-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GhWSVSYmj/KRG9wNlHlJz0CzW0+ZuOhtSMaVko+Z24z+10mTqJkdqMJj/WMsjVlW wIQeZbFYxtM2MpLBhUfLPQ== 0001193805-05-002527.txt : 20051212 0001193805-05-002527.hdr.sgml : 20051212 20051212170321 ACCESSION NUMBER: 0001193805-05-002527 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20051207 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20051212 DATE AS OF CHANGE: 20051212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Winthrop Realty Trust CENTRAL INDEX KEY: 0000037008 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 346513657 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06249 FILM NUMBER: 051258929 BUSINESS ADDRESS: STREET 1: 7 BULFINCH PLACE STREET 2: SUITE 500 PO BOX 9507 CITY: BOSTON STATE: MA ZIP: 02114 BUSINESS PHONE: 6175704614 MAIL ADDRESS: STREET 1: 7 BULFINCH PLACE STREET 2: SUITE 500 PO BOX 9507 CITY: BOSTON STATE: MA ZIP: 02114 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION REAL ESTATE EQUITY & MORTGAGE INVESTMENTS DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION REALTY DATE OF NAME CHANGE: 19691012 8-K 1 e501257_8k-winthrop.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported) December 7, 2005 WINTHROP REALTY TRUST ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Ohio ---------------------------------------------- (State or Other Jurisdiction of Incorporation) 001-06249 34-6513657 ------------------------ ------------------------------------ (Commission File Number) (I.R.S. Employer Identification No.) 7 Bulfinch Place, Suite 500, P.O. Box 9507, Boston, Massachusetts 02114 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (617) 570-4600 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) n/a ------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFT|R 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 2.01. Completion of Acquisition or Disposition of Assets. On December 8, 2005, FT-Toy LLC ("FT-Toy"), a Delaware limited liability company in which WRT Realty L.P., the Registrant's operating partnership, holds a one-third interest and is the managing member, acquired a 99% participation interest in a $60,000,000 fourth priority mezzanine loan (the "Mezzanine Loan") secured by the equity interests in the indirect owner of a property located in New York, New York commonly referred to as the Toy Building for a purchase price of $59,400,000. The purchase price was funded from $9,800,000 of capital contributions from WRT Realty and each of the joint venture partners and a $30,000,000 loan from Arbor Realty Funding LLC (the "Lender") which is described in Item 2.03 below. Pursuant to the terms of the FT-Toy operating agreement and consistent with the provisions of the Investors' Rights Agreement between the Registrant and the holders of the Series B-1 Preferred shares, WRT Realty will be entitled to an additional 20% interest in FT-Toy at such time as the joint venture partners, two Series B-1 Preferred Shareholders, receive a return of their investment amount plus a cumulative 7% per annum thereon. The participation interest was acquired from the Lender, an unaffiliated third party, pursuant to the terms of a Participation and Servicing Agreement (the "Participation Agreement"). Pursuant to the terms of the Participation Agreement, FT-Toy is entitled to receive a payment on account of its $59,400,000 participation interest at rate of LIBOR plus 5.6%, which interest is paid monthly. Further, FT-Toy has substantial control rights with respect to decisions to be made by the lender under the terms of the agreements governing the Mezzanine Loan and has an option to acquire the remaining 1% interest upon the occurrence of certain events. Alternatively, the Lender has the right to acquire from FT-Toy its participation upon the occurrence of certain events together with a 1% premium if such acquisition occurs prior to December 7, 2006 and a .5% premium if the acquisition occurs between December 7, 2006 and June 7, 2007 and certain other conditions are satisfied. After giving effect to the financing described in Item 2.03 below but prior to the promoted interest, the current yield to the Registrant is expected to be approximately 12.6% ITEM 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. On December 7, 2005, FT-Toy obtained a loan from the Lender in the original principal amount of $30,000,000. The loan bears interest at LIBOR plus 300 basis points (subject to increase based on the Lender's borrowing rates), matures on April 9, 2008, subject to a one-year extension (which is co-terminus with the Mezzanine Loan), and requires monthly payments of interest only. The loan is secured by FT-Toy's participation interest in the Mezzanine Loan. The loan is prepayable at any time without premium or penalty. In connection with the loan, the Registrant was required to provide standard non-recourse carve-out guarantees to the lenders. ITEM 9.01 Financial Statements and Exhibits. (c) Exhibits 10.1 Participation and Servicing Agreement, dated December 8, 2005, between Arbor Realty Funding LLC (the "Lender") and FT-Toy LLC. 10.2 Loan Agreement, dated December 7, 2005, between the Lender and FT-Toy LLC 10.3 Promissory Note, dated December 7, 2005, between the Lender and FT-Toy LLC 10.4 Pledge Agreement, dated December 7, 2005, from FT-Toy LLC to the Lender. 10.5 Guaranty from Winthrop Realty Trust in favor of the Lender. 99.1 Press Release dated December 8, 2005 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized on this 12th day of December, 2005. WINTHROP REALTY TRUST By: /s/ Peter Braverman ------------------------ Peter Braverman President EX-10.1 2 e501257_ex10-1.txt PARTICIPATION AGREEMENT FINAL PARTICIPATION AND SERVICING AGREEMENT THIS PARTICIPATION AND SERVICING AGREEMENT (this "Agreement") dated as of the 8th day of December, 2005 by and between ARBOR REALTY FUNDING LLC, having an address at 333 Ovington Boulevard, Uniondale, New York 11533 (together with its successors and assigns as holder of the Senior Participation Interest, "Senior Participant"), and FT-TOY LLC, having an address at 7 Bulfinch Place, Suite 500, P.O. Box 9507, Boston, Massachusetts 02114 (together with its successors and assigns as holder of the Junior Participation Interest, "Junior Participant"). RECITALS: A. Pursuant to that certain Fourth Mezzanine Loan Agreement dated as of July 28, 2005 (as amended, modified or supplemented, the "Loan Agreement"), Column Financial, Inc. ("Column") originated that certain mezzanine loan in the original principal sum of $60,000,000.00 (the "Loan") to 200 Fifth Mezz Four LLC (the "Borrower"), which Loan is (i) evidenced by that certain Promissory Note dated as of July 28, 2005, in the original principal amount of $60,000,000.00 (together with any and all renewals, amendments, modifications, consolidations and extensions thereof, the "Promissory Note"), and (ii) secured, inter alia, by a pledge of one hundred percent of the limited liability company interests (the "Property") in 200 Fifth Mezz Three LLC ("Mezz Three") pursuant to that certain Pledge and Security Agreement dated as of July 28, 2005 (as amended, modified or supplemented, the "Pledge"). B. Mezz Three is the owner of one hundred percent of the limited liability company interests in 200 Fifth Mezz Two LLC ("Mezz Two"); Mezz Two is the owner of one hundred percent of the limited liability company interests in 200 Fifth Mezz One LLC ("Mezz One"); and Mezz One is the owner of one hundred percent of the limited liability company interests in 200 Fifth, LLC Owner"), the owner of a fee estate in certain property located at 200 Fifth Avenue, 1107 Broadway, 23 West 23rd Street and 7 West 24th Street, New York, New York and commonly known as The International Toy Center (the "Premises"). C. All documents evidencing or securing the Loan (including, without limitation, the Loan Agreement, the Promissory Note, the Rate Cap Agreement and the Guaranty (each as hereinafter defined)) shall be collectively referred to herein as the "Loan Documents." D. On the date hereof, and simultaneously with the execution of this Agreement, Senior Participant is acquiring the Loan. E. Senior Participant desires to sell, transfer and assign to Junior Participant the Junior Participation Interest, and Junior Participant desires to purchase from Senior Participant the Junior Participation Interest, upon and in accordance with the terms of this Agreement. D. Capitalized terms not specifically defined herein shall have the meanings ascribed thereto in the Loan Agreement, and if a capitalized term is not defined in the Loan Agreement, it shall have the meaning ascribed thereto in the other Loan Documents. NOW, THEREFORE, in consideration of the foregoing and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby covenant, agree, represent and warrant as follows: 1. Definitions. References to a "Section", the "preamble" or the "recitals" are, unless otherwise specified, to a Section, the preamble or the recitals of this Agreement. Whenever used in this Agreement, the following terms shall have the respective meanings set forth below unless the context clearly requires otherwise. "Accepted Servicing Practices" shall mean the higher of (a) the same care, skill, prudence and diligence with which Senior Participant services and administers similar loans for other third party portfolios, giving due consideration to customary and usual standards of practice of prudent institutional commercial lenders servicing their own loans and (b) the same care, skill, prudence and diligence which Senior Participant utilizes for loans which Senior Participant owns for its own account, in each case, acting in accordance with applicable law, the terms of this Agreement, the Loan Documents and the Loan's insurance policies and with a view to the maximization of timely recovery of principal and interest on a net present value basis on the Loan as a whole, but without regard to: (i) any relationship that Senior Participant or any Affiliate of Senior Participant may have with the Borrower or any Affiliates of the Borrower; (ii) the ownership of any interest in the Loan by Senior Participant or any Affiliate of Senior Participant; (iii) the ownership of any senior or junior indebtedness with respect to the Premises by Senior Participant or any Affiliate of Senior Participant; or (iv) the ownership, or servicing or management for others, by Senior Participant or any sub-servicer, of any other loans or properties. "Agreement" shall mean this Participation and Servicing Agreement, the exhibits and schedules hereto and all amendments hereof and supplements hereto. "Borrower" shall have the meaning assigned to such term in the recitals. "Borrower Related Parties" shall have the meaning assigned to such term in Section 13. "Costs" shall mean all third party out-of-pocket costs, fees (not including any servicing fees or special servicing fees), expenses, payments, losses, liabilities, judgments and/or causes of action reasonably suffered or incurred or paid or to be paid by the holder of the Loan pursuant to or in connection with the Loan, the Loan Documents, the Property, this Agreement or otherwise in connection with the Loan and the servicing, administration and/or enforcement pursuant to the terms of this Agreement, including, without limitation, attorneys' fees and disbursements, protective advances under the Loan Documents to the extent permitted hereunder, and Intercreditor Payments, 2 except for those resulting from Senior Participant's gross negligence or willful misconduct; provided, however, that neither (a) Senior Participant's day-to-day customary and usual, ordinary costs of servicing and administration nor (b) any internal or overhead costs of Senior Participant shall be deemed to be "Costs." "Cure Election Notice" shall have the meaning assigned to such term in Section 5. "Cure Option Notice" shall have the meaning assigned to such term in Section 5. "Cure Payment" shall have the meaning assigned to such term in Section 5. "Cure Period" shall have the meaning assigned to such term in Section 5. "Initial Junior Participant" shall mean FT-Toy LLC, a Delaware limited liability company. "Initial Senior Participant" shall mean Arbor Realty Funding LLC, a Delaware limited liability company. "Insolvency Proceeding" shall mean any proceeding under the Bankruptcy Code or any other insolvency, liquidation, reorganization or other similar proceeding concerning the Borrower, any action for the dissolution of the Borrower, any proceeding (judicial or otherwise) concerning the application of the assets of the Borrower, for the benefit of its creditors, the appointment of or any proceeding seeking the appointment of a trustee, receiver or other similar custodian for all or any substantial part of the assets of the Borrower or any other action concerning the adjustment of the debts of the Borrower or the cessation of business by the Borrower. "Intercreditor Agreement" shall mean that certain Intercreditor Agreement dated as of July 28, 2005 among Column, as Senior Lender, Column, as First Mezzanine Lender, Column, as Second Mezzanine Lender, Column, as Third Mezzanine Lender, Column, as Fourth Mezzanine Lender and Column, as Fifth Mezzanine Lender. "Intercreditor Payments" shall mean all amounts payable by the holder of the Loan pursuant to the terms of the Intercreditor Agreement. "Junior Participant" shall mean the Initial Junior Participant or any subsequent holder of the Junior Participation Interest. "Junior Participant Loan" shall mean the loan made by Senior Participant to Junior Participant on the date hereof in the original principal amount of $30,000,000.00. "Junior Participant Loan Agreement" shall mean that certain Loan Agreement between Senior Participant and Junior Participant dated as of the date hereof. "Junior Participant Loan Documents" shall mean that certain Promissory Note dated as of the date hereof executed by Junior Participant to the order of Senior Participant in the original principal amount of $30,000,000.00, the Junior Participant Loan Agreement and all other documents and instruments evidencing and securing, or executed in connection with, the Junior Participant Loan. 3 "Junior Participant Loan Event of Default" shall mean the occurrence of an Event of Default (as defined in the Junior Participant Loan Documents) under the Junior Participant Loan Documents. "Junior Participant Loan Interest Payment" shall mean, on any date of determination, the amount of interest then due from Junior Participant under the Junior Participant Loan Documents. "Junior Participant Loan Principal Balance" shall mean, on any date of determination, the then outstanding principal amount of the Junior Participant Loan. "Junior Participation Applicable Spread" shall mean 5% plus one-half of the difference between the Applicable Spread (as defined in the Loan Agreement) and 5%. For example purposes only, if the Applicable Spread is 6.2%, then the Junior Participation Applicable Spread shall equal 5.6% [5% + 1/2(6.2%-5%). "Junior Participation Default Rate" shall mean the lesser of (a) the highest rate allowable at law and (b) the sum of the Junior Participation Rate plus 2.50%. "Junior Participation Interest" shall mean a direct, participating beneficial ownership interest in the Loan, the Loan Documents and the proceeds thereof, together with the other rights and privileges specified in this Agreement, but subject and subordinate to the Senior Participation Interest as provided in this Agreement. "Junior Participation Monthly Interest Payment" shall mean, on any date of determination, an amount equal to the accrued and unpaid interest on the Junior Participation Principal Balance at the Junior Participation Rate (or the Junior Participation Default Rate in the event that Borrower is paying interest on the Loan at the default rate set forth in the Loan Documents), through the end of the Interest Period during which the applicable Monthly Payment Date occurs. "Junior Participation Monthly Net Interest Payment" shall mean, on any date of determination, an amount equal to the Junior Participation Monthly Interest Payment minus the Junior Participant Loan Interest Payment. "Junior Participation Principal Balance" shall mean, on any date of determination, $59,400,000, less the sum of any amount previously applied in reduction of such amount pursuant to Section 2(c)(ii), Section 2(d) or Section 2(e). "Junior Participation Rate" shall mean the LIBOR Rate plus the Junior Participation Applicable Spread. "Loan" shall have the meaning assigned to such term in the recitals. "Loan Documents" shall have the meaning assigned to such term in the recitals. "Loan Agreement" shall have the meaning assigned to such term in the recitals. 4 "Mezzanine Loan Default" shall mean (a) the occurrence of an Event of Default (as defined in the Loan Documents) and/or (b) the failure of the Borrower to pay any amount due under the Loan Documents when due, whether or not an Event of Default is declared. "Non-Exempt Person" shall have the meaning assigned to such term in Section 19. "Premises" shall have the meaning assigned to such term in the recitals. "Prime Rate" shall mean the "Prime Rate" in effect from time to time (as published in the "Money Rates" section of The Wall Street Journal or, if such section or publication no longer is available, such other publication as determined by Senior Participant in its reasonable discretion). "Promissory Note" shall have the meaning assigned to such term in the recitals. "Property" shall have the meaning assigned to such term in the recitals. "Repurchase Agreement" shall mean that certain First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of July 12, 2004, among Senior Participant, Wachovia, Arbor Realty Trust, Inc., Arbor Realty Limited Partnership and Arbor Realty SR, Inc. as amended by that certain First Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of November 11, 2004, that certain Second Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of December 22, 2004, that certain Omnibus Amendment of Certain Repurchase Documents; Purchaser's Consent; and Joinder, dated as of January 19, 2005, that certain Third Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of February 25, 2005, that certain Fourth Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of May 27, 2005, that certain Fifth Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of June 29, 2005, that certain Sixth Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of October 28, 2005 and that certain Seventh Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of November 9, 2005. "Repurchase Agreement Default" shall mean an event of default or Termination Event (as defined in the Repurchase Agreement) under the Repurchase Agreement pursuant to which Wachovia has the right to exercise remedies with respect to its interest in the Loan. "Securitization" shall mean the transaction pursuant to which Senior Participant will transfer the Loan to a trustee in connection with the securitization or creation of collateralized debt obligations. "Securitization Date" shall mean the closing date on which the Securitization is consummated. "Securitization Repurchase Amount" shall mean (i) one percent (1%) of the then Junior Participation Principal Balance if the purchase is made prior to December __, 2006, (ii) one-half of one percent (0.5%) of the then Junior Participation Principal Balance if (a) the purchase is made after December 6, 2006 and prior to June 6, 2007 and (b) Senior Participant retains an ownership 5 interest in the Loan after the Securitization Date (other than any equity interests in the issuer of the applicable collateralized debt obligations), (iii) zero if (x) the purchase is made after December 6, 2006 and prior to June 6, 2007 and (y) Senior Participant does not retain an ownership interest in the Loan after the Securitization Date (other than any equity interests in the issuer of the applicable collateralized debt obligations), and (iv) zero if after June 6, 2007. "Senior Participant" shall mean the Initial Senior Participant or any subsequent holder of the Senior Participation Interest. "Senior Participation Interest" shall mean legal ownership of the entire Loan and the net economic interest of Senior Participant after giving effect to the Junior Participation Interests. "Senior Participation Principal Balance" shall mean, on any date of determination, $600,000, less the sum of any amount previously applied in reduction of such amount pursuant to Section 2(c)(ii). "Senior Participation Purchase Price" shall mean an amount equal to the sum of (a) the then outstanding Senior Participation Principal Balance, (b) one percent (1%) of all accrued and unpaid interest and other sums due under the Loan Documents, and (c) all Costs incurred or paid by Senior Participant, to the extent not previously reimbursed. "Servicing Event of Default" shall mean any one of the following events: (a) any failure by Senior Participant to remit to Junior Participant any amount required to be so remitted by Senior Participant in servicing the Loan pursuant to, and at the time specified by, the terms of this Agreement, and such failure continues unremedied for more than three (3) Business Days after the date on which the remittance was due; (b) any failure on the part of Senior Participant to (i) duly abide by Accepted Servicing Practices, or (ii) observe or perform in any material respect any other of the material covenants or agreements of Senior Participant relating to the servicing of the Loan under this Agreement, which, in either case, continues unremedied for a period of 15 days (or if not otherwise curable within such 15 day period, for such additional period as is reasonably necessary to remedy same; provided Senior Participant is diligently pursuing such, but in no event longer than 60 days) after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to Senior Participant by Junior Participant; (c) the entry of a decree or order of a court or agency or supervisory authority having jurisdiction for the appointment of a conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings against Senior Participant or for the winding-up or liquidation of the affairs of Senior Participant and such decree or order remains unstayed and in effect for a period of 60 days; (d) the consent by Senior Participant to the appointment of a conservator or receiver or liquidator or liquidating committee in any 6 insolvency, readjustment of debt, marshalling of assets and liabilities, voluntary liquidation or similar proceedings of or relating to Senior Participant or relating to all or substantially all of the property of Senior Participant; or (e) the admission by Senior Participant in writing of its inability to pay its debts generally as they become due, the filing by Senior Participant of a petition to take advantage of any applicable insolvency or reorganization statute, the making by Senior Participant of an assignment for the benefit of its creditors or the voluntary suspension by Senior Participant of payment of substantially all of its obligations. "Taxes" shall have the meaning assigned to such term in Section 19. "Transfer" shall have the meaning assigned such term in Section 12. "Wachovia" shall mean Wachovia Bank, National Association. 2. Purchase of the Junior Participation Interests; Payments to Senior Participant and Junior Participant. (a) Junior Participant hereby purchases the Junior Participation Interest from Senior Participant for the purchase price of Fifty-Nine Million Four Hundred Thousand Dollars ($59,400,000). The purchase price shall be paid on the date hereof in immediately available federal funds. Notwithstanding anything herein to the contrary, the parties hereto acknowledge and agree that the Junior Participation Interest does not represent a direct ownership interest in the Loan, but rather the Junior Participation Interest constitutes a direct, participating beneficial ownership interest in the Loan. Senior Participant shall retain record legal title to the entire Loan, and Junior Participant shall be deemed to be in privity only with Senior Participant but in no event whatsoever shall Junior Participant be construed to be in privity with the Borrower. (b) All payments and proceeds (of whatever nature including, without limitation, payments made under any interest rate cap agreement) received with respect to interest on the Loan will be applied in the following order of priority: (i) first, to pay or reimburse all Costs; (ii) second, to Senior Participant in an amount equal to all amounts then due from Junior Participant under the Junior Participant Loan Documents, other than interest and principal, (iii) third, to Junior Participant in an amount equal to the Junior Participation Monthly Interest Payment; provided, if the Junior Participant Loan is outstanding, a portion of such Junior Participation Monthly Interest Payment equal to Junior Participant Loan Interest Payment shall first be paid directly to Senior Participant on account of Junior Participant's obligations to pay interest under Junior Participant Loan Documents and the Junior Participation Monthly Net Interest Payment shall be paid to Junior Participant (it being understood and agreed that if the amounts paid by Borrower on any Monthly Payment Date are insufficient to pay the amounts set forth pursuant to clauses (i) through (iii), all amounts remaining after application pursuant to clauses (i) and (ii) shall first be paid directly to Senior Participant until the Junior Participant Loan Interest Payment then due and payable is paid in full before 7 payment to Junior Participant of any portion of the Junior Participation Monthly Net Interest Payment), (iv) fourth, to Junior Participant any unreimbursed Cure Payments, and (v) fifth, to Senior Participant the balance of such payments received. Any amount paid to Senior Participant pursuant to Section 2(b)(iii) on account of the Junior Participant Loan Interest Payment shall be deemed a payment of such amount to the Junior Participant and a simultaneous payment of such amount by Junior Participant to Senior Participant of the Junior Participant Loan Interest Payment. (c) All payments and proceeds of whatever nature (excluding any amounts for required reserves or escrows required by the Loan Documents and proceeds, awards or settlements to be applied to the restoration or repair of the Property or released to the Borrower in accordance with the terms of the Loan Documents) received with respect to the Loan (other than with respect to interest), will be applied in the following order of priority: (i) first, to pay or reimburse all Costs (to the extent not paid from funds applied pursuant to Section 2(b)); (ii) second to Senior Participant and Junior Participant, pro rata (based upon the then outstanding Senior Participation Principal Balance and Junior Participation Principal Balance), in an amount equal to the Senior Participation Principal Balance and the Junior Participation Principal Balance, respectively, until paid in full; (iii) third, to Senior Participant and Junior Participant, pro rata (based upon the then outstanding Senior Participation Principal Balance and Junior Participation Principal Balance), in an amount equal to the portion of any prepayment premium, extension fee or exit fee, (iv) fourth, to Junior Participant in an amount equal to any unreimbursed Cure Payments and (v) fifth, any excess, pro rata, to Senior Participant and Junior Participant (based upon the then outstanding Senior Participation Principal Balance and Junior Participation Principal Balance). (d) Notwithstanding anything to the contrary contained herein, for so long as the Junior Participant Loan is outstanding, all amounts that are payable to Junior Participant pursuant to Section 2(c)(ii) shall first be paid directly to Senior Participant in reduction of the Junior Participant Loan Principal Balance until such Junior Participant Loan Principal Balance is paid in full with the balance to be remitted to the Junior Participant. All payments made to Senior Participant pursuant to this Section 2(d) shall be deemed payments to the Junior Participant in reduction of the Junior Participation Principal Balance and simultaneous payments of such amounts by Junior Participant to Senior Participant in reduction of the Junior Participant Loan Principal Balance. (e) Notwithstanding anything to the contrary contained herein, upon the occurrence of a Mezzanine Loan Default or a Junior Participant Loan Event of Default, all amounts that are payable to Junior Participant pursuant to Section 2(b) and 2(c) shall be paid directly to Senior Participant until the Junior Participant Loan and all accrued interest and other sums due have been paid in full. All payments made to Senior Participant pursuant to this Section 2(e) shall be deemed payments to the Junior Participant and simultaneous payments of such amounts by Junior Participant to Senior Participant on account of its obligations to pay the Junior Participant Loan and all accrued interest and other sums due under the Junior Participant Loan Documents. To the extent such amounts would have been payments in reduction of the Junior Participation Principal Balance under Section 2(c)(ii) or deemed payments in reduction of the Junior Participation Principal Balance under Section 2(d), such amounts shall be deemed applied to reduce the outstanding Junior Participation Principal Balance. 3. Administration of the Loan Generally. 8 (a) Senior Participant shall administer the Loan in a manner consistent with the terms of this Agreement, the Loan Documents, Accepted Servicing Practices and applicable law. (b) Senior Participant shall distribute to Junior Participant, within three (3) Business Days after the applicable Monthly Payment Date, all payments due to Junior Participant with respect to its Junior Participation Interest, to the extent that funds received in respect of the Loan are allocated to amounts due with respect to Junior Participation Interest in accordance with Section 2. Senior Participant shall deliver to Junior Participant a statement on or before each remittance date under this Agreement reflecting Senior Participant's calculation of the payment due to Junior Participant under the terms of the Loan Documents. (c) Senior Participant shall deliver to Junior Participant the operating statements, financial statements and budgets delivered by the Borrower pursuant to the Loan Agreement promptly after receipt thereof. (d) Senior Participant shall keep and maintain accounting records upon which shall be recorded all amounts payable to Junior Participant pursuant to the terms of the Loan Documents. Such accounting records shall at all times reflect the current and correct outstanding principal balance of the Promissory Note, the Senior Participation Interest and Junior Participation Interest. Junior Participant shall have the right upon reasonable notice to Senior Participant, at any reasonable time during normal business hours and at Junior Participant's expense, to have access to and to examine Senior Participant's books and records relating to the Promissory Note, the Senior Participation Interest, the Junior Participation Interest, the Loan Documents and the Property. (e) Senior Participant shall, subject to Accepted Servicing Practices, make all decisions with respect to the ordinary day-to-day matters regarding the administration of the Loan, including determination of the LIBOR Rate to be utilized in the calculation of the applicable interest rate under the Promissory Note. (f) Subject to the terms of Section 3(g), Senior Participant shall not make any decisions or take any actions other than with respect to ordinary day-to-day matters regarding the administration of the Loan without the prior written consent of Junior Participant. Decisions and/or actions requiring the consent of Junior Participant include, without limitation, decisions and/or actions to (i) modify or waive any of the terms of the Loan Documents, (ii) consent to any action or failure to act by the Borrower or any party to the Loan Documents, (iii) vote all claims with respect to the Loan in any bankruptcy, insolvency or similar proceedings, whether voluntary or involuntary including the right to approve or reject any plan of reorganization, (iv) take legal action to enforce or protect Senior Participant's and Junior Participant's interests with respect to the Loan or to exercise or refrain from exercising any powers or rights which Senior Participant may have under the Loan Documents, including, without limitation, the right at any time to accelerate, or refrain from accelerating, the Loan, to foreclose and sell and otherwise deal with the Property, or refrain from foreclosing, selling or otherwise dealing with the Property, and to enforce or refrain from enforcing the Loan Documents, (v) make 9 protective advances to protect the Property and/or the Premises, (vi) exercise or refrain from exercising any rights (including cure rights and purchase options) granted to the holder of the Loan under the Intercreditor Agreement, (vii) retain professionals in connection with the enforcement of the Loan, including attorneys and accountants, and (viii) voluntarily incur any Costs. (g) Notwithstanding the foregoing, Junior Participant shall not give any direction to, or approve or disapprove of an action of, Senior Participant that would cause Senior Participant to take any action or refrain from taking any action which would violate any law of any applicable jurisdiction or the Repurchase Agreement, or be inconsistent with this Agreement, the Intercreditor Agreement or the Loan Documents. Notwithstanding anything to the contrary in this Agreement, in no event shall Senior Participant be required to take any action or refrain from taking any action which would violate any law of any applicable jurisdiction, the Repurchase Agreement, the Intercreditor Agreement or the Loan Documents. The taking, or refraining from taking, of any action by Senior Participant contrary to the directions of, or in a manner disapproved by, Junior Participant shall not constitute a Servicing Event of Default so long as Senior Participant's taking, or refraining from taking, such action in accordance with the direction of, or with the approval of, Junior Participant would have violated any law of any applicable jurisdiction, the Repurchase Agreement, the Intercreditor Agreement, the Loan Documents or any other provision of this Agreement. (h) Senior Participant shall have the right to delegate its servicing duties hereunder to Arbor Commercial Mortgage, LLC, an Affiliate of Senior Participant. 4. Payment Procedure. (a) Senior Participant, in accordance with the priorities set forth in Section 2, shall transfer all compensation with respect to the Senior Participation Interest and the Junior Participation Interest pursuant to the recipient's written instructions. Senior Participant shall deposit such amounts to the applicable account within three (3) Business Days following the date such payment was received by Senior Participant from the Borrower. (b) If Senior Participant determines, or a court of competent jurisdiction orders, at any time that any amount received or collected in respect of the Senior Participation Interest or the Junior Participation Interest must, pursuant to any insolvency, bankruptcy, fraudulent conveyance, preference or similar law, be returned to the Borrower or paid to any other Person, then, notwithstanding any other provision of this Agreement, Senior Participant shall not be required to distribute any portion thereof to Junior Participant or Senior Participant, as applicable, and Junior Participant will promptly on demand by Senior Participant repay to Senior Participant any portion thereof that Senior Participant shall have theretofore distributed to Junior Participant together with interest thereon at such rate, if any, as Senior Participant shall have been required (or entitled, in the case of itself) to pay to the Borrower or such other Person with respect thereto. (c) If, for any reason, Senior Participant makes any payment to Junior Participant before Senior Participant has received the corresponding payment (it being understood that Senior Participant is under no obligation to do so), and Senior Participant does not receive the corresponding payment within five (5) Business Days of its payment to Junior Participant, Junior Participant will, at Senior Participant's request, promptly return that payment to Senior Participant (together with, in the event that Junior Participant fails to return 10 such payment within three (3) Business Days of Senior Participant's request, interest on that payment at the Prime Rate for each day from the date which is three (3) days after the date of such request through the date prior to the date it is returned to Senior Participant). (d) Each of Senior Participant and Junior Participant agrees that if at any time it shall receive from any sources whatsoever any payment on account of the Loan in excess of its distributable share thereof, it will promptly remit such excess to Junior Participant or Senior Participant, as the case may be. Senior Participant shall have the right to offset any amounts due hereunder from Junior Participant with respect to the Loan or the Junior Participant Loan against any future payments due to Junior Participant under the Loan. Senior Participant's and Junior Participant's obligations under this Section 4 constitute absolute, unconditional and continuing obligations. 5. Junior Participant's Cure and Purchase Rights. (a) In the event any monetary default beyond applicable notice and grace periods or non-monetary default beyond applicable notice and grace periods (of which Senior Participant has knowledge) shall exist with respect to the Loan, then, upon notice from Senior Participant (a "Cure Option Notice") of the occurrence of such default beyond applicable notice and grace periods (which notice Senior Participant shall promptly give to Junior Participant upon receipt of knowledge thereof), Junior Participant shall have the right, which right shall be exercisable by Junior Participant giving written notice of its intent to cure a default specified in a Cure Option Notice to the extent permitted in this Section 5 (a "Cure Election Notice") to Senior Participant within two (2) Business Days of receipt of the Cure Option Notice, to exercise the rights granted to it pursuant to this Section 5. In the event that Junior Participant has delivered a Cure Election Notice, the default must be cured by Junior Participant within, in the case of a monetary default, five (5) Business Days of receipt of such Cure Option Notice and, in the case of a non-monetary default, thirty (30) days of receipt of such Cure Option Notice (such period, the "Cure Period"). In the event that Junior Participant elects to cure a default that can be cured by the payment of money (each such payment, a "Cure Payment"), then, during the time period it is entitled to effect a cure as provided above, Junior Participant shall make such Cure Payment as directed by Senior Participant. The right of Junior Participant to reimbursement of any Cure Payment will be subordinate in all respects to the payment of all other amounts due with respect to the Junior Participant Loan. Notwithstanding anything to the contrary contained in this Section 5, (a) Junior Participant's right to cure a monetary default or non-monetary default shall be limited to five (5) Cure Events over the life of the Loan and (b) no single Cure Event may exceed three (3) consecutive months. As used herein, "Cure Event" means Junior Participant's exercise of cure rights, whether for one (1) month or for consecutive months in the aggregate. (b) Upon written notice from Senior Participant (a "Purchase Option Notice") of the occurrence of a Mezzanine Loan Default (which notice Senior Participant shall promptly give to Junior Participant upon receipt of knowledge thereof and which may be included in a Cure Option Notice, if applicable), Junior Participant shall have the right to purchase the Senior Participation Interest at the Senior Participation Purchase Price, which right shall be exercisable by Junior Participant giving written notice of its intent to purchase the Senior Participation Interest (a "Purchase Notice") to Senior Participant within five (5) Business Days of receipt of the Purchase Option Notice. In the event that Junior Participant has delivered a Purchase Notice, then Junior Participant shall purchase, and Senior Participant shall sell to Junior Participant, the Senior Participation Interest on a date mutually agreed upon by the parties (the "Purchase Date"), but in no event later than ten (10) 11 days after delivery of the Purchase Notice (or, if Junior Participant is exercising its cure option pursuant to Section 5(a), ten (10) days after the earlier of (x) the date on which Junior Participant no longer has the right to cure such Mezzanine Loan Default under Section 5(a) and (y) the date on which Junior Participant ceases curing such Mezzanine Loan Default). The Senior Participation Purchase Price shall be calculated by Senior Participant three (3) Business Days prior to the Purchase Date (and such calculation shall be accompanied by reasonably detailed back-up documentation explaining how such price was determined) and shall, absent manifest error, be binding upon Junior Participant. Upon the consummation of the sale of the Senior Participation Interest, (i) Senior Participant shall assign to Junior Participant (without recourse or warranty except for a representation that it owns the Senior Participation Interest free and clear, and that it is authorized to execute the assignment documentation) all of its right, title and interest in and to the Senior Participation Interest, the Loan and the Loan Documents and (ii) simultaneously therewith, Junior Participant shall be required to pay in full all amounts due and owing on the Junior Participant Loan . At the closing of the transfer, Senior Participant shall deliver (or shall instruct Wachovia (or its custodian) to deliver) to Junior Participant (or its designee) copies of all relevant files and documents, to the extent then in its possession. Notwithstanding anything to the contrary contained in this Section 5(b), (A) (i) during the period in which the Senior Participation Interest is subject to purchase by the Junior Participant pursuant to this Section 5(b), the Loan shall continue to be serviced in accordance with Accepted Servicing Practices and (ii) the right of Junior Participant to purchase the Senior Participation Interest shall automatically terminate upon the cure by Borrower of the Mezzanine Loan Default. The rights granted to Junior Participant hereunder are subject to all purchase options granted under the Intercreditor Agreement. (c) Upon written notice from Senior Participant (a "Repurchase Option Notice") of the occurrence of a Repurchase Agreement Default (which notice Senior Participant shall promptly give to Junior Participant upon receipt of knowledge thereof and which may be included in a Cure Option Notice, if applicable), Junior Participant shall have the right to purchase the Senior Participation Interest at the Senior Participation Purchase Price, which right shall be exercisable by Junior Participant giving written notice of its intent to purchase the Senior Participation Interest (a "Repurchase Notice") to Senior Participant within one (1) Business Day of receipt of the Repurchase Option Notice (as the same may be extended if Wachovia grants Senior Participant more than two (2) Business Days to repurchase the Loan). In the event that Junior Participant has delivered a Repurchase Notice, then Junior Participant shall purchase, and Senior Participant shall sell to Junior Participant, the Senior Participation Interest on the (the "Repurchase Date") which is two (2) Business Days after the Repurchase Option Notice (as the same may be extended if Wachovia grants Senior Participant more than two (2) Business Days to repurchase the Loan). The Senior Participation Purchase Price shall be calculated by Senior Participant and set forth in the Repurchase Option Notice (and such calculation shall be accompanied by reasonably detailed back-up documentation explaining how such price was determined) and shall, absent manifest error, be binding upon Junior Participant. Upon the consummation of the sale of the Senior Participation Interest, (i) Senior Participant shall assign to Junior Participant (without recourse or warranty except for a representation that it owns the Senior Participation Interest free and clear, and that it is authorized to execute the assignment documentation) all of its right, title and interest in and to the Senior Participation Interest, the Loan and the Loan Documents and (ii) simultaneously therewith, Junior Participant shall be required to pay in full all amounts due and owing on the Junior Participant Loan . At the closing of the transfer, Senior Participant shall deliver (or shall instruct Wachovia (or its custodian) to deliver) to Junior Participant (or its designee) copies of all relevant files and documents, to the extent then in its possession. Notwithstanding anything to the contrary contained in this Section 5(c), (A) (i) 12 during the period in which the Senior Participation Interest is subject to purchase by the Junior Participant pursuant to this Section 5(b), the Loan shall continue to be serviced in accordance with Accepted Servicing Practices and (ii) the right of Junior Participant to purchase the Senior Participation Interest shall automatically terminate upon the cure by Senior Participant of the Repurchase Agreement Default. 6. Limitation on Liability of Senior Participant. Senior Participant shall have no liability to Junior Participant with respect to the Junior Participation Interest, except with respect to losses actually suffered due to the gross negligence, willful misconduct or breach of this Agreement on the part of Senior Participant and notwithstanding any other provision hereof, such liability shall be limited to the seeking of damages by Junior Participant in an amount not to exceed the principal, interest and other amounts relating to the Junior Participation Interest. Junior Participant also acknowledges that Senior Participant owes Junior Participant no fiduciary duty with respect to any action taken under the Loan Documents (but the foregoing shall not relieve Senior Participant from the obligation to make any disbursements of funds as set forth herein). 7. Representations of Initial Junior Participant. (a) Initial Junior Participant, as of the date hereof, hereby represents and warrants to, and covenants with Senior Participant, that: (i) Initial Junior Participant is a Qualified Transferee (as defined in the Intercreditor Agreement). (ii) The execution and delivery of this Agreement by Initial Junior Participant, and performance of, and compliance with, the terms of this Agreement by Initial Junior Participant, will not violate Initial Junior Participant's organizational documents or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or result in the breach of, any material agreement or other instrument to which it is a party or that is applicable to it or any of its assets, in each case which materially and adversely affect its ability to carry out the transactions contemplated by this Agreement. (iii) Initial Junior Participant has the full power and authority to enter into and consummate all transactions contemplated by this Agreement, has duly authorized the execution, delivery and performance of this Agreement and has duly executed and delivered this Agreement. (iv) This Agreement is the legal, valid and binding obligation of Initial Junior Participant enforceable against Initial Junior Participant in accordance with its terms (except as such, enforcement may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other laws or equitable principles limiting to the rights of creditors generally and except that rights with respect to indemnification and contribution obligations may be limited by applicable law). 13 (v) Initial Junior Participant has the right to enter into this Agreement without the consent of any third party, and such Initial Junior Participant has the right to purchase from Initial Senior Participant the Junior Participation Interest. (vi) Initial Junior Participant is acquiring the Junior Participation Interest for its own account or an account in which it is the asset manager or investment advisor in the ordinary course of its business. (vii) Initial Junior Participant has not dealt with any broker, investment banker, agent or other Person, other than Initial Senior Participant and its affiliates, that may be entitled to any commission or compensation in connection with the consummation of any of the transactions contemplated hereby. (viii) The financial records of Initial Junior Participant will report the purchase of the Junior Participation Interest as a purchase by such Initial Junior Participant. (b) Initial Junior Participant hereby remakes all of the representations and warranties made by Senior Participant, as holder of the Loan, under the Intercreditor Agreement for the benefit of Senior Lender (as defined in the Intercreditor Agreement) and the other Junior Lenders (as defined in the Intercreditor Agreement). 8. Representations of Initial Senior Participant. Initial Senior Participant, as of the date hereof, hereby represents and warrants to, and covenants with, Junior Participant, that: (a) It is a Qualified Transferee. (b) The execution and delivery of this Agreement by it, and the performance of, and compliance with, the terms of this Agreement by it, will not violate its organizational documents or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or result in the breach of, any material agreement or other instrument to which it is a party or that is applicable to it or any of its assets, in each case which materially and adversely affect its ability to carry out the transactions contemplated by this Agreement. (c) It has the full power and authority to enter into and consummate all transactions contemplated by this Agreement, has duly authorized the execution, delivery and performance of this Agreement and has duly executed and delivered this Agreement. (d) This Agreement is its legal, valid and binding obligation enforceable against it in accordance with its terms (except as such enforcement may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other laws or equitable principles limiting to the rights of creditors generally and except that rights with respect to indemnification and contribution obligations may be limited by applicable law). 14 (e) Senior Participant has the right to enter into this Agreement without the consent of any third party, and Senior Participant has the right to sell to Initial Junior Participant the Junior Participation Interest, subject to Section 12(c). (f) The financial records of Initial Senior Participant will report the sale of the Junior Participation Interests as a sale by Initial Senior Participant. (g) Initial Senior Participant has not dealt with any broker, investment banker, agent or other Person that may be entitled to any commission or compensation in connection with the consummation of any of the transactions contemplated hereby. (h) Initial Senior Participant has transferred the Loan to Wachovia pursuant to the Repurchase Agreement and Wachovia is the sole legal and beneficial owner of the Loan free and clear of any lien, security interest, option or other charge or encumbrance. (i) The Property does not secure any other loan from Initial Senior Participant to Borrower or any other Affiliate of Borrower. (j) The proceeds of the Loan have been fully disbursed and there is no requirement for future advances thereunder. (k) Initial Senior Participant (i) is the sole holder of the Loan (subject to the Repurchase Agreement), (ii) has delivered to Junior Participant true and correct copies of the Loan Documents, (iii) has no knowledge of any default under the Loan Documents, and (iv) subject to the terms and conditions of the Repurchase Agreement, has all economic and other rights incidental to the ownership of the Loan including, without limitation, the ability to receive and apply payments thereunder and to exercise all rights of the lender under the Loan. The representations and warranties of Initial Senior Participant contained in this Section 8 are personal to Initial Senior Participant and no successor or assign of Initial Senior Participant shall have any liability therefrom. 9. Independent Analysis of Junior Participant. Initial Junior Participant has been given reasonable opportunity to review and, to the extent Initial Junior Participant deemed necessary, has examined, and in any case, Initial Junior Participant hereby approves and acknowledges that Initial Senior Participant provided Initial Junior Participant with copies of (a) the Loan Agreement and all of the other Loan Documents, (b) documents relating to the state of title to the Property and the Premises, as reflected in the title insurance policy issued in connection with the Loan, and (c) documents relating to the title, property and other insurance documentation and arrangements with respect to the Loan. In addition, Initial Junior Participant hereby approves all third-party reports or summaries and any financial and other data and information relating to the Property, the Premises, the Loan and the Borrower provided by Initial Senior Participant to Initial Junior Participant. Initial Junior Participant acknowledges that: (a) Initial Junior Participant has, independently and without reliance upon Initial Senior Participant and based on such documents and information as Initial Junior Participant has deemed appropriate, made Initial Junior Participant's own credit analysis and decision to purchase the Junior Participation Interest, and Initial Junior Participant accepts responsibility therefor; (b) Initial Senior Participant has not provided Initial Junior Participant, and Initial Junior Participant has not relied on or used in any other way, any credit analysis of the Borrower prepared by Initial Senior Participant or an investigation or assessment of risk with respect to the Loan prepared by Initial Senior Participant or an investigation or assessment of 15 risk with respect to the Loan prepared by Initial Senior Participant; and (c) any information provided to Initial Junior Participant by Initial Senior Participant regarding the Loan, the Borrower or any collateral for the Loan is provided without any warranty or representation, express or implied, as to its accuracy or completeness and is subject to independent verification by Initial Junior Participant, except that Senior Participant has no actual knowledge of any material falsity or material inaccuracy in the materials it has delivered to Initial Junior Participant. Except as provided in Section 8(k), Initial Junior Participant hereby acknowledges that Initial Senior Participant has made no representations or warranties with respect to the Loan, and that Initial Senior Participant shall have no responsibility for (i) the collectability of the Loan, (ii) the validity, enforceability or legal effect of any of the Loan Documents or the title insurance policy or policies or any survey furnished or to be furnished to Initial Senior Participant in connection with the origination of the Loan, (iii) the validity, sufficiency or effectiveness of the lien created or to be created by the Loan Documents, or (iv) the financial condition of the Borrower. Initial Junior Participant assumes all risk of loss in connection with its Junior Participation Interest from the failure or refusal of the Borrower to pay interest, principal or other amounts due on the Loan, defaults by the Borrower under the Loan Documents or the unenforceability of any of the Loan Documents for reasons other than gross negligence or willful misconduct by Senior Participant. 10. No Creation of a Partnership. Nothing contained in this Agreement, and no action taken pursuant hereto, shall be deemed to constitute the arrangement between or among Senior Participant and Junior Participant a partnership, association, joint venture or other entity. 11. Termination. This Agreement shall terminate (except for such rights as are expressly provided to survive any termination of this Agreement) upon the earlier to occur of (a) full and final payment of all amounts due under the Senior Participation Interest and Junior Participation Interest, as the case may be, or (b) as otherwise set forth in this Agreement, including, without limitation, upon the purchase by Senior Participant of the Junior Participation Interest pursuant to Section 14. The obligations of any party to pay to the other parties any costs, expenses, fees or other sums provided to be paid by such party prior to the termination date pursuant to the terms of this Agreement shall survive the termination of this Agreement. 12. Transfers. (a) Except for Permitted Transfers (as defined in the Junior Participant Loan Agreement), Junior Participant (and any subsequent Junior Participant) agrees that it will not directly or indirectly sell, assign, transfer, pledge, syndicate, sell, hypothecate, contribute, encumber or otherwise dispose of all or any portion of its Junior Participation Interest or any direct or indirect interest in Junior Participant (a "Transfer"), without Senior Participant's prior written consent. Any Transfer by Junior Participant in violation of the provisions of this Section 12 shall be void ab initio. (b) Except as provided in Section 12(c), Senior Participant agrees that it will not, directly or indirectly, Transfer all or any portion of its Senior Participation Interest without Junior Participant's prior written consent. Any Transfer by Senior Participant in violation of the provisions of this Section 12 shall be void ab initio. 16 (c) On the date hereof, Senior Participant has transferred the Loan to Wachovia pursuant to the terms of the Repurchase Agreement. The Loan Documents have been delivered to Wachovia (or a custodian acting on behalf of Wachovia). Junior Participant acknowledges that (i) it is aware of, and has consented to, such transfer to Wachovia, and (ii) this Agreement, the Junior Participation Interest and all of Junior Participant's rights with respect thereto (including the rights to direct Senior Participant to take or refrain from taking certain actions) are subject and subordinate to the interest of Wachovia in and to the Loan pursuant to the Repurchase Agreement. 13. Other Business Activities of Senior Participant and Junior Participant. Each of Senior Participant and Junior Participant acknowledges that each of Senior Participant and Junior Participant or its affiliates may make loans or otherwise extend credit to, and generally engage in any kind of business with any Affiliate of the Borrower or any Person which holds any direct or indirect equity interest in Borrower (collectively, "Borrower Related Parties"), and receive payments on such other loans or extensions of credit to Borrower Related Parties and otherwise act with respect thereto freely and without accountability in the same manner as if this Agreement and the transactions contemplated hereby were not in effect. Junior Participant acknowledges that it has been informed that as of the date hereof, Senior Participant (and/or Affiliates of Senior Participant) (a) is the holder of loans to Mezz Three and 200 Fifth Mezz Five LLC, and (b) owns certain equity interests in Borrower Related Parties. 14. Securitization. Senior Participant shall have the right to purchase the Junior Participation Interest from Junior Participant in connection with a proposed transfer by Senior Participant of the Loan to a trustee in connection with the creation of collateralized debt obligations. Senior Participant shall give Junior Participant not less than five (5) days prior written notice of such proposed purchase. Immediately prior to such transfer, Senior Participant shall purchase the Junior Participation Interest from Junior Participant for a purchase price equal to the then Junior Participation Principal Balance plus all accrued and unpaid interest thereon at the Junior Participation Rate plus the Securitization Repurchase Amount. Upon payment of such amount, Junior Participant shall convey the Junior Participation Interest to Senior Participant and shall make customary representations and warranties to Senior Participant as to title to the Junior Participation Interest, absence of liens, due authorization, execution, delivery and enforceability 15. Governing Law; Waiver of Jury Trial. The parties agree that the State of New York has a substantial relationship to the parties and to the underlying transaction embodied hereby, and in all respects, including, without limitation, matters of construction, validity and performance, this Agreement and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such State and any applicable law of the United States of America. Each of the parties hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement. 16. Modification, Waiver in Writing. This Agreement shall not be modified, cancelled or terminated except by an instrument in writing signed by the parties hereto. The party seeking modification of this Agreement shall be solely responsible for any and all expenses that may arise in order to modify this Agreement. 17 17. Successors and Assigns; Third Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Except as provided herein, none of the provisions of this Agreement shall be for the benefit of or enforceable by any Person not a party hereto. 18. Costs and Expenses. (a) Junior Participant shall, promptly upon request by Senior Participant (which shall include a statement (in reasonable detail) of any and all Costs in respect of, or otherwise suffered or incurred or paid or to be paid by Senior Participant in connection with, the Property, this Agreement or the Loan) pay Senior Participant for its pro rata share of any Costs (based upon the Senior Participation Principal Balance and the Junior Participation Principal Balance) to the extent that any of the same have been incurred by Senior Participant and not actually been repaid by the Borrower within the time frame set forth in the Loan Documents in which the Borrower has to pay such Costs. Any sums which are required to be paid in accordance with this Agreement and which are not reimbursed to Senior Participant within three (3) Business Days after demand shall accrue interest at the Prime Rate. To the extent Junior Participant fails to so reimburse such Costs, Senior Participant may, from time to time and as Senior Participant's sole and exclusive remedy, deduct from the amounts otherwise due to Junior Participant in accordance with the provisions of this Agreement Junior Participant's pro rata share of the Costs (based upon the Senior Participation Principal Balance and the Junior Participation Principal Balance). Notwithstanding the foregoing, Costs will be netted against payment and proceeds of the Loan prior to payments to Senior Participant and Junior Participant in accordance with the provisions of Sections 2(b) and 2(c). (b) In the event that Senior Participant and Junior Participant elect to exercise any rights under the Intercreditor Agreement, the costs and expenses of such exercise shall be paid by pro rata by Senior Participant and Junior Participant (based upon the Senior Participation Principal Balance and the Junior Participation Principal Balance). In no event shall Senior Participant be required to advance Junior Participant's pr rata share of such amounts. (c) Any and all amounts required to be paid by Junior Participant to Senior Participant pursuant to this Section 18 or otherwise under this Agreement shall be in immediate funds and shall be made without any offset, abatement, withholding or reduction of any kind whatsoever. If any amounts paid by Senior Participant and Junior Participant pursuant to Section 18a) above are subsequently recovered (whether from the Borrower, as part of liquidation proceeds or otherwise), Senior Participant shall promptly distribute Junior Participant's pro rata share of such amounts to Junior Participant (based upon the Senior Participation Principal Balance and the Junior Participation Principal Balance). (d) Notwithstanding any other provision of this Agreement, Junior Participant shall not have any obligation whatsoever to reimburse Senior Participant under Section 18a) or Section 18(b) other than from distributions with respect to its Junior Participation Interest and shall have no liability under this Section 18 in excess of payments due to Junior Participant. 18 19. Withholding Taxes. (a) If Senior Participant or the Borrower shall be required by law to deduct and withhold Taxes (as hereinafter defined) from interest, fees or other amounts payable to Junior Participant with respect to the Loan as a result of Junior Participant constituting a Non-Exempt Person (as hereinafter defined), Senior Participant, in its capacity as servicer, shall be entitled to do so with respect to Junior Participant's interest in such payment (all withheld amounts being deemed paid to Junior Participant), provided that Senior Participant shall furnish Junior Participant with a statement setting forth the amount of Taxes withheld, the applicable rate and other information which may reasonably be requested for the purposes of assisting Junior Participant to seek any allowable credits or deductions for the Taxes so withheld in each jurisdiction in which Junior Participant is subject to tax. (b) A "Non-Exempt Person" is any Person other than a Person who is either (i) a Person formed under the laws of the United States of America or one of the States thereof or (ii) has on file with Senior Participant for the relevant year such duly-executed form(s) or statement(s) which may, from time to time, be prescribed by law and which, pursuant to applicable provisions of (A) any income tax treaty between the United States and the country of residence of such Person, (B) the Code or (C) any applicable rules or regulations in effect under clauses (A) or (B) above, permit Senior Participant to make such payments free of any obligation or liability for withholding. For the purposes of this Section, "Taxes" shall mean any income or other taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature, now or hereafter imposed by any jurisdiction or by any department, agency, state or other political subdivision thereof or therein. (c) Junior Participant shall and hereby agrees to indemnify Senior Participant against and hold Senior Participant harmless from and against any Taxes, interest, penalties and attorneys' fees and disbursements arising or resulting from any failure of Senior Participant to withhold Taxes from payment made to Junior Participant in reliance upon any representation, certificate, statement, document or instrument made or provided by Junior Participant to Senior Participant in connection with the obligation of Senior Participant to withhold Taxes from payments made to Junior Participant, it being expressly understood and agreed that (1) Senior Participant shall be absolutely and unconditionally entitled to accept any such representation, certificate, statement, document or instrument as being true and correct in all respects and to fully rely thereon without any obligation or responsibility to investigate or to make any inquiries with respect to the accuracy, veracity, correctness or validity of the same and (ii) Junior Participant shall, upon request of Senior Participant and at its sole cost and expense, defend any claim or action relating to the foregoing indemnification by counsel selected by Senior Participant; provided that Junior Participant shall have consented to such counsel, which consent may not be unreasonably withheld, delayed or conditioned. (d) Junior Participant represents to Senior Participant (for the benefit of the Borrower) that it is not a Non-Exempt Person and that neither Senior Participant nor Borrower is obligated under applicable law to withhold Taxes on sums paid to it with respect to the Loan or otherwise pursuant to this Agreement. Contemporaneously with the execution of this Agreement and from time to time as necessary during the term of this Agreement, Junior Participant shall 19 deliver to Senior Participant evidence satisfactory to Senior Participant substantiating that it is not a Non-Exempt Person and that Senior Participant is not obligated under applicable law to withhold Taxes on sums paid to it with respect to the Loan or otherwise under this Agreement. Without limiting the effect of the foregoing, if Junior Participant is not created or organized under the laws of the United States or any state thereof, and if the payment of interest or other amounts by the Borrower is treated for United States income tax purposes as derived in whole or part from sources within the United States, Junior Participant shall furnish to Senior Participant Internal Revenue Service Form W-8ECI or Form W-8BEN or such other forms, certifications, statements or documents as may be required from time to time, duly executed by Junior Participant, as evidence of Junior Participant's exemption from the withholding of United States tax with respect thereto. Senior Participant shall not be obligated to make any payment hereunder to Junior Participant in respect of Junior Participation Interest or otherwise until Junior Participant shall have furnished to Senior Participant the requested forms, certificates, statements or documents. 20. Certain Interest Rate Matters. Senior Participant agrees to calculate the LIBOR Rate with respect to the Loan in accordance with the terms of the Loan Documents. 21. Notices. All notices, consents, approvals and requests required or permitted hereunder shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) hand delivery, with proof of attempted delivery, (b) certified or registered United States mail, postage prepaid, (c) expedited delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) by telecopier (with answerback acknowledged) provided that such telecopied notice must also be delivered by one of the means set forth in (a), (b) or (c) above, addressed if to Senior Participant at its address set forth on the first page to the attention of Guy Milone, Esq., with a copy to Kronish Lieb Weiner & Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036, Attention: Thomas D. O'Connor, Esq., if to Junior Participant at its designated address set forth on the first page to the attention of Jay Cramer, with a copy to Post Heymann & Koffler LLP, Two Jericho Plaza, Wing A, Suite 111, Jericho, New York 11753, Attention: David J. Heymann, Esq., or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section 21. A copy of all notices, consents, approvals and requests directed to Junior Participant or Senior Participant shall be delivered concurrently to each Person (not to exceed four (4) in the aggregate) designated by each of Senior Participant and Junior Participant. A notice shall be deemed to have been given: (a) in the case of hand delivery, at the time of delivery; (b) in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; (c) in the case of expedited prepaid delivery upon the first attempted delivery on a Business Day; or (d) in the case of telecopier, upon receipt of answerback confirmation, provided that such telecopied notice was also delivered as required in this Section 21. A party receiving a notice which does not comply with the technical requirements for notice under this Section 21 may elect to waive any deficiencies and treat the notice as having been properly given. 22. Headings; Etc. The headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Unless otherwise set forth herein, all references herein to a specified Section shall mean and refer to the specified Section of this Agreement. 20 23. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 24. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 25. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter contained in this Agreement and supersedes all prior agreements, understandings and negotiations between the parties. 26. Not a Security. No Junior Participation Interest shall be deemed to be a "security" within the meaning of the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. 27. No Pledge. This Agreement shall not be deemed to represent a pledge of any interest in the Loan by Senior Participant to Junior Participant. Except as otherwise provided in this Agreement, Junior Participant shall not have any interest in any property taken as security for the Loan; provided, however, that if any such property or the proceeds of any sale, lease or other disposition thereof shall be applied in reduction of the principal balance of the Loan, then Junior Participant shall be entitled to receive its pro rata share thereof (determined in accordance with the Senior Participation Principal Balance and the Junior Participation Principal Balance). 28. Participation Certificates. Senior Participant will execute, deliver and issue to Senior Participant and Junior Participant and to any other holder of all or any portion of the Senior Participation Interest or Junior Participation Interest one (1) or more participation certificates (in substantially the form annexed hereto as Exhibit A and made a part hereof), evidencing the ownership of the Senior Participation Interest or Junior Participation Interest, as applicable. If, subsequent to the issuance of any participation certificate(s) in accordance with the terms of this Section 28, either Participant effects a Transfer in accordance with Section 13, at the written request of the transferring Participant (or any transferee of all or any portion of such Participation Interest) Senior Participant, within ten (10) Business Days after the transferring Participant's written request therefor, shall issue to the transferring Participant and to such transferee(s) one (1) or more substitute participation certificates (each, in substantially the form annexed hereto as Exhibit A), reflecting the ownership interest of such Persons in the applicable Participation Interest. The transferring Participant shall reimburse Senior Participant for its reasonable out-of-pocket costs and expenses (including reasonable attorneys' fees and disbursements) incurred by Senior Participant in connection with the terms of this Section 28. Senior Participant and Junior Participant hereby opt to treat the Participation Certificates as securities pursuant to Article 8 of the New York Uniform Commercial Code. [SIGNATURES ON THE FOLLOWING PAGE] 21 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written. ARBOR REALTY FUNDING LLC, Senior Participant By: ---------------------------------- Name: Title: FT-TOY LLC, Junior Participant By: WRT Realty L.P., Managing Member By: Winthrop Realty Trust, General Partner By: -------------------------- Name: Peter Braverman Title: President EXHIBIT A Form of Participation Certificate PARTICIPATION CERTIFICATE Date:_______________, 20__ __________________________________ ("Senior Participant") hereby acknowledges _____________________________ ("Junior Participant") as the holder of a _____________ percent (__%) undivided interest in the Junior Participation Interest (as defined in that certain Participation and Servicing Agreement dated as of______________ (as same may be amended, restated, renewed, supplemented or otherwise modified, the "Participation Agreement"), between Arbor Realty Funding LLC, as Senior Participant, and ___________________________, as Junior Participant, with respect to a mezzanine loan in the original principal amount of $_______________, evidenced by a certain Promissory Note dated as of_________ __, 200_, made by ________________________, as maker, in favor of Column Financial, Inc., as payee. All of the terms, provisions, covenants and conditions of the agreement between Senior Participant and Junior Participant regarding the Junior Participation Interest are set forth in the Participation Agreement. The terms of the Participation Agreement are incorporated herein by reference and shall govern this transaction, including, without limitation, the provisions of Section 15 of the Participation Agreement, regarding Transfers (as defined in the Participation Agreement) of the Junior Participation Interest or portions thereof. ----------------------------------------- as Senior Participant By: ------------------------------------- Name: Title: EX-10.2 3 e501257_ex10-2.txt LOAN AGREEMENT FINAL LOAN AGREEMENT DATED AS OF December 7, 2005 Between FT-TOY LLC, as Borrower, and ARBOR REALTY FUNDING LLC as Lender Table of Contents Page ARTICLE I. DEFINITIONS, RULES OF CONSTRUCTION AND ACCOUNTING TERMS............1 Section 1.01. Defined Terms.............................................1 Section 1.02. Rules of Construction.....................................7 Section 1.03. Accounting Principles and Terms...........................7 ARTICLE II. LOAN...............................................................7 Section 2.01. Loan......................................................7 Section 2.02. Computation and Payment of Interest.......................7 Section 2.03. Payment of Principal......................................8 Section 2.04. Method of Payment.........................................8 Section 2.05. Application of Payments...................................8 Section 2.06. Extension of Term.........................................9 Section 2.07. Late Charge...............................................9 Section 2.08. Prepayments...............................................9 Section 2.09. Repurchase Agreement.....................................10 Section 2.10. Usury Limitation.........................................10 Section 2.11. Note.....................................................10 Section 2.12. Use of Proceeds..........................................10 ARTICLE III. CONDITIONS PRECEDENT.............................................11 Section 3.01. Conditions Precedent.....................................11 ARTICLE IV. SINGLE PURPOSE ENTITIES...........................................12 Section 4.01. Single Purpose Entity....................................12 ARTICLE V. GENERAL REPRESENTATIONS............................................14 Section 5.01. General Representations and Warranties...................14 ARTICLE VI. NEGATIVE COVENANTS................................................16 Section 6.01. Liens....................................................16 Section 6.02. Sale of Assets...........................................17 Section 6.03. Distributions............................................17 Section 6.04. Organizational Documents.................................17 Section 6.05. Name, Address and Structure..............................17 Table of Contents (continued) Page ARTICLE VII. EVENTS OF DEFAULT AND REMEDIES...................................17 Section 7.01. Events of Default........................................17 Section 7.02. Remedies.................................................19 ARTICLE VIII. MISCELLANEOUS...................................................20 Section 8.01. Taxes....................................................20 Section 8.02. Appointment of Lender Attorney-in-Fact...................21 Section 8.03. Indemnity and Expenses...................................21 Section 8.04. Usury....................................................22 Section 8.05. Amendments...............................................22 Section 8.06. Addresses for Notices....................................22 Section 8.07. Assignment and Participation.............................22 Section 8.08. Sale of Note or Securitization...........................22 Section 8.09. Governing Law............................................24 Section 8.10. Submission to Jurisdiction...............................24 Section 8.11. Counterparts.............................................25 Section 8.12. Right of Setoff..........................................25 Section 8.13. Further Assurances.......................................25 Section 8.14. Miscellaneous............................................25 Section 8.15. WAIVER OF JURY TRIAL.....................................26 Section 8.16. Full Recourse............................................26 i LOAN AGREEMENT dated as of December 7, 2005 ("Agreement") between FT-TOY LLC ("Borrower") and Arbor Realty Funding LLC ("Lender"). The parties to this Agreement hereby agree as follows: ARTICLE I. DEFINITIONS, RULES OF CONSTRUCTION AND ACCOUNTING TERMS Section 1.01. Defined Terms. As used in this Agreement, the following terms have the following meanings: "Affiliate" means any Person which directly or indirectly Controls, or is Controlled by, or is under common Control with such Person. "Agreement" means this Loan Agreement. "Applicable Interest Rate" means the greater of (a) the LIBOR Rate plus three percent (3.0%) per annum and (b) the Rate (as defined in the Repurchase Agreement) Lender is required to pay Wachovia under the Repurchase Agreement with respect to the Fourth Mezzanine Loan plus one (1.0%) per annum. "ARLP Guaranty" means the Guaranty dated the date hereof made by Arbor Realty Limited Partnership in favor of Borrower. "Assignee" shall have the meaning specified in "Sale of Note or Securitization" (Section 8.08). "Borrower" means FT-TOY LLC, a Delaware limited liability company. "Business Day" means any day on which banks are not authorized or required to close in New York City. "Closing Date" means December 7, 2005. "Code" means the Internal Revenue Code of 1986. "Control" or "Controlling" or "Controlled" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Default" means any of the events specified in "Events of Default" (Section 7.01), whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. 1 "Default Rate" means a rate per annum equal to the lesser of (1) the Applicable Interest Rate plus 5% per annum, or (2) the maximum interest rate which may be collected from Borrower under applicable Law. "Dollars" and the sign "$" means lawful money of the United States of America. "Extension Notice" has the meaning specified in "Extension of Term" (Section 2.06). "Eurodollar Business Day" means a Business Day on which dealings in Dollar deposits are carried on in the London interbank market and banks are open for business in London. "Event of Default" means any of the events specified in "Events of Default" (Section 7.01), provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "First Payment Date" means January 9, 2006. "Fourth Mezzanine Borrower" means 200 Fifth Mezz Four LLC, a Delaware limited liability company. "Fourth Mezzanine Loan" means that certain mezzanine loan in the original principal amount of $60,000,000.00 made by Lender, as successor in interest to Column Financial, Inc. to Fourth Mezzanine Borrower pursuant to the Fourth Mezzanine Loan Agreement. "Fourth Mezzanine Loan Agreement" means the Fourth Mezzanine Loan Agreement, dated July 28, 2005, as amended, by and between Fourth Mezzanine Borrower and Lender, as successor in interest to Column Financial, Inc. "GAAP" means generally acceptable accounting principles as then in effect in the United States. "Governmental Approvals" means any authorization, consent, or approval of, or any license, permit, or certification issued by, or any exemption of, registration or filing with, or report or notice to, any Governmental Authority. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantor" means Winthrop Realty Trust (f/k/a First Union Real Estate Equity and Mortgage Investments), an Ohio business trust. "Indebtedness" means, with respect to any Person, each of the following (1) indebtedness or liability for borrowed money, or for the deferred purchase price of property or services, including trade obligations, (2) all obligations evidenced by bonds, debentures, notes or other similar instruments, (3) obligations as lessee under capital leases, (4) reimbursement obligations under letters of credit issued for the account of any Person, (5) all reimbursement 2 obligations arising under bankers' or trade acceptances, (6) all guarantees, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase any of the items included in this definition, to provide funds for payment, to supply funds to invest in any Person, or otherwise to assure a creditor against loss, and (7) all obligations secured by any Lien on property owned by such Person, whether or not the obligations have been assumed, and (8) all obligations under any agreement providing for a swap, ceiling rates, ceiling and floor rates, contingent participation or other hedging mechanisms with respect to interest payable on any of the items described above in this definition. "Intercreditor Agreement" means the Intercreditor Agreement, dated July 28, 2005, by and among, Lender, as successor in interest to Column Financial, Inc., as third, fourth and fifth mezzanine lender, Marathon Special Opportunity Master Fund, Ltd., as successor in interest to Column Financial, Inc., as first mezzanine lender, Marathon Special Opportunity Master Fund, Ltd., as successor in interest to Column Financial, Inc., as second mezzanine lender, and Column Financial, Inc., as senior lender. "Interest Period" means each period commencing on the ninth day of the preceding calendar month and ending on the eighth day of the calendar month in which such Payment Date occurs, provided, however, that (1) the first Interest Period shall commence on the Closing Date and end on December 8, 2005, and (2) the final Interest Period shall end on the Maturity Date and in no event shall any Interest Period end after the Maturity Date. "Law" means any treaty, federal, state or local statute, law, rule, regulation, ordinance, order, code, policy or rule of common law, now or hereafter in effect, and any judicial or administrative interpretation of any of the foregoing by a Governmental Authority or otherwise, together with any judicial or administrative order, consent decree, judgment or agreement with a Governmental Authority. "Lender" means Arbor Realty Funding LLC, a Delaware limited liability company. "Lender's Office" means 333 Earle Ovington Boulevard, Suite 900, Uniondale, New York 11553. "LIBOR Rate" means for any Interest Period, the per annum London Interbank Offered Rate determined on the basis of the offered rates for one month Eurodollar deposits as set forth in the New York City edition of The Wall Street Journal or any successor publication thereto. If The Wall Street Journal (1) publishes more than one such London Interbank Offered Rate, the average of such rates shall apply, or (2) ceases to publish the London Interbank Offered Rate, then the London Interbank Offered Rate shall be determined from such substitute financial reporting service as Lender in its reasonable discretion shall determine. 3 "Lien" means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing. "Loan" has the meaning specified in "Loan" (Section 2.01). "Loan Documents" means this Agreement, the Note, the Pledge Agreement, the Recourse Guaranty, or any other document or agreement entered into pursuant to, as required by, or in connection with any such document or agreement, or any or all of the foregoing, all as the context may require. "Material Adverse Change" means either (1) a material adverse change in the status of the business, assets, liabilities, results of operations, conditions (financial or otherwise), property or prospects of Borrower or Guarantor, or (2) any event or occurrence of whatever nature which could have a material adverse effect on the ability of Borrower or Guarantor to perform its obligations under the Loan Documents to which it is a party. "Maturity Date" means the earlier of: (1) April 9, 2008, subject to the extension of the term of the Loan pursuant to the terms, provisions and conditions of "Extension of Term" (Section 2.06); or (2) the date the obligation to repay the Loan is accelerated in accordance with the terms and provisions of this Agreement. "Maximum Legal Rate" means the maximum non-usurious interest rate, if any, that at ay time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or in the other Loan Documents, under the laws of such State or States whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan. "Note" has the meaning specified in "Note" (Section 2.10). "Obligations" means any and all present and future liabilities and obligations of Borrower to Lender, including those under or in connection with this Agreement and the other Loan Documents, together with all reasonable fees and expenses incurred in collecting any or all of such liabilities and obligations or enforcing any rights under this Agreement or any other Loan Document, including all reasonable fees and expenses of counsel to Lender and of any experts and agents which may be paid or incurred by Lender in collecting any such items or enforcing any such rights. "Organizational Documents" means all documents and agreements providing for, or related to, the formation, organization and governance of Borrower, including its articles of organization and operating agreement and any agreement among its members related to such limited liability company. 4 "Participation Agreement" means the Participation and Servicing Agreement dated the date of this Agreement, by and between Lender and Borrower. "Participation Interest" has the meaning specified in "Use of Proceeds" (Section 2.12). "Payment Date" means with respect to each Interest Period, the ninth day of the calendar month following each Interest Period, provided, however, that with respect to the last Interest Period, the Payment Date shall be the Maturity Date. "Permitted Liens" means the Lien under and pursuant to the Pledge Agreement. "Permitted Transfer" has the meaning set forth in the definition of "Prohibited Transfer." "Person" means an individual, partnership (including limited liability partnerships), a limited liability company, corporation, business trust, a joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Pledge Agreement" means the Pledge and Security Agreement dated as of the date of this Agreement by Borrower for the benefit of Lender. "Prohibited Transfer" means the Sale or Encumbrance of direct or indirect interests in a Restricted Party, including, without limitation, (1) if a Restricted Party is a corporation, general partnership, limited partnership, or limited liability company, any merger or consolidation involving such Restricted Party, (2) if a Restricted Party is a corporation a Sale or Encumbrance of such corporation's stock or of any profits or proceeds related to such stock or the creation or issuance of new stock, (3) if a Restricted Party is a general partnership, the change, removal, resignation or addition of a partner or the Sale or Encumbrance of any partnership interest of any partner or of any profits or proceed relating to such partnership interest, or the creation of new partnerships interest, (4) if a Restricted Party is a limited partnership, the change, removal, resignation or addition of a general or limited partner or the Sale or Encumbrance of any general or limited partnership interest of any partner or of any profits or proceeds related to such general or limited partnership interest, or the creation of new general or limited partnership interest, (5) if a Restricted Party is a limited liability company, the change, removal, resignation or addition of a member or the Sale or Encumbrance of any membership interest of a member or of any profits or proceeds related to such membership interest, or the creation or issuance of new membership interest, or the change, removal, resignation or addition of a managing member or non-member manager, provided, however, if a Restricted Party is an individual then gifts for estate planning purposes of such individual's interests in a Restricted Party to the spouse or any lineal descendant of such individual, or to a trust for the benefit of the spouse or any lineal descendant of such individual shall not be a Prohibited Transfer if following such gift those Persons responsible for the management of the Borrower remain unchanged. Notwithstanding the foregoing, any transfer of direct or indirect beneficial ownership or equity 5 interests in the Borrower that satisfies the following terms and conditions shall be permitted without Lender's consent ("Permitted Transfer"): (i) such transfer does not violate the Intercreditor Agreement, (ii) after giving effect to such transfer, the Guarantor owns at least twenty five percent (25%) of the direct or indirect beneficial ownership or equity interests in Borrower and controls at least twenty five percent (25%) of the direct or indirect beneficial ownership or equity interests in Borrower, (iii) in the event that after giving effect to the transfer, the transferee obtains twenty percent (20%) or more of the direct or indirect beneficial ownership or equity interests in Borrower, Lender may request credit searches with respect to such transferee and such transferee shall be reasonably acceptable to Lender, (iv) Borrower shall give Lender ten (10) days prior written notice of a Permitted Transfer, and (v) Borrower shall provide Lender with copies of the transfer documents. "Rate Adjustment Date" means, with respect to each Interest Period, the first day of such Interest Period (the ninth day of each calendar month). "Recourse Guaranty" means the Recourse Guaranty dated the date of this Agreement made by Guarantor for the benefit of Lender. "Repurchase Agreement" shall mean that certain First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of July 12, 2004, among Lender, Wachovia, Arbor Realty Trust, Inc., Arbor Realty Limited Partnership and Arbor Realty SR, Inc. as amended by that certain First Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of November 11, 2004, that certain Second Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of December 22, 2004, that certain Omnibus Amendment of Certain Repurchase Documents; Purchaser's Consent; and Joinder, dated as of January 19, 2005, that certain Third Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of February 25, 2005, that certain Fourth Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of May 27, 2005, that certain Fifth Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of June 29, 2005, that certain Sixth Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of October 28, 2005 and that certain Seventh Amendment to First Amended and Restated Loan Purchase and Repurchase Agreement, dated as of November 9, 2005. "Restricted Parties" means Borrower and Guarantor. "Sale or Encumbrance" means a voluntary or involuntary transfer or conveyance of a legal or beneficial right, title or interest, whether by sale, lease, assignment, grant of option, right of first refusal, operation of Law or otherwise, or the granting, creation, incurrence, assumption or existence of a Lien or the entering into any agreement to do any of the foregoing. "Secondary Market Transaction" shall have the meaning set forth in Section 8.08. "Securitization" shall have the meaning set forth in Section 8.08. 6 "Solvent" means, when used with respect to any Person, that (1) the fair value of the property of such Person, on a going concern basis, is greater than the total amount of liabilities, including contingent liabilities, of such Person, (2) the present fair salable value of the assets of such Person, on a going concern basis, is not less than the amount that will be required to pay the probable liabilities of such Person on its debts as they become absolute and matured, (3) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (4) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. Contingent liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Wachovia" shall mean Wachovia Bank, National Association. Section 1.02. Rules of Construction. When used in this Agreement (1) "or" is not exclusive, (2) any pronouns used shall include the corresponding masculine, feminine and neuter forms, (3) the singular form of noun shall include the plural and vice versa, (4) a reference to a Law includes any amendment or modification to such Law, (5) a reference to a Person includes its permitted successors and assigns, (6) unless otherwise provided for in this Agreement, a reference to an agreement, instrument or document shall include such agreement, instrument or document as the same may be amended, modified or supplemented from time to time in accordance with its terms and as permitted by the Loan Documents, and (7) except where otherwise specifically provided, any reference in this Agreement to a period of "days" means calendar days, not Business Days. Section 1.03. Accounting Principles and Terms. Except as otherwise provided in this Agreement, (1) all computations and determinations as to financial matters, and all financial statements to be delivered under this Agreement, shall be made or prepared in accordance with GAAP, and (2) all accounting terms used in this Agreement shall have the meaning ascribed to such terms by such principles. ARTICLE II. LOAN Section 2.01. Loan. Subject to the terms and conditions of this Agreement, Lender agrees to make a loan pursuant to this Agreement ("Loan") to Borrower on the Closing Date in the principal amount of $30,000,000.00. Amounts prepaid on the Loan cannot be reborrowed. Section 2.02. Computation and Payment of Interest. Borrower shall pay interest to Lender on the outstanding and unpaid principal amount of the Loan at a rate per annum equal to the Applicable Interest Rate. Interest shall be payable on each Payment Date, except that interest for the period from the Closing Date to the First Payment Date shall be payable on the Closing Date. The Applicable Interest Rate for each Interest Period shall be the Applicable Interest Rate as of the Rate Adjustment Date, except that the initial Applicable Interest Rate shall be determined by Lender as of the Closing Date. Not later than five (5) days prior to each Payment Date, Lender shall give notice to Borrower of the then effective Applicable Interest Rate and the amount of the 7 payment required to be made on the next Payment Date, provided, however, if the Applicable Interest Rate is based on the Rate (as defined in the Repurchase Agreement) Lender shall endeavor to give Borrower prompt notice of any change in such Rate (not including any change in Rate based on LIBOR or the same as may be referenced in the Repurchase Agreement). During the applicable Interest Period, interest shall accrue on the outstanding principal amount of the Loan at the Applicable Interest Rate for such Interest Period. During any period there is an outstanding Event of Default, at the option of Lender, the Loan will bear interest at the Default Rate. The interest rate on the Loan will not exceed the maximum amount permitted under applicable Law. Interest accruing under this Agreement shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. All calculations by Lender of the Applicable Interest Rate and the interest payments due under this Agreement shall be conclusive absent manifest error. All payments and other amounts due under this Agreement, the Note and the other Loan Documents shall be made without any setoff, defense and irrespective of, and without deduction for, counterclaims. Section 2.03. Payment of Principal. The entire unpaid principal balance of the Loan is due and payable on the Maturity Date. Section 2.04. Method of Payment. Borrower agrees to make each payment under this Agreement and the Note on the date when due in Dollars to Lender at Lender's Office or such other location as may be designated by written notice from Lender to Borrower. All payments under this Agreement and the Note shall be made in Dollars. Whenever any payment to be made under this Agreement or this Note is stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest (and shall not be included in the next Payment Date). Each payment received by Lender after 2:00 p.m. local time at the place then designated by Lender for payment shall be deemed received on the next Business Day. For all purposes under this Agreement, including the payment and accrual of interest, any regularly scheduled payment of interest that is received by Lender before the date it is due shall be deemed to have been received on the due date solely for the purpose of calculating interest due. Section 2.05. Application of Payments. All payments received by Lender shall be applied as follows: first, to the payment of all fees and expenses due from Borrower to Lender, second, to the payment of accrued and unpaid interest, and third, to the payment of principal on the Loan. Lender covenants and agrees that it shall apply all payments received on account of the Note towards Lender's then outstanding obligations under the Repurchase Agreement with respect to the Fourth Mezzanine Loan. 8 Section 2.06. Extension of Term. Borrower may extend the Maturity Date one (1) time for an additional twelve (12) months, provided all of the following terms and conditions are strictly satisfied: (1) at least thirty (30) days prior to the then scheduled Maturity Date, Borrower delivers to Lender written notice (the "Extension Notice") of Borrower's election to extend the Maturity Date for an additional twelve (12) months, such Extension Notice to be delivered only by certified mail or by nationally recognized overnight courier service, to Lender's Office, in each case with return receipt or delivery confirmation requested and retained to evidence strict compliance with the terms and conditions of this Section 2.06, (2) Borrower pays all of Lender's reasonable expenses, if any, incurred in connection with the exercise by Borrower of its option to extend the Maturity Date, (3) no Default or Event of Default exists at any time during the period from the date Borrower delivers the Extension Notice to and including the date on which the extension commences, and (4) Fourth Mezzanine Borrower has extended the term of the Fourth Mezzanine Loan. Section 2.07. Late Charge. If any amount payable under this Agreement or the Note or under any other Loan Document is not received by Lender within five (5) days after such amount is due, Borrower shall pay to Lender, within five (5) days of when requested by Lender, a late charge equal to five percent (5%) of such amount. The late charge is payable in addition to, and not in lieu of, any interest payable at the Default Rate. Section 2.08. Prepayments. (a) Borrower may prepay the Loan in whole or in part in accordance with the following provisions: (1) Lender receives from Borrower ten (10) business days' prior written notice specifying the date proposed for prepayment, (2) Borrower pays to Lender all accrued and unpaid interest, including Default Interest (if any), all fees and expenses, including all late charges (if any) and legal fees, and (3) if prepayment is tendered on a day which is not a Payment Date, Borrower pays to Lender an amount equal to the interest that would have accrued on the Note on the amount being prepaid after the date of prepayment through and including the date immediately preceding the next Payment Date had the prepayment not been made, and such sum shall constitute additional consideration for the prepayment and not a penalty (except if the prepayment is made as required by Section 2.09 hereof and Lender is not required to pay any interest in connection with such repurchase under the Repurchase Agreement). Lender shall submit a certificate to Borrower setting forth in reasonable detail the amount required to be paid, which certificate shall be conclusive in the absence of manifest error. (b) In the event that Fourth Mezzanine Borrower prepays the Fourth Mezzanine Loan in whole or in part, Borrower shall make a prepayment of the Loan in an amount equal to Borrower's pro rata share (determined in accordance with the Participation Agreement) of the principal prepaid by Fourth Mezzanine Borrower. (c) In the event that Lender exercises its rights under Section 14 of the Participation Agreement and purchases Borrower's Junior Participation Interest (as defined in the Participation Agreement), the Loan shall become due and payable on the date on which Lender acquires Borrower's Junior Participation Interest and shall be repaid to Lender simultaneously with such purchase. 9 (d) In the event that Borrower exercises its rights under Section 5(b) or Section 5(c) of the Participation Agreement, the Loan shall become due and payable on the date on which Borrower acquires Lender's Senior Participation Interest (as defined in the Participation Agreement) and shall be repaid to Lender simultaneously with such purchase. Section 2.09. Repurchase Agreement. In the event that Lender is required to repurchase the Fourth Mezzanine Loan pursuant to the terms of the Repurchase Agreement and such repurchase is a result of any event relating to the Fourth Mezzanine Loan, the Fourth Mezzanine Borrower or the underlying property with respect to the Fourth Mezzanine Loan, then Lender shall notify Borrower of such repurchase and all amounts due under the Note, including all interest on the Note, and all other amounts payable under any other Loan Document shall be due and payable without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by Borrower. Section 2.10. Usury Limitation. This Agreement and the Note are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance of the Loan at a rate in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, Borrower is at any time required or obligated to pay interest on the principal balance due under this Agreement or the Applicable Interest Rate at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due under this Agreement or the Applicable Interest Rate. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable Law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding. Section 2.11. Note. The Loan shall be evidenced by, and repaid with interest in accordance with, a single promissory note of Borrower in substantially the form of the "Note" (Exhibit A) duly completed. The Note shall be (1) in the principal amount of $30,000,000.00, (2) dated the Closing Date, and (3) payable to Lender at Lender's Office. The Loan will be repaid in full on the Maturity Date. Section 2.12. Use of Proceeds. The proceeds of the Loan will be used by Borrower to purchase a ninety nine percent (99.0%) participation interest in Lender's rights and interest in and to the Fourth Mezzanine Loan ("Participation Interest") pursuant to the Participation Agreement, which mezzanine loan is secured by a pledge of certain membership interest by Fourth Mezzanine Borrower. Borrower will not, directly or indirectly, use any part of the proceeds of the Loan for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to any Person for the purpose of purchasing or carrying any such margin stock. 10 ARTICLE III. CONDITIONS PRECEDENT Section 3.01. Conditions Precedent. The obligation of Lender to enter into this Agreement and to make the Loan is subject to the condition precedent that Lender receives on or before the Closing Date each of the following, each in form and substance satisfactory to Lender and its counsel: (a) Certificate of Member of Borrower. A certificate of the managing member of Borrower, dated the Closing Date, certifying to (a) the current Organizational Documents of Borrower, (b) all membership actions taken by Borrower, including resolutions of its members, authorizing the execution, delivery and performance of each of the Loan Documents to which Borrower is a party and each other document or agreement to be delivered pursuant to any of the Loan Documents, and (c) the names and true signatures of each party authorized to act on behalf of Borrower. (b) Good Standing Certificates. A certificate of the Secretary of State (or other appropriate official) of the jurisdiction of formation of Borrower dated reasonably near the Closing Date, certifying to the due formation and good standing of Borrower. For each jurisdiction in which Borrower is required to be qualified to conduct business, a certificate of the Secretary of State (or other appropriate official) of such jurisdiction, dated reasonably near the Closing Date, certifying to the due qualification and good standing of Borrower in such jurisdiction. (c) Note. The Note duly executed by Borrower. (d) Recourse Guaranty. The Recourse Guaranty duly executed by Guarantor. (e) Pledge Agreement. The Pledge Agreement duly executed by Borrower together with each certificate (if any) representing the Participation Interest of Borrower pledged pursuant to such Pledge Agreement and an undated assignment executed in blank for each such certificate. (f) Lien Search Reports. Receipt of UCC, federal tax lien, state tax lien, bankruptcy, judgment and pending litigation searches in all locations specified by Lender for Borrower and such searches are conducted by a search firm acceptable to Lender. (g) Consents. Copies of all consents, licenses and approvals, if any, required for Borrower to execute, deliver and perform under each of the Loan Documents. (h) Fees and Expenses. Payment of all fees and expenses required to be paid in accordance with the terms of the Loan Documents. (i) Other Matters. Lender shall have received other such statements, certificates, agreements, documents and information with respect to matters contemplated by this Agreement as Lender may reasonably request. 11 ARTICLE IV. SINGLE PURPOSE ENTITIES Section 4.01. Single Purpose Entity. Borrower represents, warrants and covenants that the purpose of the Borrower is solely the ownership of the Participation Interest. Borrower did not previously and in the future will not: (a) Single Business Purposes. Engage in any business or activity other than the ownership of the Participation Interest and activities incidental thereto, (b) Ownership of a Single Asset. Acquire or own any assets other than the Participation Interest, (c) Maintenance of Existence. Fail to do all things necessary to preserve its existence and good standing (if applicable) under the laws of the jurisdiction of its organization or formation, or fail to qualify and remain qualified as a foreign limited liability company in each jurisdiction in which such qualification is required, (d) Legal Formalities. Fail to maintain all customary formalities regarding its existence and operation, including holding regular meetings of the parties responsible for its governance, whether shareholders, directors, partners, members or managers, as applicable, (e) Merger or Consolidation. Merge into or consolidate with any Person or dissolve, terminate or liquidate in whole or in part, or suffer any liquidation, dissolution or winding up, in whole or in part, or transfer or otherwise dispose of all or a material portion of its assets, or acquire all or a material portion of the assets or the business of a Person, or enter into a joint venture with any Person or become a partner in a partnership or change its legal structure, or form of business organization; provided, however, that Borrower may reorganize as a limited partnership, corporation or financial trust, so long as (i) no Default or Event of Default exists, (ii) Lender reviews the revised organizational documents and approves of such documents in its reasonable discretion, (iii) there is no transfer of any interests or control in Borrower to another Person, (iv) Borrower gives Lender 10 business days prior written notice of such proposed reorganization, (v) Borrower continues to comply with the single purpose entity provisions set forth in Section 4.01 hereof, (vi) such reorganization does not violate the Intercreditor Agreement, and (vii) Lender consents to such reorganization, which consent shall not be unreasonably withheld or delayed, (f) Maintain Separate Accounts. Commingle its assets or funds with the assets of any other Person, including its Affiliates, or fail to maintain its assets in such a manner that it is costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person, including its respective Affiliates, (g) Indebtedness. Incur, assume, create or suffer to exist any Indebtedness except the Loan, (h) Guarantees. Either (a) pledge any or all of its assets for the benefit of, or to secure the obligations of, any other Person, except for the Liens granted pursuant to the Loan Documents, or (b) hold itself out as responsible for, or assume, guarantee, endorse or otherwise be or become directly or contingently responsible or liable for the obligations of any Person or otherwise assure a creditor of another Person against loss, including an 12 agreement to purchase any obligation, stock, assets, goods or services or to supply or advance any funds, assets, goods or services, or an agreement to maintain or cause such Person to maintain a minimum working capital or net worth, except guaranties by endorsement of negotiable instruments for deposit or collection in the ordinary course of business, (i) Investments Make a loan or advance to a Person, or purchase or otherwise acquire any capital stock, assets, obligations, or other securities of, or make any capital contribution to, or otherwise invest in or acquire any interest in any Person, including its Affiliates, (j) Transactions With Related Parties. Enter into any contract or agreement with any Affiliates, except in the ordinary course of and pursuant to the reasonable requirements of the business of Borrower, and upon fair and reasonable terms no less favorable to Borrower, than Borrower would obtain in a comparable arm's length transaction with a Person that is not an Affiliate, (k) Presentation as Separate Legal Entity. Present itself as a division or department of another Person, or fail to (a) hold itself out to the public as a legal Person separate and distinct from any other Person, (b) conduct its business solely in its own name, and (c) correct any known misunderstanding regarding its separate identity, (l) Solvency. Fail to remain Solvent and to pay its debts and liabilities from its own assets and maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations, (m) Bankruptcy. Without the unanimous written consent of all of its members, file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors, (n) Payment of Obligations. Fail to pay its own liabilities from its own separate accounts, including payment of the salaries of its employees, (o) Employees. Fail to maintain a sufficient number of employees in light of its contemplated business operations, (p) Maintenance of Separate Books and Records. Fail to (a) maintain its records, financial statements, accounting records, books of account, and bank accounts and Organizational Documents separate and apart from those of any other Person, including its Affiliates, (b) prepare its own financial statements or be included in the financial statements of any other Person, except that if required by GAAP, it may be included in the financial statements of another Person (c) file its own tax returns or be included in the tax return of any other Person except as required by applicable Law, or (d) use separate stationery, invoices and checks, and 13 (q) Shared Expenses. Fail to allocate and charge fairly and reasonably any common employee or overhead shared with Affiliates. Borrower will cause its Organizational Documents to reflect the foregoing provisions in this Section 4.01. ARTICLE V. GENERAL REPRESENTATIONS Section 5.01. General Representations and Warranties. Borrower represents and warrants that: (a) Formation, Good Standing, Power and Due Qualification of Borrower. Borrower (a) is a limited liability company, duly formed, validly existing, and in good standing under the laws of the jurisdiction of its formation, (b) has the limited liability company power and authority, to own its assets and to transact the business in which it now engages or proposes to engage in, and (c) is duly qualified as a foreign limited liability company, and in good standing under the laws of each other jurisdiction in which such qualification is required. (b) Authority of Borrower. The execution, delivery and performance by Borrower of this Agreement and each of the other Loan Documents to which it is a party are within its limited liability company powers, have been duly authorized by all necessary limited liability company action, and do not and will not (a) require any consent or approval of its managers or members, as the case may be, which has not been obtained, or (b) contravene its Organizational Documents. (c) No Contravention of Borrower. The execution, delivery and performance by Borrower of this Agreement and each other Loan Documents to which it is a party do not and will not (a) violate any provision of any Law, order, writ, judgment, injunction, decree, determination, in effect applicable to Borrower, (b) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Borrower is a party or by which any property of Borrower may be bound or affected, or (c) result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by Borrower other than the Permitted Liens. (d) Legally Enforceable. This Agreement and each other Loan Document to which Borrower is a party is the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except to the extent that such enforcement may be limited by (a) applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally, or (b) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law. (e) Authorization. No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required (a) for the execution, delivery or performance by Borrower of this Agreement or any other Loan Document to which it is a party, (b) the consummation of the transaction contemplated by the Loan Documents, or (c) for the exercise by Lender of the rights and remedies provided for in this Agreement or any other Loan Document. 14 (f) Information. No information, exhibit, or report furnished by Borrower or any other Person to Lender in connection with the making of the Loan contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained therein not misleading. There has been no material adverse change in any condition, fact, circumstance or event that would make any of the information, exhibits or reports furnished in connection with the making of the Loan inaccurate, incomplete or otherwise misleading in any material respect. Borrower has disclosed to Lender in writing any and all facts that could result in a Material Adverse Change. (g) Financial Information. All financial information, including all financial statements, delivered by Borrower and each other Person in connection with the making of the Loan are materially true and correct as of their date, and accurately reflect the financial condition of Borrower and each such Person as of the date of such statements. Neither Borrower nor any such Person has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that could result in a Material Adverse Change. There has been no Material Adverse Change since the date of such financial statements. Neither Borrower nor any such Person has entered into any contracts or agreements not reflected in such financial statements, other than in the ordinary course of business. (h) Tax Returns. To the extent required, Borrower has filed all tax returns (federal, state and local) required to be filed and has paid all taxes, assessments and governmental charges and levies thereon to be due, including interest and penalties. The charges, accruals and reserves on the books of Borrower for taxes or other governmental charges are adequate. No additional tax liability has been asserted against Borrower or any assessment received by Borrower which remains open and unpaid. (i) Compliance With Law. Borrower is in compliance in all material respects with all applicable Laws. Borrower is not in default with respect to any order, writ, demand, injunction or decree of any Governmental Authority. Borrower possesses and is in compliance with all Governmental Approvals required to conduct its business as now conducted and as presently proposed to be conducted. (j) Embargoed Person. None of the funds or other assets of Borrower or Guarantor constitute property of, or are beneficially owned, directly or indirectly, by any Person subject to trade restrictions under U.S. Law ("Embargoed Person") with the result that either (1) the investment in Borrower or Guarantor, as applicable (whether directly or indirectly), or (2) the making of the Loan is in violation of Law. None of the funds of Borrower or Guarantor, as applicable, have been derived from any unlawful activity with the result that either (1) the investment in Borrower or Guarantor, as applicable (whether directly or indirectly), or (2) the making of the Loan is prohibited by Law. 15 (k) Litigation. There is no action, suit or proceeding pending or, to the knowledge of Borrower, threatened against or affecting Borrower or Guarantor, before any court, arbitration panel or other governmental body, which, in any one case or in the aggregate, could result in a Material Adverse Change. (l) No Default or Event of Default. No Default or Event of Default has occurred and is continuing. (m) Partnerships and Joint Ventures. Borrower is not a partner in any partnership nor a party to a joint venture. (n) Other Agreements. Borrower is not a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any Organizational Document restriction which has resulted in, or could result in, a Material Adverse Change. Borrower is not in default in any respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party where such default has resulted in, or could result in, a Material Adverse Change. (o) Governmental Regulation. Borrower is not subject to any Law limiting its ability to incur its obligations under any of the Loan Documents to which it is a party, including the Public Utility Holding Company Act of 1935, the Investment Company Act of 1940, the Interstate Commerce Act, the Federal Power Act or the Bank Holding Company Act of 1956. (p) Organizational Chart. The organizational chart attached as Schedule 1 hereto, relating to Borrower and certain Affiliates and other parties, is true, complete and correct on and as of the date of this Agreement. (q) Solvency. Borrower is, and upon consummation of the transactions contemplated by this Agreement and the other Loan Documents, and any other documents, instruments or agreements relating thereto to which Borrower, is bound, will be Solvent. (r) Legal Status and Structure. Borrower's exact legal name as indicated on the signature page hereto, organizational identification number and place of business or, if more than one, its chief executive office, as well as Borrower's mailing address, if different, which were identified by Borrower to Lender and contained in this Agreement, are true, accurate and complete. ARTICLE VI. NEGATIVE COVENANTS So long as the Note remains unpaid or any other amount is owing by Borrower or Guarantor to Lender under any Loan Document, Borrower shall not: Section 6.01. Liens. Create, incur, assume, or suffer to exist, any Lien, upon or with respect to any of its properties or assets, now owned or hereafter acquired, except for Permitted Liens. 16 Section 6.02. Sale of Assets. Sell, lease, assign, transfer, or otherwise dispose of, any of its now owned or hereafter acquired assets, except the sale or other disposition of assets no longer used or useful in the conduct of its business. Section 6.03. Distributions. At any time there is an outstanding Default or Event of Default, declare or make any distribution to any of its members. Section 6.04. Organizational Documents. Enter into any amendment, modification, waiver, termination or restatement of any Organizational Document. Section 6.05. Name, Address and Structure. Change its name, its place of business or, if more than one place of business, its chief executive office, or its mailing address or organizational identification number if it has one without giving Lender at least thirty (30) days prior written notice of such change (or change its type of organization, jurisdiction of organization or other legal structure), provided, however, Borrower may reorganize as a limited partnership, corporation or business trust pursuant to Section 4.01(e) hereof. ARTICLE VII. EVENTS OF DEFAULT AND REMEDIES Section 7.01. Events of Default. Each of the following events is an "Event of Default": (a) Payment Default. Borrower fails to: (a) pay the principal or interest on the Note when due and payable (other than all amounts due on the Maturity Date), (b) make any of the prepayments required by this Agreement as and when required, (c) pay any other fees or expenses required to be paid within five (5) Business Days after Borrower receives notice that payment of such fees and expenses is due, or (d) pay all amounts due on the Maturity Date, (b) Breach of Representations or Warranties. Any representation or warranty made by Borrower or Guarantor in any Loan Document or which is contained in any certificate, document, opinion, financial or other statement furnished at any time under or in connection with any Loan Document, was (a) in the case of such representation or warranty which is not subject to a Material Adverse Change exception, incorrect in any material respect on or as of the date made, or (b) in the case of such representation or warranty which is subject to a Material Adverse Change exception, incorrect on or as of the date made, (c) Breach of Covenant (No Cure Period). Borrower fails to perform or observe any term, covenant or agreement contained in "Single Purpose Entity" (Article IV) or "Assignment and Participation" (Section 8.07) on its part to be performed or observed, (d) Breach of Covenant (With Cure Period). Borrower fails to perform or observe any term, covenant or agreement otherwise contained in this Agreement or any other Loan Documents (other than obligations specifically referred to elsewhere in this Section) to which it is a party on its part to be performed or observed, and such failure remains unremedied for thirty (30) consecutive calendar days after the occurrence thereof, provided, however, that if (a) the default is capable of being cured but with diligence cannot be cured within such period of thirty (30) days, (b) Borrower has commenced the cure within such 17 thirty (30) day period and has pursued such cure diligently, and (c) Borrower delivers to Lender promptly following written demand (which demand may be made from time to time by Lender) evidence reasonably satisfactory to Lender of the foregoing, then such period shall be extended for so long as is reasonably necessary for Borrower in the exercise of due diligence to cure such default, but in no event beyond ninety (90) days after the occurrence of such default, (e) Cross Default. Borrower (a) fails to pay all or any portion of, other than indebtedness in an amount of less than One Hundred Thousand Dollars ($100,000), of the indebtedness of such party when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), or (b) fails to perform or observe any term, covenant or condition on the part of Borrower to be performed or observed under any agreement or instrument relating to any such indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, after the giving of notice or the lapse of time, or both, of the maturity of such indebtedness, or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof, (f) Insolvency and Bankruptcy. Borrower or Guarantor (a) is insolvent, (b) is not, or is unable to, or admits in writing its inability to, pay its debts as such debts become due, or (c) makes an assignment for the benefit of creditors, petitions or applies to any tribunal for the appointment of a custodian, receiver or trustee for it or a substantial part of its assets, or (d) commences any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation whether now or hereafter in effect, or (e) has any such petition or application filed, or any such proceeding commenced, against it, in which an adjudication or appointment is made or order for relief is entered, or which petition, application or proceeding remains undismissed or unstayed for a period of ninety (90) days or more, or is the subject of any proceeding under which its assets are subject to seizure, forfeiture or divestiture, or (f) by any act or omission indicates its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or trustee for all or any substantial part of its property, or (g) suffers any such custodianship, receivership or trusteeship to continue undischarged for a period of ninety (90) days or more, (g) Judgment. One or more final and non-appealable judgments, decrees or orders for the payment of money is rendered against (i) Borrower in an amount in excess of Fifty Thousand Dollars ($50,000) (individually and in the aggregate) and such judgments, decrees or orders continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal, or (ii) Guarantor in an amount in excess of One Million Dollars ($1,000,000) (individually and in the aggregate), and such judgments, decrees or orders continue unsatisfied and in effect for a period of twenty (20) consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal, 18 (h) Loan Documents. At any time and for any reason any Loan Document ceases to be in full force and effect, or is declared null and void, or the validity or enforceability of such Loan Document is contested by any party to such Loan Document (other than Lender), or any party (other than Lender) to any Loan Document denies it has any further liability or obligation under such Loan Document, or any party (other than Lender) to a Loan Document fails to perform any of its obligations under such Loan Document, (i) Security Documents. At any time and for any reason the Pledge Agreement cease: (a) to create a valid Lien in and to the property purported to be subject to such Pledge Agreement, or (b) if the Lien on the property purported to be subject to such Pledge Agreement ceases for any reason to be a perfected first priority Lien in any or all of such property, (j) Prohibited Transfer. The occurrence of a Prohibited Transfer, (k) Material Adverse Change. A Material Adverse Change occurs, (l) Organizational Documents. If there are any changes to the material terms or provisions of any of the Organizational Documents after the date of this Agreement or any Persons party to any Organizational Document fails to comply with the terms of such Organizational Document in any material respect, (m) Other Events of Default. The occurrence of an Event of Default under and as defined in any other Loan Document, (n) Default Under Participation Agreement. The occurrence and continuance of an event of default beyond any applicable notice and grace periods under the Participation Agreement, (o) Default under Fourth Mezzanine Loan Agreement. The occurrence and continuance of an event of default beyond any applicable notice and grace periods under the Fourth Mezzanine Loan Agreement, provided, that Borrower shall not be required to pay interest at the Default Rate as a result of such Event of Default unless and until Borrower fails to repay the Loan as and when required as a result of such Event of Default, and (p) Failure to Make Payments under Fourth Mezzanine Loan Agreement. The failure of the Fourth Mezzanine Borrower to make any payment as and when due under the Fourth Mezzanine Loan Agreement, which failure is not cured or curable by Borrower in accordance with the terms of the Participation Agreement (it being understood that if Borrower no longer has the right to cure Fourth Mezzanine Borrower's failure to make any payment pursuant to the terms of the Participation Agreement, then an Event of Default shall occur under this Agreement). Section 7.02. Remedies. If any Event of Default shall occur, Lender may, (1) by notice to Borrower, declare the outstanding Note, all interest on the Note, and all other amounts payable under any other Loan Document to be forthwith due and payable, whereupon the Note, all such interest, and all such amounts due under such other Loan Documents shall become and be forthwith due 19 and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by Borrower, (2) exercise any remedies provided in any of the Loan Documents, (3) exercise any rights and remedies provided by Law, and (4) apply any and all funds held in any reserve or other account to repay the Loan. No failure on the part of Lender to exercise, and no delay in exercising, any right under any Loan Document shall operate as a waiver of such right or preclude any other or further exercise of such right or the exercises of any other right. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by Law. The acceptance by Lender of any payment after the due date of such payment, or in an amount which is less than the required payment, shall not be a waiver of Lender's right to require prompt payment when due of all other payments or to exercise any right or remedy with respect to any failure to make prompt payment or constitute or be deemed to constitute either a waiver of the unpaid amounts, an accord and satisfaction, or a novation of the Note. Enforcement by Lender of any security for Borrower's obligations under the Note shall not constitute an election by Lender of remedies so as to preclude the exercise of any other right or remedy available to Lender. Lender may release any guarantor, surety or indemnitor of the Note from liability, in every instance without the consent of Borrower and without waiving any rights which Lender may have under this Agreement or under any other Loan Document or under applicable Law or in equity. ARTICLE VIII. MISCELLANEOUS Section 8.01. Taxes. Any and all payments by or on account of any obligation of Borrower under this Agreement and the Note shall be made free and clear of and without deduction for any taxes (other than income or franchise taxes or withholding taxes imposed with respect to payments made to a foreign or non U.S. lender), provided that if Borrower is required to deduct any taxes from such payments, then (1) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) Lender receives an amount equal to the sum it would have received had no such deductions been made, (2) Borrower shall make such deductions and (3) Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Law. Borrower shall indemnify Lender, within ten (10) days after written demand therefor, for the full amount of any taxes (other than income or franchise taxes or withholding taxes imposed with respect to payments made to a foreign or non U.S. lender) paid by Lender on or with respect to any payment by or on account of any obligation of Borrower under this Agreement or the Note, including taxes imposed or asserted on or attributable to amounts payable under this Section, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to Borrower by Lender, shall be conclusive absent manifest error. 20 As soon as practicable after any payment of taxes by Borrower to a Governmental Authority, Borrower shall deliver to Lender the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payments or other evidence of such payment reasonably satisfactory to Lender. Section 8.02. Appointment of Lender Attorney-in-Fact. Borrower hereby irrevocably appoints Lender attorney-in-fact, with full authority in the place and stead of Borrower and in the name of Borrower, Lender or otherwise (1) to take any and all action and exercise all rights and remedies granted to Lender under this Agreement and each of the other Loan Documents, and (2) to execute any instrument which Lender may deem necessary or advisable to accomplish the purpose of this Agreement or any such other Loan Document. Borrower hereby ratifies and approves all acts of Lender as its attorney-in-fact pursuant to this Section, and Lender, as its attorney-in-fact, will not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law, other than those which result from Lender's gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable so long as this Agreement remains in effect. Section 8.03. Indemnity and Expenses. Borrower agrees to indemnify Lender and each of its directors, officers, employees, agents and affiliates from and against any and all claims, losses, damages, liabilities and reasonable expenses growing out of or resulting from this Agreement or any other Loan Document or the transactions contemplated by this Agreement or any other Loan Document, including enforcement of this Agreement and each of the other Loan Documents, except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the person to be indemnified. Within ten (10) days after requested by Lender, Borrower will pay to Lender the amount of any and all costs and expenses, including the reasonable fees and out of pocket disbursements of its counsel and of any experts and agents, which Lender may actually incur in connection with (1) any amendment to this Agreement or any other Loan Document, (2) the administration of this Agreement and the other Loan Documents, (3) filing or recording fees incurred with respect to or in connection with this Agreement or any of the other Loan Documents, (4) the exercise or enforcement of any of the rights of Lender under this Agreement or any of the other Loan Documents, (5) the failure by Borrower to perform or observe any of the provisions of this Agreement or any of the other Loan Documents or (6) to the extent permitted or authorized by this Agreement the participation by Lender in any legal proceedings or actions. All such costs and expenses not paid when requested by Lender will accrue interest at a rate per annum equal to the Default Rate. 21 The obligations of Borrower under this Section shall survive the repayment of the Loan and all amounts due under or in connection with any of the Loan Documents. Section 8.04. Usury. Anything herein to the contrary notwithstanding, the obligations of Borrower under this Agreement and the Note shall be subject to the limitation that payments of interest shall not be required to the extent that receipt of such payment would be contrary to provisions of Law applicable to Lender limiting rates of interest which may be charged or collected by Lender. Section 8.05. Amendments. No amendment or waiver of any provision of this Agreement, nor consent to any departure by Borrower from this Agreement, shall in any event be effective unless the same shall be in writing and signed by Lender and Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 8.06. Addresses for Notices. All notices and other communications provided for under this Agreement shall be in writing and, mailed or delivered by messenger or overnight deliver service, addressed, in the case of Borrower to the address specified below its signature, and in the case of Lender to the address specified below its signature, or as to any such party at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed or delivered by messenger or overnight delivery service, respectively, be effective three (3) days after being placed in the mails and one (1) day after being delivered to the messenger or overnight delivery service, respectively, addressed as specified above. Section 8.07. Assignment and Participation. This Agreement shall be binding upon, and shall inure to the benefit of Borrower, Lender and their respective successors and assigns. Borrower may not assign or transfer its rights or obligations under any of the Loan Documents. In the case of an assignment by Lender, the assignee shall have, to the extent of such assignment (unless otherwise provided in such assignment), the same rights, benefits and obligations as it would have if it were Lender. Lender may sell participations in all or any part of the Loan to one or more Persons. Each such participant shall have no rights under the Loan Documents and all amounts payable by Borrower shall be determined as if Lender had not sold such participation. Lender may furnish any information concerning Borrower and Guarantor in the possession of Lender from time to time to assignees and participants, including prospective assignees and participants. Section 8.08. Sale of Note or Securitization. (a) Borrower acknowledges that Lender and its successors and assigns may (i) sell the Pledge Agreement, Note and other Loan Documents to one or more investors as a whole loan, (ii) deposit the Pledge Agreement, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (iii) otherwise sell the Loan or interest therein to investors (the transactions referred to in clauses (i) through (iii) are hereinafter each referred to as "Secondary Market Transaction" or "Securitization"). Borrower shall cooperate with Lender in effecting any such Secondary Market Transaction and shall cooperate to implement all requirements imposed by any rating agency involved in any Secondary Market Transaction. Borrower, however, shall not be required to modify any documents evidencing or securing the Loan which would modify (A) the interest rate payable under the Note, (B) the stated maturity of the Note, (C) the amortization of principal of the Note, (D) the non-recourse provisions of the Loan or (E) any 22 other material economic term of the Loan. Borrower shall provide such information, legal opinions and documents relating to Borrower and Guarantor as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, Borrower shall make available to Lender all information concerning its business and operations that Lender may reasonably request. Lender shall be permitted to share all such information with the investment banking firms, rating agencies, accounting firms, law firms and other third-party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction. It is understood that the information provided by Borrower to Lender may ultimately be incorporated into the offering documents for the Secondary Market Transaction and thus various investors may also see some or all of the information. Lender and all of the aforesaid third-party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, Borrower and Borrower indemnifies Lender as to any losses, claims, damages or liabilities that arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such information or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated in such information or necessary in order to make the statements in such information, or in light of the circumstances under which they were made, not misleading. Lender may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction or otherwise as part of its business development. (b) Borrower acknowledges that Lender may on or after the Closing Date sell and assign participation interests in and to the Loan, or pledge, hypothecate or encumber, or sell and assign all or any portion of the Loan, to or with such domestic or foreign banks, insurance companies, pension funds, trusts or other institutional lenders or other Persons, parties or investors (including, without limitation, grantor trusts, owner trusts, special purpose corporations, real estate investment trusts or other similar or comparable investment vehicles) as may be selected by Lender in its sole and absolute discretion and on terms and conditions satisfactory to Lender in its sole and absolute discretion. Borrower and all Affiliates of Borrower associated or connected with the Loan shall, at the sole cost and expense of Lender, cooperate in all respects with Lender in connection with the sale of participation interests in, or the pledge, hypothecation or encumbrance or sale of all or any portion of, the Loan, and shall, in connection therewith, execute and deliver such estoppels, certificates, instruments and documents as may be reasonably requested by Lender. Borrower grants to Lender the right to distribute financial and other information concerning Borrower and all other pertinent information with respect to the Loan to any Person who has purchased a participation interest in the Loan, or who has purchased the Loan, or who has made a loan to Lender secured by the Loan or who has expressed an interest in purchasing a participation interest in the Loan, or expressed an interest in purchasing the Loan or the making of a loan to Lender secured by the Loan. If requested by 23 Lender, Borrower shall execute and deliver, and shall cause each Affiliate of Borrower to execute and deliver, at no cost or expense to Borrower, such documents and instruments as may be necessary to split the Loan into two or more loans evidenced by separate sets of notes and secured by separate sets of other related Loan Documents to the full extent required by Lender to facilitate the sale of participation interests in the Loan or the sale of the Loan or the making of a loan to Lender secured by the Loan, it being agreed that (i) any such splitting of the Loan will not adversely affect or diminish the rights of Borrower as presently set forth herein and in the other Loan Documents and will not increase the respective obligations and liabilities of Borrower or any other Person associated or connected with the Loan, (ii) the Loan Documents securing the Loan as so split will have such priority of lien as may be specified by Lender, and (iii) the retained interest of Lender in the Loan as so split shall be allocated to or among one or more of such separate loans in a manner specified by Lender in its sole and absolute discretion. From and after the effective date of any assignment of all or any portion of the Loan to any Person (an "Assignee") (x) such Assignee shall be a party hereto and to each of the other Loan Documents to the extent of the applicable percentage or percentages assigned to such Assignee and, except as otherwise specified herein, shall succeed to the rights and obligations of Lender hereunder in respect of such applicable percentage or percentages and (y) Lender shall relinquish its of rights and be released from its obligations hereunder and under the Loan Documents to the extent such applicable percentage or percentages. The liabilities of Lender and each of the other Assignees shall be separate and not joint and several. Neither Lender nor any Assignee shall be responsible for the obligations of any other Assignee. (c) In the event that the provisions of this Loan Agreement or any Loan Documents require the receipt of written confirmation from each rating agency with respect to the ratings on the securities, or, in accordance with the terms of the transaction documents relating to a Secondary Market Transaction, such a rating confirmation is required in order for the consent of the Lender to be given, the Borrower shall pay all of the costs and expenses of the Lender, servicer and each rating agency in connection therewith, and, if applicable, shall pay any fees imposed by any rating agency as a condition to the delivery of such confirmation. Section 8.09. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of law principles. Section 8.10. Submission to Jurisdiction. Borrower hereby irrevocably submits to the jurisdiction of any federal or state court sitting in the Nassau County in the State of New York over any action or proceeding arising out of or related to this Agreement and agrees with Lender that personal jurisdiction over Borrower rests with such courts for purposes of any action on or related to this Agreement. Borrower hereby waives personal service by manual delivery and agrees that service of process may be made by prepaid certified mail directed to Borrower at the address of Borrower for notices under this Agreement or at such other address as may be designated in writing by Borrower to Lender, and that 24 upon mailing of such process such service will be effective as if Borrower was personally served. Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any manner provided by law. Borrower further waives any objection to venue in any such action or proceeding on the basis of inconvenient forum. Borrower agrees that any action on or proceeding brought against Lender shall only be brought in such courts. To the extent that Borrower has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, Borrower hereby irrevocably waives such immunity in respect of its obligations under all of the Loan Documents. Section 8.11. Counterparts. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. The failure of any party hereto to execute this Agreement, or any counterpart hereof, shall not relieve the other signatories from the obligations hereunder. Section 8.12. Right of Setoff. Upon the occurrence and during the continuance of any Event of Default, Lender is hereby authorized at any time and from time to time, without notice to Borrower (any such notice being expressly waived by Borrower), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Lender to or for the credit or the account of Borrower against any and all of the obligations of Borrower now or hereafter existing under any of the Loan Documents, irrespective of whether or not Lender shall have made any demand under such Loan Document and although such obligations may be unmatured. Lender agrees promptly to notify Borrower, after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of setoff) which Lender may have. Section 8.13. Further Assurances. Borrower shall execute and acknowledge (or cause to be executed and acknowledged) and deliver to Lender all reasonable documents, and take all actions, reasonably required by Lender from time to time to confirm the rights created or now or hereafter intended to be created under this Agreement and the Note and any other Loan Document, to protect and further the validity, priority and enforceability of this Agreement and Note and each other Loan Document, or otherwise carry out the purposes of this Agreement, the Note and the other Loan Documents. Section 8.14. Miscellaneous. This Agreement is in addition to and not in limitation of any other rights and remedies Lender may have by virtue of any other instrument or agreement heretofore, contemporaneously herewith or hereafter executed by Borrower or by law or otherwise. If any provision of this Agreement is contrary to applicable Law, such provision shall be deemed ineffective without invalidating the remaining provisions of this Agreement. The 25 headings in this Agreement are for convenience of reference only, and shall not affect the interpretation or construction of this Agreement. The Loan Documents set forth the entire agreement among the parties hereto relating to the transactions contemplated thereby and supersede any prior oral or written statements or agreements with respect to such transactions. Section 8.15. WAIVER OF JURY TRIAL. BORROWER EXPRESSLY WAIVES ANY AND EVERY RIGHT TO A TRIAL BY JURY IN ANY ACTION ON OR RELATED TO THIS AGREEMENT. Section 8.16. Full Recourse. Borrower, but none of its members unless otherwise agreed in writing by such member, shall be fully and personally liable for payment of the Loan. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 26 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the year and date first above written. FT-TOY LLC By: WRT Realty L.P. Managing Member By: Winthrop Realty Trust General Partner By: --------------------------------- Name: Peter Braverman Title: President Address for Notices: 7 Bulfinch Place Suite 500, P.O. Box 9507 Boston, Massachusetts 02114 Attention: Jay Cramer With a copy to: WRT Realty, L.P. Two Jericho Plaza Wing A, Suite 111 Jericho, New York 11753 Attention: Peter Braverman And to: Post Heymann & Koffler LLP Two Jericho Plaza Wing A, Suite 111 Jericho, New York 11753 Attention: David J. Heymann, Esq. 27 Arbor Realty Funding LLC By: ----------------------------------------- Name: Guy R. Milone, Jr. Title: General Counsel Address for Notices: Arbor Commercial Mortgage, LLC 333 Earle Ovington Boulevard Uniondale, New York 11553 Attention: General Counsel With a copy to: Arbor Commercial Mortgage, LLC 333 Earle Ovington Boulevard Uniondale, New York 11553 Attention: Asset Management - Loan Monitoring Facsimile No. (516) 832-6461 And to: Kronish Lieb Weiner & Hellman LLP 1114 Avenue of the Americas New York, New York 10036 Attention: Thomas D. O'Connor, Esq. Facsimile No. (212) 479-6275 28 ACKNOWLEDGMENT STATE OF ____________ ) ) SS: COUNTY OF ___________ ) Before me, a Notary Public in and for said County and State, personally appeared ________________________, the _____________________ of ___________________, who acknowledged the execution of the foregoing instrument as such officer acting for and on behalf of said limited liability company. Witness my hand and Notarial Seal this _______ day of ___________, 2005. ---------------------------------- (signature) ---------------------------------- My Commission Expires: (printed name) Notary Public _____________________ Resident of _______________ County 29 STATE OF ____________ ) ) SS: COUNTY OF ___________ ) Before me, a Notary Public in and for said County and State, personally appeared ________________________, the _____________________ of ___________________, who acknowledged the execution of the foregoing instrument as such officer acting for and on behalf of said limited liability company. Witness my hand and Notarial Seal this _______ day of ___________, 2005. ---------------------------------- (signature) ---------------------------------- My Commission Expires: (printed name) Notary Public _____________________ Resident of _______________ County 30 EXHIBIT A FORM OF NOTE PROMISSORY NOTE US $30,000,000.00 December __, 2005 THIS PROMISSORY NOTE ("Note") is made as of December __, 2005 by FT-TOY LLC, a Delaware limited liability company ("Borrower"), in favor of ARBOR REALTY FUNDING LLC, a Delaware limited liability company, and its successors or assigns (collectively, "Lender"). FOR VALUE RECEIVED, Borrower promises to pay to the order of Lender at 333 Earle Ovington Boulevard, Uniondale, New York 11553, or such other place as may be designated by written notice to Borrower from or on behalf of Lender the principal sum of Thirty Million and no/100 Dollars (US $30,000,000.00) on the Maturity Date (as defined the Loan Agreement (as defined below), or such later date as extended to in accordance with the terms of the Loan Agreement. Borrower also promises to pay interest on the unpaid principal balance of this Note, for the period any principal is outstanding under this Note, at the office specified above, at the time and rate per annum specified in the Loan Agreement. Any amount of principal or interest due and payable pursuant to this Note which is not paid when due, whether by stated maturity, acceleration or otherwise, shall bear interest from the date when due until said principal amount or interest is paid in full, payable on demand, at a rate per annum equal at all times to the Default Rate. If this Note becomes due and payable on a day other than a Business Day, the maturity of this Note shall be extended to the next following Business Day, and interest shall be payable on such payment at the rate specified in this Note during such extension. All payments on this Note shall be made in lawful money of the United States of America in immediately available funds. Reference is made to the Loan Agreement dated December __, 2005 between Borrower and Lender ("Loan Agreement"). This Note is the Promissory Note referenced in the Loan Agreement and evidences the Loan made by Lender to Borrower pursuant to the Loan Agreement. All capitalized terms used in this Note which are not defined in this Note shall have the meaning specified for such term in the Loan Agreement. The Loan Agreement provides for the acceleration of the maturity of the Loan upon the occurrence of an Event of Default and for prepayments on the terms and conditions set forth in such Loan Agreement. Borrower hereby waives presentment, notice of dishonor, protest and any other notice or formality with respect to this Note. This Note shall be governed by, and interpreted and construed in accordance with, the laws of the state of New York, without regard to its conflicts of law provisions. A-1 IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the date first above written. FT-TOY LLC By: WRT Realty L.P. Managing Member By: Winthrop Realty Trust General Partner By: ------------------------------------- Name: Title: Borrower's Social Security/Employer ID Number --------------------------------------------- A-2 SCHEDULE 1 ORGANIZATIONAL CHART 1-1 EX-10.3 4 e501257_ex10-3.txt LOAN NOTE FINAL PROMISSORY NOTE US $30,000,000.00 December 7, 2005 THIS PROMISSORY NOTE ("Note") is made as of December 7, 2005 by FT-TOY LLC, a Delaware limited liability company ("Borrower"), in favor of ARBOR REALTY FUNDING LLC, a Delaware limited liability company, and its successors or assigns (collectively, "Lender"). FOR VALUE RECEIVED, Borrower promises to pay to the order of Lender at 333 Earle Ovington Boulevard, Uniondale, New York 11553, or such other place as may be designated by written notice to Borrower from or on behalf of Lender the principal sum of Thirty Million and no/100 Dollars (US $30,000,000.00) on the Maturity Date (as defined the Loan Agreement (as defined below), or such later date as extended to in accordance with the terms of the Loan Agreement. Borrower also promises to pay interest on the unpaid principal balance of this Note, for the period any principal is outstanding under this Note, at the office specified above, at the time and rate per annum specified in the Loan Agreement. Any amount of principal or interest due and payable pursuant to this Note which is not paid when due, whether by stated maturity, acceleration or otherwise, shall bear interest from the date when due until said principal amount or interest is paid in full, payable on demand, at a rate per annum equal at all times to the Default Rate. If this Note becomes due and payable on a day other than a Business Day, the maturity of this Note shall be extended to the next following Business Day, and interest shall be payable on such payment at the rate specified in this Note during such extension. All payments on this Note shall be made in lawful money of the United States of America in immediately available funds. Reference is made to the Loan Agreement dated December __, 2005 between Borrower and Lender ("Loan Agreement"). This Note is the Promissory Note referenced in the Loan Agreement and evidences the Loan made by Lender to Borrower pursuant to the Loan Agreement. All capitalized terms used in this Note which are not defined in this Note shall have the meaning specified for such term in the Loan Agreement. The Loan Agreement provides for the acceleration of the maturity of the Loan upon the occurrence of an Event of Default and for prepayments on the terms and conditions set forth in such Loan Agreement. Borrower hereby waives presentment, notice of dishonor, protest and any other notice or formality with respect to this Note. 1 This Note shall be governed by, and interpreted and construed in accordance with, the laws of the state of New York, without regard to its conflicts of law provisions. 2 IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the date first above written. FT-TOY LLC By: WRT Realty L.P. Managing Member By: Winthrop Realty Trust General Partner By: ------------------------------ Name: Peter Braverman Title: President Borrower's Social Security/Employer ID Number 20-3881605 EX-10.4 5 e501257_ex10-4.txt PLEDGE AGREEMENT PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT dated as of December 7, 2005 ("Pledge Agreement") made by FT-TOY LLC ("Borrower") to Arbor Realty Funding LLC ("Lender"). In consideration of Lender providing credit to Borrower, Borrower hereby agrees as follows: Section 1. Definitions. As used in this Pledge Agreement, the following terms have the following meanings: "Borrower" means FT-Toy LLC, a Delaware limited liability company. "Borrower Obligations" means any and all present and future indebtedness, liabilities and obligations of Borrower to Lender under any and all of the Loan Documents, and all claims (as defined under Section 101(5) of the United States Bankruptcy Code, and any amendments thereto (Title 11, United States Code)) of Lender against Borrower in respect thereof, together with all fees and expenses incurred in collecting any or all of the items specified in this definition or enforcing any rights under any of the documents executed in connection with any such liabilities and obligations, including all fees and expenses of Lender's counsel and of any experts and agents which may be paid or incurred by Lender in collecting any such items or enforcing any such rights, in each case whether absolute or contingent, joint or several, secured or unsecured, matured or unmatured, monetary or non-monetary, arising by contract, operation of law or otherwise and all extensions, renewals, refundings, replacements and modifications of any of the foregoing. "Collateral" has the meaning specified in "Pledge" (Section 3). "Lender" means Arbor Realty Funding LLC, a Delaware limited liability company. "Loan" means the loan evidenced by the Note. "Loan Agreement" means the Loan Agreement dated the date hereof between Borrower and Lender, as the same may hereafter be consolidated, extended, modified, amended and/or restated from time to time. "Loan Documents" means the Note, the Loan Agreement, the Recourse Guaranty, the ARLP Guaranty and each other document or agreement entered into pursuant to, or in connection with, the Note or Loan Agreement. 1 "Note" means the $30,000,000.00 Promissory Note dated the date hereof made by Borrower and payable to Lender. "Organizational Documents" means all documents and agreements providing for, or related to, the formation, organization and governance of Borrower, including the certificate of formation, operating agreement and any agreement among its members, in each case as the same have been or may hereafter be amended or otherwise modified from time to time in accordance with this Pledge Agreement. "Participation Agreement" means the Participation and Servicing Agreement dated the date hereof, by and between Lender and Borrower. "Pledge Agreement" means this Pledge and Security Agreement. "Pledged Participation Interest" has the meaning specified in "Pledge" (Section 3). "UCC" means the Uniform Commercial Code of the State of New York as in effect from time to time. All terms defined in the UCC that are used in this Pledge Agreement shall have the meaning specified in the UCC. Unless otherwise specified in this Pledge Agreement, terms defined in the Note or Loan Agreement which are used in this Pledge Agreement will have the same meaning when used in this Pledge Agreement. Borrower hereby acknowledges receipt of a copy of the Note and Loan Agreement. Section 2. Rules of Interpretation. When used in this Pledge Agreement: (1) "or" is not exclusive, (2) any pronouns used shall include the corresponding masculine, feminine or neuter forms, (3) the singular form of nouns shall include the plural and vice versa, (4) a reference to a law includes any amendment or modification to such law, and (5) a reference to an agreement, instrument or document includes any amendment of modification of such agreement, instrument or document if and to the extent such amendment or modification is permitted under the Loan Documents. Section 3. Pledge. Borrower hereby pledges, assigns, transfers and sets over unto Lender and grants to Lender a continuing first priority security interest in and lien on all right, title and interest of Borrower in and to each of the following items, whether now owned or hereafter acquired ("Collateral"): (1) Pledged Participation Interest. All of the participation interest of Borrower in Lender's rights and interest in and to a $60,000,000.00 fourth mezzanine loan, pursuant to the Participation Agreement ("Pledged Participation Interest"), and the certificates (if any) representing such Pledged Participation Interest, and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Pledged Participation Interest, together with all claims, powers, privileges, benefits, remedies, options and 2 rights of any nature, including, without limitation, voting rights, which now or hereafter exist with respect to or on account of such Pledged Participation Interests, including all such items under or pursuant to the Participation Agreement, (2) Proceeds. All cash and non-cash Proceeds (as defined in the UCC) of any and all of the foregoing. Section 4. Security for Obligations. The Collateral secures the prompt and complete payment when due of all Borrower Obligations. Section 5. Perfection of Security Interest. (1) Borrower shall make the appropriate notation in its books and records that the Pledged Participation Interests held by Borrower are subject to a security interest pursuant to this Pledge Agreement. All certificates representing or evidencing the Pledged Participation Interests shall be delivered to and held by Lender concurrently with the execution of this Agreement and shall be accompanied by duly executed instruments of transfer, assignment in blank, all in form and substance satisfactory to Lender. (2) Upon the written request of Lender, Borrower will take any and all additional actions required to perfect the security interest of Lender in each and every item of Collateral. If any or all of the Collateral is represented by certificates or instruments then all such certificates and instruments representing or evidencing the Collateral shall be delivered to and held by or on behalf of Lender pursuant to this Pledge Agreement, and shall be in suitable form for transfer and delivery. Lender has the right, at any time in its discretion to register the Collateral in the name of Lender or its nominee. If any or all of the Collateral is an uncertificated security then, Borrower will take all actions required by Lender, in its sole discretion, to either (x) register such security in the name of Lender or (y) cause the issuer of the uncertificated security to agree in writing that it will comply with instructions originated by the Lender without further consent of the registered owner of such uncertificated security. Borrower hereby authorizes Lender to file, without the signature of Lender, one or more financing or continuation statements and amendments, and attachments thereto, relating to all or any part of the Collateral. (3) Upon the occurrence and during the continuance of an Event of Default, Lender shall have the right, at any time, in its discretion upon notice to Borrower to transfer to or to register in the name of Lender or its nominee any or all of the Collateral. Prior to or concurrently with the execution and delivery of this Agreement, Borrower shall deliver to Lender an assignment endorsed by Borrower in blank (an "Assignment of Interest"), for the Pledged Participation Interests, transferring all of such Pledged Participation Interests in blank, duly executed by Borrower and undated. Lender shall have the right, at any time in its discretion upon the occurrence and during the continuance of an Event of Default and without notice to Borrower, to transfer 3 to, and to designate any and all Borrower's Assignment of Interest, to any Person to whom the Pledged Participation Interests are sold in accordance with the provisions hereof. In addition, Lender shall have the right at any time to exchange any Assignment of Interest representing or evidencing the Pledged Participation Interests or any portion thereof for one or more additional or substitute Assignments of Interest representing or evidencing smaller or larger percentages of the Pledged Participation Interests represented or evidenced thereby, subject to the terms thereof. (4) Immediately upon its acquisition (directly or indirectly) of any and all new or additional Collateral, Borrower will (1) notify Lender of the acquisition of such Collateral, (2) take all steps required to pledge such Collateral under this Pledge Agreement, and (3) take all actions required to perfect the security interest of Lender in such Collateral. If delivery of such new or additional Collateral is required under the prior sentence, then prior to such delivery, Borrower agrees that all such Collateral will be held separate and apart from its other property and in express trust for Lender. (5) Borrower will not take any actions or fail to perform any of its duties or obligations under this Pledge Agreement so that after giving effect to such action or inaction Lender will not then, or with the passage of time, cease to have a perfected first priority security interest in any of the Collateral. Borrower agrees that from time to time, it will promptly execute and deliver all further instruments and documents, and take all further action, including but not limited to any and all of the actions specified above in this Section that may be necessary or desirable, or that Lender may request, in order to perfect and protect any security interest granted or purported to be granted under this Pledge Agreement or to enable Lender to exercise and enforce its rights and remedies under this Pledge Agreement with respect to any of the Collateral. (6) Borrower acknowledges and agrees that the Pledged Participation Interest is a certificated security (as defined under the UCC) and that the Pledged Participation Interests are "securities" governed by and within the meaning of Article 8 of the UCC. (7) Borrower will not (1) change the location of its chief executive office or principal place of business, (2) change its name, identity, or structure, or (3) reorganize under the laws of another jurisdiction. Section 6. Distributions. As long as there are no outstanding Events of Default, Borrower shall be entitled to receive and retain any and all cash distributions made in respect of the Collateral, provided, however, that any and all (1) distributions paid or payable, other than in cash, in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any such Collateral, (2) distributions paid or payable in cash in respect of any such Collateral in connection with a partial or total liquidation or dissolution, and (3) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any such Collateral, shall be 4 forthwith delivered to Lender to hold as Collateral and shall, if received by Borrower, be received in trust for the benefit of Lender, be segregated from the other funds of Borrower, and be forthwith delivered to Lender as Collateral in the same form as so received (with any necessary endorsement). Upon and at all times after the occurrence and during the continuance of an Event of Default, all rights of Borrower to receive distributions which it would otherwise be authorized to receive and retain pursuant to this Section shall cease, and all such rights shall thereupon become vested in Lender, and Lender shall thereupon have the sole right to receive and hold as Collateral such distributions. Borrower shall cause Property Owner to pay and deliver any and all such distributions directly to Lender. All distributions which are received by Borrower contrary to the provisions of this paragraph shall be received in trust for the benefit of Lender, shall be segregated from other funds of Borrower and shall be forthwith delivered to Lender as Collateral in the same form as so received (with any necessary endorsement). Section 7. Voting Rights. As long as there are no outstanding Events of Default, Borrower shall be entitled to exercise any and all voting and other consensual rights pertaining to any or all of the Collateral. Upon receipt of written notice from Lender that there is an outstanding Event of Default and that Lender chooses to exercise the voting and consensual rights related to the Collateral, including all such rights under and pursuant to the terms of the Participation Agreement, all rights of Borrower to exercise such voting and other consensual rights shall cease, and Lender shall then have the sole right to exercise such voting and other consensual rights. In exercising its voting or other consensual rights with respect to the Collateral, Borrower agrees it will not agree to or vote for (1) any changes that contravene the terms of this Pledge Agreement, (2) any changes to the terms of the Participation Agreement, or (3) any changes which could impair the value of any or all of the Collateral (provided, however, that with respect to an Event of Default resulting from an event of default under the Fourth Mezzanine Loan, Borrower shall retain such voting and consensual rights until the Borrower's right to purchase the Senior Participation Interest (as such term is defined in the Participation Agreement) pursuant to the Participation Agreement has expired or otherwise is no longer in effect). Section 8. Representations and Warranties. Borrower represents and warrants to Lender as follows: (1) Ownership of Collateral. Borrower is the legal and beneficial owner of the Collateral and has good and marketable title to the Collateral. The Collateral includes, without limitation, 100% of Borrower's outstanding participation interests in Lender's rights and interest in and to the Fourth Mezzanine Loan pursuant to the Participation Agreement. The Collateral is evidenced by a certificate. (2) Limitations on Collateral. Except as set forth in the documents relating to the Fourth Mezzanine Loan and the Participation Agreement, to Borrower's knowledge, none of the Collateral is subject to any agreement that (a) provides for the sale, assignment, transfer or other disposition of such Collateral, or (b) limits or restricts the granting of a security interest in, or the sale of, such Collateral. 5 (3) Security Interest. This Pledge Agreement creates a valid security interest in the Collateral and such security interest secures the payment of all Borrower Obligations. None of the Collateral is subject to a security interest, lien, charge or encumbrance, except for the security interest created by this Pledge Agreement. All actions necessary or desirable to perfect and protect such security interest have been duly taken. Except with respect to any rights in favor of Wachovia Bank, National Association, under the Repurchase Agreement, a valid and first priority security interest in all of the Collateral will be created in favor of Lender upon execution of this Pledge Agreement by all of the parties hereto and will be perfected (a) with respect to the Pledged Participation Interests, upon delivery to the Lender of the certificate representing the Pledged Participation Interest together with duly executed instruments of transfer, endorsed in blank, and (b) with respect to all other Collateral upon the filing with the office of the Secretary of State of New York of financing statements in the form attached as Exhibit A. (4) Collateral. There are no outstanding agreements, options and contracts to sell all or any portion of the Collateral. Except for the Participation Agreement and the Loan Agreement, there are no outstanding agreements limiting or restricting the granting of a security interest in, or the sale or transfer of, any or all of the Collateral. There are no unpaid expenses, capital contributions, costs, fees, charges, or other payments of any kind related to any or all of the Collateral required to be funded or contributed by Borrower that have not been satisfied. (5) Information Regarding Perfection of Security Interest. The exact legal name of Borrower is set forth in the preamble to this Agreement. The Borrower has not been known by any other name during the past five (5) years. The state of formation of Borrower is New York. (6) Formation, Good Standing, Power and Due Qualification. Borrower (a) is a limited liability company, duly formed, validly existing, and in good standing under the laws of the jurisdiction of its formation, (b) has the limited liability company power and authority to own its assets and to transact the business in which it now engages or proposes to engage in, and (c) is duly qualified as a foreign limited liability company and is in good standing under the Laws of each other jurisdiction in which such qualification is required. (7) Authority, No Contravention. The execution, delivery and performance by Borrower of this Pledge Agreement are within its limited liability company powers, have been duly authorized by all necessary limited liability company action, and do not and will not (a) require any consent or approval of its members, which has not been obtained, or (b) contravene its articles of organization or operating agreement. The execution, delivery and performance by Borrower of this Pledge Agreement do not and will not (a) violate any provision 6 of any Law, order, writ, judgment, injunction, decree, determination, or award presently in effect applicable to it, (b) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which it is a party or by which it or its properties may be bound or affected, or (c) except for the lien created hereby, result in, or require, the creation or imposition of any lien upon or with respect to any of the properties now owned or hereafter acquired by it. (8) Governmental Authority. No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by Borrower of this Pledge Agreement. (9) Legally Enforceable Pledge Agreement. This Pledge Agreement is the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except to the extent that such enforcement may be limited by (1) applicable bankruptcy, insolvency, reorganization, receivership, and other similar laws affecting creditors' rights generally, or (2) general equitable principles (including specific performance and injunctive relief), regardless of whether the issue of enforceability is considered in a proceeding in equity or at law. (10) Subordination. The obligations of Borrower under this Pledge Agreement are not subordinated in any way to any other obligations of Borrower or to the rights of any other Person. (11) Organizational Documents. Each of the Organizational Documents have been duly executed by Borrower, and constitute the legal, valid and binding obligation of Borrower, enforceable in accordance with its terms. Copies of each of the Organizational Documents have been delivered to Lender and such copies are true, correct and complete copies of such documents and agreements in effect on the date hereof and have not been otherwise modified or amended. (12) Participation Interests are Securities. The Participation Agreement provides that the participation interests are "securities" governed by and within the meaning of Article 8 of the UCC. None of the Collateral is (i) held in a securities account as defined under Article 8 of the UCC, (ii) dealt in or traded on a securities exchange or in a securities market, or (iii) an investment company security as defined under Article 8 of the UCC. Section 9. Covenants. Borrower agrees that: (1) Reporting Requirements. Borrower shall promptly notify Lender if (a) any claim is made against the Collateral, (b) any representation and warranty included in this Pledge Agreement would no longer be true if made on such date, or (c) there is a redemption or exchange of any or all of the Collateral. 7 Borrower will furnish to Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with such Collateral as Lender may request, all in reasonable detail. (2) Defense of Ownership Rights. Borrower will defend its ownership rights in the Collateral against all claims and demands of all parties claiming any ownership rights in any or all of the Collateral. (3) Transfer of Collateral. Borrower will at all times hereafter during the term of this Pledge Agreement continue to be the legal and beneficial owner of 100% of the Pledged Participation Interests. Borrower shall not (a) sell, assign (by operation of law or otherwise), transfer or otherwise dispose of any or all of the Collateral, (b) enter into any agreement for the sale, assignment, transfer or other disposition of any or all of the Collateral, or (c) enter into any agreement, other than agreements with Lender, that limits or restricts the granting of a security interest in, or the sale of, any or all of the Collateral. (4) Security Interest. Borrower shall not grant or suffer to exist any security interest upon or with respect to any or all of the Collateral, except for the security interest granted under this Pledge Agreement to Lender. Borrower will discharge or cause to be discharged all security interests on any or all of the Collateral, except for the security interest under this Pledge Agreement in favor of Lender. (5) Organizational Documents. Borrower shall not amend any material term or condition of its Organizational Documents except as set forth in the Loan Agreement. Borrower will observe and enforce all the terms and provisions of its Organizational Documents. (6) Books and Records. Borrower will keep true, complete and accurate books of record with regard to the Collateral. Section 10. Rights and Remedies. If Borrower fails to perform any agreement contained in this Pledge Agreement, Lender may itself perform or cause performance of such agreement. Upon the occurrence of an Event of Default, Lender may exercise in respect of any or all of the Collateral each of the following rights, remedies and powers and Borrower agrees that each of the following rights, remedies and powers is commercially reasonable: (1) General Remedies. Lender may exercise in respect of any or all of the Collateral all the rights and remedies provided for in this Pledge Agreement, by Law, in equity or otherwise available to it, including all rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral). 8 (2) Remedies Before Sale. As noted above, Lender may require Borrower to make all payments and distributions on such Collateral directly to Lender and Lender may exercise all management, voting and other consensual rights of Borrower under or with respect to the Collateral. (3) Sale of Collateral. Lender may, without notice, except as specified below, sell any and all of the Collateral in one or more parcels at public or private sale, at any exchange, broker's board or at any of Lender's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Lender may deem commercially reasonable. Borrower agrees that, to the extent notice of sale shall be required by law, at least twenty (20) days notice to Borrower of the time and place of any public or private sale shall constitute reasonable notification. Lender shall not be obligated to make any sale of any or all of the Collateral after any notice of sale has been given. Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed for such sale, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (4) Proceeds. If any of the Collateral is sold by Lender upon credit or for future delivery, Lender shall not be liable for the failure of the purchaser to purchase or pay for the same and, in the event of any such failure, Lender may resell the Collateral. In no event shall Borrower be credited with any part of the proceeds of sale of any Collateral until and to the extent cash payment in respect thereof is actually received by Lender. To the extent any of the Borrower Obligations are contingent cash proceeds received by Lender in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of Lender, be held by Lender as collateral for such contingent Borrower Obligations. Any cash held by Lender as Collateral and all cash proceeds received by Lender in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of Lender, be applied, first, to pay all costs and expenses incurred by Lender in connection with or incident to the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any and all of the Collateral, second, to pay all matured and unpaid Borrower Obligations, third, if and to the extent any of the Borrower Obligations are unmatured or contingent, to provide cash collateral for all such Borrower Obligations, and fourth, in accordance with applicable law to Borrower or such other party that is entitled to such proceeds in accordance with applicable law. If the proceeds of the sale of Collateral are insufficient to pay all of such Borrower Obligations, Borrower agrees to pay upon demand any deficiency to Lender. Lender shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies under this Pledge Agreement. A waiver by Lender of any right or remedy under this Pledge Agreement on any one occasion, shall not be construed as a bar or waiver of any such right or remedy which Lender would have had on any future occasion nor shall Lender be liable for exercising or failing to exercise any such right or remedy. 9 (5) Private Sale. Lender is authorized, in connection with any such sale, if it deems it advisable so to do, (1) to restrict the prospective bidders on or purchasers of any of the Collateral to a limited number of sophisticated investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any of such Collateral, (2) to cause to be placed on any security included in the Collateral a legend to the effect that such security has not been registered under the Securities Act and may not be disposed of in violation of the provisions of said Act, and (3) to impose such other limitations or conditions in connection with any such sale as Lender deems necessary or advisable in order to comply with said Act or any other law. At the request of Lender, Borrower agrees that it will execute and deliver such documents and take such other action as Lender deems necessary or advisable in order that any such sale may be made in compliance with law. Borrower acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions. In the event of any such sale, Lender shall incur no responsibility or liability for selling all or any part of the Collateral at a price that Lender may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as noted above or if more than a single purchaser were approached. Borrower agrees that sales made pursuant to this paragraph are made in a commercially reasonable manner. (6)Transfer of Participation Interest. Upon the sale of Collateral, Borrower agrees to take all actions required to transfer the Pledged Participation Interest from Borrower to the Person that purchased such Pledged Participation Interest. Section 11. Appointment as Attorney-in-Fact. Borrower hereby irrevocably appoints Lender attorney-in-fact and proxy, with full authority in the place and stead of Borrower and in the name of Borrower, Lender or otherwise (1) to take any and all action and exercise all rights and remedies granted to Lender under this Pledge Agreement, and (2) execute any instrument which Lender may deem necessary or advisable to accomplish the purpose of this Pledge Agreement, including, without limitation: (i) to ask, demand, collect, sue for, recover, receive and give acquittance and receipts for monies due and to become due under or in respect of any of the Collateral, (ii) to receive, endorse and collect any drafts or other instruments, documents and chattel paper, and (iii) to file any claims or take any action or institute any proceedings which Lender, in its reasonable judgment, may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Lender with respect to any of the Collateral, including, without limitation, to exercise any voting or other rights that Lender may have with respect to any Collateral or part thereof. Borrower hereby ratifies and approves all acts of Lender as its attorney in-fact pursuant to this Section, and Lender, as its attorney in-fact, will not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law, other than those which result from Lender's gross 10 negligence or willful misconduct. This power, being coupled with an interest, is irrevocable so long as this Pledge Agreement remains in effect. Section 12. Duties and Reasonable Care. The powers conferred on Lender under this Pledge Agreement are solely to protect its interests in the Collateral and shall not impose any duty upon Lender to exercise any such powers. Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Lender accords its own property, it being understood that Lender shall not have any responsibility for (1) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not Lender has or is deemed to have knowledge of such matters, (2) taking any necessary steps to preserve rights against any parties with respect to any Collateral, or (3) the performance of any duties or obligations under the Collateral. Borrower will remain liable under the Participation Agreement to perform all of its duties and obligations thereunder. Section 13. Indemnity and Expenses. Borrower agrees to indemnify Lender and each of its directors, officers, employees, agents and affiliates from and against any and all claims, losses and liabilities growing out of or resulting from this Pledge Agreement or the transactions contemplated by this Pledge Agreement, including enforcement of this Pledge Agreement, except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the person to be indemnified. Borrower will upon demand pay to Lender the amount of any and all expenses, including the fees and disbursements of its counsel and of any experts and agents, which Lender may incur in connection with (1) any amendment to this Pledge Agreement, (2) the administration of this Pledge Agreement, (3) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (4) the exercise or enforcement of any of the rights of Lender under this Pledge Agreement, or (5) the failure by Borrower to perform or observe any of the provisions of this Pledge Agreement. Section 14. Amendments. No amendment or waiver of any provision of this Pledge Agreement, nor consent to any departure by Borrower from this Pledge Agreement, shall in any event be effective unless the same shall be in writing and signed by both Borrower and Lender, and then such amendment or waiver shall be effective only in the specific instance and for the specific purpose for which given. Section 15. Addresses for Notices. All notices and other communications provided for under this Pledge Agreement shall be in writing and, mailed or delivered by messenger or overnight deliver service, addressed to the address specified below for the applicable party; or as to any such party at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section. 11 To Borrower: 7 Bulfinch Place Suite 500, P.O. Box 9507 Boston, Massachusetts 02114 Attention: Jay Cramer With a copy to: WRT Realty, L.P. Two Jericho Plaza Wing A, Suite 111 Jericho, New York 11753 Attention: Peter Braverman With a copy to: Post Heymann & Koffler LLP Two Jericho Plaza Wing A, Suite 111 Jericho, New York 11753 Attention: David J. Heymann, Esq. To Lender: Arbor Realty Funding LLC 333 Earle Ovington Boulevard, Suite 900 Uniondale, New York 11553 Attention: Guy R. Milone, General Counsel With a copy to: Kronish Lieb Weiner & Hellman LLP 1114 Avenue of the Americas New York, New York 10036 Attention: Thomas D. O'Connor, Esq. All such notices and other communications shall, when mailed, be effective three (3) days after being placed in the mails, or when delivered to a messenger or nationally recognized overnight delivery service, be effective one (1) day after being delivered to the messenger or nationally recognized overnight delivery service, in each case, addressed as specified above. Section 16. Continuing Security Interest, Transfer of Secured Obligations. This Pledge Agreement (1) shall create a continuing security interest in the Collateral and shall remain in full force and effect until terminated by a written agreement executed by Lender, (2) be binding upon Borrower, its successors and assigns, and (3) inure to the benefit of Lender and its successors and assigns. Borrow may not transfer or assign any of its duties or obligations under this Pledge Agreement. Without limiting the generality of the prior clause (3), Lender may assign or otherwise transfer all or a portion of its rights or obligations with respect to the Borrower Obligations to any other party, and such other party shall thereupon become vested with all the benefits in respect of this Pledge Agreement granted to Lender in this Pledge Agreement or otherwise. 12 Section 17. Submission to Jurisdiction. Borrower hereby irrevocably submits to the jurisdiction of any federal or state court sitting in Nassau County in the State of New York over any action or proceeding arising out of or related to this Pledge Agreement and agrees with Lender that personal jurisdiction over Borrower rests with such courts for purposes of any action on or related to this Pledge Agreement. Borrower hereby waives personal service by manual delivery and agrees that service of process may be made by prepaid certified mail directed to Borrower at the address of Borrower for notices under this Pledge Agreement or at such other address as may be designated in writing by Borrower to Lender, and that upon mailing of such process such service will be effective as if Borrower was personally served. Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any manner provided by law. Borrower further waives any objection to venue in any such action or proceeding on the basis of inconvenient forum. Borrower agrees that any action on or proceeding brought against Lender shall only be brought in such courts. Section 18. Governing Law. This Pledge Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws principles. Section 19. Miscellaneous. This Pledge Agreement is in addition to and not in limitation of any other rights and remedies Lender may have by virtue of any other instrument or agreement heretofore, contemporaneously herewith or hereafter executed by Borrower or any other party or by law or otherwise. If any provision of this Pledge Agreement is contrary to applicable law, such provision shall be deemed ineffective without invalidating the remaining provisions of this Pledge Agreement. Titles in this Pledge Agreement are for convenience of reference only and shall not affect the interpretation or construction of this Pledge Agreement. Section 20. WAIVER OF JURY TRIAL. BORROWER EXPRESSLY WAIVES ANY AND EVERY RIGHT TO A TRIAL BY JURY IN ANY ACTION ON OR RELATED TO THIS PLEDGE AGREEMENT. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 13 IN WITNESS WHEREOF, Borrower has duly executed this Pledge Agreement as of the date of this Pledge Agreement. FT-TOY LLC By: WRT Realty L.P. Managing Member By: Winthrop Realty Trust General Partner By: --------------------------- Name: Peter Braverman Title: President 14 ACKNOWLEDGEMENT: STATE OF ________________ ) ) SS: COUNTY OF _______________ ) Before me, a Notary Public in and for said County and State, personally appeared ________________________, the _____________________ of _____________, who acknowledged the execution of the foregoing instrument as such officer acting for and on behalf of said limited liability company. Witness my hand and Notarial Seal this _______ day of ___________, 2005. ---------------------------------- (signature) ---------------------------------- My Commission Expires: (printed name) Notary Public _____________________ Resident of _______________ County 15 EXHIBIT A FORM OF UCC-1 FINANCING STATEMENT 16 EX-10.5 6 e501257_ex10-5.txt RECOURSE GUARANTY RECOURSE GUARANTY RECOURSE GUARANTY dated as of December 7, 2005 ("Guaranty") made by Winthrop Realty Trust (f/k/a First Union Real Estate Equity and Mortgage Investments), an Ohio business trust ("Guarantor") to Arbor Realty Funding LLC, a Delaware limited liability company ("Lender"). In consideration of Lender providing credit to Borrower, Guarantor hereby agrees as follows: Section 1. Definitions. As used in this Guaranty, the following terms have the following meanings: ----------- "Borrower" means FT-TOY LLC, a Delaware limited liability company. "Borrower Obligations" means any and all present and future liabilities and obligations of Borrower to Lender, including all present and future liabilities or obligations under or pursuant to any and all of the Loan Documents together with all fees and expenses incurred in collecting any or all of the items specified in this definition or enforcing any rights under any and all Loan Documents. "Guaranty" means this Recourse Guaranty. "Guaranteed Obligations" means all Losses Lender incurs arising out of or in connection with: (1) fraud or intentional misrepresentation or breach of trust by Borrower or any other Person in connection with the execution and the delivery of any of the Loan Documents, (2) any material misrepresentation, miscertification or breach of warranty by Borrower or any other Person with respect to any representation, warranty or certification contained in any Loan Document or any document, certificate or report provided under, pursuant to, or in connection with any Loan Document, (3) the misapplication or conversion of any proceeds or the Loan, (4) the misapplication, misappropriation or conversion of any funds held in any account maintained under or pursuant to any of the Loan Documents, including any reserve account, (5) application of any Law resulting in the forfeiture by Borrower of all or any portion of the Participation Interest, (6) gross negligence, willful misconduct, or criminal acts perpetrated by Borrower or Guarantor or any Affiliate of any such Person, (7) any failure by Borrower to comply with the terms and provisions of "Single Purpose Entities" (Article IV of the Loan Agreement), (8) any failure by Borrower to pay fees and expenses of Lender pursuant to the provisions of "Indemnity and Expenses" (Section 8.03 of the Loan Agreement), (9) any distributions or payments made by Borrower in violation of the terms of the Loan Agreement, including distributions made to equity holders in Borrower and payment of fees and commissions to Guarantor or any Affiliate of Borrower, (10) any action or proceeding directly or indirectly affecting Borrower or Lender's rights, interest or remedies under any of the Loan Documents, (11) any expenses of Lender to perfect, protect or maintain the priority of any Loan Document, and (12) Guarantor (or any person comprising Guarantor), Borrower or any Affiliate of any of the foregoing shall, in connection with any enforcement action or exercise or assertion of any right or remedy by or on behalf of Lender under or in connection with this Guaranty, the Note, the Pledge Agreement or any of the other Loan Documents, asserts a defense, seeks judicial intervention or injunctive or other equitable relief of any kind or asserts in a pleading filed in connection with a judicial proceeding any defense against Lender or any right in connection with any security for the Loan which the court in such action or proceeding determines is without merit (in respect of a defense) or unwarranted (in respect of a request for judicial intervention or injunctive or other equitable relief). Provided, however, Guaranteed Obligations means all liabilities and obligations of Borrower to Lender, including all of the Borrower Obligations, (1) in the event of a Prohibited Transfer, (2) in the event any Proceeding is instituted by, implemented with respect to Borrower other than by Lender or for the benefit of Lender, (3) in the event any Proceeding is filed by, consented to, or acquiesced in by Borrower, or (4) except to the extent appointed by Lender or the benefit of Lender, if a receiver, liquidator or trustee of Borrower is appointed, and Borrower or any Affiliate of Borrower colludes in or otherwise cooperates with such appointment, or Borrower does not file timely objection to such appointment and otherwise take such appropriate actions as would be taken by a debtor to attempt to prevent such appointment, or if Borrower is adjudicated bankrupt or insolvent in an involuntary Proceeding and Borrower or any Affiliate of Borrower colludes in or otherwise cooperates with such adjudication, or Borrower does not timely object to such adjudication and otherwise take such appropriate actions as would be taken by a debtor to attempt to prevent such adjudication, (5) if Borrower incurs any indebtedness or obligations in violations of the terms of the Loan Documents, (6) if the grant by Borrower of a security interest in the Participation Interest pursuant to the Pledge Agreement is deemed to be a fraudulent conveyance by a court of competent jurisdiction, (7) if Borrower fails to perform or observe any term, covenant or agreement contained in Section 6.04 of the Loan Agreement, or (8) if Borrower opposes a motion by Lender to lift the automatic stay imposed pursuant to 11 U.S.C. ss.362 and for leave to foreclose on any collateral for the Loan. "Guarantor" means Winthrop Realty Trust (f/k/a First Union Real Estate Equity and Mortgage Investments), an Ohio business trust. "Lender" means Arbor Realty Funding LLC, a Delaware limited liability company. "Loan" means the loan evidenced by the Note. "Loan Agreement" means the Loan Agreement dated as of the date of this Guaranty between Borrower and Lender. "Loan Documents" means the Note, the Loan Agreement and each other document or agreement entered into pursuant to, or in connection with, the Note or Loan Agreement. "Losses" means any and all losses (including loss of principal, interest and fees under any and all Loan Documents), costs and expenses incurred by Lender in respect of or as a result of any or all claims, suits, liabilities (including strict liabilities), actions, demands, proceedings, obligations, debts, damages (including punitive and consequential damages), trials, fines, penalties, charges, injury to a person, property or natural resource, fees, judgments, accounts, orders, adjudications, awards, liens, injunctive relief, 2 causes of action or amounts paid in settlement of whatever kind or nature, including attorney's fees and consultant's fees and other cost of defense or otherwise related thereto. "Material Adverse Change" means either (1) a material adverse change in the status of the assets, liabilities, financial condition or property of Guarantor, or (2) any event or occurrence of whatever nature which does or is reasonably likely to have a material adverse effect on the ability of Guarantor to perform his obligations under this Guaranty. "Note" means the $30,000,000.00 Promissory Note dated as of the date of this Agreement made by Borrower and payable to Lender. "Obligations" means both Borrower Obligations and Guaranteed Obligations. "Person" means an individual, partnership (including a limited liability partnership), corporation, limited liability company, business trust, joint stock company, trust, unincorporated associates, joint venture, Governmental Authority or other entity of whatever nature. "Proceeding" means any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or composition of Borrower, or its debts, whether in any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or similar proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of Borrower. Unless otherwise specified in this Guaranty, terms defined in the Loan Agreement which are used in this Guaranty will have the same meaning when used in this Guaranty. Guarantor hereby acknowledges receipt of a copy of the Loan Agreement. Section 2. Rules of Interpretation. When used in this Guaranty: (1) "or" is not exclusive, (2) any pronouns used shall include the corresponding masculine, feminine or neuter form, (3) the singular form of nouns shall include the plural and vice versa, (4) a reference to a Law includes any amendment or modification to such Law, and (5) a reference to an agreement, instrument or document includes any amendment or modification of such agreement, instrument or document if and to the extent such amendment or modification is permitted under the Loan Documents. Section 3. Guaranty. Guarantor hereby guarantees to Lender and its successors, endorsees, transferees and assigns the prompt and complete payment, as and when due and payable, whether at stated maturity or by required prepayment, acceleration, demand or otherwise, all of the Guaranteed Obligations now existing or hereafter incurred. Section 4. Payment Under Guaranty. Upon demand by Lender, Guarantor shall immediately pay to Lender at the address of Lender specified in this Guaranty in lawful money of the United States of America each amount due by Guarantor under this Guaranty. The amount of such payment shall not be reduced by any setoff, counterclaim or crossclaim whether such setoff or claim relates to this Guaranty, the Guaranteed Obligations or otherwise. All payments made by Guarantor pursuant to this Guaranty shall be made free and clear of and without deduction for any taxes, levies, imposts, 3 deductions, charges or withholdings, and all related liabilities. If Guarantor is required by Law to deduct any such item from or in respect of any sum payable to Lender under this Guaranty, the amount payable under this Guaranty shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) Lender receives an amount equal to the sum it would have received had no such deductions been made. In addition, Guarantor agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made under this Guaranty or from the execution, delivery or registration of, or otherwise with respect to, this Guaranty. Section 5. Limitation of Liability. The obligation of Guarantor under this Guaranty shall be limited to an aggregate amount equal to the largest amount that would not render the obligation of Guarantor under this Guaranty subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provision of any applicable state law. Section 6. Type of Guaranty. This Guaranty is absolute and unconditional and as such is not subject to any conditions and Guarantor is fully liable to perform all of his duties and obligations under this Guaranty as of the date of execution of this Guaranty. This Guaranty is a continuing guaranty and applies to all future Guaranteed Obligations. This Guaranty is a guaranty of payment and not of collection. The obligations and liabilities of Guarantor under this Guaranty shall not be conditioned or contingent upon the pursuit by Lender of any right or remedy against Borrower or any other Person which may be or become liable in respect of all or any part of the Guaranteed Obligations, or against any assets securing the payment of the Guaranteed Obligations or any guarantee of such Guaranteed Obligations or right of setoff with respect to such Guaranteed Obligations. This Guaranty is irrevocable and as such cannot be cancelled, terminated or revoked by Guarantor. Section 7. Reinstatement of Guaranty. This Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment, or any part thereof, of any of the Obligations are rescinded or must otherwise be returned by Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Borrower or otherwise, all as though such payment had not been made. Guarantor hereby consents that, without the necessity of any reservation of rights against Guarantor and without notice to or further assent by Guarantor, any demand for payment of any of the Obligations made by Lender may be rescinded by Lender and any of such Obligations continued after such rescission. Section 8. Waiver of Notices. Guarantor hereby waives any and all notices including (1) notice of or proof of reliance by Lender upon this Guaranty or acceptance of this Guaranty, (2) notice of the incurrence of any Obligations or the renewal, extension or accrual of any such Obligations, (3) notice of any actions taken by Lender or Borrower or any other Person under any Loan Document, (4) notices of nonpayment or nonperformance, protest, notices of protest and notices of dishonor, and (5) notice of intent to accelerate and notice of acceleration of any or all Obligations. 4 Section 9. Waiver of Defenses. Guarantor hereby waives any and all defenses to the performance by Guarantor of his duties and obligations under this Guaranty, including any defense based on any of the following: (1) any failure of Lender to disclose to Guarantor any information relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of any Person obligated to make payment on any and all Obligations, whether as principal or guarantor, now or hereafter known to Lender, (2) any defense to the payment of any or all the Obligations, including lack of validity or enforceability of any of the Obligations or any Loan Document, (3) any change in the time, manner or place of payment of, or in any other term in respect of, all or any of the Obligations, or any other amendment or waiver of or consent to any departure from any Loan Document, (4) any exchange or release of, or non-perfection of any security interest on or in any assets securing the payment of the Obligations, (5) any failure to execute any other guaranty for all or any part of the Obligations, or any release or amendment or waiver of, or consent to any departure from, any other guaranty for any or all of the Obligations, (6) any failure to execute any subordination agreement for all or any part of the Obligations, or any release or amendment or waiver of, or consent to any departure from, any subordination agreement for all or any of the Obligations, (7) any subordination of any or all of the Obligations, (8) any act or omission of Lender in connection with the enforcement of, or the exercise of rights and remedies, including any election of, or the order of exercising any, remedies, with respect to (a) the Obligations, (b) any other guarantor of the Obligations, (c) any person that executes a subordination agreement for any Obligations, or (d) any assets securing the payment of the Obligations, (9) any manner of application of any funds received by Lender to Obligations or any other obligations owed to Lender, whether from the sale or disposition of any assets securing the Obligations, from another guarantor of the Obligations or otherwise, (10) any failure to give or provide any notices, demands or protests, including those specified under "Waiver of Notices" (Section 8), and (11) any benefit of any statute of limitations affecting Guarantor's liability under this Guaranty or the enforcement of this Guaranty. In addition, Guarantor hereby irrevocably waives any and all right to assert any setoff, counterclaim or crossclaim of any nature with respect to this Guaranty or the obligations of Guarantor under this Guaranty. 5 Section 10. Subrogation. Guarantor agrees not to exercise any rights which Guarantor may acquire by way of subrogation or contribution, whether acquired by any payment made under this Guaranty, by any setoff or application of funds of Borrower, by Lender or otherwise, until (1) the payment in full of the Obligations, and (2) the payment of all fees and expenses to be paid by Guarantor pursuant to this Guaranty. If any amount shall be paid to Guarantor on account of such subrogation or contribution rights at any time when all of the Obligations and all such other expenses have not been paid in full, such amount shall be held in trust for the benefit of Lender, shall be segregated from the other funds of Guarantor and shall forthwith be paid over to Lender to be credited and applied in whole or in part by Lender against the Obligations, whether matured or unmatured, and all such other fees and expenses. Section 11. Representations. At the time of execution of this Guaranty, Guarantor represents and warrants to Lender as follows: (1) No Contravention. The execution, delivery and performance by Guarantor of this Guaranty does not and will not (a) violate any provision of any Law, order, writ, judgment, injunction, decree, determination, or award presently in effect applicable to Guarantor, (b) result in a breach of, or constitute a default under, any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Guarantor is a party or by which Guarantor or its properties may be bound or affected, or (c) result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by Guarantor. (2) Governmental Authority. No authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by Guarantor of this Guaranty. (3) Legally Enforceable Guaranty. This Guaranty is the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except to the extent that such enforcement may be limited by (a) applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally, or (b) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law. (4) Solvency. Guarantor is solvent and will not be rendered insolvent by the transactions contemplated by this Guaranty. (5) Financial Statements. The financial statements of and other financial information related to Guarantor that were delivered to Lender, are true, correct and complete in all material respects. Such financial statements fairly present the financial position of Guarantor. No Material Adverse Change has occurred since the date of such financial statements. (6) Disclosure. None of Guarantor's representations or warranties contained in this Guaranty or any other document, certificate or written statement furnished to Lender by or on behalf of Guarantor contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in this Guaranty or in such other document, certificate or written statement not misleading. There is no fact known to Guarantor which could result in a Material Adverse Change which has not been disclosed in writing to Lender by Guarantor. 6 Section 12. Reporting Requirements. Guarantor will provide immediate notice to Lender if (1) any representation and warranty included in this Guaranty would no longer be true if made on such date or (2) there is a Material Adverse Change. Guarantor will furnish to Lender from time to time such information regarding Guarantor as Lender may reasonably request. Section 13. Remedies. Lender shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies under this Guaranty or otherwise. A waiver by Lender of any right or remedy under this Guaranty on any one occasion, shall not be construed as a ban or waiver of any such right or remedy which Lender would have had on any future occasion, nor shall Lender be liable for exercising or failing to exercise any such right or remedy. The rights and remedies of Lender under this Guaranty are cumulative and, as such, are in addition to any other rights and remedies available to Lender under Law or any other agreements. If an Event of Default occurs and Lender is exercising any of its rights and remedies with respect to Borrower, to the extent permitted by Law, Guarantor will not object to any action taken by Lender in enforcing such rights and remedies to the extent such action is permitted by Law. Section 14. Appointment as Attorney-in-Fact. Guarantor hereby appoints Lender as the attorney-in-fact for Guarantor, with full authority in the place and stead of Guarantor and in the name of Guarantor or otherwise, to exercise all rights and remedies granted to Lender under this Guaranty and to take any action and to execute any instrument which Lender may deem necessary or advisable to accomplish the purposes of this Guaranty. Guarantor hereby ratifies and approves all acts of Lender as his attorney-in-fact pursuant to this Section, and Lender, as his attorney-in-fact, will not be liable for any acts of commission or omission, nor for any error in judgment or mistake of fact or law, other than those resulting from Lender's gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable so long as this Guaranty remains in effect. Section 15. Indemnity and Expenses. Guarantor hereby indemnifies Lender from and against any and all claims, losses, damages and liabilities growing out of or resulting from this Guaranty, including enforcement of this Guaranty, except claims, losses, damages or liabilities resulting from Lender's gross negligence and willful misconduct. Guarantor will upon demand pay to Lender the amount of any and all expenses, including the fees and expenses of Lender's counsel and of any experts and agents, which Lender incurs in connection with (1) any amendment to this Guaranty, (2) the administration of this Guaranty, (3) the exercise or enforcement of any of the rights of Lender under this Guaranty, or (4) the failure by Guarantor to perform or observe any of the provisions of this Guaranty. 7 Section 16. Amendments. No amendment or waiver of any provision of this Guaranty, nor consent to any departure by Guarantor from this Guaranty, shall in any event be effective unless the same shall be in writing and signed by Guarantor and Lender, and then such amendment or waiver shall be effective only in the specific instance and for the specific purpose for which given. Section 17. Addresses for Notices. All notices and other communications provided for under this Guaranty shall be in writing and, mailed or delivered by messenger or overnight delivery service, addressed, in the case of Guarantor at the address specified below his signature, and in the case of Lender at the address specified below, or as to any such party at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section. Arbor Realty Funding LLC 333 Earle Ovington Boulevard Uniondale, New York 11553 Attention: Guy R. Milone, Jr., General Counsel Facsimile No. (516) 832-6421 With a copy to: Arbor Realty Funding LLC 333 Earle Ovington Boulevard Uniondale, New York 11553 Attention: Asset Management - Loan Monitoring Facsimile No. (516) 832-6461 And: Kronish Lieb Weiner & Hellman LLP 1114 Avenue of the Americas New York, New York 10036 Attention: Thomas D. O'Connor, Esq. Facsimile No. (212) 479-6275 All such notices and other communications shall, when mailed, be effective three (3) days after being placed in the mails, or when delivered to a messenger or overnight delivery service, be effective one (1) day after being delivered to the messenger or overnight delivery service, in each case, addressed as specified above. Section 18. Assignment and Transfer of Obligations. This Guaranty will bind the estate of Guarantor as to Obligations created or incurred both before and after the death or incapacity of Guarantor, whether or not Lender receives notice of such death or incapacity. This Guaranty shall inure to the benefit of Lender and its successors, transferees and assigns. Guarantor may not transfer or assign his obligations under this Guaranty. Lender may assign or otherwise transfer all or a portion of its rights or obligations with respect to the 8 Obligations to any other Person, and such other Person shall then become vested with all the benefits in respect of such transferred Obligations granted to Lender in this Guaranty or otherwise. Guarantor agrees that Lender can provide information regarding Guarantor to any prospective or actual successor, transferee or assign. Section 19. Setoff. Guarantor agrees that, in addition to, and without limiting, any right of setoff, banker's lien or counterclaim Lender may otherwise have, Lender shall be entitled, at its option, to offset balances (general or special, time or demand, provisional or final) held by Lender for the account of Guarantor, at any of the offices of Lender, in Dollars or any other currency, against any amount payable by Guarantor to Lender under this Guaranty which is not paid when demanded (regardless of whether such balances are then due to Guarantor), in which case Lender shall promptly notify Guarantor, provided that Lender's failure to give such notice shall not affect the validity of such offset. Section 20. Submission to Jurisdiction. Guarantor hereby irrevocably submits to the jurisdiction of any federal or state court sitting in Nassau County in the State of New York over any action or proceeding arising out of or related to this Guaranty and agrees with Lender that personal jurisdiction over Guarantor rests with such courts for purposes of any action on or related to this Guaranty. Guarantor hereby waives personal service by manual delivery and agrees that service of process may be made by prepaid certified mail directed to Guarantor at the address of Guarantor for notices under this Guaranty or at such other address as may be designated in writing by Guarantor to Lender, and that upon mailing of such process such service will be effective as if Guarantor was personally served. Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any manner provided by Law. Guarantor further waives any objection to venue in any such action or proceeding on the basis of inconvenient forum. Guarantor agrees that any action on or proceeding brought against Lender shall only be brought in such courts. Section 21. Governing Law. This Guaranty shall be governed by and construed in accordance with the laws of the State of New York, without regard to its principles of conflicts of law. Section 22. Subordination. Upon the earlier of (1) the occurrence of an Event of Default or (2) a demand for payment is made on the Guarantor under this Guaranty, Guarantor will not (1) make any demand for payment of, or take any action to accelerate, any obligation owed to Guarantor by Borrower, (2) seek to collect payment of, or enforce any right or remedies against Borrower, any of the obligations owed to Guarantor by Borrower or any guarantees, credit supports, collateral or other security related to or supporting any of such obligations, or (3) commence, or join with any other creditor in commencing, any Proceeding against Borrower. Guarantor also agrees that the payment of all obligations of Borrower to Guarantor shall be subordinate and junior in time and right of payment in accordance with the terms of this Section to the prior payment in full (in cash) of the Guaranteed Obligations. In furtherance of such subordination, (1) to the extent possible, Guarantor will not take or receive from Borrower any payments, in cash or any other property, by setoff or any other means, of any or all of the obligations owed to Guarantor by Borrower, or purchase, redeem, or otherwise acquire any such obligations, or change the terms or provisions of any such obligations and (2) if for any reason and under any circumstance Guarantor receives a payment on such obligation, whether in a Proceeding or otherwise, all such payments or distributions upon or with respect to such obligations shall be received in trust for the benefit of Lender, shall be segregated from other funds and property held by Guarantor and shall be forthwith paid over to Lender in the same form as so received (with any necessary endorsement) to be applied to, or held as collateral for, the payment or prepayment of the Guaranteed Obligations. 9 In the event Borrower is in a Proceeding, to the extent permitted by Law, as directed by Lender Guarantor will either (1) duly and promptly take all actions required, and if so directed by Lender as directed by Lender, to collect and receive any and all payments and distributions on the obligations owed to Guarantor by Borrower and all related guaranties, collateral and other security in connection with such Proceeding, including the filing of all claims and proofs of claim, or (2) take all actions and execute all documents required to enable Lender to exercise all rights to collect and receive any and all payments and distributions on the obligations owed to Guarantor by Borrower and all related guaranties, collateral and other security in connection with such Proceeding, including the assignment, endorsement and delivery of all notes or instruments evidencing the obligations owed to Guarantor by Borrower together with all guarantees, collateral and other security related thereto, and then Lender shall have the right to (a) make all claims, (b) enforce all rights related to the obligations owed to Guarantor by Borrower, either in its own name or in the name of Guarantor, and (c) collect, receive and accept any and all sums or distributions of any kind that may become due and payable or distributable on or in respect of any or all of the obligations owed to Guarantor by Borrower or such guarantees, collateral or other security. In addition, to the extent permitted by Law, Guarantor shall not object to any action taken by Lender in connection with a Proceeding. Guarantor agrees that any subrogation rights Guarantor may acquire as a result of a payment under this Section may not be exercised until (1) the payment in full of the Obligations, and (2) the payment of all fees and expenses to be paid by Guarantor pursuant to this Guaranty. Section 23. Miscellaneous. This Guaranty is in addition to and not in limitation of any other rights and remedies Lender may have by virtue of any other instrument or agreement previously, contemporaneously or hereafter executed by Guarantor or any other Person or by Law or otherwise. If any provision of this Guaranty is contrary to applicable Law, such provision shall be deemed ineffective without invalidating the remaining provisions of this Guaranty. Titles in this Guaranty are for convenience of reference only and shall not affect the interpretation or construction of this Guaranty. This Guaranty constitutes the entire agreement between Guarantor and Lender with respect to the matters covered by this Guaranty and supercedes all written or oral agreements with respect to such matters. Section 24. WAIVER OF JURY TRIAL. GUARANTOR EXPRESSLY WAIVES ANY AND EVERY RIGHT TO A TRIAL BY JURY IN ANY ACTION ON OR RELATED TO THIS GUARANTY. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 10 IN WITNESS WHEREOF, Guarantor has duly executed and delivered this Guaranty as of the date of this Guaranty. WINTHROP REALTY TRUST By: ------------------------------ Name: Peter Braverman Title: President Address for Notices: 7 Bulfinch Place Suite 500, P.O. Box 9507 Boston, Massachusetts 02114 Attention: Jay Cramer With copies to: Winthrop Realty Trust Two Jericho Plaza Wing A, Suite 111 Jericho, New York 11753 Attention: Peter Braverman and Post Heymann & Koffler LLP Two Jericho Plaza Wing A, Suite 111 Jericho, New York 11753 Attention: David J. Heymann, Esq. 11 ACKNOWLEDGEMENT: STATE OF ________________ ) ) SS: COUNTY OF _______________ ) Before me, a Notary Public in and for said County and State, personally appeared ________________________, the _____________________ of _____________, who acknowledged the execution of the foregoing instrument as such officer acting for and on behalf of said limited liability company. Witness my hand and Notarial Seal this _______ day of ___________, 2005. ---------------------------------- (signature) ---------------------------------- My Commission Expires: (printed name) Notary Public _____________________ Resident of _______________ County EX-99.1 7 e501257_ex99-1.txt PRESS RELEASE DATED 12/08/05 WINTRHOP REALTY TRUST AT THE COMPANY Carolyn Tiffany Chief Operating Officer (617) 570-4614 WINTHROP REALTY TRUST ANNOUNCES IT HAS ACQUIRED A 99% PARTICIPATION INTEREST IN A $60 MILLION MEZZANINE LOAN Boston, Massachusetts- December 8, 2005-Winthrop Realty Trust (NYSE:FUR) together with two unaffiliated joint venture partners acquired a 99% participation interest in a $60,000,000 mezzanine loan secured by the indirect ownership interests on real property located in New York City commonly known as the Toy Center. The purchase price for the participation was $59,400,000, of which $30,000,000 was provided from financing and $19,600,000 was provided from the joint venture partners. The Trust effectively holds a 33% interest in the mezzanine loan and is entitled to an additional 20% profits interest after its joint venture partners receive a return of capital plus 7%. The current principal amount of the mezzanine loan is $60,000,000, it bears interest at LIBOR plus 5.6% per annum and is scheduled to mature in April 2008. The $30,000,000 financing obtained by the joint venture requires payments of interest only at LIBOR plus 3% per annum, requires payments of interest only and is co-terminus with the mezzanine loan. As a result, the current yield to the Trust, prior to its promoted interest, is approximately 12.6%. ------------------- Certain statements contained herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Winthrop Realty Trust to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, risks associated with the timing of and costs associated with property improvements, financing commitments and general competitive factors. Further information about these matters and the risks generally with respect to Winthrop can be found in Winthrop's filings with the Securities and Exchange Commission. Winthrop Realty Trust is a NYSE-listed real estate investment trust (REIT) headquartered in Boston, Massachusetts. -----END PRIVACY-ENHANCED MESSAGE-----