CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In the ordinary course of its business operations, the Company has sponsored and manages investment entities. Additionally, it has ongoing relationships with several related entities. The following table details these receivables and payables (in thousands):



	September 30,
	2012		2011
Receivables from managed entities and related parties, net:
Commercial finance investment entities ⁽¹⁾	$	13,904	$	29,725
Real estate investment entities ⁽²⁾	18,247		19,796
Financial fund management investment entities	2,193		2,652
RSO	6,555		2,539
Other	152		103
Receivables from managed entities and related parties	$	41,051	$	54,815

Payables due to managed entities and related parties, net:
Real estate investment entities ⁽³⁾	$	3,900	$	1,010
Other	480		222
Payables to managed entities and related parties	$	4,380	$	1,232


(1)	Reflects $25.1 million of reserves for credit losses related to management fees owed from three commercial finance investment entities that, based on a change in estimated cash distributions, are not expected to be collectible.


(2)	Reflects $2.5 million of reserves for credit losses related to management fees owed from two real estate investment entities that, based on projected cash flows, are not expected to be collectible.


(3)	Reflects $2.9 million in funds provided by the real estate investment entities, which are held by the Company to self insure the properties held by those entities.

The Company receives fees, dividends and reimbursed expenses from several related/managed entities. In addition, the Company reimburses related entities for certain operating expenses. The following table details those activities (in thousands):



	Years Ended September 30,
	2012			2011			2010
Fees from unconsolidated investment entities:
Real estate ⁽¹⁾	$	17,301		$	12,847		$	11,638
Financial fund management ⁽²⁾	3,183			4,391			3,445
Commercial finance ⁽³⁾	—			—			10,637
RSO:
Management, incentive and servicing fees	16,460			12,270			10,938
Dividends paid	2,174			2,455			2,278
Reimbursement of costs and expenses	3,597			2,688			1,794
CVC Credit Partners – reimbursement of net costs and expenses	1,866			—			—
RRE Opportunity REIT:
Reimbursement of costs and expenses	874			1,843			1,824
Dividends paid	14			—			—
LEAF:
Payment for sub-servicing the commercial finance investment partnerships	(2,172		)	—			—
Payment for rent and related expenses	(686		)	—			—
Reimbursement of net costs and expenses	288			—			—
1845 Walnut Associates Ltd. – payment of rent and operating expenses	(637		)	(706		)	(567		)
Brandywine Construction & Management, Inc. – payment for property management of hotel property	(216		)	(203		)	(197		)
Atlas Energy, L.P. – reimbursement of net costs and expenses	634			1,070			871
Ledgewood P.C. – payment for legal services	(564		)	(555		)	(295		)
Graphic Images, LLC – payment for printing services	(216		)	(111		)	(94		)
The Bancorp, Inc. – reimbursement of net costs and expenses	135			34			—
9 Henmar LLC – payment of broker/consulting fees	(46		)	(50		)	(55		)


(1)	Reflects discounts recorded by the Company of $216,000, $512,000 and $463,000 recorded in fiscal 2012, 2011 and 2010 in connection with management fees from its real estate investment entities that it expects to receive in future periods.


(2)	For fiscal 2010, excludes a $2.3 million gain on the repurchase of limited partner interests in two of the Trapeza partnerships.


(3)	During fiscal 2012, 2011 and 2010, the Company waived $4.7 million, $8.1 million and $3.8 million, respectively, of its fund management fees from its commercial finance investment entities.

Relationship with RSO. Since March 2005, the Company has had a management agreement with RSO pursuant to which it provides certain services, including investment management and certain administrative services, to RSO. The agreement, which had an original maturity date of March 31, 2009, continues to renew automatically for one-year terms unless at least two-thirds of the independent directors or a majority of the outstanding common shareholders agree to not renew it. The Company receives a base management fee, incentive compensation, property management fees and reimbursement for out-of-pocket expenses. The base management fee is equal to 1/12^th of the amount of RSO’s equity, as defined by the management agreement, multiplied by 1.50%. In October 2009, February 2010 and March 2012, the management agreement was further amended such that RSO will directly reimburse the Company for the wages and benefits of RSO's chief financial officer, an executive officer who devotes all of his time to serve as RSO’s chairman of the board, and a sufficient number of accounting professionals, each of whom will be exclusively dedicated to RSO's operations (number and amounts charged are reviewed and approved by RSO's Board of Directors), and a director of investor relations who will be 50% dedicated to RSO's operations. In August 2010, the agreement was further amended to reduce the incentive management fee earned by the Company for any fees paid directly by RSO to employees, agents and/or affiliates of the Company with respect to profits earned by a taxable REIT subsidiary of RSO.

Under a fee agreement, in connection with the April 2012 sale of Apidos to CVC, the Company is required to remit a portion of the base management fee and incentive compensation it receives from RSO to Apidos-CVC. The percentage paid to Apidos-CVC is determined by dividing the equity RSO holds in four Apidos CLOs by the calculated equity used to determine the base management fee. Any incentive compensation paid to Apidos-CVC excludes non-recurring items unrelated to Apidos-CVC.

In June 2012, the management agreement was amended to include the RSO preferred shares issued in addition to its common shares as equity for purposes of calculating the Company's base management fees.

In February 2011, the Company entered into a services agreement with RSO to provide sub-advisory collateral management and administrative services for five CLOs holding approximately $1.7 billion in bank loans whose management contracts RSO had acquired. In connection with the services provided, in February 2011 the management agreement was further amended to permit RSO to pay Apidos-CVC 10% of all base and additional collateral management fees and 50% of all incentive collateral management fees it collects and reimburse its expenses relative to the management of these CLOs.

In July 2011, RSO agreed to provide LEAF with up to $10.0 million in debt financing, of which $6.9 million was funded as of September 30, 2011 and $3.1 million was funded in the period prior to deconsolidation. The interest rate on the loan was fixed rate at 8.0% per annum on the unpaid principal balance, payable quarterly. In conjunction with the November 2011 LEAF deconsolidation, the loan was settled for $8.5 million.

In January 2010, RSO advanced $2.0 million to the Company under an 8% promissory note that matures on January 14, 2015. Interest is payable quarterly in arrears and requires principal repayments upon the receipt of distributions from one of the Company’s real estate investment entities.

LEAF Financial originated and managed commercial finance assets on behalf of RSO prior to the formation of LEAF in January 2011. The leases and loans were typically sold to RSO at fair value plus an acquisition fee of 1% in addition to a 1% fee to then service the assets. During fiscal 2011, LEAF Financial sold $2.3 million of leases and loans to RSO prior to the formation of LEAF. During fiscal 2010, LEAF Financial sold approximately $116.0 million of leases and loans to RSO for which LEAF Financial did not receive acquisition or servicing fees and, accordingly, recognized a loss of $7.5 million, consisting of an estimated loss reserve of $3.0 million (up to a maximum of approximately $5.9 million of delinquent assets could be returned), a servicing liability of $2.5 million and a $2.0 million write-off of previously unreimbursed capitalized costs associated with the portfolio. During fiscal 2010, LEAF Financial also sold an additional $10.3 million of leases and loans to RSO. In addition, from time to time, LEAF Financial repurchased leases and loans from RSO at a price equal to their fair value as an accommodation under certain circumstances, which include the consolidation of multiple customer accounts, originations of new leases when equipment was upgraded and facilitation of the timely resolution of problem accounts when collection was considered likely. LEAF Financial repurchased $140,000 of leases and loans from RSO during fiscal 2010. There were no repurchases during fiscal 2011. As part of the November 2011 LEAF Transaction, RSO transferred its remaining portfolio of leases and loans to LEAF.

In December 2009, the Company recorded an adjustment of $200,000 ($173,000 net of tax) related to equity-based compensation expense for previously issued RSO restricted stock and options awarded to members of the Company’s management. The Company determined that the amounts that related to prior fiscal years and quarters were immaterial to all prior fiscal years and quarters, including the impact on earnings per share and, therefore, recognized the full adjustment during the first quarter of fiscal 2010. The effect on full-year net earnings for fiscal 2010 was immaterial.

Resource Securities has periodically facilitated transactions on behalf of RSO. No fees have been charged by Resource Securities related to these transactions.

Relationship with CVC Credit Partners. In conjunction with the sale of Apidos to CVC, the Company received, in part, a 33% limited partner interest in CVC Credit Partners, a joint venture between the Company and CVC, and a 33% interest in the General Partner of CVC Credit Partners (see Note 1 for a more detailed description of the transaction). Mr. Jonathan Z. Cohen, the Company's Chief Executive Officer and President, serves as the chairman of the board of CVC Credit Partners for an initial term extending to December 31, 2013 so long as the Company holds at least 10% of the partnership interests. In addition, so long as the Company holds at least 25% of the partnership interests, the Company's consent will be required for all non-routine partnership actions, including dispositions and acquisitions in excess of specified thresholds, declarations of distributions, appointment and termination of senior employees, establishment of new investment funds and financings in excess of specified thresholds.

In accordance with the shared services agreement it has with CVC Credit Partners, the Company will receive $94,000 per month for reimbursement of various operating costs and expenses it incurs on behalf of the partnership.

Relationship with LEAF. The Company maintains a shared service agreement with LEAF for the reimbursement of various costs and expenses it incurs on behalf of LEAF. In addition, the Company subleases office space in Philadelphia, Pennsylvania from LEAF under a lease that expires in August 2013.

Sub-servicing agreement with LEAF for the commercial finance investment funds. The Company entered into a sub-servicing agreement with LEAF to provide management services for the commercial finance funds. The fee is equal to LEAF's costs to provide these services up to a maximum of 1% of the net present value of all lease and loan contracts comprising each commercial finance fund's borrowing base under its credit facilities or securitizations. In addition, LEAF is entitled to an evaluation fee equal to 50% of any acquisition or similar fee collected by the Company in connection with the acquisition of any new lease or loan contracts for which LEAF provides evaluation services.

Transactions between LEAF Financial and its investment entities. LEAF and LEAF Financial originated and manage leases and loans on behalf of the commercial finance funds for which LEAF Financial is also is the general partner. Prior to the LEAF deconsolidation in November 2011, leases and loans were sold to the commercial finance funds at fair value plus an origination fee not to exceed 2%. During fiscal 2012, 2011 and 2010, LEAF and LEAF Financial sold a total of $1.5 million, $821,000 and $65.9 million, respectively, of leases and loans to the commercial finance funds. In addition, from time to time LEAF Financial repurchased leases and loans from the commercial finance funds. During fiscal 2011 and 2010, LEAF Financial repurchased $0 and $6.0 million, respectively, of leases and loans from the commercial finance funds at a price equal to their fair value.

Relationship with RRE Opportunity REIT. The Company formed RRE Opportunity REIT in fiscal 2009. The Company is entitled to receive reimbursements for costs associated with the formation and operating expenses of RRE Opportunity REIT. As of September 30, 2012, the Company had a $138,000 receivable due from RRE Opportunity REIT.

On June 17, 2011, the Company loaned $1.4 million to RRE Opportunity REIT at a rate of interest of 6.5% with a maturity of six months. The loan was repaid on June 28, 2011, along with related interest.

Relationship with Atlas Energy, L.P. (“Atlas”). Mr. E. Cohen is the Company’s Chairman of the Board and is the chief executive officer (“CEO”) and president of the general partner of Atlas, and Mr. Jonathan Z. Cohen (“Mr. J. Cohen”), the Company’s CEO and President, is the general partner’s chairman of the board. Atlas subleases office space from the Company and also reimburses the Company for certain shared services. In addition, the Company subleases office space from Atlas on a month to month basis. At September 30, 2012, the Company had a $52,000 receivable balance from Atlas.

Relationship with 1845 Walnut Associates Ltd. The Company owns a 5% investment in a real estate partnership that owns a building at 1845 Walnut Street, Philadelphia in which the Company also leases office space. In February 2009, the Company amended its lease for its offices in this building to extend the lease termination date through May 2013. In October 2012, the Company signed a new ten-year lease for 28,930 square feet of office space in the same building commencing in August 2013. The Company was provided a tenant allowance of $1.4 million for renovation of the office and the lease provides for a five-year extension.

Relationship with Ledgewood P.C. (“Ledgewood”). Until March 2006, Mr. Jeffrey F. Brotman was the managing member of Ledgewood, which provides legal services to the Company. Mr. Brotman remained of counsel to Ledgewood through June 2007, at which time he became an Executive Vice President of the Company. In addition, Mr. Brotman was a trustee of the SERP retirement trusts until he joined the Company. In connection with his separation, Mr. Brotman will receive payments from Ledgewood through 2013.

Mr. E. Cohen, who was of counsel to Ledgewood until April 1996, receives certain debt service payments from Ledgewood related to the termination of his affiliation with Ledgewood and its redemption of his interest in the firm.

Relationship with Graphic Images, LLC (“Graphic Images”). The Company utilizes the services of Graphic Images, a printing company, whose principal owner is the father of the Company’s Chief Financial Officer.

Relationship with retirement trusts. The Company has established two trusts to fund the SERP for Mr. E. Cohen. The 1999 Trust, a secular trust, purchased 100,000 shares of the common stock of TBBK ($1.0 million fair value at September 30, 2012). See “Relationship with TBBK,” below. This trust and its assets are not included in the Company’s consolidated balance sheets. However, trust assets are considered in determining the amount of the Company’s liability under the SERP. The 2000 Trust, a “Rabbi Trust,” held 33,509 shares of TBBK common stock (fair value of $240,000) at September 30, 2011, all of which were sold during fiscal 2012. The SERP liability of $7 million is included in accrued expenses and other liabilities.

Relationship with 9 Henmar LLC (“9 Henmar”). The Company owns interests in the Trapeza entities that have sponsored CDO issuers and manage pools of trust preferred securities acquired by the CDO issuers. The Trapeza entities and CDO issuers were originated and developed in large part by Mr. Daniel G. Cohen (“Mr. D. Cohen”). The Company agreed to pay Mr. D. Cohen’s company, 9 Henmar, 10% of the fees the Company receives, before expenses, in connection with the first four Trapeza CDOs that the Company sponsored and manages.

Relationship with TBBK. Mr. D. Cohen is the chairman of the board and Mrs. Betsy Z. Cohen, (“Mrs. B. Cohen”, who is the wife of Mr. E. Cohen (Mr. E. Cohen and Mrs. B. Cohen are the parents of Messrs. J. Cohen and D. Cohen) is the CEO of TBBK and its subsidiary bank. Beginning in June 2011, the Company sublet a portion of its New York office space to TBBK. In fiscal 2012 and 2011, the Company sold 33,509 and 90,210 of its shares of TBBK common stock for $262,000 and $790,000, respectively, and realized gains of $22,000 and $186,000, respectively. The Company did not sell any of its TBBK stock during fiscal 2010. In addition, TBBK provides banking and operational services to LEAF Financial. During fiscal 2012, 2011 and 2010, LEAF Financial paid $0, $5,000, and $13,000, respectively, in fees to TBBK. Additionally, the Company held cash deposits of $41,000 at TBBK at September 30, 2012 and 2011, respectively.

Relationship with certain directors, officers, employees and other related parties. The Company serves as the general partner of seven partnerships that invest in regional domestic banks. The general partner may receive a carried interest of up to 20% upon meeting specific investor return rates. Some of the partnerships’ investors wanted to ensure that certain individuals who are critical to the success of the partnerships participate in the carried interest. For four of these partnerships, the total participation authorized by the Company’s compensation committee was 48.5% of the 20% carried interest, of which Mr. J. Cohen is entitled to receive 10%. Nine individuals, four of whom are employees of the Company, are entitled to receive the remaining 38.5%. For the remaining three partnerships, the total participation authorized by the Company's compensation committee was 50% of the 20% carried interest. Six individuals, five of whom are employees of the Company, are entitled to receive the remaining 50%. No carried interest had been earned by any of the individuals through September 30, 2012.

Relationship with Brandywine Construction & Management, Inc. (“BCMI”). BCMI manages the property underlying one of the Company’s real estate investments. Mr. E. Cohen is the chairman of BCMI.

In March 2008, the Company sold a 19.99% interest in two indirect subsidiaries that hold a hotel property in Savannah, Georgia to a limited liability company owned by Mr. Adam Kauffman ("Mr. A. Kauffman")for $1 million plus $130,000 in fees, and recognized a gain of $612,000. The terms of the sale agreement provided an option to Mr. A. Kauffman, who is president of BCMI, to purchase up to the balance of the Company’s interest in the hotel for $50,000 per 1% interest purchased. The purchase option expired in July 2011. Mr. A. Kauffman now has a right-of-first-offer to purchase the balance of the Company’s interest in the hotel.

In November 2012, the Company paid a $95,000 fee to BCMI in connection with the negotiations and ultimate sale of a property in which the Company had a loan investment.

Advances to Affiliated Real Estate Limited Partnership. During fiscal 2011, the Company agreed to increase its advances to an affiliated real estate limited partnership under a revolving note to $3.0 million (from $2.0 million), bearing interest at the prime rate. Amounts drawn, which are due upon demand, were $2.4 million and $2.2 million as of September 30, 2012 and 2011, respectively, which are included in Receivables from Managed Entities and Related Parties, net of allowance for credit losses. The Company recorded $56,000 and $69,000 of interest income on this loan during fiscal 2012 and 2011, respectively. Based on projected collectability concerns, determined by applying current asset values, these amounts have been fully reserved.