Subordinated Indenture, dated as of May 6, 2009 (the
Indenture), between the Company and The Bank of New York Mellon Trust Company, National
Association, as Trustee (in such capacity, the Trustee, which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto reference is
hereby made for a statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee, the holders of Senior Debt and the Holders of the
Securities and of the terms upon which the Securities are, and are to be, authenticated and
delivered.
All terms used in this Security that are defined in the Indenture shall have the meanings
assigned to them in the Indenture. The Company may, on any Interest Payment Date, at its option,
upon not less than thirty (30) days nor more than sixty (60) days written notice to the Holders
of the Securities (unless a shorter notice period shall be satisfactory to the Trustee) on or
Indenture II TPF VIII
after July 30, 2011 and subject to the terms and conditions of Article XI of the Indenture,
redeem this Security in whole at any time or in part from time to time at a Redemption Price equal
to one hundred percent (100%) of the principal amount hereof, together, in the case of any such
redemption, with accrued interest, including any Additional Interest, through but excluding the
date fixed as the Redemption Date.
In addition, upon the occurrence and during the continuation of a Special Event, the Company
may, at its option, upon not less than thirty (30) days nor more than sixty (60) days written
notice to the Holders of the Securities (unless a shorter notice period shall be satisfactory to
the Trustee), redeem this Security, in whole but not in part, subject to the terms and conditions
of Article XI of the Indenture at a Redemption Price equal to one hundred seven and one
half percent (107.5%) of the principal amount hereof, together, in the case of any such redemption,
with accrued interest, including any Additional Interest, through but excluding the date fixed as
the Redemption Date.
In the event of redemption of this Security in part only, a new Security or Securities for the
unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation
hereof. If less than all the Securities are to be redeemed, the particular Securities to be
redeemed shall be selected not more than sixty (60) days prior to the Redemption Date by the
Trustee from the Outstanding Securities not previously called for redemption, by such method as the
Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a
portion of the principal amount of any Security.
The Indenture permits, with certain exceptions as therein provided, the Company and the
Trustee at any time to enter into a supplemental indenture or indentures for the purpose of
modifying in any manner the rights and obligations of the Company and of the Holders of the
Securities, with the consent of the Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities, on behalf of the Holders of all
Securities, to waive compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder
of this Security shall be conclusive and binding upon such Holder and upon all future Holders of
this Security and of any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security or of the Indenture
shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay
the principal of and any premium, if any, and interest, including any Additional Interest (to the
extent legally enforceable), on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the
transfer of this Security is restricted to transfers to Qualified Purchasers (as such term is
defined in the Investment Company Act of 1940, as amended), and is registrable in the Securities
Register, upon surrender of this Security for registration of transfer at the office or agency of
the Company maintained for such purpose, duly endorsed by, or accompanied by a written
Indenture II TPF VIII
instrument of transfer in form satisfactory to the Company and the Securities Registrar and
duly executed by, the Holder hereof or such Holders attorney duly authorized in writing, and
thereupon one or more new Securities, of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or transferees.
The Securities are issuable only in registered form without coupons in minimum denominations
of $100,000 and any integral multiple of $1,000 in excess thereof. As provided in the Indenture and
subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate
principal amount of Securities and of like tenor of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof for all purposes, whether or not this
Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
The Company and, by its acceptance of this Security or a beneficial interest herein, the
Holder of, and any Person that acquires a beneficial interest in, this Security agree that, for
United States federal, state and local tax purposes, it is intended that this Security constitute
indebtedness.
This Security shall be construed and enforced in accordance with and governed by the laws of
the State of New York, without reference to its conflict of laws provisions (other than
Section 5-1401 of the General Obligations Law).
Indenture II TPF VIII
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed on this 6yh day
of May, 2009.
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ARBOR REALTY SR, INC.,
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By: |
/s/ Paul Elenio
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Name: |
Paul Elenio |
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Title: |
Chief Financial Officer |
|
|
Signature Page Note 6 (Taberna VIII)
Indenture II TPF VIII
This is one of the within mentioned Securities referred to in the within mentioned Indenture.
Dated: May ___, 2009
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THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL
ASSOCIATION, not in its individual capacity, but
solely as Trustee
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By: |
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Authorized signatory |
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A-4
EXHIBIT
B
Schedule of Bonds
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|
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|
|
Cusip |
|
Series |
|
Class |
|
Face |
|
|
Taberna I |
|
|
Taberna V |
|
|
Taberna VII |
|
|
Taberna VIII |
|
1248MLAG8 |
|
CBRE 2007-1A |
|
B |
|
$ |
20,000,000 |
|
|
|
5,153,374 |
|
|
|
4,907,975 |
|
|
|
4,907,975 |
|
|
|
5,030,675 |
|
1248MLAS2 |
|
CBRE 2007-1A |
|
G |
|
$ |
5,000,000 |
|
|
|
1,288,344 |
|
|
|
1,226,994 |
|
|
|
1,226,994 |
|
|
|
1,257,669 |
|
03877VAC9 |
|
ARMSS 2004-1 |
|
C |
|
$ |
1,096,288 |
|
|
|
282,479 |
|
|
|
269,028 |
|
|
|
269,028 |
|
|
|
275,753 |
|
03877VAC9 |
|
ARMSS 2004-1 |
|
C |
|
$ |
2,192,575 |
|
|
|
564,958 |
|
|
|
538,055 |
|
|
|
538,055 |
|
|
|
551,507 |
|
03877VAB1 |
|
ARMSS 2004-1 |
|
B |
|
$ |
4,590,000 |
|
|
|
1,182,699 |
|
|
|
1,126,380 |
|
|
|
1,126,380 |
|
|
|
1,154,540 |
|
03877VAC9 |
|
ARMSS 2004-1 |
|
C |
|
$ |
8,222,158 |
|
|
|
2,118,593 |
|
|
|
2,017,707 |
|
|
|
2,017,707 |
|
|
|
2,068,150 |
|
038927AH2 |
|
ARMSS 2005-1 |
|
H |
|
$ |
1,612,221 |
|
|
|
415,419 |
|
|
|
395,637 |
|
|
|
395,637 |
|
|
|
405,528 |
|
038927AF6 |
|
ARMSS 2005-1 |
|
F |
|
$ |
3,224,442 |
|
|
|
830,838 |
|
|
|
791,274 |
|
|
|
791,274 |
|
|
|
811,056 |
|
038927AH2 |
|
ARMSS 2005-1 |
|
H |
|
$ |
4,030,552 |
|
|
|
1,038,547 |
|
|
|
989,093 |
|
|
|
989,093 |
|
|
|
1,013,820 |
|
03878CAE6 |
|
ARMSS 2006-1 |
|
C |
|
$ |
540,000 |
|
|
|
139,141 |
|
|
|
132,515 |
|
|
|
132,515 |
|
|
|
135,828 |
|
03878CAE6 |
|
ARMSS 2006-1 |
|
C |
|
$ |
770,000 |
|
|
|
198,405 |
|
|
|
188,957 |
|
|
|
188,957 |
|
|
|
193,681 |
|
03878CAH9 |
|
ARMSS 2006-1 |
|
F |
|
$ |
900,000 |
|
|
|
231,902 |
|
|
|
220,859 |
|
|
|
220,859 |
|
|
|
226,380 |
|
03878CAH9 |
|
ARMSS 2006-1 |
|
F |
|
$ |
1,280,000 |
|
|
|
329,816 |
|
|
|
314,110 |
|
|
|
314,110 |
|
|
|
321,963 |
|
03878CAJ5 |
|
ARMSS 2006-1 |
|
G |
|
$ |
1,846,155 |
|
|
|
475,696 |
|
|
|
453,044 |
|
|
|
453,044 |
|
|
|
464,370 |
|
03878CAJ5 |
|
ARMSS 2006-1 |
|
G |
|
$ |
5,000,000 |
|
|
|
1,288,344 |
|
|
|
1,226,994 |
|
|
|
1,226,994 |
|
|
|
1,257,669 |
|
03878CAK2 |
|
ARMSS 2006-1 |
|
H |
|
$ |
7,000,000 |
|
|
|
1,803,681 |
|
|
|
1,717,791 |
|
|
|
1,717,791 |
|
|
|
1,760,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total |
|
|
|
$ |
67,304,391 |
|
|
|
17,342,236 |
|
|
|
16,516,415 |
|
|
|
16,516,415 |
|
|
|
16,929,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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B-1
Cash Allocation
|
|
|
|
|
|
|
Cash Allocation |
|
Taberna I |
|
$ |
2,388,040.40 |
|
Taberna V |
|
$ |
2,274,324.19 |
|
Taberna VII |
|
$ |
2,274,324.19 |
|
Taberna VIII |
|
$ |
2,331,182.30 |
|
|
|
|
|
B-2
EXHIBIT C
Notice Information
|
Taberna: |
|
c/o Taberna Capital Management, LLC |
450 Park Avenue, 11th Floor |
New York, NY 10022 |
Attention: Mr. Raphael Licht |
Facsimile: (212) 243-9039 |
e-mail:
rlicht@raitft.com |
|
Company: |
Arbor Realty SR, Inc. |
333 Earle Ovington Blvd Suite 900 |
Uniondale, New York 11553 |
Attention: Paul Elenio |
Facsimile: (516) 832-6422 |
e-mail:
pelenio@arbor.com |
|
Attention: John Bishar |
Facsimile: (516) 542-2561 |
e-mail: JBishar@arbor.com |
C-1
EXHIBIT D
Interest Payments
D-1
EXHIBIT E
Form of Direction Letter
E-1
JOINT CANCELLATION DIRECTION AND RELEASE
THIS JOINT CANCELLATION DIRECTION AND RELEASE, dated as of February ___, 2010 (this
Cancellation Direction) is entered into by and between ARBOR REALTY SR, INC. (the
Company) and THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION (BNYM),
not in its individual capacity, but solely as Trustee (as defined in the Indenture II described
below).
WHEREAS, the Company and BNYM have entered into that certain Junior Subordinated Indenture
dated as of May 6, 2009 (as amended and supplemented, the Indenture II) pursuant to which
the Company issued certain junior subordinated notes in the original princiapl amount of
$168,000,000 (the Securities);
WHEREAS, pursuant to an Exchange Agreement dated as of February ___, 2010 (the Exchange
Agreement) among the Company, Taberna Preferred Funding I, Ltd., Taberna Preferred Funding V,
Ltd. (Taberna V), Taberna Preferred Funding VII, Ltd. (Taberna VII) and Taberna
Preferred Funding VIII, Ltd. (Taberna VIII, and together with Taberna V and Taberna VII,
the Taberna Entities), each of Taberna V, Taberna VII and Taberna VIII agreed to accept
from the Company certain bonds and cash in exchange for the Companys $28,000,000 principal amount
of Securities held by Taberna V (the Taberna V Securities), $28,000,000 principal amount
of Securities held by Taberna VII (the Taberna VII Securities) and $28,700,000 principal
amount of Securities held by Taberna VIII (the Taberna VIII Securities, together with the
Taberna V Securities and Taberna VII Securities, the Indenture II Exchanged Securities)
as set forth in the Exchange Agreement (the Exchange);
WHEREAS, pursuant to Section 3.8 of the Indenture II, under certain circumstances the Company
is entitled to surrender Securities held by it to the Trustee for cancellation;
WHEREAS, the Exchange occurred on February ___, 2010;
WHEREAS, the Company, as beneficial owner of the Securities desires that all of the Indenture
II Exchanged Securities (equal to $84,700,000 principal amount) be cancelled;
WHEREAS, the Company hereby waives (and directs BNYM as Trustee under the Indenture II to
waive) every applicable condition and prerequisite to the cancellation of the above-referenced
Indenture II Exchanged Securities;
WHEREAS, BNYM as Trustee under the Indenture II, as directed the Company, hereby waives every
applicable condition and prerequisite for which the Trustee is the intended beneficiary, to the
exchange and cancellation of the above-referenced Securities; and
NOW THEREFORE, the Company and the BNYM hereby agree as follows:
SECTION 1. INCORPORATION BY REFERENCE. Capitalized terms defined or referenced in
this Cancellation Direction and not otherwise defined or referenced herein are used herein as
defined or referenced in the Indenture II.
SECTION 2. CANCELLATION DIRECTION. The Company has directed the trustees for each of
the Taberna Entities to deliver the Indenture II Exchanged Securities held by each to the Trustee
for cancellation. The Company hereby (a) consents to the cancellation of the Indenture II
Exchanged Securities and (b) directs BNYM, as Trustee, to cancel the Indenture II Exchanged
Securities. The Company agrees to cooperate with the Trustee by providing such additional
certifications, instructions or other assurances as may be reasonably requested by the Trustee in
order to facilitate cancellation of the Indenture II Exchanged Securities. Following cancellation
of the Indenture II Exchanged Securities, there will be $83,300,000 principal amount of Securities
outstanding under the Indenture II.
E-2
SECTION 3. RELEASE. The Company hereby releases BNYM and agrees to indemnify, defend
and hold BNYM (and its affiliates, directors, officers, stockholders, agents and employees)
harmless from any liability, loss, expense, claim or responsibility of any kind (including the
reasonable fees and expenses of counsel and other experts and out-of-pocket legal costs and
expenses) in respect of or arising from actions taken (or not taken) in accordance with this
Cancellation Direction, in whatever capacity BNYM may be acting hereunder, except to the extent
arising from the negligence or willful misconduct of BNYM..
SECTION 4. BNYM ACCEPTANCE/LIABILITY. BNYM shall not be responsible in any manner
whatsoever for the validity or sufficiency of this Cancellation Direction or the due execution
hereof by any of the parties hereto or for or in respect of the recitals and statements contained
herein, all of which recitals and statements are made solely by the Company. Anything in this
Agreement notwithstanding, in no event shall the Trustee be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited to lost profits),
even if the Trustee has been advised of such loss or damage and regardless of the form of action.
SECTION 5. COUNTERPARTS. This Cancellation Direction shall become effective only upon
BNYMs receipt of a counterpart of this Cancellation Direction duly executed by the all of the
parties hereto. This Cancellation Direction may be executed in any number of counterparts, each of
which shall be deemed to be an original for all purposes, but such counterparts shall together be
deemed to constitute but one and the same instrument. The executed counterparts may be delivered
by facsimile transmission, which facsimile copies shall be deemed original copies.
SECTION 6. EXPENSES. The Company agrees to promptly pay the reasonable attorneys
fees, expenses and disbursements of BNYM in connection with this Cancellation Direction, except to
the extent such fees, expenses and disbursements are paid by Taberna Capital Management, LLC
pursuant to the Exchange Agreement.
SECTION 7. GOVERNING LAW. The laws of the State of New York shall govern this
Cancellation Direction without regard to the conflict of law principles thereof.
SECTION 8. EXECUTION, DELIVERY AND VALIDITY. The Company represents and warrants to
BNYM that this Cancellation Direction has been duly and validly executed and delivered the Company
and constitutes its respective legal, valid and binding obligation, enforceable against the Company
in accordance with its terms. The Company further represents that the actions to be taken
hereunder are authorized and permitted under the Indenture II and any condition precedent to taking
such actions has been satisfied.
E-3
IN WITNESS WHEREOF, the parties hereto have caused this Cancellation Direction to be duly
executed as of the day and year first above written.
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|
ARBOR REALTY SR, INC.
as Company
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|
By: |
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|
Name: |
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|
|
|
Title: |
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|
|
THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL
ASSOCIATION, as Trustee under the Indenture II
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By: |
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Name: |
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Title: |
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E-4
ACKNOWLEDGEMENT
Each of the Taberna Entities acknowledges and agrees that the Exchange has occurred and that each
has surrendered and forfeited any right, claim, title and interest in and to the above-referenced
Indenture II Exchanged Securities held by such Taberna Entity prior to the Exchange.
TABERNA PREFERRED FUNDING V, LTD.
TABERNA PREFERRED FUNDING VII, LTD.
TABERNA PREFERRED FUNDING VIII, LTD.
|
|
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|
|
|
|
|
|
By: |
Taberna Capital Management LLC,
|
|
|
|
as Collateral Manager |
|
|
|
|
|
|
|
|
|
|
By: |
|
|
|
Name: |
Michael A. Fralin |
|
|
Title: |
Managing Director |
|
E-5
JOINT CANCELLATION DIRECTION AND RELEASE
THIS JOINT CANCELLATION DIRECTION AND RELEASE, dated as of February ___, 2010 (this
Cancellation Direction) is entered into by and between ARBOR REALTY SR, INC. (the
Company) AND THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL ASSOCIATION
(BNYM), not in its individual capacity, but solely as Trustee (as defined in the
Indenture I described below).
WHEREAS, the Company and BNYM have entered into that certain Junior Subordinated Indenture
dated as of May 6, 2009 (as amended and supplemented, the Indenture I) pursuant to which
the Company issued certain junior subordinated notes in the original principal amount of
$29,400,000 (the Securities);
WHEREAS, pursuant to an Exchange Agreement dated as of February ___, 2010 (the Exchange
Agreement) among the Company, Taberna Preferred Funding I, Ltd. (Taberna I), Taberna
Preferred Funding V, Ltd., Taberna Preferred Funding VII, Ltd. and Taberna Preferred Funding VIII,
Ltd., Taberna I agreed to accept from the Company certain bonds and cash in exchange for the
Companys Securities held by Taberna I as set forth in the Exchange Agreement (the
Exchange);
WHEREAS, pursuant to Section 3.8 of the Indenture I, under certain circumstances the Company
is entitled to surrender Securities held by it to the Trustee for cancellation;
WHEREAS, the Exchange occurred on February ___, 2010;
WHEREAS, the Company, as beneficial and legal owner of the Securities desires that all of the
Securities issued under the Indenture I (equal to $29,400,000 principal amount) be cancelled;
WHEREAS, the Company hereby waives (and directs BNYM as Trustee under the Indenture I to
waive) every applicable condition and prerequisite to the exchange and cancellation of the above
referenced Securities;
WHEREAS, BNYM as Trustee under the Indenture I, as directed the Company, as beneficial and
legal owner of all of the Securities, hereby waives every applicable condition and prerequisite for
which the Trustee is the intended beneficiary, to the exchange and cancellation of the
above-referenced Securities; and
NOW THEREFORE, the Company and the BNYM hereby agree as follows:
SECTION 1. INCORPORATION BY REFERENCE. Capitalized terms defined or referenced in
this Cancellation Direction and not otherwise defined or referenced herein are used herein as
defined or referenced in the Indenture I.
SECTION 2. CANCELLATION DIRECTION. The Company has directed the trustee for Taberna I
to deliver the Securities to the Trustee for cancellation. The Company hereby (a) consents to the
cancellation of the Securities and (b) directs BNYM, as Trustee, to cancel the Securities. The
Company agrees to cooperate with the Trustee by providing such additional certifications,
instructions or other assurances as may be reasonably requested by the Trustee in order to
facilitate cancellation of the Securities. Following cancellation of the Securities, there will be
no Securities outstanding under the Indenture I.
SECTION 3. RELEASE. The Company hereby releases BNYM and agrees to indemnify, defend
and hold BNYM (and its affiliates, directors, officers, stockholders, agents and employees)
harmless from any liability, loss, expense, claim or responsibility of any kind (including the
reasonable fees and expenses of counsel and other experts and out-of-pocket legal costs and
expenses) in respect of or arising from actions taken (or not taken) in accordance with
E-6
this Cancellation Direction, in whatever capacity BNYM may be acting hereunder, except to the
extent arising from the negligence or willful misconduct of BNYM.
SECTION 4. BNYM ACCEPTANCE/LIABILITY. BNYM shall not be responsible in any manner
whatsoever for the validity or sufficiency of this Cancellation Direction or the due execution
hereof by any of the parties hereto or for or in respect of the recitals and statements contained
herein, all of which recitals and statements are made solely by the Company. Anything in this
Agreement notwithstanding, in no event shall the Trustee be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited to lost profits),
even if the Trustee has been advised of such loss or damage and regardless of the form of action.
SECTION 5. COUNTERPARTS. This Cancellation Direction shall become effective only upon
BNYMs receipt of a counterpart of this Cancellation Direction duly executed by the all of the
parties hereto. This Cancellation Direction may be executed in any number of counterparts, each of
which shall be deemed to be an original for all purposes, but such counterparts shall together be
deemed to constitute but one and the same instrument. The executed counterparts may be delivered
by facsimile transmission, which facsimile copies shall be deemed original copies.
SECTION 6. EXPENSES. The Company agrees to promptly pay the reasonable attorneys
fees, expenses and disbursements of BNYM in connection with this Cancellation Direction, except to
the extent such fees, expenses and disbursements are paid by Taberna Capital Management, LLC
pursuant to the Exchange Agreement.
SECTION 7. GOVERNING LAW. The laws of the State of New York shall govern this
Cancellation Direction without regard to the conflict of law principles thereof.
SECTION 8. EXECUTION, DELIVERY AND VALIDITY. The Company represents and warrants to
BNYM that this Cancellation Direction has been duly and validly executed and delivered the Company
and constitutes its respective legal, valid and binding obligation, enforceable against the Company
in accordance with its terms. The Company further represents that the actions to be taken
hereunder are authorized and permitted under the Indenture I and any condition precedent to taking
such actions has been satisfied.
E-7
IN WITNESS WHEREOF, the parties hereto have caused this Cancellation Direction to be duly
executed as of the day and year first above written.
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|
ARBOR REALTY SR, INC.
as Company
|
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By: |
|
|
|
|
Name: |
|
|
|
|
Title: |
|
|
|
|
THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL
ASSOCIATION,
as Trustee under the Indenture I
|
|
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|
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By: |
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|
|
Name: |
|
|
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Title: |
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E-8
ACKNOWLEDGEMENT
Taberna I acknowledges and agrees that the Exchange has occurred and that it has surrendered and
forfeited any right, claim, title and interest in and to the above-referenced Securities held by
Taberna I prior to the Exchange.
TABERNA PREFERRED FUNDING I, LTD.
|
|
|
|
|
|
|
|
By: |
Taberna Capital Management LLC,
|
|
|
as Collateral Manager |
|
|
|
|
|
|
|
|
By: |
|
|
|
Name: |
Michael A. Fralin |
|
|
Title: |
Managing Director |
|
E-9
ANNEX A-1
Pursuant to Section 3(b) of the Agreement, Cooley, Godward Kronish LLP counsel for the
Company, shall deliver opinions with respect to the related the Exchange Agreement to the effect
that:
1. The Exchange Agreement constitutes the valid and legally binding obligation of the Company,
enforceable against the Company, in accordance with their terms.
Annex A-1-1
ANNEX A-2
Pursuant to Section 3(b) of the Agreement, the General Counsel of Company shall deliver
opinions with respect to the related the Exchange Agreement to the effect that:
1. |
|
Each of the Company (A) is validly existing as a corporation in good standing under the laws
of the State of Maryland; (B) has full power and authority to own or lease its properties and
to conduct its business as such business is currently conducted in all material respects; and
(C) has power and authority to (x) execute and deliver, and to perform its obligations under,
the Exchange Agreement. |
|
2. |
|
Neither (a) the Exchange or (b) the execution and delivery of and compliance with the
Exchange Agreement by the Company or the consummation of the transactions contemplated
thereby, will constitute a breach or violation of the charter or by laws or similar
organizational documents of the Company or any subsidiary of the Company. |
|
3 |
|
. The Exchange Agreement has been duly authorized, executed and delivered by the Company and
constitute the valid and legally binding obligation of the Company enforceable against the
Company, in accordance with its terms, except that the enforcement thereof is subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other
similar laws now or hereafter in effect relating to creditors rights generally and to general
principals of equity and the discretion of the court before which any proceeding to enforce
the Exchange Agreement may be brought (regardless of whether such enforcement is considered in
a proceeding in equity or at law). |
|
4. |
|
The Company is not in breach or violation of, or default under, with or without notice or
lapse of time or both, its articles of incorporation or charter, by-laws or other governing
documents; the execution, delivery and performance of the Exchange Agreement and the
consummation of the transactions contemplated thereby do not and will not (A) to the best of
my knowledge result in the creation or imposition of any material lien, claim, charge,
encumbrance or restriction upon any property or assets of the Company, or (B) conflict with,
constitute a breach or violation of, or constitute a default under, with or without notice or
lapse of time or both, any of the terms, provisions or conditions of (x) the articles of
incorporation or charter, by-laws or other governing documents of the Company, or (y) to the
best of my knowledge, any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease, franchise, license or any of other agreement or instrument to which
the Company is a party or by which any them or any of their respective properties may be bound
or (z) any order, decree, judgment, franchise, license, permit, rule or regulation of any
court, arbitrator, government, or governmental agency or instrumentality, domestic or foreign,
known to me having jurisdiction over the Company or any of its properties which, in the case
of each of (A) or (B)(y) or (z) above, is material to the Company and its subsidiaries on a
consolidated basis. |
|
5. |
|
Except for filings, registrations or qualifications that may be required by applicable
securities laws, no authorization, approval, consent or order of, or filing, registration or
qualification with, any person (including, without limitation, any court, governmental |
Annex A-2-1
|
|
body or authority) is required in connection with the consummation of the transactions
contemplated in the Exchange Agreement. |
Annex A-2-2
exv21w1
EXHIBIT 21.1
SUBSIDIARIES
OF ARBOR REALTY TRUST, INC.
Arbor Realty GPOP, Inc., a Delaware corporation
Arbor Realty LPOP, Inc., a Delaware corporation
Arbor Realty Limited Partnership, a Delaware limited partnership
Arbor Realty SR, Inc., a Maryland corporation
Arbor Realty Funding, LLC, a Delaware limited liability company
Arbor Realty Member LLC, a Delaware limited liability company
ART 450 LLC, a Delaware limited liability company
ARMS 2004-1
Equity Holdings LLC, a Delaware limited liability company
Arbor Realty Mortgage Securities
Series 2004-1
LLC, a Delaware limited liability company
Arbor Realty Mortgage Securities
Series 2004-1,
Ltd., a Cayman Islands exempted company with limited liability
Arbor Realty Collateral Management, LLC, a Delaware limited
liability company
AC Flushing, LLC, a New York limited liability company
AR Prime Holdings LLC, a Delaware limited liability company
Arbor Realty Mortgage Securities
Series 2005-1
Ltd., a Cayman Islands exempted company with limited liability
Arbor Realty Mortgage Securities
Series 2005-1
LLC, a Delaware limited liability company
ARMS 2005-1
Equity Holdings LLC, a Delaware limited liability company
ARSR TRS Holdings LLC (formerly Arbor Toy LLC), a Delaware
limited liability company (TRS)
ARMS 2006-1
Equity Holdings LLC, a Delaware limited liability company
Arbor Realty Mortgage Securities
Series 2006-1
LLC, a Delaware limited liability company
Arbor Realty Mortgage Securities
Series 2006-1,
Ltd., a Cayman Islands exempted company with limited liability
Arbor Realty Participation LLC, a Delaware limited liability
company
ART 823 LLC, a Delaware limited liability company (TRS)
ARSR Tahoe LLC, a Delaware limited liability company
ARSR Jacksonville LLC, a Delaware limited liability company
ARSR Alpine LLC, a Delaware limited liability company (TRS)
Arbor ESH Holdings LLC, a Delaware limited liability company
ARSR Grand Reserve LLC, Del.
Ashley Court Fort Wayne LLC, an Indiana limited
liability company
Richland Terrace Apts. LLC, a South Carolina limited liability
company
Arbor Capital Trust III, a Delaware Statutory Trust
Arbor Capital Trust VI, a Delaware Statutory Trust
Arbor Capital Trust VII, a Delaware Statutory Trust
Arbor Capital Trust VIII, a Delaware Statutory Trust
Arbor Capital Trust IX, a Delaware Statutory Trust
JT Prime LLC, a Delaware limited liability company
WRGS LLC, a Delaware limited liability company
ABT ESI LLC, a Delaware limited liability company
Arbor CM LLC, a Delaware limited liability company
ARSR Solutions LLC, a Delaware limited liability company
Nottingham Village LLC, an Indiana limited liability company
Windrush Village Tall LLC, a Florida limited liability company
St. Louis LLC, a Delaware limited liability company
Beach Property Investment Opportunities LLC, a Delaware limited
liability company
149
exv23w1
EXHIBIT 23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration
Statements on
Form S-3
(No.
333-141044)
and in the related Prospectus, and on
Forms S-8
(Nos.
333-150052
and
333-158671)
pertaining to the Arbor Realty Trust, Inc. 2003 Omnibus Stock
Incentive Plan, as amended and restated, of Arbor Realty Trust,
Inc. and Subsidiaries of our reports dated March 8, 2010,
with respect to the consolidated financial statements and
schedule of Arbor Realty Trust, Inc. and Subsidiaries, and the
effectiveness of internal control over financial reporting of
Arbor Realty Trust, Inc. and Subsidiaries, included in this
Annual Report
(Form 10-K)
for the year ended December 31, 2009.
New York, New York
March 8, 2010
150
exv31w1
EXHIBIT 31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
I, Ivan Kaufman, certify that:
1. I have reviewed this annual report on
Form 10-K
of Arbor Realty Trust, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
Name: Ivan Kaufman
|
|
|
|
Title:
|
Chief Executive Officer
|
Date: March 8, 2010
151
exv31w2
EXHIBIT 31.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
I, Paul Elenio, certify that:
1. I have reviewed this annual report on
Form 10-K
of Arbor Realty Trust, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
Name: Paul Elenio
|
|
|
|
Title:
|
Chief Financial Officer
|
Date: March 8, 2010
152
exv32w1
EXHIBIT 32.1
CERTIFICATION
OF CEO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on
Form 10-K
of Arbor Realty Trust, Inc. (the Company) for the
annual period ended December 31, 2009 as filed with the
Securities and Exchange Commission on the date hereof (the
Report), Ivan Kaufman, as Chief Executive Officer of
the Company, hereby certifies, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of his
knowledge:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
Name: Ivan Kaufman
|
|
|
|
Title:
|
Chief Executive Officer
|
Date: March 8, 2010
This certification accompanies the Report pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 and shall
not, except to the extent required by the Sarbanes-Oxley Act of
2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as
amended.
A signed original of this written statement required by
Section 906 of the Sarbanes-Oxley Act of 2002 has been
provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff
upon request.
153
exv32w2
EXHIBIT 32.2
CERTIFICATION
OF CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on
Form 10-K
of Arbor Realty Trust, Inc. (the Company) for the
annual period ended December 31, 2009 as filed with the
Securities and Exchange Commission on the date hereof (the
Report), Paul Elenio, as Chief Financial Officer of
the Company, hereby certifies, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of his
knowledge:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
Name: Paul Elenio
|
|
|
|
Title:
|
Chief Financial Officer
|
Date: March 8, 2010
This certification accompanies the Report pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 and shall
not, except to the extent required by the Sarbanes-Oxley Act of
2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as
amended.
A signed original of this written statement required by
Section 906 of the Sarbanes-Oxley Act of 2002 has been
provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff
upon request.
154