Exhibit 10.4

 

ANNUAL INCENTIVE AGREEMENT

 

THIS ANNUAL INCENTIVE AGREEMENT (this “Agreement”) by and between Arbor Realty
Trust, Inc., a Maryland corporation (the “Company”), and Ivan Kaufman (the
“Executive”), is entered into as of January 1, 2015.

 

W I T N E S S E T H:

 

WHEREAS, the Executive currently serves as the Chief Executive Officer of the
Company; and

 

WHEREAS, the Compensation Committee (the “Committee”) of the Company’s Board of
Directors (the “Board”) has consulted with its independent compensation
consultant regarding the appropriate type and level of base and incentive
compensation to be provided to the Executive in order to motivate his
performance, retain his services and further align his interests with those of
the Company’s shareholders; and

 

WHEREAS, the Company and the Executive wish to memorialize their agreement with
respect to the base and incentive compensation to be granted to the Executive on
an annual basis.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

1.                                      TERM. This Agreement shall be effective
commencing with the Executive’s incentive compensation for calendar year 2015
and shall remain in effect (subject to Section 6 hereof) during the Executive’s
service as Chief Executive Officer of the Company (the “Term”).

 

2.                                      COMPENSATION

 

(a)                                 BASE SALARY. During the Term, the Company
shall pay the Executive an annual base salary (“Annual Base Salary”) of
$1,000,000, payable in accordance with the Company’s regular payroll practices
for its senior executives, as in effect from time to time.

 

(b)                                 ANNUAL CASH BONUS.  During the Term, the
Executive shall participate in an annual cash incentive compensation plan.  The
Executive’s target bonus opportunity (the “Target Bonus”) pursuant to such plan
for each year during the Term shall be two hundred percent (200%) of the Annual
Base Salary, with an annual bonus upon achievement of threshold performance
equal to one hundred percent (100%) of the Annual Base Salary and a maximum
annual bonus equal to three hundred percent (300%) of the Annual Base Salary
(subject to the provisions of the second paragraph of Exhibit A hereto).  Any
cash bonuses payable to the Executive will be paid at the time the Company
normally pays such bonuses to its senior executives (subject to Section 4
hereof).  The goals and weightings for the annual cash bonus shall be as
follows, and the metrics for the 2015 annual cash bonus shall be those set forth
on Exhibit A hereto:

 

(i)                                     Thirty five percent (35%) of the annual
cash bonus shall be based on the achievement of AFFO/SHARE goals.

 

--------------------------------------------------------------------------------

 

(ii)                                  Fifteen percent (15%) of the annual cash
bonus shall be based on the achievement of corporate capital growth goals.

 

(iii)                               Fifteen percent (15%) of the annual cash
bonus shall be based on the achievement of balance sheet-management and
efficiency goals.

 

(iv)                              Fifteen percent (15%) of the annual cash bonus
shall be based on the achievement of goals with respect to the relative risk of
the portfolio as measured by the average (over the four quarters of the
applicable year) First Dollar LTV, and the average (over the four quarters of
the applicable year) Last Dollar LTV, each measured by the loan to value ratio
at the time, as applicable, of the original investment, investment maturity
extension, investment modification or time of foreclosure/deed in lieu.

 

(v)                                 Twenty percent (20%) of the annual cash
bonus shall be based on the Committee’s assessment of the Executive’s leadership
and achievement of subjective goals during the calendar year.

 

(c)                                  PERFORMANCE METRICS; BONUS DETERMINATION. 
For years after 2015, the applicable performance metrics for each of the
categories described in Section 2(b) and Section 2(d)(ii) below shall be set by
the Committee in its reasonable discretion (following consultation with the
Executive), subject to the provisions of this Agreement. The amount of the
aggregate annual cash bonus for any calendar year shall be determined by
measuring performance in each of the categories in Section 2(b) separately, then
aggregating the amount payable with respect to all such categories.  For
instance, performance at the target level under Section 2(b) (i) shall result in
the amount of $700,000 being included in the applicable year’s annual bonus with
respect to that category.  Performance below the threshold for any category set
forth in section 2(b) will result in no award being paid for the period being
measured with respect to that category.  Performance above the maximum for any
category set forth in section 2(b) will result in an award being paid for the
period being measured at the maximum amount with respect to that category
(subject to the provisions of the second paragraph of Exhibit A hereto).
Performance for any category set forth in section 2(b) at levels between
threshold and target or between target and maximum will result in an award
reflecting proportionate increases between threshold and actual performance or
between target and actual performance, as applicable.

 

(d)                                 ANNUAL LONG-TERM EQUITY AWARDS. Annually
during the Term on the date of the first meeting of the Compensation Committee
of the Company’s Board for the applicable year, the Committee shall grant the
Executive both a time-based equity award and a performance-based equity award as
described in this Section 2(d).

 

(i)                                     The Executive shall be granted a
time-based award of restricted stock units with respect to a number of shares of
Common Stock with a fair market value (measured based on the average closing
price of the Common Stock for the last ten (10) completed trading days of the
immediately preceding year) of $500,000 (rounded down to the nearest whole
share).  Such award shall vest in four equal annual installments with 25% of the
award vesting on the date of grant and an additional 25% vesting on the first
day of the first, second and third anniversaries of the date of grant, subject
to the

 

--------------------------------------------------------------------------------

 

Executive’s continued employment with the Company on such anniversary date. 
Shares of common stock subject to each grant described in this
Section 2(d)(i) may not be disposed of by the Executive (except to satisfy
minimum tax withholding requirements and transfers to charitable organizations)
during the one-year period immediately following the vesting date.

 

(ii)                                  The Executive shall be granted a
performance-based award of restricted stock units with respect to a number of
shares of the Common Stock with a fair market value (measured based on the
average closing price of the Common Stock for the last ten (10) completed
trading days of the immediately preceding year) of $3,000,000 (rounded down to
the nearest whole share).  Such award shall vest at the end of the performance
period based upon the Company’s achievement of the four-year total shareholder
return objectives (consisting of dividends paid and changes in the share price
of the Common Stock, hereinafter (“TSR”)) set forth in Exhibit B hereto, and
subject to the Executive’s continued employment with the Company on the
completion of the four-year performance period, except as provided in Section 3
hereof.  The vesting of each award made under this Section 2(d)(ii) shall be
determined as set forth in Exhibit B hereto.

 

(iii)                               Equity awards described in this
Section 2(d) shall be subject to the terms of the applicable equity compensation
plan of the Company under which they are granted and shall be subject to the
terms and conditions of such plan and the applicable award agreement (which
shall not conflict with the provisions of this Section 2(d)).  Restricted stock
units granted under Section 2(d)(i) shall receive payment of dividend
equivalents in an amount equal to dividends actually paid with respect to shares
of the Common Stock subject to the restricted stock units, which shall be paid
to the Executive at the same time dividends are paid to stockholders generally. 
Restricted stock units granted under Section 2(d)(ii) shall not be credited with
dividend equivalents.

 

(e)                                  AUTOMATIC ADJUSTMENT.  The amounts of the
awards described in Section 2(b) and 2(d) above shall be subject to automatic
increase as set forth in this Section 2(e).  To the extent that the Company has
grown its GAAP equity capitalization including all forms of common equity,
preferred equity and retained earnings, by 25% from December 31, 2014 through
the 1st day of any calendar year (commencing with the 2016 calendar year and
measured as of the first day of such year and the first day of subsequent
calendar years), the value of the awards described in Section 2(b) and
2(d) which are granted in such calendar year shall be increased by 10% (and
shall continue to be granted at such increased level subject to additional 10%
increases in the event of additional episodes of GAAP equity capitalization
growth of 25% (measured from the GAAP equity capitalization level resulting in
the immediately preceding increase).

 

(f)                                   EQUITABLE ADJUSTMENT.  The Committee shall
have the authority to equitably and in good faith adjust the amounts, goals and
other terms of the awards set forth herein in the event of corporate
transactions such as mergers, acquisitions, stock splits, recapitalizations,
reorganizations, sales of assets and any other similar corporate transaction in
order to prevent the enlargement or dilution of the rights of the parties
hereto.

 

--------------------------------------------------------------------------------

 

3.                                      TERMINATION OF EMPLOYMENT.

 

(a)                                 BY THE COMPANY WITHOUT CAUSE; DEATH;
DISABILITY; BY THE EXECUTIVE FOR GOOD REASON.  Notwithstanding anything in this
Agreement to the contrary, in the event of the Executive’s death, the
Executive’s resignation for Good Reason (as defined below), or in the event that
the Executive’s employment is terminated by the Company without Cause (as
defined below) or is terminated by the Company due to the Executive’s Disability
(as defined below), then, in addition to unpaid awards for which the performance
period has been completed at the time of termination being paid out (if
applicable) in accordance with their terms based upon actual performance:

 

(i)                                     the annual cash bonus payable for the
year the termination takes place described in Section 2(b) shall be paid out at
the target level of performance (within 30 days of such termination of
employment); and

 

(ii)                                  at the date of termination of employment
to the extent that any time vesting restricted stock unit award described in
Section 2(d)(i) are unvested, such award shall become fully vested upon such
termination; and

 

(iii)                               with respect to the performance vesting
restricted stock unit award described in Section 2(d)(ii), the Executive shall
become eligible to receive immediate vesting of a pro-rata portion of the award
(with such pro-rata portion based upon the portion of the four year performance
period that has elapsed as of the date of termination), with the vesting level
to which such pro-ration is applied being determined by (A) measuring the TSR
achieved for the portion of the performance period occurring prior to the date
of termination, (B) determining the TSR which would have had to have been
attained on the date of termination in order to achieve each of the Threshold,
Target and Maximum performance levels over the full four year performance period
(assuming a consistent level of achievement over such full four year performance
period) and basing the vesting level on whether the TSR achieved prior to the
date of termination achieved any of the levels described in clause (B) above
(with any portion of the award that does not vest pursuant to the foregoing
being forfeited upon such date).

 

(b)                                 OTHER TERMINATIONS OF EMPLOYMENT.  In the
event of a termination of employment under circumstances other than those
described in Section 3(a), all awards described in this Agreement for which
there is an ongoing performance or vesting period shall be forfeited upon such
termination.  Unpaid awards for which the performance period has been completed
at the time of termination shall be paid out (if applicable) in accordance with
their terms based upon actual performance.

 

4.                                      SECTION 409A; WITHHOLDING.  All amounts
payable hereunder are intended to constitute short term deferrals exempt from
the application of Section 409A of the Internal Revenue Code of 1986, as
amended, and shall be administered and construed in accordance with such
intention.  All payments hereunder shall be subject to required tax withholding.

 

5.                                      BINDING NATURE OF AGREEMENT; SUCCESSORS
AND ASSIGNS.  This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, personal representatives,
successors and permitted assigns as provided in this Agreement.

 

--------------------------------------------------------------------------------

 

6.                                      ENTIRE AGREEMENT. This Agreement
contains the entire agreement and understanding among the parties hereto with
respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, inducements and conditions, express
or implied, oral or written, of any nature whatsoever with respect to the
subject matter of this Agreement.  The express terms of this Agreement control
and supersede any course of performance and/or usage of the trade inconsistent
with any of the terms of this Agreement.  This Agreement may not be modified or
amended other than by an agreement in writing signed by the parties hereto.
Notwithstanding the forgoing, nothing herein shall be deemed an amendment,
modification or any other change to, or waiver of, any provision of the Second
Amended and Restated Management Agreement among the Company, Arbor Realty
Limited Partnership, Arbor Realty SR, Inc. and Arbor Commercial Mortgage, LLC”,
dated August 6, 2009 and amended by Amendment No. 1 thereto, dated as of the
date hereof..

 

7.                                      GOVERNING LAW.  This Agreement and all
questions relating to its validity, interpretation, performance and enforcement
shall be governed by and construed, interpreted and enforced in accordance with
the laws of the State of New York, notwithstanding any New York or other
conflict-of-law provisions to the contrary.

 

8.                                      NO WAIVER.  Neither the failure nor any
delay on the part of a party to exercise any right, remedy, power or privilege
under this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence.  No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.

 

9.                                      TITLES.  The titles of sections,
paragraphs and subparagraphs contained in this Agreement are for convenience
only, and they neither form a part of this Agreement nor are they to be used in
the construction or interpretation of this Agreement.

 

10.                               NOTICES.  Unless expressly provided otherwise
in this Agreement, all notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when delivered against receipt
or upon actual receipt of (a) personal delivery, (b) delivery by a reputable
overnight courier, (c) delivery by facsimile transmission against answerback, or
(d) delivery by registered or certified mail, postage prepaid, return receipt
requested, addressed as set forth below:

 

If to the Company:

Arbor Realty Trust, Inc.

 

333 Earle Ovington Boulevard, Suite 900

 

Uniondale, New York 11553

 

Attention: Chairman of the Compensation Committee of the Board of Directors

 

Facsimile: (516) 832-8043

 

--------------------------------------------------------------------------------

 

If to the Executive:

Ivan Kaufman

 

333 Earle Ovington Boulevard, Suite 900

 

Uniondale, New York 11553

 

Facsimile: (516) 832-8043

 

Any party may alter the address to which communications or copies are to be sent
by giving notice of such change of address in conformity with the provisions of
this Section 10 for the giving of notice.

 

11.                               COUNTERPARTS.  This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original
as against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument.  This Agreement shall become
binding when one or more counterparts of this Agreement, individually or taken
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.

 

12.                               PROVISIONS SEVERABLE; CONSTRUCTION.  The
provisions of this Agreement are independent of and separable from each other,
and no provision shall be affected or rendered invalid or unenforceable by
virtue of the fact that for any reason any other or others of them may be
invalid or unenforceable in whole or in part..  Words used herein regardless of
the number and gender specifically used, shall be deemed and construed to
include any other number, singular or plural, as the context requires.  All
references to recitals, sections, paragraphs and schedules are to the recitals,
sections, paragraphs and schedules in or to this Agreement.

 

13.                               DEFINITIONS.  The following definitions shall
have the meaning set forth below for purposes of this Agreement and Exhibit A.

 

(i)                                     “AFFO” (Adjusted Funds From Operations)
means, for any period, (i) net income calculated in accordance with GAAP,
(ii) plus depreciation expense and amortization of intangibles, (iii) plus the
expense related to stock based compensation, (iv) as applicable, plus the
one-time expense or minus the one-time income related to the termination of
collateral debt obligations and collateral loan obligations and (v) minus
industry standard recurring capital reserve expenses.

 

(ii)                                  “AFFO/SHARE” means, for any period, the
ratio of (x) the Company’s AFFO for such period over (y) the weighted average
number of diluted shares of common stock outstanding for such period.

 

(iii)                               “Disability” means the Executive’s
incapacity due to physical or mental illness, and resulting therefrom the
Executive shall have been absent from the full time performance of the
Executive’s duties with the Company for a period of one hundred twenty (120)
days, the Company shall have given the Executive a notice of termination for
Disability, and, within thirty (30) days after such notice of termination is
given, the Executive shall not have returned to the full time performance of the
Executive’s duties.

 

--------------------------------------------------------------------------------

 

(iv)                              “GAAP” means generally accepted accounting
principles, consistently applied.

 

(v)                                 “Efficiency Ratio” means, as of the end of
each fiscal quarter, the ratio of (x) net interest income (excluding
acceleration of interest expense associated with the termination of collateral
debt obligations and collateral loan obligations) to (y) operating expenses
(excluding the expense related to stock based compensation).  Efficiency Ratio
shall exclude income, expenses and depreciation and any gain or loss on sale of
owned real estate.

 

(vi)                              “First Dollar LTV” shall have the meaning
given such term in the Company’s periodic disclosure under the Securities and
Exchange Act of 1934.

 

(vii)                           “For Cause” means (i) the conviction of the
Executive by a court of competent jurisdiction for felony criminal conduct or
(ii) the willful engaging by the Executive in fraud or dishonesty which is
demonstrably and materially injurious to the Company or its reputation,
monetarily or otherwise.

 

(viii)                        “For Good Reason” means the occurrence of any of
the following during the Term without the Executive’s written consent:(i) a
reduction in the Executive’s Base Salary; (ii) a termination of, or a material
modification to, this Agreement that is adverse to the Executive’s interests;
(iii) a relocation of the Executive’s principal place of employment by more than
50 miles; (iv) any breach by the Company of any material provision of this
Agreement; (v) the Company’s failure to nominate the Executive for election to
the Board and to use its best efforts to have him elected and re-elected, as
applicable; (vi) a material, adverse change in the Executive’s title, authority,
duties, responsibilities or reporting obligations (other than temporarily while
the Executive is physically or mentally incapacitated or as required by
applicable law); provided that in order for Good Reason to exist hereunder, the
Executive must provide notice to the Company of the existence of the condition
or circumstance alleged to constitute Good Reason within 90 days of the initial
existence of the condition or circumstance, the Company must have failed to cure
such condition within 30 days of the receipt of such notice and the resignation
must be effective immediately following the end of such cure period.

 

(ix)                              “Last Dollar LTV” shall have the meaning given
such term in the Company’s periodic disclosure under the Securities and Exchange
Act of 1934.

 

(x)                                 “Leverage Ratio” means, as of the end of
each fiscal quarter, the ratio of (x) loans and investments to (y) total debt
associated with such loans and investments plus other debt for borrowed money
(excluding trust preferred securities).

 

(xi)                              “Net Proceeds Raised From New Equity” means
the gross proceeds from the public or private sale of common and preferred
equity, less underwriting discounts, commissions and other expenses of such
sale.

 

(xii)                           “Net Proceeds Raised From New Debt” means
(a) with respect to debt securities sold in a public or private offering,
including securitizations, the gross proceeds

 

--------------------------------------------------------------------------------

 

from such sale, less underwriting discounts, commissions and other expenses of
such sale and (b) with respect to lines of credit, repurchase agreements,
revolving and/or term loan facilities and similar debt facilities entered into
during a year, the difference, if positive, between (x) the principal amount of
all such credit facilities in existence as of the first day of such year and
(y) the principal amount of all such credit facilities in existence as of the
last day of such year, provided, however that if a new credit facility entered
into during such year would not meet the requirements of this clause (b) but
does, in the discretion of the Committee, represent a material improvement to
the Company in pricing or other significant terms and conditions, when compared
to the pricing, terms and conditions of the Company’s existing credit
facilities, the principal amount of such credit facility will be considered “Net
Proceeds from New Debt”.

 

(xiii)                        Net Profit Resulting From Equity Kickers means the
net income, calculated in accordance with GAAP, resulting from (a) payments
received from the Company’s borrowers that are in excess of the interest on the
loan or investment, origination fees, exit fees and other similar fees and
charges and the principal amount of the loan or investment and (b) one time
gains other than those resulting from the sale of REO assets.

 

[NO FURTHER TEXT ON THIS PAGE]

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

 

 

 

Arbor Realty Trust, Inc.,

 

a Maryland corporation

 

 

 

By:

/s/ William C. Green

 

Name: William C. Green

 

Title: Chairman, Compensation Committee

 

 

 

 

 

/s/ Ivan Kaufman

 

Ivan Kaufman

 

--------------------------------------------------------------------------------