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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

þ	 	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934	
 	 	For the fiscal year ended December 31, 2006	
or	
o	 	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934	
 	 	For the transition period from          to          	
 
Commission file number: 001-32136
 
Arbor Realty Trust, Inc.
(Exact name of registrant as specified in its charter)

Maryland	 	20-0057959	
(State or other jurisdiction
of incorporation)	 	(I.R.S. Employer
Identification No.)	
 	 	 	
333 Earle Ovington Boulevard, Suite 900
Uniondale, NY	 	11553
Zip Code	
(Address of principal executive offices)	 	 	
 
(516) 832-8002
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	 	Name of Each Exchange on Which Registered	
 	 	 	
Common stock, par value $0.01 per share	 	The New York Stock Exchange	
 
Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o      No  þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   o
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer o     Accelerated filer þ     Non-accelerated filer o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o      No  þ
 
The aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant as of June 30, 2006 (computed based on the closing price on such date as reported on the NYSE) was $392.9 million. As of February 16, 2007, the registrant had 17,230,375 shares of common stock outstanding (excluding 279,400 shares held in the treasury).
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the definitive proxy statement for the registrant’s 2007 Annual Meeting of Stockholders (the “2007 Proxy Statement”), to be filed within 120 days after the end of the registrant’s fiscal year ended December 31, 2006, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 
 
INDEX

 	 	 	 	Page	
 	 	 	 	 	 	 	 	 	
PART I	
 	ITEM 1.	 	 	BUSINESS	 	 	1	 	
 	ITEM 1A.	 	 	RISK FACTORS	 	 	14	 	
 	ITEM 1B.	 	 	UNRESOLVED STAFF COMMENTS	 	 	22	 	
 	ITEM 2.	 	 	PROPERTIES	 	 	22	 	
 	ITEM 3.	 	 	LEGAL PROCEEDINGS	 	 	22	 	
 	ITEM 4.	 	 	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	 	 	22	 	
 	
PART II	
 	ITEM 5.	 	 	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	 	 	23	 	
 	ITEM 6.	 	 	SELECTED FINANCIAL DATA	 	 	26	 	
 	ITEM 7.	 	 	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	 	 	29	 	
 	ITEM 7A.	 	 	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	 	 	47	 	
 	ITEM 8.	 	 	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	 	 	50	 	
 	ITEM 9.	 	 	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	 	 	97	 	
 	ITEM 9A.	 	 	CONTROLS AND PROCEDURES	 	 	97	 	
 	ITEM 9B.	 	 	OTHER INFORMATION	 	 	98	 	
 	
PART III	
 	ITEM 10.	 	 	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	 	 	99	 	
 	ITEM 11.	 	 	EXECUTIVE COMPENSATION	 	 	99	 	
 	ITEM 12.	 	 	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	 	 	99	 	
 	ITEM 13.	 	 	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	 	 	99	 	
 	ITEM 14.	 	 	PRINCIPAL ACCOUNTANT FEES AND SERVICES	 	 	99	 	
 	
PART IV	
 	ITEM 15.	 	 	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K	 	 	100	 	
EX-21.1: SUBSIDIARIES OF ARBOR REALTY TRUST, INC. 	 	 	104	 	
EX-23.1: CONSENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	 	 	105	 	
EX-31.1: CERTIFICATION	 	 	106	 	
EX-31.2: CERTIFICATION	 	 	107	 	
EX-32.1: CERTIFICATION	 	 	108	 	
EX-32.2: CERTIFICATION	 	 	109	 	

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FORWARD LOOKING STATEMENTS
 
The information contained in this annual report on Form 10-K is not a complete description of our business or the risks associated with an investment in Arbor Realty Trust, Inc. We urge you to carefully review and consider the various disclosures made by us in this report.
 
This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments and financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in economic conditions generally and the real estate market specifically; adverse changes in the financing markets we access affecting our ability to finance our loan and investment portfolio; changes in interest rates; the quality and size of the investment pipeline and the rate at which we can invest our cash; impairments in the value of the collateral underlying our loans and investments; changes in the markets; legislative/regulatory changes; completion of pending investments; the availability and cost of capital for future investments; competition within the finance and real estate industries; and other risks detailed from time to time in our SEC reports. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views as of the date of this report. The factors noted above could cause our actual results to differ significantly from those contained in any forward-looking statement. For a discussion of our critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries — Significant Accounting Estimates and Critical Accounting Policies” under Item 7 of this report.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.
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PART I

ITEM 1.  	BUSINESS	
 
Overview
 
We are a specialized real estate finance company which invests in a diversified portfolio of structured finance assets in the multi-family and commercial real estate markets. We invest primarily in real estate-related bridge and mezzanine loans, including junior participating interests in first mortgages, preferred and direct equity, and in limited cases, discounted mortgage notes and other real estate-related assets, which we refer to collectively as structured finance investments. We also invest in mortgage-related securities. Our principal business objective is to maximize the difference between the yield on our investments and the cost of financing these investments to generate cash available for distribution, facilitate capital appreciation and maximize total return to our stockholders.
 
We are organized to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. We commenced operations in July 2003 and conduct substantially all of our operations and investing activities through our operating partnership, Arbor Realty Limited Partnership, and its wholly-owned subsidiaries. We serve as the general partner of our operating partnership, and own an approximately 82% partnership interest in our operating partnership as of December 31, 2006.
 
We are externally managed and advised by Arbor Commercial Mortgage, LLC (“ACM”), a national commercial real estate finance company which specializes in debt and equity financing for multi-family and commercial real estate, pursuant to the terms of a management agreement described below. We believe ACM’s experience and reputation positions it to originate attractive investment opportunities for us. Our management agreement with ACM was developed to capitalize on synergies with ACM’s origination infrastructure, existing business relationships and management expertise.
 
We believe the financing of multi-family and commercial real estate offers significant growth opportunities that demand customized financing solutions. ACM has granted us a right of first refusal to pursue all domestic structured finance investment opportunities identified by ACM. ACM continues to originate and service multi-family and commercial mortgage loans under Fannie Mae, Federal Housing Administration and conduit commercial lending programs. We believe that the customer relationships established from these lines of business may generate additional real estate investment opportunities for our business.
 
Our Corporate History
 
On July 1, 2003, ACM contributed a portfolio of structured finance investments to our operating partnership. Concurrently with this contribution, we and our operating partnership entered into a management agreement with ACM pursuant to which ACM manages our investments for a base management fee and incentive compensation, and the nine person asset management group of ACM became our employees.
 
In exchange for ACM’s contribution of structured finance investments, our operating partnership issued approximately 3.1 million units of limited partnership interest, or operating partnership units, and approximately 0.6 million warrants to purchase additional operating partnership units at an initial exercise price of $15.00 per operating partnership unit to ACM. Concurrently, we, our operating partnership and ACM entered into a pairing agreement. Pursuant to the pairing agreement, each operating partnership unit issued to ACM and issuable to ACM upon exercise of its warrants for additional operating partnership units in connection with the contribution of initial assets was paired with one share of the Company’s special voting preferred stock. In October 2004, ACM exercised these warrants and currently holds approximately 3.8 million operating partnership units, constituting an approximately 18% limited partnership interest in our operating partnership. ACM may redeem each of these operating partnership units for cash or, at our election, one share of our common stock. We granted ACM certain demand and other registration rights with respect to the shares of common stock that may be issued upon redemption of these operating partnership units. Each of these operating partnership units is also paired with one share of our special voting preferred stock entitling ACM to one vote on all matters submitted to a vote of our stockholders. ACM currently holds approximately 18% of the voting power of our outstanding stock. If ACM redeems these operating partnership units, an equivalent number of shares of our special voting preferred stock will be redeemed and cancelled.
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Concurrently with ACM’s contribution of investments to our operating partnership, we sold approximately 1.6 million of our units, each consisting of five shares of our common stock and one warrant to purchase an additional share of common stock at an initial exercise price of $15.00 per share, for $75.00 per unit in a private placement and agreed to register the shares of common stock underlying these units and warrants for resale under the Securities Act of 1933. In July 2004, we registered approximately 9.6 million shares of common stock underlying these units and warrants. As of December 31, 2005, approximately 1.6 million warrants were exercised, of which 0.5 million were exercised “cashless”, for a total of 1.3 million common shares issued pursuant to their exercise.
 
In April 2004, we closed our initial public offering in which we issued and sold 6.3 million shares of common stock and a selling stockholder sold 22,500 shares of common stock, each at $20.00 per share. Concurrently with the initial public offering, we sold 0.5 million shares of common stock at the initial public offering price directly to an entity wholly-owned by one of our directors. The underwriters of our initial public offering exercised their overallotment option and, in May 2004, we issued and sold an additional 0.5 million shares of our common stock pursuant to such exercise.
 
Since January 2005, we completed three non-recourse collateralized debt obligation (“CDO”) transactions, wherby $1.44 billion of real estate related and other assets were contributed to three newly-formed consolidated subsidiaries, which issued $1.21 billion of investment grade-rated floating-rate notes in three separate private placements. These proceeds were used to repay outstanding debt and resulted in a decreased cost of funds relating to the CDO assets.
 
Our Investment Strategy
 
Our principal business objectives are to invest in bridge and mezzanine loans, including junior participating interests in first mortgages, preferred and direct equity and other real estate related assets in the multifamily and commercial real estate markets and actively manage our investment portfolio in order to generate cash available for distribution, facilitate capital appreciation and maximize total return to our stockholders. We believe we can achieve these objectives through the following business and growth strategies:
 
Provide Customized Financing.  We provide financing customized to the needs of our borrowers. We target borrowers who have demonstrated a history of enhancing the value of the properties they operate, but whose options may be limited by conventional bank financing and who may benefit from the sophisticated structured finance products we offer.
 
Execute Transactions Rapidly.  We act quickly and decisively on proposals, provide commitments and close transactions within a few weeks and sometimes days, if required. We believe that rapid execution attracts opportunities from both borrowers and other lenders that would not otherwise be available. We believe our ability to structure flexible terms and close loans in a timely manner gives us a competitive advantage over lending firms that also primarily serve this market.
 
Manage and Maintain Credit Quality.  A critical component of our success in the real estate finance sector is our ability to manage the real estate risk that is underwritten by our manager and us. We actively manage and maintain the credit quality of our portfolio by using the expertise of our asset management group, which has a proven track record of structuring and repositioning structured finance investments to improve credit quality and yield.
 
Use Arbor Commercial Mortgage’s Relationships with Existing Borrowers.  We capitalize on ACM’s reputation in the commercial real estate finance industry. ACM has relationships with a large borrower base nationwide. Since ACM’s originators offer senior mortgage loans as well as our structured finance products, we are able to benefit from its existing customer base and use its senior lending business as a potential refinance vehicle for our structured finance assets.
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Offer Broader Products and Expand Customer Base.  We have the ability to offer a larger number of financing alternatives than ACM has been able to offer to its customers in the past. Our potential borrowers are able to choose from products offering longer maturities and larger principal amounts than ACM could previously offer.
 
Leverage the Experience of Executive Officers and Arbor Commercial Mortgage and Our Employees.   Our executive officers and employees, and those of ACM, have extensive experience originating and managing structured commercial real estate investments. Our senior management team has on average over 20 years experience in the financial services industry including prior experience in managing and operating a public company, the predecessor of ACM.
 
Our Targeted Investments
 
We actively pursue lending and investment opportunities with property owners and developers who need interim financing until permanent financing can be obtained. We primarily target transactions under $40 million where we believe we have competitive advantages, particularly our lower cost structure and in-house underwriting capabilities. Our structured finance investments generally have maturities of two to five years, depending on type, have extension options when appropriate, and generally require a balloon payment of principal at maturity. Borrowers in the market for these types of loans include, but are not limited to, owners or developers seeking either to acquire or refurbish real estate or to pay down debt and reposition a property for permanent financing.
 
Our investment program emphasizes the following general categories of real estate related activities:
 
Bridge Financing.  We offer bridge financing products to borrowers who are typically seeking short term capital to be used in an acquisition of property. The borrower has usually identified an undervalued asset that has been under managed and/or is located in a recovering market. From the borrower’s perspective, shorter term bridge financing is advantageous because it allows time to improve the property value through repositioning the property without encumbering it with restrictive long term debt.
 
The bridge loans we make typically range in size from $1 million to $60 million and are predominantly secured by first mortgage liens on the property. The term of these loans typically is up to five years. Historically, interest rates have typically ranged from 2.50% to 9.00% over 30-day LIBOR, with fixed rates ranging from 5.00% to 13.00%. In 2006, interest rates have typically ranged from 2.50% to 7.00% over 30-day LIBOR, with fixed rates ranging from 6.00% to 13.00%. Additional yield enhancements may include origination fees, deferred interest, yield look-backs, and participating interests, which are equity interests in the borrower that share in a percentage of the underlying cash flows of the property. Borrowers generally use the proceeds of a conventional mortgage to repay a bridge loan.
 
Mezzanine Financing.  We offer mezzanine financing in the form of loans that are subordinate to a conventional first mortgage loan and senior to the borrower’s equity in a transaction. These loans may be in the form of a junior participating interest in the senior debt. Mezzanine financing may take the form of loans secured by pledges of ownership interests in entities that directly or indirectly control the real property or subordinated loans secured by second mortgage liens on the property. We may also require additional collateral such as personal guarantees, letters of credit and/or additional collateral unrelated to the property.
 
Our mezzanine loans typically range in size from $1 million to $50 million and have terms of up to ten years. Historically, interest rates have typically ranged from 2.00% to 12.00% over 30-day LIBOR, with fixed rates ranging from 5.00% to 15.00%. In 2006, interest rates have typically ranged from 2.00% to 10.00% over 30-day LIBOR, with fixed rates ranging from 5.50% to 15.00%. As in the case with our bridge loans, the yield on these investments may be enhanced by prepaid and deferred interest payments, yield look-backs and participating interests.
 
We hold a majority of our mezzanine loans through subsidiaries of our operating partnership that are pass-through entities for tax purposes or taxable subsidiary corporations.
 
Preferred Equity Investments.  We provide financing by making preferred equity investments in entities that directly or indirectly own real property. In cases where the terms of a first mortgage prohibit additional
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liens on the ownership entity, investments structured as preferred equity in the entity owning the property serve as viable financing substitutes. With preferred equity investments, we typically become a special limited partner or member in the ownership entity.
 
Real Property Acquisitions.  We may purchase existing domestic real estate for repositioning and/or renovation and then disposition at an anticipated significant return. From time to time, we may identify real estate investment opportunities. In these situations, we may act solely on our own behalf or in partnership with other investors. Typically, these transactions are analyzed with the expectation that we will have the ability to sell the property within a one to three year time period, achieving a significant return on invested capital. In connection with these transactions, speed of execution is often the most critical component to success. We may seek to finance a portion of the acquisition price through short term financing. Repayment of the short term financing will either come from the sale of the property or conventional permanent debt.
 
Note Acquisitions.  We may acquire real estate notes from lenders in situations where the borrower wishes to restructure and reposition its short term debt and the lender wishes, for a variety of reasons (such as risk mitigation, portfolio diversification or other strategic reasons), to divest certain assets from its portfolio. These notes may be acquired at a discount. In such cases, we intend to use our management resources to resolve any dispute concerning the note or the property securing it and to identify and resolve any existing operational or any other problems at the property. We will then either restructure the debt obligation for immediate resale or sale at a later date, or reposition it for permanent financing. In some instances, we may take title to the property underlying the real estate note.
 
Mortgage-Related Securities.  We invest in certificates issued by the Government National Mortgage Association, or GNMA, Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Association, or FHLMC that are collateralized by whole pools of fixed or adjustable rate residential or commercial mortgage loans. We refer to these mortgage-related securities as agency-sponsored whole loan pool certificates. The adjustable rate mortgage-related securities include adjustable-rate FHLMC ARM and FNMA ARM certificates, which are generally evidenced by pools of mortgage loans with a fixed rate of interest for the first three years with annual interest adjustments thereafter and GNMA ARM certificates, which have a fixed rate of interest for the first three years with annual adjustments in relation to the Treasury index thereafter. Unlike conventional fixed-income securities which provide for periodic fixed interest payments and principal payments at maturity and specified call dates, mortgage-related securities provide for monthly payments of interest and principal that, in effect, are a “pass-through” of the monthly payments made by the borrowers on the residential or commercial mortgage loans underlying such securities, net of any fees paid to the issuer or guarantor of such securities. Additional payments on the securities are made when repayments of principal are made due to the sale of the underlying property, refinancing or foreclosure, net of fees or costs that may be incurred. Some mortgage-related securities (such as securities issued by GNMA) are described as “modified pass-through” because they entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, at scheduled payment dates regardless of whether or not the mortgagor makes the payment.
 
The rate of prepayments on the underlying mortgage loans affect the price and volatility of mortgage-related securities and may have the effect of shortening or extending the effective maturity of the security beyond what was anticipated at the time of our investment in such securities. The yield and maturity characteristics of mortgage-related securities differ from conventional fixed-income securities in that the principal amount of mortgage-related securities may be prepaid at any time because the underlying mortgage loans may be prepaid at any time. Therefore, some mortgage-related securities may have less potential for growth in value than conventional fixed-income securities with comparable maturities. In addition, the rate of prepayments tends to increase in periods of falling interest rates. During such periods, the reinvestment of prepayment proceeds by us will generally be at lower rates than the rates that were carried by the obligations that have been prepaid. To the extent that we purchase mortgage-related securities at a premium, prepayments (which may be made without penalty) may result in loss of our principal investment to the extent of the premium paid.
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Our Structured Finance Investments
 
We own a diversified portfolio of structured finance investments consisting primarily of real estate-related bridge and mezzanine loans as well as preferred equity investments and mortgage-backed securities.
 
At December 31, 2006, we had 102 loans and investments in our portfolio, totaling $2.0 billion. These loans and investments were for 32 multi-family properties, 11 condominium properties, 26 office properties, 16 hotel properties, nine commercial properties, five land properties, two retail properties, and one other property. We have an $8.5 million loan in our portfolio that is non-performing and income recognition has been suspended. The principal amount of the loan is not deemed to be impaired and no loan loss reserve has been recorded at this time. Income recognition will resume when the loan becomes contractually current and performance has recommenced. We continue to actively manage all loans and investments in the portfolio and believe that our strict underwriting and active asset management enable us to maintain the credit quality of our portfolio.
 
The overall yield on our portfolio in 2006 was 10.50%, excluding the impact from a first quarter recognition of previously deferred revenue and a fourth quarter distribution that were recorded as interest income totaling approximately $10.4 million, on average assets of $1.5 billion. This yield was computed by dividing the interest income earned during the year by the average assets during the year. Our cost of funds in 2006 was 7.11% on average borrowings of $1.3 billion. This cost of funds was computed by dividing the interest expense incurred during the year by the average borrowings during the year.
 
Our average net investment (average assets less average borrowings) in 2006 was $213.5 million, resulting in average leverage (average borrowings divided by average assets) of 86%. Including average trust preferred securities of $197.5 million as equity, our average leverage was 73%. The net interest income earned in 2006 yielded a 35.70% return on our average net investment during the year. This yield was computed by dividing the net interest (interest income less interest expense) earned in 2006 by the average equity (computed as average assets minus average borrowings) invested during the year.
 
Our business plan contemplates that our leverage ratio, including our trust preferred securities as equity, will be approximately 70% to 80% of our assets in the aggregate. However, including our trust preferred securities as equity, our leverage will not exceed 80% of the value of our assets in the aggregate unless approval to exceed the 80% limit is obtained from our board of directors. At December 31, 2006, our overall leverage ratio including the trust preferred securities as equity was 73%.
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STRUCTURED FINANCE INVESTMENT PORTFOLIO
As of December 31, 2006
 
The following tables set forth information regarding our bridge and mezzanine loans, preferred equity investments and other real estate-related assets as of December 31, 2006.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	Weighted
	 	
 	 	 	 	 	 	 	Unpaid
	 	 	 	 	 	Average
	 	
 	 	 	 	 	 	 	Principal
	 	 	Weighted
	 	 	Remaining
	 	
 	 	 	 	 	 	 	(Dollars in
	 	 	Average
	 	 	Maturity
	 	
Type	 	Asset Class	 	Number	 	 	thousands)	 	 	Pay Rate	 	 	(Months)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Bridge Loans	 	MultiFamily	 	 	12	 	 	$	133,075	 	 	 	8.2	%	 	 	17.9	 	
 	 	Office	 	 	8	 	 	 	246,729	 	 	 	7.8	%	 	 	31.4	 	
 	 	Hotel	 	 	4	 	 	 	124,096	 	 	 	8.1	%	 	 	17.7	 	
 	 	Condo	 	 	6	 	 	 	261,328	 	 	 	9.0	%	 	 	12.7	 	
 	 	Commercial	 	 	5	 	 	 	100,267	 	 	 	8.42	%	 	 	17.8	 	
 	 	Land	 	 	3	 	 	 	95,118	 	 	 	10.41	%	 	 	34.5	 	
 	 	Retail	 	 	1	 	 	 	2,802	 	 	 	9.9	%	 	 	17.0	 	
 	 	Other	 	 	1	 	 	 	1,300	 	 	 	12.0	%	 	 	3.0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	40	 	 	 	964,715	 	 	 	8.5	%	 	 	21.5	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mezzanine Loans	 	MultiFamily	 	 	13	 	 	 	183,289	 	 	 	9.7	%	 	 	33.2	 	
 	 	Office	 	 	17	 	 	 	345,765	 	 	 	9.1	%	 	 	44.9	 	
 	 	Hotel	 	 	10	 	 	 	241,367	 	 	 	8.6	%	 	 	17.8	 	
 	 	Condo	 	 	5	 	 	 	158,043	 	 	 	12.3	%	 	 	14.4	 	
 	 	Commercial	 	 	2	 	 	 	60,000	 	 	 	10.0	%	 	 	15.0	 	
 	 	Land	 	 	2	 	 	 	20,958	 	 	 	5.4	%	 	 	38.4	 	
 	 	Retail	 	 	1	 	 	 	3,000	 	 	 	10.4	%	 	 	21.0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	50	 	 	 	1,012,422	 	 	 	9.6	%	 	 	29.6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Preferred Equity	 	MultiFamily	 	 	7	 	 	 	10,437	 	 	 	10.0	%	 	 	111.2	 	
 	 	Office	 	 	1	 	 	 	11,000	 	 	 	10.9	%	 	 	21.0	 	
 	 	Hotel	 	 	1	 	 	 	2,000	 	 	 	9.0	%	 	 	3.0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	9	 	 	 	23,437	 	 	 	10.3	%	 	 	59.6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other	 	Hotel	 	 	1	 	 	 	1,846	 	 	 	7.4	%	 	 	200.0	 	
 	 	Commercial	 	 	2	 	 	 	10,500	 	 	 	5.6	%	 	 	15.0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	3	 	 	 	12,346	 	 	 	5.9	%	 	 	42.7	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	102	 	 	$	2,012,920	 	 	 	9.1	%	 	 	26.2	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Unpaid Principal
	 	 	 	 	 	 	 	Unpaid Principal
	 	 	 	 	
Geographic Location	 	(Dollars in thousands)	 	 	Percentage(1)	 	 	Asset Class	 	(Dollars in thousands)	 	 	Percentage(1)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
New York	 	$	1,070,342	 	 	 	53.2	%	 	MultiFamily	 	$	326,801	 	 	 	16.2	%	
Florida	 	 	210,965	 	 	 	10.5	%	 	Office	 	 	603,494	 	 	 	30.0	%	
California	 	 	109,499	 	 	 	5.4	%	 	Hotel	 	 	369,309	 	 	 	18.3	%	
Maryland	 	 	68,790	 	 	 	3.4	%	 	Condo	 	 	419,371	 	 	 	20.8	%	
Other(2)	 	 	282,571	 	 	 	13.5	%	 	Commercial	 	 	170,767	 	 	 	8.5	%	
Diversified	 	 	270,753	 	 	 	14.0	%	 	Land	 	 	116,076	 	 	 	5.8	%	
 	 	 	 	 	 	 	 	 	 	Retail	 	 	5,802	 	 	 	0.3	%	
 	 	 	 	 	 	 	 	 	 	Other	 	 	1,300	 	 	 	0.1	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	2,012,920	 	 	 	100	%	 	Total	 	$	2,012,920	 	 	 	100	%	

 
 	 	 	
(1)	 	Based on a percentage of the total unpaid principal balance of the underlying loans.	
 	 	 	
(2)	 	No other individual state makes up more than 3% of the total.	

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Our Investments in Mortgage-Related Securities
 
In 2004, we invested $57.4 million (including $0.1 million of purchased interest) in agency-sponsored whole pool certificates. $20.6 million of these securities were issued by FNMA and $36.7 million were issued by FHLMC. Pools of FNMA and FHLMC adjustable rate residential mortgage loans underlie these securities. The underlying mortgage loans bear interest at a weighted average fixed rate for three years and adjust annually thereafter and have a weighted average coupon rate of 3.8%. We receive monthly payments of interest and principal on these securities based on the monthly interest and principal payments that are made on the underlying mortgage loans. At December 31, 2006, these securities were financed under a $100.0 million repurchase agreement, maturing July 2007, at a rate of one-month LIBOR plus 0.20%. At December 31, 2006, the amortized cost of these securities was $22.2 million and the amount outstanding on the repurchase agreement related to the financing of these securities was $20.7 million. These investments had a weighted average balance of $26.4 million for the year with an average yield of 2.17%, net of amortization of premiums. These assets were financed by borrowings with a weighted average balance of $25.1 million and an average cost of funds of 5.28%.
 
The table below sets forth information regarding our investments in mortgage-related securities as of December 31, 2006. These securities have a fixed interest rate until March 2007, and adjust annually thereafter.

 	 	 	 	 	 	 	 	 	 	 	 	 	 	Initial
	 	
 	 	Amortized
	 	 	Unrealized
	 	 	Market
	 	 	 	 	 	Interest
	 	
 	 	Cost	 	 	Loss	 	 	Value	 	 	Maturity	 	 	Rate	 	
 	 	(Dollars in thousands)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
FHLMC Security	 	$	11,792	 	 	$	(38	)	 	$	11,754	 	 	 	3/1/2034	 	 	 	3.80	%	
FHLMC Security	 	 	4,099	 	 	 	(35	)	 	 	4,064	 	 	 	3/1/2034	 	 	 	3.76	%	
FNMA Security	 	 	6,307	 	 	 	(25	)	 	 	6,282	 	 	 	3/1/2034	 	 	 	3.80	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	22,198	 	 	$	(98	)	 	$	22,100	 	 	 	 	 	 	 	 	 	

Regulatory Aspects of Our Investment Strategy
 
Real Estate Exemption from Investment Company Act.  We believe that we conduct and we intend to conduct our business at all times in a manner that avoids registration as an investment company under the Investment Company Act of 1940. There is an exemption from registration for entities that are primarily engaged in the business of purchasing or otherwise acquiring “mortgages and other liens on and interests in real estate.” This exemption generally requires us to maintain at least 55% of our assets directly in qualifying real estate assets. Assets that qualify for purposes of this 55% test include, among other things, real estate, mortgage loans and agency-sponsored whole loan pool certificates. Our bridge loans secured by first mortgage liens on the underlying properties, loans secured by second mortgage liens on the underlying properties and agency-sponsored whole loan pool certificates generally qualify for purposes of this 55% test. We believe that these assets and certain of our mezzanine loans are in excess of 55% of our assets as of December 31, 2006 and qualify for purposes of the 55% test. The percentage of our assets that we invest in agency-sponsored whole loan pool certificates may decrease if we determine that we do not need to purchase such certificates for purposes of meeting the 55% test. If the Securities and Exchange Commission (“SEC”) takes a position or makes an interpretation more favorable to us, we may have greater flexibility in the investments we make. Our investments in mortgage-related securities are limited to agency-sponsored whole loan pool certificates which qualify for purposes of the 55% test. Our investment guidelines provide that no more than 15% of our assets may consist of any type of the mortgage-related securities and that the percentage of our investments in mortgage-related securities as compared to our structured finance investments be monitored on a regular basis.
 
Management Agreement
 
On July 1, 2003, we and our operating partnership entered into a management agreement with ACM. On January 19, 2005, we, our operating partnership, Arbor Realty SR, Inc., one of our subsidiaries and ACM entered into an amended and restated management agreement with substantially the same terms as the original management agreement in order to add Arbor Realty SR, Inc. as a beneficiary of ACM’s services. Pursuant to the terms of the management agreement, our manager has agreed to service and manage our investments and to provide us with
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structured finance investment opportunities, finance and other services necessary to operate our business. Our manager is required to provide a dedicated management team to provide these services to us, the members of which will devote such of their time to our management as our independent directors reasonably deem necessary and appropriate, commensurate with our level of activity from time to time. We rely to a significant extent on the facilities and resources of our manager to conduct our operations. For performing services under the management agreement, ACM receives a base management fee and incentive compensation calculated as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 of this report.
 
Operations
 
Our Manager’s Investment Services.  Under the management agreement, ACM is responsible for sourcing originations, providing underwriting services and processing approvals for all loans and other investments in our portfolio. ACM also provides certain administrative loan servicing functions with respect to our loans and investments. We are able to capitalize on ACM’s well established operations and services in each area described below.
 
Origination.  Our manager sources the origination of most of our investments. ACM has a network of nine sales offices located in Bloomfield Hills, Michigan; Boston, Massachusetts; Charlotte, North Carolina; Manhattan Beach, California; Dallas, Texas; North Myrtle Beach, South Carolina; New York, New York; Uniondale, New York; and Woodland Hills, California. These offices are staffed by approximately 12 loan originators who solicit property owners, developers and mortgage loan brokers. In some instances, the originators accept loan applications meeting our underwriting criteria from a select group of mortgage loan brokers. While a large portion of ACM’s marketing effort occurs at the branch level, ACM also markets its products in industry publications and targeted direct mailings. ACM markets structured finance products and our product offerings using the same methods. Once potential borrowers have been identified, ACM determines which financing products best meet the borrower’s needs. Loan originators in every branch office are able to offer borrowers the full array of ACM’s and our structured finance products. After identifying a suitable product, ACM works with the borrower to prepare a loan application. Upon completion by the borrower, the application is forwarded to ACM’s underwriters for due diligence.
 
Underwriting.  ACM’s loan originators work in conjunction with its underwriters who perform due diligence on all proposed transactions prior to loan approval and commitment. The underwriters analyze each loan application in accordance with the guidelines set forth below in order to determine the loan’s conformity with respect to such guidelines. In general, ACM’s underwriting guidelines require it to evaluate the following: the historic and current property revenues and expenses; the potential for near-term revenue growth and opportunity for expense reduction and increased operating efficiencies; the property’s location, its attributes and competitive position within its market; the proposed ownership structure, financial strength and real estate experience of the borrower and property management; third party appraisal, environmental and engineering studies; market assessment, including property inspection, review of tenant lease files, surveys of property comparables and an analysis of area economic and demographic trends; review of an acceptable mortgagee’s title policy and an “as built” survey; construction quality of the property to determine future maintenance and capital expenditure requirements; and the requirements for any reserves, including those for immediate repairs or rehabilitation, replacement reserves, tenant improvement and leasing commission costs, real estate taxes and property casualty and liability insurance. Key factors considered in credit decisions include, but are not limited to, debt service coverage, loan to value ratios and property, financial and operating performance. Consideration is also given to other factors, such as additional forms of collateral and identifying likely strategies to effect repayment. ACM will refine its underwriting criteria based upon actual loan portfolio experience and as market conditions and investor requirements evolve.
 
Investment Approval Process.  ACM applies its established investment approval process to all loans and other investments proposed for our portfolio before submitting each proposal to us for final approval. A written report is generated for every loan or other investment that is submitted to ACM’s credit committee for approval. The report includes a description of the prospective borrower and any guarantors, the collateral and the proposed use of investment proceeds, as well as borrower and property consolidated financial statements and analysis. In addition, the report includes an analysis of borrower liquidity, net worth, cash investment, income, credit history and
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operating experience. If the transaction is approved by a majority of ACM’s credit committee, it is presented for approval to our credit committee, which consists of our chief executive officer, chief credit officer, and executive vice president of structured finance. All transactions require the approval of a majority of the members of our credit committee. Following the approval of any such transaction, ACM’s underwriting and servicing departments, together with our asset management group, assure that all loan approval terms have been satisfied and that they conform with lending requirements established for that particular transaction. If our credit committee rejects the loan and our independent directors allow ACM or one of its affiliates to pursue it, ACM will have the opportunity to execute the transaction.
 
Servicing.  ACM services our loans and investments through its internal servicing operations. Our manager currently services an expanding portfolio, consisting of approximately 602 loans with outstanding balances of $4.6 billion through its loan administration department in Buffalo, New York. ACM’s loan servicing operations are designed to provide prompt customer service and accurate and timely information for account follow up, financial reporting and management review. Following the funding of an approved loan, all pertinent loan data is entered into ACM’s data processing system, which provides monthly billing statements, tracks payment performance and processes contractual interest rate adjustments on variable rate loans. Our manager utilizes the operations of its loan administration department to service our portfolio with the same efficiency, accuracy and promptness. ACM also works closely with our asset management group to ensure the appropriate level of customer service and monitoring of these loans.
 
Our Asset Management Operations.  Our asset management group is comprised of 21 of our employees. Prior to our formation, the asset management group successfully managed numerous transactions, including complex restructurings, refinancings and asset dispositions for ACM.
 
Effective asset and portfolio management is essential to maximizing the performance and value of a real estate investment. The asset management group customizes an asset management plan with the loan originators and underwriters to track each investment from origination through disposition. This group monitors each investment’s operating history, local economic trends and rental and occupancy rates and evaluates the underlying property’s competitiveness within its market. This group assesses ongoing and potential operational and financial performance of each investment in order to evaluate and ultimately improve its operations and financial viability. The asset management group performs frequent onsite inspections, conducts meetings with borrowers and evaluates and participates in the budgeting process, financial and operational review and renovation plans of each of the underlying properties. As an asset and portfolio manager, the asset management group focuses on increasing the productivity of onsite property managers and leasing brokers. This group communicates the status of each transaction against its established asset management plan to senior management, in order to enhance and preserve capital, as well as to avoid litigation and potential exposure.
 
Timely and accurate identification of an investment’s operational and financial issues and each borrower’s objectives is essential to implementing an executable loan workout and restructuring process, if required. Since existing property management may not have the requisite expertise to manage the workout process effectively, the asset management group determines current operating and financial status of an asset or portfolio and performs liquidity analysis of properties and ownership entities and then, if appropriate, identifies and evaluates alternatives in order to maximize the value of an investment.
 
Our asset management group continues to provide its services to ACM on a limited basis pursuant to an asset management services agreement between ACM and us. The asset management services agreement will be effective throughout the term of our management agreement and during the origination period described in the management agreement. In the event the services provided by our asset management group pursuant to this agreement exceed by more than 15% per quarter the level anticipated by our board of directors, we will negotiate in good faith with our manager an adjustment to our manager’s base management fee under the management agreement, to reduce the scope of the services, the quantity of serviced assets or the time required to be devoted to the services by our asset management group.
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Operating Policies and Strategies
 
Investment Guidelines.  Our board of directors has adopted general guidelines for our investments and borrowings to the effect that: (1) no investment will be made that would cause us to fail to qualify as a REIT; (2) no investment will be made that would cause us to be regulated as an investment company under the Investment Company Act; (3) no more than 25% of our equity (including trust preferred securities as equity), determined as of the date of such investment, will be invested in any single asset; (4) no single mezzanine loan or preferred equity investment will exceed $75 million; (5) our leverage (including trust preferred securities as equity) will generally not exceed 80% of the value of our assets, in the aggregate; (6) we will not co-invest with our manager or any of its affiliates unless such co-investment is otherwise in accordance with these guidelines and its terms are at least as favorable to us as to our manager or the affiliate making such co-investment; (7) no more than 15% of our gross assets may consist of mortgage-related securities. Any exceptions to the above general guidelines require the approval of our board of directors.
 
Financing Policies.  We finance the acquisition of our structured finance investments primarily by borrowing against or “leveraging” our existing portfolio and using the proceeds to acquire additional mortgage assets. We expect to incur debt such that we will maintain an equity to assets ratio no less than 20% (including trust preferred securities as equity), although the actual ratio may be lower from time to time depending on market conditions and other factors deemed relevant by our manager. Our charter and bylaws do not limit the amount of indebtedness we can incur, and the board of directors has discretion to deviate from or change our indebtedness policy at any time. However, we intend to maintain an adequate capital base to protect against various business environments in which our financing and hedging costs might exceed the interest income from our investments.
 
Our investments are financed primarily by collateralized debt obligations, our variable rate junior subordinate notes, and through our floating rate warehouse lines of credit, loan repurchase agreements and other financing facilities with institutional lenders. Although we expect that these will be the principal means of leveraging our investments, we may issue preferred stock or secured or unsecured notes of any maturity if it appears advantageous to do so.
 
Credit Risk Management Policy.  We are exposed to various levels of credit and special hazard risk depending on the nature of our underlying assets and the nature and level of credit enhancements supporting our assets. We originate or purchase mortgage loans that meet our minimum debt service coverage standards. ACM, as our manager, our chief credit officer, and our asset management group, reviews and monitors credit risk and other risks of loss associated with each investment. In addition, ACM seeks to diversify our portfolio of assets to avoid undue geographic, issuer, industry and certain other types of concentrations. Our board of directors monitors the overall portfolio risk and reviews levels of provision for loss.
 
Interest Rate Risk Management Policy.  To the extent consistent with our election to qualify as a REIT, we follow an interest rate risk management policy intended to mitigate the negative effects of major interest rate changes. We minimize our interest rate risk from borrowings by attempting to structure the key terms of our borrowings to generally correspond to the interest rate term of our assets.
 
We may enter into hedging transactions to protect our investment portfolio from interest rate fluctuations and other changes in market conditions. These transactions may include interest rate swaps, the purchase or sale of interest rate collars, caps or floors, options, mortgage derivatives and other hedging instruments. These instruments may be used to hedge as much of the interest rate risk as ACM determines is in the best interest of our stockholders, given the cost of such hedges and the need to maintain our status as a REIT. In general, income from hedging transactions does not constitute qualifying income for purposes of the REIT gross income requirements. To the extent, however, that a hedging contract reduces interest rate risk on indebtedness incurred to acquire or carry real estate assets, any income that is derived from the hedging contract, while comprising non-qualifying income for purposes of the REIT 75% gross income test, would not give rise to non-qualifying income for purposes of the 95% gross income test. ACM may elect to have us bear a level of interest rate risk that could otherwise be hedged when it believes, based on all relevant facts, that bearing such risk is advisable.
 
To date, we have entered into various interest rate swaps in connection with the issuance of floating rate secured notes, the issuance of variable rate junior subordinate notes, and to hedge the interest risk on forecasted
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outstanding LIBOR based debt. The notional amount of each interest rate swap agreement and the related terms have been designed to protect our investment portfolio from interest rate risk and to match the payment and receipts of interest on the underlying debt instruments, where applicable.
 
Disposition Policies.  Although there are no current plans to dispose of properties or other assets within our portfolio, ACM evaluates our asset portfolio on a regular basis to determine if it continues to satisfy our investment criteria. Subject to certain restrictions applicable to REITs, ACM may cause us to sell our investments opportunistically and use the proceeds of any such sale for debt reduction, additional acquisitions or working capital purposes.
 
Equity Capital Policies.  Subject to applicable law, our board of directors has the authority, without further stockholder approval, to issue additional authorized common stock and preferred stock or otherwise raise capital, including through the issuance of senior securities, in any manner and on the terms and for the consideration it deems appropriate, including in exchange for property. We may in the future issue common stock in connection with acquisitions. We also may issue units of partnership interest in our operating partnership in connection with acquisitions of property. We may, under certain circumstances, repurchase our common stock in private transactions with our stockholders, if those purchases are approved by our board of directors. Our board of directors currently has approved a stock repurchase plan. All share repurchases pursuant to the plan will only be taken in conformity with applicable federal and state laws and the applicable requirements for qualifying as a REIT, for so long as the board of directors concludes that we should continue to qualify as a REIT.
 
Conflicts of Interest Policies.  We, our executive officers and ACM face conflicts of interests because of our relationships with each other. Mr. Kaufman is our chief executive officer and the chief executive officer of ACM. Mr. Ivan Kaufman and entities controlled by him own approximately 90% of the outstanding membership interests of ACM. In addition, Mr. Elenio, our chief financial officer, Mr. Weber, our executive vice president of structured finance, Mr. Kilgore, our executive vice president of securitization, Mr. Fogel, our senior vice president of asset management, and two of our directors, Mr. Joseph Martello and Mr. Walter Horn, have minority ownership interests in ACM. Mr. Horn also serves as our secretary, general counsel, and director of compliance. Mr. Martello serves as the trustee and co-trustee of two separate trusts through which Mr. Kaufman owns an equity interest in ACM.
 
We have implemented several policies, through board action and through the terms of our constituent documents and of our agreements with ACM, to help address these conflicts of interest:

 	• 	Our charter requires that a majority of our board of directors be independent directors and that only our independent directors make any determination on our behalf with respect to the relationships or transactions that present a conflict of interest for our directors or officers.	
 	 	 	
 	• 	Our board of directors has adopted a policy that decisions concerning our management agreement with ACM, including termination, renewal and enforcement thereof or our participation in any transactions with ACM or its affiliates outside of the management agreement, including our ability to purchase securities and mortgages or other assets from ACM, or our ability to sell securities and assets to ACM, must be reviewed and approved by a majority of our independent directors.	
 	 	 	
 	• 	Our management agreement provides that our determinations to terminate the management agreement for cause or because the management fees are unfair to us or because of a change in control of our manager, will be made by a majority vote of our independent directors.	
 	 	 	
 	• 	Our independent directors will periodically review the general investment standards established by ACM under the management agreement.	
 	 	 	
 	• 	Our management agreement with ACM provides that ACM may not assign duties under the management agreement, except to certain affiliates of ACM, without the approval of a majority of our independent directors.	
 	 	 	
 	• 	Our management agreement provides that decisions to approve or reject investment opportunities rejected by our credit committee that ACM or Mr. Kaufman wish to pursue will be made by a majority of our independent directors.	

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Our board of directors has approved the operating policies and the strategies set forth above. The board of directors has the power to modify or waive these policies and strategies, or amend our agreements with ACM, without the consent of our stockholders to the extent that the board of directors (including a majority of our independent directors) determines that such modification or waiver is in the best interest of our stockholders. Among other factors, developments in the market that either affect the policies and strategies mentioned herein or that change our assessment of the market may cause our board of directors to revise its policies and strategies. However, if such modification or waiver involves the relationship of, or any transaction between, us and our manager or any affiliate of our manager, the approval of a majority of our independent directors is also required. We may not, however, amend our charter to change the requirement that a majority of our board consist of independent directors or the requirement that our independent directors approve related party transactions without the approval of two thirds of the votes entitled to be cast by our stockholders.
 
Compliance with Federal, State and Local Environmental Laws
 
Properties that we may acquire directly or indirectly through partnerships, and the properties underlying our structured finance investments and mortgage-related securities, are subject to various federal, state and local environmental laws, ordinances and regulations. Under these laws, ordinances and regulations, a current or previous owner of real estate (including, in certain circumstances, a secured lender that succeeds to ownership or control of a property) may become liable for the costs of removal or remediation of certain hazardous or toxic substances or petroleum product releases at, on, under or in its property. These laws typically impose cleanup responsibility and liability without regard to whether the owner or control party knew of or was responsible for the release or presence of the hazardous or toxic substances. The costs of investigation, remediation or removal of these substances may be substantial and could exceed the value of the property. An owner or control party of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. Certain environmental laws also impose liability in connection with the handling of or exposure to materials containing asbestos. These laws allow third parties to seek recovery from owners of real properties for personal injuries associated with materials containing asbestos. Our operating costs and the values of these assets may be adversely affected by the obligation to pay for the cost of complying with existing environmental laws, ordinances and regulations, as well as the cost of complying with future legislation, and our income and ability to make distributions to our stockholders could be affected adversely by the existence of an environmental liability with respect to properties we may acquire. We will endeavor to ensure that these properties are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products.
 
Competition
 
Our net income depends, in large part, on our manager’s ability to originate structured finance investments with spreads over our borrowing costs. In originating these investments, our manager competes with other mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders, governmental bodies and other entities, some of which may have greater financial resources and lower costs of capital available to them. In addition, there are numerous mortgage REITs with asset acquisition objectives similar to ours, and others may be organized in the future. The effect of the existence of additional REITs may be to increase competition for the available supply of structured finance assets suitable for purchase by us. Competitive variables include market presence and visibility, size of loans offered and underwriting standards. To the extent that a competitor is willing to risk larger amounts of capital in a particular transaction or to employ more liberal underwriting standards when evaluating potential loans, our origination volume and profit margins for our investment portfolio could be impacted. Our competitors may also be willing to accept lower returns on their investments and may succeed in buying the assets that we have targeted for acquisition. Although management believes that we are well positioned to continue to compete effectively in each facet of our business, there can be no assurance that we will do so or that we will not encounter further increased competition in the future that could limit its ability to compete effectively.
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Employees
 
We currently have 30 employees, including Mr. Kovarik, our chief credit officer, Mr. Weber, our executive vice president of structured finance, Mr. Horn, our secretary, general counsel, and director of compliance, Mr. Fogel, our senior vice president of asset management and Mr. Kilgore, our executive vice president of securitization. In addition, Mr. Kaufman, our chief executive officer and Mr. Elenio, our chief financial officer are full time employees of our manager, who perform the duties required pursuant to the management agreement with our manager.
 
Corporate Governance and Internet Address
 
We have adopted corporate governance guidelines and a code of business conduct and ethics, which delineate our standards for our officers and directors, and employees of our manager. We emphasize the importance of professional business conduct and ethics through our corporate governance initiatives.
 
The audit, nominating/corporate governance, and compensation committees of our board of directors are composed exclusively of independent directors.
 
Our internet address is www.arborrealtytrust.com. We make available, free of charge through a link on our site, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports, if any, as filed with the SEC as soon as reasonably practicable after such filing. Our site also contains our code of business conduct and ethics, code of ethics for senior financial officers, corporate governance guidelines, and the charters of the audit committee, nominating/corporate governance committee and compensation committee of our board of directors.
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ITEM 1A.  	RISK FACTORS	
 
Our business is subject to various risks, including the risks listed below. If any of these risks actually occur, our business, financial condition and results of operations could be materially adversely affected and the value of our common stock could decline.
 
Risks Related to Our Business
 
We may be unable to invest excess equity capital on acceptable terms or at all, which would adversely affect our operating results.
 
We may not be able to identify investments that meet our investment criteria and we may not be successful in closing the investments that we identify. Unless and until we identify structured finance and mortgage-related security investments consistent with our investment criteria, any excess equity capital may be used to repay borrowings under our warehouse credit facility, bridge loan warehouse facility and repurchase agreements, which would not produce a return on capital. In addition, the investments that we acquire with our equity capital may not produce a return on capital. There can be no assurance that we will be able to identify attractive opportunities to invest our equity capital which would adversely affect our results of operations.
 
We depend on key personnel with long standing business relationships, the loss of whom could threaten our ability to operate our business successfully.
 
Our future success depends, to a significant extent, upon the continued services of our manager and our employees. In particular, the mortgage lending experience of Mr. Ivan Kaufman and Mr. Fred Weber and the extent and nature of the relationships they have developed with developers of multi-family and commercial properties and other financial institutions are critical to the success of our business. We cannot assure you of their continued employment with Arbor Commercial Mortgage or us. The loss of services of one or more members of our manager’s officers or our officers could harm our business and our prospects.
 
We invest in mezzanine loans which are subject to a greater risk of loss than loans with a first priority lien on the underlying real estate.
 
We invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. These types of investments involve a higher degree of risk than long term senior mortgage lending secured by income producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan to value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal.
 
We invest in multi-family and commercial real estate loans, which may involve a greater risk of loss than single family real estate loans.
 
Our investments include multi-family and commercial real estate loans that are considered to involve a higher degree of risk than single family residential lending because of a variety of factors, including generally larger loan balances, dependency for repayment on successful operation of the mortgaged property and tenant businesses operating therein, and loan terms that include amortization schedules longer than the stated maturity and provide for balloon payments at stated maturity rather than periodic principal payments. In addition, the value of commercial real estate can be affected significantly by the supply and demand in the market for that type of property.
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Volatility of values of multi-family and commercial properties may adversely affect our loans and investments.
 
Multi-family and commercial property values and net operating income derived from such properties are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions (such as an oversupply of housing, retail, industrial, office or other commercial space); changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; and increases in operating expenses (such as energy costs). In the event a property’s net operating income decreases, a borrower may have difficulty paying our loan, which could result in losses to us. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to suffer losses.
 
We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay dividends to our stockholders.
 
As a REIT, we are generally required to distribute at least 90% of our taxable income each year to our stockholders. In order to qualify for the tax benefits accorded to REITs, we intend to pay quarterly dividends and to make distributions to our stockholders in amounts such that we distribute all or substantially all of our taxable income each year, subject to certain adjustments. However, our ability to make distributions may be adversely affected by the risk factors described in this form 10-K. In the event of a downturn in our operating results and financial performance or unanticipated declines in the value of our asset portfolio, we may be unable to declare or pay quarterly dividends or make distributions to our stockholders. The timing and amount of dividends are in the sole discretion of our board of directors, which considers, among other factors, our earnings, financial condition, debt service obligations and applicable debt covenants, REIT qualification requirements and other tax considerations and capital expenditure requirements as our board may deem relevant from time to time.
 
Among the factors that could adversely affect our results of operations and impair our ability to make distributions to our stockholders are:

 	• 	our ability to make profitable structured finance investments;	
 	 	 	
 	• 	defaults in our asset portfolio or decreases in the value of our portfolio;	
 	 	 	
 	• 	the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates; and	
 	 	 	
 	• 	increased debt service requirements, including those resulting from higher interest rates on variable rate indebtedness.	
 
A change in any one of these factors could affect our ability to make distributions. If we are not able to comply with the restrictive covenants and financial ratios contained in our credit facilities, our ability to make distributions to our stockholders may also be impaired. We cannot assure you that we will be able to make distributions to our stockholders in the future or that the level of any distributions we make will increase over time.
 
In addition, distributions to stockholders are generally taxable to our stockholders as ordinary income, but a portion of these distributions may be designated by us as long-term capital gains to the extent they are attributable to capital gain income recognized by us, or may constitute a return of capital to the extent they exceed our earnings and profits as determined for tax purposes.
 
We may need to borrow funds under our credit facilities in order to satisfy our REIT distribution requirements, and a portion of our distributions may constitute a return of capital. Debt service on any borrowings for this purpose will reduce our cash available for distribution.
 
We may need to borrow funds to meet the REIT requirement that we distribute at least 90% of our taxable income each year to our stockholders if our cash flows from operations are not sufficient to cover the distribution requirements or because there are differences in timing between the recognition of taxable income and the actual receipt of income in cash. Our warehouse credit facility, bridge loan warehouse facility and master repurchase
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agreements allow us to borrow up to a maximum amount against each of our investments financed under these credit facilities. If we have not borrowed the maximum allowable amount against any of these investments, we may borrow funds under our credit facilities up to these maximum amounts in order to satisfy REIT distribution requirements. Any required debt service will reduce cash and net income available for operations or distribution to our stockholders.
 
In order to maximize the return on our funds, cash generated from operations is generally used to temporarily pay down borrowings under credit facilities whose primary purpose is to fund our new loans and investments. When making distributions, we borrow the required funds by drawing on credit capacity available under our credit facilities. To date, all distributions have been funded in this manner. If distributions exceed cash available in the future, we may be required to borrow additional funds, which would reduce the amount of cash available for other purposes, or sell assets in order to meet our REIT distribution requirements.
 
Failure to maintain an exemption from the Investment Company Act would adversely affect our results of operations.
 
We believe that we conduct and we intend to conduct our business in a manner that allows us to avoid being regulated as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. Under Section 3(c) (5) (C), the Investment Company Act exempts entities that are primarily engaged in the business of purchasing or otherwise acquiring “mortgages and other liens on and interests in real estate.” The staff of the SEC has provided guidance on the availability of this exemption. Specifically, the staff’s position generally requires us to maintain at least 55% of our assets directly in qualifying real estate interests. To constitute a qualifying real estate interest under this 55% requirement, a real estate interest must meet various criteria. Loans that are secured by equity interests in entities that directly or indirectly own the underlying real property, rather than a mortgage on the underlying property itself, and ownership of equity interests in owners of real property may not qualify for purposes of the 55% test depending on the type of entity. Mortgage-related securities that do not represent all of the certificates issued with respect to an underlying pool of mortgages may also not qualify for purposes of the 55% test. Therefore, our ownership of these types of debt instruments and equity interests may be limited by the provisions of the Investment Company Act. To the extent that we do not comply with the SEC staff’s 55% test or another exemption or exclusion from registration under the Investment Company Act or other interpretations under the Investment Company Act, we may be deemed to be an investment company. If we fail to maintain an exemption or other exclusion from registration as an investment company we could, among other things, be required either (a) to substantially change the manner in which we conduct our operations to avoid being required to register as an investment company or (b) to register as an investment company, either of which could have an adverse effect on us and the market price of our common stock. If we were required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), portfolio composition, including restrictions with respect to diversification and industry concentration and other matters.
 
We are substantially controlled by Arbor Commercial Mortgage and its controlling equity owner, Mr. Kaufman.
 
Mr. Ivan Kaufman is our chairman and chief executive officer and the president and chief executive officer of our manager. Further, Mr. Kaufman and the Kaufman entities together beneficially own approximately 90% of the outstanding membership interests of Arbor Commercial Mortgage. Arbor Commercial Mortgage owns approximately 3.8 million operating partnership units, representing a 18% limited partnership interest in our operating partnership and we own the remaining 82%. The operating partnership units are redeemable for cash or, at our election, for shares of our common stock generally on a one-for-one basis. Each of the operating partnership units Arbor Commercial Mortgage owns is paired with one share of our special voting preferred stock, each of which entitle Arbor Commercial Mortgage to one vote on all matters submitted to a vote of our stockholders. Arbor Commercial Mortgage is currently entitled to approximately 3.8 million votes, stock or 18% of the voting power of our outstanding stock as a result of its ownership of the special voting preferred stock. In addition, Arbor Commercial Mortgage owns 578,041 shares of our common stock, which gives Arbor Commercial Mortgage a total
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of 4,354,110 votes, or 20.7% of the voting power of our outstanding stock when combined with the special voting preferred stock. We granted Arbor Commercial Mortgage and Mr. Kaufman, as its controlling equity owner, an exemption from the ownership limitation contained in our charter, in connection with Arbor Commercial Mortgage’s acquisition of approximately 3.1 million shares of our special voting preferred stock on July 1, 2003. Because of his position with us and our manager and his ability to effectively vote a substantial minority of our outstanding voting stock, Mr. Kaufman has significant influence over our policies and strategy.
 
Our charter as amended generally does not permit ownership in excess of 8.3% of our capital stock, and attempts to acquire our capital stock in excess of this limit are ineffective without prior approval from our board of directors.
 
For the purpose of preserving our REIT qualification, our charter generally prohibits direct or constructive ownership by any person of more than 8.3% (by value or by number of shares, whichever is more restrictive) of the outstanding shares of our common stock or 8.3% (by value) of our outstanding shares of capital stock. For purposes of this calculation, warrants held by such person will be deemed to have been exercised if such exercise would result in a violation. Our charter’s constructive ownership rules are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than these percentages of the outstanding stock by an individual or entity could cause that individual or entity to own constructively in excess of these percentages of the outstanding stock and thus be subject to our charter’s ownership limit. Any attempt to own or transfer shares of our common or preferred stock in excess of the ownership limit without the consent of the board of directors will result in the shares being automatically transferred to a charitable trust or otherwise be void.
 
Risks Related to Conflicts of Interest
 
We are dependent on our manager with whom we have conflicts of interest.
 
We have only 30 employees, including Mr. Fred Weber, Mr. Mark Fogel, Mr. John C. Kovarik, Mr. Walter Horn, Mr. Gene Kilgore and are dependent upon our manager, Arbor Commercial Mortgage, to provide services to us that are vital to our operations. Our chairman, chief executive officer and president, Mr. Ivan Kaufman, is also the chief executive officer and president of our manager. Our chief financial officer, Mr. Paul Elenio, is the chief financial officer of our manager. In addition, Mr. Kaufman and the Kaufman entities together beneficially own approximately 90% of the outstanding membership interests of Arbor Commercial Mortgage and Messrs. Elenio, Weber, Fogel, Martello and Horn, also hold an ownership interest in Arbor Commercial Mortgage. Mr. Martello also serves as the trustee of one of the Kaufman entities that holds a majority of the outstanding membership interests in Arbor Commercial Mortgage and co-trustee of another Kaufman entity that owns an equity interest in our manager. Arbor Commercial Mortgage holds an 18% limited partnership interest in our operating partnership, which as a result has 18% of the voting power of our outstanding stock. In addition, Arbor Commercial Mortgage owns 578,041 shares of our common stock, which gives Arbor Commercial Mortgage a total of 4,354,110 votes, or 20.7% of the voting power of our outstanding stock when combined with the special voting preferred stock.
 
We may enter into transactions with Arbor Commercial Mortgage outside the terms of the management agreement with the approval of a majority vote of the independent members of our board of directors. Transactions required to be approved by a majority of our independent directors include, but are not limited to, our ability to purchase securities and mortgage and other assets from Arbor Commercial Mortgage or to sell securities and assets to Arbor Commercial Mortgage. Arbor Commercial Mortgage may from time to time provide permanent mortgage loan financing to clients of ours, which will be used to refinance bridge financing provided by us. We and Arbor Commercial Mortgage may also make loans to the same borrower or to borrowers that are under common control. Additionally, our policies and those of Arbor Commercial Mortgage may require us to enter into intercreditor agreements in situations where loans are made by us and Arbor Commercial Mortgage to the same borrower.
 
We have entered into a management agreement with our manager under which our manager provides us with all of the services vital to our operations other than asset management services. However, the management agreement was not negotiated at arm’s length and its terms, including fees payable, may not be as favorable to us as if it had been negotiated with an unaffiliated third party. Certain matters relating to our organization also were not
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approved at arm’s length and the terms of the contribution of assets to us may not be as favorable to us as if the contribution was with an unaffiliated third party.
 
The results of our operations are dependent upon the availability of, and our manager’s ability to identify and capitalize on, investment opportunities. Our manager’s officers and employees are also responsible for providing the same services for Arbor Commercial Mortgage’s portfolio of investments. As a result, they may not be able to devote sufficient time to the management of our business operations.
 
Our directors have approved very broad investment guidelines for our manager and do not approve each investment decision made by our manager.
 
Our manager is authorized to follow very broad investment guidelines. Our directors will periodically review our investment guidelines and our investment portfolio. However, our board does not review each proposed investment. In addition, in conducting periodic reviews, the directors rely primarily on information provided to them by our manager. Furthermore, transactions entered into by our manager may be difficult or impossible to unwind by the time they are reviewed by the directors. Our manager has great latitude within the broad investment guidelines in determining the types of assets it may decide are proper investments for us.
 
Our manager has broad discretion to invest funds and may acquire structured finance assets where the investment returns are substantially below expectations or that result in net operating losses.
 
Our manager has broad discretion, within the general investment criteria established by our board of directors, to allocate the proceeds of the concurrent offerings and to determine the timing of investment of such proceeds. Such discretion could result in allocation of proceeds to assets where the investment returns are substantially below expectations or that result in net operating losses, which would materially and adversely affect our business, operations and results.
 
The management compensation structure that we have agreed to with our manager may cause our manager to invest in high risk investments. Our manager is entitled to a base management fee, which is based on the equity of our operating partnership. The amount of the base management fee does not depend on the performance of the services provided by our manager or the types of assets it selects for our investment, but the value of our operating partnership’s equity will be affected by the performance of these assets. Our manager is also entitled to receive incentive compensation based in part upon our achievement of targeted levels of funds from operations. In evaluating investments and other management strategies, the opportunity to earn incentive compensation based on funds from operations may lead our manager to place undue emphasis on the maximization of funds from operations at the expense of other criteria, such as preservation of capital, in order to achieve higher incentive compensation. Investments with higher yield potential are generally riskier or more speculative. This could result in increased risk to the value of our invested portfolio.
 
Risk Related to Our Status as a REIT
 
If we fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face substantial tax liability.
 
We conduct our operations to qualify as a REIT under the Internal Revenue Code. However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent mistake could jeopardize our REIT status. Our continued qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. In particular, our ability to qualify as a REIT depends in part on the relative values of our common and special voting preferred stock, which have not been determined by independent appraisal, are susceptible to fluctuation, and could, if successfully challenged by the IRS, cause us to fail to meet the ownership requirements. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.
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Furthermore, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any tax year, then:

 	• 	we would be taxed as a regular domestic corporation, which, among other things, means we would be unable to deduct distributions to stockholders in computing taxable income and would be subject to federal income tax on our taxable income at regular corporate rates;	
 	 	 	
 	• 	any resulting tax liability could be substantial and would reduce the amount of cash available for distribution to stockholders; and	
 	 	 	
 	• 	unless we were entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the subsequent four taxable years following the year during which we lost our qualification, and thus, our cash available for distribution to stockholders would be reduced for each of the years during which we did not qualify as a REIT.	
 
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
 
Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes, such as mortgage recording taxes. Any of these taxes would decrease cash available for distribution to our stockholders. In addition, in order to meet the REIT qualification requirements, or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we may hold some of our assets through taxable subsidiary corporations.
 
Complying with REIT requirements may cause us to forego otherwise attractive opportunities.
 
To qualify as a REIT for federal income tax purposes we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
 
Complying with REIT requirements may force us to liquidate otherwise attractive investments.
 
To qualify as a REIT we must ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investment in securities generally cannot comprise more than 10% of the outstanding voting securities, or more than 10% of the total value of the outstanding securities, of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than assets which qualify for purposes of the 75% asset test) may consist of the securities of any one issuer, and no more than 20% of the value of our total assets may be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.
 
Liquidation of collateral may jeopardize our REIT status.
 
To continue to qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate investments to satisfy our obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our status as a REIT.
 
Complying with REIT requirements may force us to borrow to make distributions to stockholders.
 
In order to qualify as a REIT, we must generally, among other requirements, distribute at least 90% of our taxable income, subject to certain adjustments, to our stockholders each year. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate
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income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws.
 
From time to time, we may generate taxable income greater than our net income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution to stockholders (for example, where a borrower defers the payment of interest in cash pursuant to a contractual right or otherwise). If we do not have other funds available in these situations we could be required to borrow funds, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity.
 
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock.
 
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may change. Any such changes may have retroactive effect, and could adversely affect us or our stockholders. Legislation enacted in 2003 and extended in 2006 generally reduced the federal income tax rate on most dividends paid by corporations to individual investors to a maximum of 15% (through 2010). REIT dividends, with limited exceptions, will not benefit from the rate reduction, because a REIT’s income generally is not subject to corporate level tax. As such, this legislation could cause shares in non-REIT corporations to be a more attractive investment to individual investors than shares in REITs, and could have an adverse effect on the value of our common stock.
 
Restrictions on share accumulation in REITs could discourage a change of control of us.
 
In order for us to qualify as a REIT, not more than 50% of the value of our outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of a taxable year.
 
In order to prevent five or fewer individuals from acquiring more than 50% of our outstanding shares and a resulting failure to qualify as a REIT, our charter provides that, subject to certain exceptions, no person, including entities, may own, or be deemed to own by virtue of the attribution provisions of the Internal Revenue Code, more than 8.3% of the aggregate value or number of shares (whichever is more restrictive) of our outstanding common stock, or more than 8.3%, by value, of our outstanding shares of capital stock of all classes, in the aggregate. For purposes of the ownership limitations, warrants held by a person will be deemed to have been exercised.
 
Shares of our stock that would otherwise be directly or indirectly acquired or held by a person in violation of the ownership limitations are, in general, automatically transferred to a trust for the benefit of a charitable beneficiary, and the purported owner’s interest in such shares is void. In addition, any person who acquires shares in excess of these limits is obliged to immediately give written notice to us and provide us with any information we may request in order to determine the effect of the acquisition on our status as a REIT. We granted Arbor Commercial Mortgage and Mr. Kaufman, as its controlling equity owner, an exemption from the ownership limitation contained in our charter, in connection with Arbor Commercial Mortgage’s acquisition of 3,146,724 shares of our special voting preferred stock on July 1, 2003, which exemption also allowed Arbor Commercial Mortgage to acquire an additional 629,345 shares of special voting preferred stock. Arbor Commercial Mortgage currently owns 3,776,069 shares of our special voting preferred stock.
 
While these restrictions are designed to prevent any five individuals from owning more than 50% of our shares, they could also discourage a change in control of our company. These restrictions may also deter tender offers that may be attractive to stockholders or limit the opportunity for stockholders to receive a premium for their shares if an investor makes purchases of shares to acquire a block of shares.
 
Complying with REIT requirements may limit our ability to hedge effectively.
 
The REIT provisions of the Internal Revenue Code may limit our ability to hedge our operations. Under current law, any income that we generate from derivatives or other transactions intended to hedge our interest rate risks will generally constitute income that does not qualify for purposes of the 75% income requirement applicable
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to REITs, and will also be treated as nonqualifying income for purposes of the REIT 95% income test unless specified requirements are met. In addition, any income from foreign currency or other hedges would generally constitute nonqualifying income for purposes of both the 75% and 95% REIT income tests under current law. As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.
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ITEM 1B.  	UNRESOLVED STAFF COMMENTS	
 
Not applicable.

ITEM 2.  	PROPERTIES	
 
Arbor Commercial Mortgage, our manager, leases our shared principal executive and administrative offices, located at 333 Earle Ovington Boulevard in Uniondale, New York.

ITEM 3.  	LEGAL PROCEEDINGS	
 
We are not involved in any litigation nor, to our knowledge, is any litigation threatened against us.

ITEM 4.  	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	
 
No matters were submitted to a vote of our security holders during the fourth quarter of 2006.
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PART II

ITEM 5.  	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	
 
Market Information
 
Our common stock has been listed on the New York Stock Exchange under the symbol “ABR” since our initial public offering in April 2004. The following table sets forth for the indicated periods the high, low and last sales prices for our common stock, as reported on the New York Stock Exchange, and the dividends declared and paid with respect to such periods:

 	 	 	 	 	 	 	 	 	 	 	Dividends
	 	
 	 	High	 	 	Low	 	 	Last	 	 	Declared	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2005	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First Quarter	 	$	27.00	 	 	$	23.52	 	 	$	24.75	 	 	$	0.55	 	
Second Quarter	 	$	29.20	 	 	$	24.25	 	 	$	28.70	 	 	$	0.57	 	
Third Quarter	 	$	31.20	 	 	$	26.68	 	 	$	28.10	 	 	$	0.65	 	
Fourth Quarter(1)	 	$	29.42	 	 	$	24.55	 	 	$	25.92	 	 	$	0.70	 	
2006	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First Quarter	 	$	27.76	 	 	$	24.80	 	 	$	26.99	 	 	$	0.72	 	
Second Quarter	 	$	27.08	 	 	$	23.26	 	 	$	25.05	 	 	$	0.57	 	
Third Quarter	 	$	26.05	 	 	$	23.89	 	 	$	25.56	 	 	$	0.58	 	
Fourth Quarter(2)	 	$	30.57	 	 	$	24.40	 	 	$	30.09	 	 	$	0.60	 	

 	 	 	
(1)	 	On January 11, 2006, we declared distributions of $0.70 per share of common stock, payable with respect to the three months ended December 31, 2005 to stockholders of record at the close of business on January 23, 2006.	
 	 	 	
(2)	 	On January 25, 2007, we declared distributions of $0.60 per share of common stock, payable with respect to the three months ended December 31, 2006 to stockholders of record at the close of business on February 5, 2007.	
 
We are organized and conduct our operations to qualify as a real estate investment trust, or a REIT, which requires that we distribute at least 90% of taxable income. Therefore, we intend to continue to declare quarterly distributions on our common stock. No assurance, however, can be given as to the amounts or timing of future distributions as such distributions are subject to our earnings, financial condition, capital requirements and such other factors as our board of directors deems relevant.
 
On February 16, 2007, the closing sale price for our common stock, as reported on the NYSE, was $34.05. As of February 16, 2007, there were 8,134 record holders of our common stock.
 
Equity Compensation Plan Information
 
Information regarding securities authorized for issuance under our equity compensation plans which are set forth under the caption “Equity Compensation Plan Information” of the 2007 Proxy Statement is incorporated herein by reference.
 
Performance Graph
 
Set forth below is a line graph comparing the cumulative total stockholder return on shares of our common stock with the cumulative total return of the NAREIT All REIT Index and the Russell 2000 Index. The periods shown commence on April 7, 2004, the date that our common stock began trading on the New York Stock Exchange after our common stock was first registered under Section 12 of the Exchange Act, and end on December 31, 2006, the end of our most recently completed fiscal year. The graph assumes an investment of $100 on April 7, 2004 and the reinvestment of any dividends. This graph is not necessarily indicative of future price performance. The information included in the graph and table below was obtained from SNL Financial LC, Charlottesville, VA. ©  2007.
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Arbor Realty Trust, Inc.
 
Total Return Performance

 
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Period Ending	 	
 Index	 	04/07/04	 	 	6/30/2004	 	 	12/31/04	 	 	06/30/05	 	 	12/31/05	 	 	06/30/06	 	 	12/31/06	 	
Arbor Realty Trust, Inc.	 	 	100.00	 	 	 	97.32	 	 	 	124.28	 	 	 	151.42	 	 	 	142.84	 	 	 	145.71	 	 	 	182.82	 	
Russell 2000	 	 	100.00	 	 	 	98.56	 	 	 	109.23	 	 	 	107.87	 	 	 	114.21	 	 	 	123.59	 	 	 	135.18	 	
NAREIT All REIT Index	 	 	100.00	 	 	 	100.07	 	 	 	124.09	 	 	 	130.17	 	 	 	134.37	 	 	 	151.47	 	 	 	180.53	 	

In accordance with SEC rules, this section entitled “Performance Graph” shall not be incorporated by reference into any of our future filings under the Securities Act or the Exchange Act, and shall not be deemed to be soliciting material or to be filed under the Securities Act or the Exchange Act.
 
Recent Issuances of Unregistered Securities
 
In February 2006, 1,000 restricted shares were issued to each of three independent members of the board of directors under the stock incentive plan. One third of the restricted stock granted to each of these directors was vested as of the date of grant, another one third vested in January 2007 and the remaining third will vest in January 2008. In addition in February 2006, upon the resignation of a member of the Company’s board of directors, 445 shares of restricted stock were forfeited. The Company issued 1,445 shares of common stock to this individual in conjunction with an advisory role taken with the Company. In April 2006, 1,000 restricted shares were issued to an independent member of the board of directors under the stock incentive plan. One third of the restricted stock grant to the director was vested as of the date of grant, another one third will vest in April 2007 and the remaining third will vest on April 2008. In addition in April 2006, the Company issued 89,250 shares of restricted common stock under the stock incentive plan to certain employees of the Company and of ACM. One fifth of the restricted stock granted to each of these employees were vested as of the date of grant, the second one-fifth will vest in April 2007, the third one-fifth will vest in April 2008, the fourth one-fifth will vest in April 2009, and the remaining one-fifth will vest in April 2010. The issuance of these 93,695 shares was not registered under the Securities Act in reliance on the exemption from registration provided by Section 4(2) thereof.
 
In 2006, we issued 243,129 shares of common stock to ACM as payment of the incentive compensation earned by ACM for the quarters ending December 31, 2005, March 31, 2006, June 30, 2006, and September 30, 2006. The issuance of these 243,129 shares as payment for ACM’s incentive compensation was not registered under the Securities Act in reliance on the exemption from registration provided by Section 4(2) thereof.
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In August 2006, the Board of Directors authorized a stock repurchase plan that enabled the Company to buy up to one million shares of its common stock. At management’s discretion, shares may be acquired on the open market, through privately negotiated transactions or pursuant to a Rule 10b5-1 plan. A Rule 10b5-1 plan permits the Company to repurchase shares at times when it might otherwise be prevented from doing so. As of December 31, 2006, the Company repurchased 279,400 shares of its common stock in the open market and under a 10b5-1 plan at a total cost of $7.0 million (an average cost of $25.10 per share). This plan expired on February 9, 2007.
 
Issuer Purchases of Equity Securities
 
During the three months ended December 31, 2006, we made the following purchases of shares of our common stock that are registered pursuant to Section 12(b) of the Securities Exchange Act of 1934.

 	 	 	 	 	 	 	 	(c) Total
	 	 	 	 	
 	 	 	 	 	 	 	 	Number of
	 	 	 	 	
 	 	 	 	 	 	 	 	Shares
	 	 	(d) Maximum
	 	
 	 	(a) Total
	 	 	 	 	 	Purchased as
	 	 	Number of
	 	
 	 	Number of
	 	 	(b) Average
	 	 	Part of Publicly
	 	 	Shares that May
	 	
 	 	Shares
	 	 	Price Paid
	 	 	Announced Plans
	 	 	Yet be Purchased
	 	
Period	 	Purchased	 	 	per Share	 	 	or Programs	 	 	Under the Plan(1)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
October 1, 2006 through October 31, 2006	 	 	29,200	 	 	 	25.59	 	 	 	29,200	 	 	 	720,600	 	
November 1, 2006 through November 30, 2006	 	 	—	 	 	 	—	 	 	 	—	 	 	 	720,600	 	
December 1, 2006 through December 31, 2006	 	 	—	 	 	 	—	 	 	 	—	 	 	 	720,600	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	29,200	 	 	 	 	 	 	 	29,200	 	 	 	 	 	

 
 	 	 	
(1)	 	In August 2006, the Board of Directors authorized a stock repurchase plan that enabled the Company to buy up to one million shares of its common stock. At management’s discretion, shares may be acquired on the open market, through privately negotiated transactions or pursuant to a Rule 10b5-1 plan. A Rule 10b5-1 plan permits the Company to repurchase shares at times when it might otherwise be prevented from doing so. This plan expired on February 9, 2007.	
 
For the year ended December 31, 2006, we made the following purchases of shares of our common stock that are registered pursuant to Section 12(b) of the Securities Exchange Act of 1934.

 	 	Total Number
	 	 	Average
	 	
 	 	of Shares
	 	 	Price Paid
	 	
Period	 	Purchased	 	 	per Share	 	
 	 	 	 	 	 	 	 	 	
January 1, 2006 through March 31, 2006	 	 	—	 	 	 	—	 	
April 1, 2006 through June 30, 2006	 	 	—	 	 	 	—	 	
July 1, 2006 through September 30, 2006	 	 	250,200	 	 	 	25.04	 	
October 1, 2006 through December 31, 2006	 	 	29,200	 	 	 	25.59	 	
 	 	 	 	 	 	 	 	 	
Total	 	 	279,400	 	 	 	25.10	 	

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ITEM 6.  	SELECTED FINANCIAL DATA	
 
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
 
The following tables present selected historical consolidated financial information as of December 31, 2006, 2005, and 2004, and for the years ended December 31, 2006, 2005, 2004 and for the period from June 24, 2003 (inception) to December 31, 2003. The selected historical consolidated financial information presented below under the captions “Consolidated Income Statement Data” and “Consolidated Balance Sheet Data” have been derived from our audited consolidated financial statements and include all adjustments, consisting only of normal recurring accruals, which management considers necessary for a fair presentation of the historical consolidated financial statements for such period. In addition, since the information presented below is only a summary and does not provide all of the information contained in our historical consolidated financial statements, including the related notes, you should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements, including the related notes, included elsewhere in this report.

 	 	 	 	 	 	 	 	 	 	 	Period from
	 	
 	 	 	 	 	 	 	 	 	 	 	June 24, 2003
	 	
 	 	Year Ended
	 	 	Year Ended
	 	 	Year Ended
	 	 	(Inception) to
	 	
 	 	December 31,
	 	 	December 31,
	 	 	December 31,
	 	 	December 31,
	 	
 	 	2006	 	 	2005	 	 	2004	 	 	2003	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated Income Statement Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	$	172,833,401	 	 	$	121,109,157	 	 	$	57,927,230	 	 	$	10,012,449	 	
Income from swap derivative	 	 	696,960	 	 	 	—	 	 	 	—	 	 	 	—	 	
Other income	 	 	170,197	 	 	 	498,250	 	 	 	42,265	 	 	 	156,502	 	
Total revenue	 	 	173,700,558	 	 	 	121,607,407	 	 	 	57,969,495	 	 	 	10,168,951	 	
Management fees — related party	 	 	12,831,791	 	 	 	12,430,546	 	 	 	3,614,830	 	 	 	587,734	 	
Total expenses	 	 	116,966,562	 	 	 	68,392,843	 	 	 	27,545,997	 	 	 	5,452,865	 	
Income from equity affiliates	 	 	4,784,292	 	 	 	8,453,440	 	 	 	525,000	 	 	 	—	 	
Income allocated to minority interest	 	 	11,104,481	 	 	 	11,280,981	 	 	 	5,875,816	 	 	 	1,308,167	 	
Net income	 	 	50,413,807	 	 	 	50,387,023	 	 	 	25,072,682	 	 	 	3,407,919	 	
Earnings per share, basic	 	 	2.94	 	 	 	2.99	 	 	 	1.81	 	 	 	0.42	 	
Earnings per share, diluted(1)	 	 	2.93	 	 	 	2.98	 	 	 	1.78	 	 	 	0.42	 	
Dividends declared per common share(2)(3)	 	 	2.57	 	 	 	2.24	 	 	 	1.16	 	 	 	0.50	 	

 	 	At December 31,
	 	 	At December 31,
	 	 	At December 31,
	 	 	At December 31,
	 	
 	 	2006	 	 	2005	 	 	2004	 	 	2003	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated Balance Sheet Data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans and investments, net	 	$	1,993,525,064	 	 	$	1,246,825,906	 	 	$	831,783,364	 	 	$	286,036,610	 	
Related party loans, net	 	 	7,752,038	 	 	 	7,749,538	 	 	 	7,749,538	 	 	 	35,940,881	 	
Total assets	 	 	2,204,345,211	 	 	 	1,396,075,357	 	 	 	912,295,177	 	 	 	338,164,432	 	
Repurchase agreements	 	 	395,847,359	 	 	 	413,624,385	 	 	 	409,109,372	 	 	 	113,897,845	 	
Collateralized debt obligations	 	 	1,091,529,000	 	 	 	299,319,000	 	 	 	—	 	 	 	—	 	
Junior subordinated notes to subsidiary trust issuing preferred securities	 	 	222,962,000	 	 	 	155,948,000	 	 	 	—	 	 	 	—	 	
Notes payable	 	 	94,574,240	 	 	 	115,400,377	 	 	 	165,771,447	 	 	 	58,630,626	 	
Notes payable — related party	 	 	—	 	 	 	30,000,000	 	 	 	—	 	 	 	—	 	
Total liabilities	 	 	1,842,765,882	 	 	 	1,044,775,284	 	 	 	589,292,273	 	 	 	183,416,716	 	
Minority interest	 	 	65,468,252	 	 	 	63,691,556	 	 	 	60,249,731	 	 	 	43,631,602	 	
Total stockholders’ equity	 	 	296,111,077	 	 	 	287,608,517	 	 	 	262,753,173	 	 	 	111,116,114	 	

 	 	 	 	 	 	 	 	 	 	 	Period from
	 	
 	 	 	 	 	 	 	 	 	 	 	June 24, 2003
	 	
 	 	Year Ended
	 	 	Year Ended
	 	 	Year Ended
	 	 	(Inception) to
	 	
 	 	December 31,
	 	 	December 31,
	 	 	December 31,
	 	 	December 31,
	 	
 	 	2006	 	 	2005	 	 	2004	 	 	2003	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Data	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total originations(4)	 	$	1,458,153,387	 	 	$	953,937,330	 	 	$	782,301,133	 	 	$	186,289,922	 	

 	 	 	
(1)	 	The warrants underlying the units issued in the private placement at $75.00 per unit had an initial exercise price of $15.00 per share and expired on July 1, 2005. This exercise price is equal to the price per share of common stock underlying the units and approximates the market value of our common stock at December 31, 2003. Therefore, the assumed exercise of the warrants was not considered to be dilutive for purposes of calculating diluted earnings per share.	
 	 	 	
(2)	 	On January 25, 2007, our board of directors authorized and we declared a distribution to our stockholders of $0.60 per share of common stock, payable with respect to the quarter ended December 31, 2006, to stockholders of record at the close of business on February 5, 2007. We made this distribution on February 20, 2007.	
 	 	 	
(3)	 	On January 11, 2006, our board of directors authorized and we declared a distribution to our stockholders of $0.70 per share of common stock, payable with respect to the quarter ended December 31, 2005, to stockholders of record at the close of business on January 23, 2006. We made this distribution on February 6, 2006.	
 	 	 	
(4)	 	Year ended December 31, 2005 originations are net of a $59.4 million participation in one of our loans.	

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SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE
STRUCTURED FINANCE BUSINESS OF ARBOR COMMERCIAL
MORTGAGE, LLC AND SUBSIDIARIES
 
On July 1, 2003, Arbor Commercial Mortgage contributed a portfolio of structured finance investments and related liabilities to our operating partnership. In addition, certain employees of Arbor Commercial Mortgage became our employees. These assets, liabilities and employees represented a substantial portion of Arbor Commercial Mortgage’s structured finance business.
 
The tables on the following page present selected historical consolidated financial information of the structured finance business of Arbor Commercial Mortgage at the dates and for the periods indicated. The structured finance business did not operate as a separate legal entity or business division or segment of Arbor Commercial Mortgage but as an integrated part of Arbor Commercial Mortgage’s consolidated business. Accordingly, the statements of revenue and direct operating expenses do not include charges from Arbor Commercial Mortgage for corporate general and administrative expense because Arbor Commercial Mortgage considered such items to be corporate expenses and did not allocate them to individual business units. These expenses included costs for Arbor Commercial Mortgage’s executive management, corporate facilities and overhead costs, corporate accounting and treasury functions, corporate legal matters and other similar costs. The selected consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the year ended December 31, 2002, the six months ended June 30, 2003 and under the caption “Consolidated Statement of Assets and Liabilities Data” as of December 31, 2002 have been derived from the audited consolidated financial statements of the structured finance business of Arbor Commercial Mortgage. The selected consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the six months ended June 30, 2003 is not necessarily indicative of the results of any other interim period or the year ended December 31, 2003.
 
The selected consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the six months ended June 30, 2002 have been derived from the unaudited interim consolidated financial statements of Arbor Commercial Mortgage’s structured finance business and include all adjustments, consisting only of normal recurring accruals, which management considers necessary for a fair presentation of the historical consolidated financial information for such periods. The selected consolidated financial information presented under the caption “Consolidated Statement of Revenue and Direct Operating Expenses Data” for the six-month period ended June 30, 2002 are not necessarily indicative of the results of any other interim period or the year ended December 31, 2002.
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Consolidated Statement of Revenue and Direct Operating Expenses Data:

 	 	 	 	 	Year Ended
	 	
 	 	Six Months Ended June 30,	 	 	December 31,	 	
 	 	2003	 	 	2002	 	 	2002	 	
 	 	(Unaudited)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest Income	 	$	7,688,465	 	 	$	7,482,750	 	 	$	14,532,504	 	
Other income	 	 	1,552,414	 	 	 	553,625	 	 	 	1,090,106	 	
Total revenue	 	 	9,240,879	 	 	 	8,036,375	 	 	 	15,622,610	 	
Total direct operating expenses	 	 	5,737,688	 	 	 	8,344,302	 	 	 	13,639,755	 	
Revenue in excess of direct operating expenses before gain on sale of loans and real estate and income from equity affiliates	 	 	3,503,191	 	 	 	(307,927	)	 	 	1,982,855	 	
Gain on sale of loans and real estate	 	 	1,024,268	 	 	 	7,006,432	 	 	 	7,470,999	 	
Income from equity affiliates	 	 	—	 	 	 	601,100	 	 	 	632,350	 	
Revenue, gain on sale of loans and real estate and income from equity affiliates in excess of direct operating expenses	 	 	4,527,459	 	 	 	7,299,605	 	 	 	10,086,204	 	
 
Consolidated Statement of Assets and Liabilities Data:

 	 	At December 31, 2002	 	
 	 	 	 	 	
Loans and investments, net	 	$	172,142,511	 	
Related party loans, net	 	 	15,952,078	 	
Investment in equity affiliates	 	 	2,586,026	 	
Total assets	 	 	200,563,236	 	
Notes payable and repurchase agreements	 	 	141,836,477	 	
Total liabilities	 	 	144,280,806	 	
Net assets	 	 	56,282,430	 	
 
Other Data (Unaudited):

 	 	 	 	 	Year Ended
	 	
 	 	Six Months Ended June 30,	 	 	December 31,	 	
 	 	2003	 	 	2002	 	 	2002	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Originations	 	$	117,965,000	 	 	$	30,660,000	 	 	$	130,043,000	 	

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ITEM 7.  	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	
 
You should read the following discussion in conjunction with the sections of this report entitled “Risk Factors”, “Forward-Looking Statements”, and “Selected Consolidated Financial Information of Arbor Realty Trust, Inc. and Subsidiaries” and the historical consolidated financial statements of Arbor Realty Trust, Inc. and Subsidiaries, including related notes, included elsewhere in this report.
 
Overview
 
We are a Maryland corporation that was formed in June 2003 to invest in real estate-related bridge and mezzanine loans, including junior participating interests in first mortgages, preferred and direct equity and, in limited cases, discounted mortgage notes and other real estate-related assets, which we refer to collectively as structured finance investments. We also invest in mortgage-related securities. We conduct substantially all of our operations through our operating partnership and its wholly-owned subsidiaries.
 
Our operating performance is primarily driven by the following factors:

 	• 	Net interest income earned on our investments — Net interest income represents the amount by which the interest income earned on our assets exceeds the interest expense incurred on our borrowings. If the yield earned on our assets increases or the cost of borrowings decreases, this will have a positive impact on earnings. Net interest income is also directly impacted by the size of our asset portfolio	
 	 	 	
 	• 	Credit quality of our assets — Effective asset and portfolio management is essential to maximizing the performance and value of a real estate/mortgage investment. Maintaining the credit quality of our loans and investments is of critical importance. Loans that do not perform in accordance with their terms may have a negative impact on earnings.	
 	 	 	
 	• 	Cost control — We seek to minimize our operating costs, which consist primarily of employee compensation and related costs, management fees and other general and administrative expenses. As the size of the portfolio increases, certain of these expenses, particularly employee compensation expenses, may increase.	
 
We are organized and conduct our operations to qualify as a real estate investment trust, or a REIT and to comply with the provisions of the Internal Revenue Code of 1986, as amended, or the Code with respect thereto. A REIT is generally not subject to federal income tax on that portion of its REIT-taxable income which is distributed to its stockholders provided that at least 90% of its REIT-taxable income is distributed and provided that certain other requirements are met. Certain of our assets that produce non-qualifying income may be held in taxable REIT subsidiaries. Unlike other subsidiaries of a REIT, the income of a taxable REIT subsidiary is subject to Federal and state income taxes. The provision for income taxes related to these taxable subsidiaries has not been material as they have had minimal activity.
 
On July 1, 2003, Arbor Commercial Mortgage (“ACM”), our manager, contributed $213.1 million of structured finance assets, encumbered by $169.2 million of borrowings in exchange for an equity interest in our operating partnership represented by 3,146,724 units of limited partnership interest and 629,345 warrants to acquire additional units of limited partnership interest. In addition, certain employees of ACM became our employees. We are externally managed and advised by ACM and pay ACM a management fee in accordance with a management agreement. ACM originates, underwrites and services all structured finance assets on behalf of our operating partnership.
 
Concurrently with ACM’s asset contribution, we consummated a private placement of 1.6 million units, each consisting of five shares of our common stock and one warrant to purchase one share of common stock, for $75.00 per unit, resulting in gross proceeds of $120.2 million. Gross proceeds from the private placement combined with the concurrent equity contribution by ACM totaled approximately $164.1 million in equity capital.
 
On April 13, 2004, we sold 6,750,000 shares of our common stock at a price to the public of $20.00 per share, for net proceeds of approximately $124.4 million after deducting the underwriting discount and the other estimated offering expenses. On May 11, 2004, we issued and sold 524,200 additional shares of common stock, for net proceeds of approximately $9.8 million after deducting the underwriting discount pursuant to the exercise of a
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portion of the over-allotment option granted to the underwriters of our initial public offering. Additionally, as of December 31, 2005, we issued 1,256,130 shares of common stock from the exercise of warrants originally issued as a component of units on July 1, 2003, for proceeds of $17.1 million.
 
Changes in Financial Condition
 
In 2006, we originated 67 loans and investments totaling $1.5 billion, of which $1.3 billion was funded as of December 31, 2006. Of the new loans and investments, 29 were bridge loans totaling $849.2 million, 17 were mezzanine loans totaling $242.6 million, 13 were junior participating interests totaling $325.8 million and 8 were preferred equity loans totaling $40.5 million. We have received full satisfaction of 38 loans totaling $694.7 million and partial repayment on 12 loans totaling $9.8 million.
 
Since December 31, 2006, we have originated nine loans totaling approximately $159.8 million. In addition, we have received $162.8 million for the repayment in full of four loans of which $94.3 million were loans on properties that were either sold or refinanced outside of Arbor and $68.5 million was concurrent with an Arbor refinance. Lastly, we have received $1.6 million for the partial repayment of six loans.
 
Our loan portfolio balance at December 31, 2006 was $2.0 billion, with a weighted average current interest pay rate of 9.06%, as compared to $1.3 billion, with a weighted average current interest pay rate of 9.24%, at December 31, 2005. At December 31, 2006, advances on financing facilities totaled $1.8 billion, with a weighted average funding cost of 6.70% (6.55% excluding a $59.4 million participation in one of our loans), as compared to $1.0 billion, with a weighted average funding cost of 6.57% (6.36% excluding a $59.4 million participation in one of our loans), at December 31, 2005. Additionally, our joint venture investment portfolio at December 31, 2006 was $25.4 million as compared to $18.1 million at December 31, 2005.
 
On January 11, 2006, we completed our second non-recourse collateralized debt obligation (“CDO II”) transaction, whereby a portfolio of real estate-related assets were contributed to a consolidated subsidiary which issued $356.3 million of investment grade-rated floating-rate notes in a private placement. The subsidiary retained an equity interest in the portfolio with a value of approximately $118.8 million. The notes are secured by a portfolio of real estate-related assets with a face value of approximately $412.3 million, consisting primarily of bridge loans, mezzanine loans and junior participating interests in first mortgages, and by approximately $62.7 million of cash available for acquisitions of loans and other permitted investments. The notes have an initial weighted average spread of approximately 74 basis points over three-month LIBOR. The facility has a five-year replenishment period that allows the principal proceeds from repayments of the collateral assets to be reinvested in qualifying replacement assets, subject to certain conditions. We intend to own the portfolio of real estate-related assets until its maturity and will account for this transaction on our balance sheet as a financing. These proceeds were used to repay outstanding debt with higher costs of funds. In connection with CDO II, we entered into interest rate swap agreements to hedge its exposure to the risk of changes in the difference between three-month LIBOR and one-month LIBOR as well as interest rate swaps on current and future projected LIBOR-based debt relating to certain fixed rate loans in our portfolio.
 
On December 14, 2006, we completed our third non-recourse collateralized debt obligation (“CDO III”) transaction, whereby a portfolio of real estate-related assets were contributed to a consolidated subsidiary which issued $547.5 million of investment grade-rated floating-rate notes, including a $100.0 million revolving note class that provides a revolving note facility. The notes were sold in a private placement. The subsidiary retained an equity interest in the portfolio with a value of approximately $52.5 million. The notes are secured by a portfolio of real estate-related assets with a face value of approximately $357.4 million, consisting primarily of bridge loans, mezzanine loans and junior participating interests in first mortgages, and by approximately $142.6 million of cash available for acquisitions of loans and other permitted investments. The notes have a weighted average spread of approximately 44 basis points over three-month LIBOR. In addition, the revolving note facility has a commitment fee of 0.22% per annum on the undrawn portion and initially there was no amount outstanding under this facility. The notes have a five-year replenishment period that allows the principal proceeds from repayments of the collateral assets to be reinvested in qualifying replacement assets, subject to certain conditions. We intend to own the portfolio of real estate-related assets until its maturity and account for this transaction on our balance sheet as a financing.
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These proceeds were used to repay outstanding debt with higher costs of funds. In connection with CDO III, we entered into interest rate swap agreements to hedge its exposure to the risk of changes in the difference between three-month LIBOR and one-month LIBOR as well as interest rate swaps on current and future projected LIBOR-based debt relating to certain fixed rate loans in our portfolio.
 
Sources of Operating Revenues
 
We derive our operating revenues primarily through interest received from making real estate-related bridge and mezzanine loans and preferred equity investments. Interest income earned on these loans and investments represented approximately 93%, 84% and 96% of our total revenues in 2006, 2005, and 2004, respectively.
 
Interest income is also derived from profits of equity participation interests. In 2006, 2005 and 2004 interest income from participation interests represented approximately $10.4 million, $17.2 million and $1.2 million, or 6%, 14% and 2% of total revenues, respectively.
 
We also derive interest income from our investments in mortgage related securities. In 2006, 2005 and 2004, interest on these investments represented approximately less than 1%, 1% and 2% of our total revenues, respectively.
 
In addition, we derived operating revenue from income from swap derivative which represented income from interest rate swaps on junior subordinated notes relating to trust preferred securities. In 2006, income from swap derivative represented less than 1% of our total revenues. There was no such revenue in 2005 and 2004.
 
Additionally, we derive operating revenues from other income that represents loan structuring and miscellaneous asset management fees associated with our loans and investments portfolio. Revenue from other income represented less than 1% of our total revenues in 2006, 2005 and 2004.
 
Income from Equity Affiliates and Gain on Sale of Loans and Real Estate
 
We derive income from equity affiliates relating to joint ventures that were formed with equity partners to acquire, develop and/or sell real estate assets. These joint ventures are not majority owned or controlled by us, and are not consolidated in our financial statements. These investments are recorded under the equity method of accounting. We record our share of the net income and losses from the underlying properties on a single line item in the consolidated income statements as income from equity affiliates. In 2006, 2005 and 2004, income from equity affiliates totaled $4.8 million, $8.5 million and $0.5 million, respectively.
 
We also may derive income from the gain on sale of loans and real estate. We may acquire (1) real estate for our own investment and, upon stabilization, dispose at an anticipated return and (2) real estate notes generally at a discount from lenders in situations where the borrower wishes to restructure and reposition its short term debt and the lender wishes to divest certain assets from its portfolio. No such income has been recorded to date.
 
Significant Accounting Estimates and Critical Accounting Policies
 
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts in our consolidated financial statements. Actual results could differ from these estimates. A summary of our significant accounting policies is presented in Note 2 to our consolidated financial statements, which appear in “Financial Statements and Supplementary Data.” Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements included in this report. Certain of the accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of the financial position and results of operations presented in the historical consolidated financial statements included in this report and require the application of significant judgment by management and, as a result, are subject to a degree of uncertainty.
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Loans and Investments
 
Statement of Financial Accounting Standards (“SFAS”) No. 115 requires that at the time of purchase, we designate a security as held to maturity, available for sale, or trading depending on ability and intent. Securities held for sale are reported at fair value, while securities and investments held to maturity are reported at amortized cost. We do not have any trading securities at this time.
 
Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, unless such loan or investment is deemed to be impaired. We invest in preferred equity interests that allow us to participate in a percentage of the underlying property’s cash flows from operations and proceeds from a sale or refinancing. At the inception of each such investment, management must determine whether such investment should be accounted for as a loan, joint venture or as real estate. To date, management has determined that all such investments are properly accounted for and reported as loans.
 
Specific valuation allowances are established for impaired loans based on the fair value of collateral on an individual loan basis. The fair value of the collateral is determined by an evaluation of operating cash flow from the property during the projected holding period, and estimated sales value computed by applying an expected capitalization rate to the stabilized net operating income of the specific property, less selling costs, discounted at market discount rates. If upon completion of the valuation, the fair value of the underlying collateral securing the impaired loan is less than the net carrying value of the loan, an allowance is created with a corresponding charge to the provision for loan losses. An allowance for each loan would be maintained at a level believed adequate by management to absorb probable losses. As of December 31, 2006, and 2005, no impairment has been identified and no valuation allowances have been established.
 
At December 31, 2006 we had an $8.5 million loan in our portfolio that is non-performing and income recognition has been suspended. The principal amount of the loan is not deemed to be impaired and no loan loss reserve has been recorded at this time. Income recognition will resume when the loan becomes contractually current and performance has recommenced.
 
Repurchase Obligations
 
In certain circumstances, we have financed the purchase of investments from a counterparty through a repurchase agreement with that same counterparty. We currently record these investments in the same manner as other investments financed with repurchase agreements, with the investment recorded as an asset and the related borrowing under any repurchase agreement as a liability on our consolidated balance sheet. Interest income earned on the investments and interest expense incurred on the repurchase obligations are reported separately on the consolidated income statement. There is discussion, based upon a technical interpretation of SFAS 140, that these transactions may not qualify as a purchase by us. We believe, and it is industry practice, that we are accounting for these transactions in an appropriate manner, however, if these investments do not qualify as a purchase under SFAS 140, we would be required to present the net investment on our balance sheet as a derivative with the corresponding change in fair value of the derivative being recorded in the income statement. The value of the derivative would reflect not only changes in the value of the underlying investment, but also changes in the value of the underlying credit provided by the counterparty. As of December 31, 2006 we had entered into four such transactions, with a book value of the associated assets of $228.8 million financed with repurchase obligations of $151.0 million. As of December 31, 2005 we had entered into eight such transactions, with a book value of the associated assets of $176.7 million financed with repurchase obligations of $124.6 million. Adoption of the aforementioned treatment would result in these assets and liabilities being recorded net on our balance sheets.
 
Available-For-Sale Securities
 
We invest in agency-sponsored whole pool mortgage related securities. Pools of Federal National Mortgage Association, or FNMA, and Federal Home Loan Mortgage Corporation, or FHLMC, adjustable rate residential mortgage loans underlie these mortgage related securities. We receive payments from the payments that are made on these underlying mortgage loans, which have a fixed rate of interest for three years and adjust annually thereafter. These securities are carried at their estimated fair value with unrealized gains and losses excluded from earnings and
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reported in other comprehensive income pursuant to SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities.” Unrealized losses other than temporary losses are recognized currently in income.
 
Capitalized Interest
 
The Company capitalizes interest in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 58 “Capitalization of Interest Costs in Financial Statements that Include Investments Accounted for by the Equity Method.” This statement amended SFAS No. 34 “Capitalization of Interest Costs” to include investments (equity, loans and advances) accounted for by the equity method as qualifying assets of the investor while the investee has activities in progress necessary to commence its planned principal operations, provided that the investee’s activities include the use of funds to acquire qualifying assets for its operations. An investee, in one of the Company’s joint ventures accounted for using the equity method, is in the process of using funds to acquire qualifying assets for its planned principal operations. During the years ended December 31, 2006 and 2005 the Company capitalized $0.9 million and $0.5 million, respectively of interest relating to this investment. There was no capitalization of interest during the year ended December 31, 2004.
 
Revenue Recognition
 
Interest Income.  Interest income is recognized on the accrual basis as it is earned from loans, investments and available-for-sale securities. In many instances, the borrower pays an additional amount of interest at the time the loan is closed, an origination fee, and deferred interest upon maturity. In some cases interest income may also include the amortization or accretion of premiums and discounts arising at the purchase or origination. This additional income, net of any direct loan origination costs incurred, is deferred and accreted into interest income on an effective yield or “interest” method adjusted for actual prepayment activity over the life of the related loan or available-for-sale security as a yield adjustment. Income recognition is suspended for loans when in the opinion of management a full recovery of income and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. Several of the loans provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management’s determination that accrued interest and outstanding principal are ultimately collectible, based on the underlying collateral and operations of the borrower. If management cannot make this determination regarding collectibility, interest income above the current pay rate is recognized only upon actual receipt. Additionally, interest income is recorded when earned from equity participation interests, referred to as equity kickers. These equity kickers have the potential to generate additional revenues to us as a result of excess cash flows being distributed and/or as appreciated properties are sold or refinanced.
 
Variable Interest Entities
 
In December 2003, the FASB issued Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”) as a revision to FIN No. 46, which requires a variable interest entity (“VIE”) to be consolidated by its primary beneficiary (“PB”). The PB is the party that absorbs a majority of the VIE’s anticipated losses and/or a majority of the expected returns.
 
We have evaluated our loans and investments and investments in equity affiliates to determine whether they are VIE’s. This evaluation resulted in us determining that our mezzanine loans, preferred equity investments and investments in equity affiliates were potential variable interests. For each of these investments, we have evaluated (1) the sufficiency of the fair value of the entities’ equity investments at risk to absorb losses, (2) that as a group the holders of the equity investments at risk have (a) the direct or indirect ability through voting rights to make decisions about the entities’ significant activities, (b) the obligation to absorb the expected losses of the entity and their obligations are not protected directly or indirectly, (c) the right to receive the expected residual return of the entity and their rights are not capped, (3) the voting rights of some of these investors are proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected returns of the equity, or both, and that substantially all of the entities’ activities do not involve or are not conducted on behalf of an investor that has disproportionately few voting rights. As of December 31, 2006, we have identified 27 loans and investments which were made to entities determined to be VIE’s. A summary of our identified VIE’s is presented in Note 2 of our consolidated financial statements, which appear in “Financial Statements and Supplementary Data”. However, for
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the 27 VIE’s identified, we have determined that we are not the primary beneficiaries and as such the VIE’s should not be consolidated in our financial statements. For all other investments, we have determined they are not VIE’s. As such, we have continued to account for these loans and investments as a loan or joint venture, as appropriate.
 
Derivatives and Hedging Activities
 
In accordance with Financial Accounting Statement (“FAS”) 133, the carrying values of interest rate swaps and the underlying hedged liabilities are reflected at their fair value. We rely on quotations from a third party to determine these fair values. Changes in the fair value of these derivatives are either offset against the change in the fair value of the hedged liability through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. Derivatives that do not qualify for cash flow hedge accounting treatment are adjusted to fair value through earnings.
 
Because the valuations of our hedging activities are based on estimates, the fair value may change if our estimates are inaccurate. For the effect of hypothetical changes in market interest rates on our interest rate swaps, see the Market Risk section.
 
Recently Issued Accounting Pronouncements
 
In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155 (“SFAS 155”), “Accounting for Certain Hybrid Financial Instruments”, which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”). SFAS 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring after January 1, 2007. We do not expect adoption to have a material impact on our Consolidated Financial Statements.
 
In April 2006, the FASB issued FASB Staff Position (FSP) FIN 46(R)-6, “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)”, that became effective beginning third quarter of 2006. FSP FIN No. 46(R)-6 clarifies that the variability to be considered in applying Interpretation 46(R) shall be based on an analysis of the design of the variable interest entity. We believe that our current method of accounting for variable interest entities is consistent with FIN 46(R)-6.
 
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in tax positions. This interpretation prescribes a recognition threshold and measurement in the financial statements of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance as to its application and related transition, and is effective for fiscal years beginning after December 15, 2006. We do not expect adoption to have a material impact on our Consolidated Financial Statements.
 
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements,” which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. We do not expect adoption to have a material impact on our Consolidated Financial Statements.
 
In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Current Year Misstatements”, effective for fiscal years ending after November 15, 2006. SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement for the purpose
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of a materiality assessment. The adoption of SAB 108 did not have a material impact on our Consolidated Financial Statements.
 
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose to measure many financial instruments, and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the effect, if any; the adoption of SFAS 159 may have on our Consolidated Financial Statements.
 
Results of Operations
 
The following table sets forth our results of operations for the years ended December 31, 2006 and 2005:

 	 	Year Ended December 31,	 	 	Increase/(Decrease)	 	
 	 	2006	 	 	2005	 	 	Amount	 	 	Percent	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	$	172,833,401	 	 	$	121,109,157	 	 	$	51,724,244	 	 	 	43	%	
Income from swap derivative	 	 	696,960	 	 	 	—	 	 	 	696,960	 	 	 	nm	 	
Other income	 	 	170,197	 	 	 	498,250	 	 	 	(328,053	)	 	 	(66	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	 	173,700,558	 	 	 	121,607,407	 	 	 	52,093,151	 	 	 	43	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	92,693,419	 	 	 	45,745,424	 	 	 	46,947,995	 	 	 	103	%	
Employee compensation and benefits	 	 	4,648,644	 	 	 	4,274,609	 	 	 	374,035	 	 	 	9	%	
Stock based compensation	 	 	2,329,689	 	 	 	1,590,898	 	 	 	738,791	 	 	 	46	%	
Selling and administrative	 	 	4,463,019	 	 	 	4,351,366	 	 	 	111,653	 	 	 	3	%	
Management fee — related party	 	 	12,831,791	 	 	 	12,430,546	 	 	 	401,245	 	 	 	3	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	116,966,562	 	 	 	68,392,843	 	 	 	48,573,719	 	 	 	71	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest and          income from equity affiliates	 	 	56,733,996	 	 	 	53,214,564	 	 	 	3,519,432	 	 	 	7	%	
Income from equity affiliates	 	 	4,784,292	 	 	 	8,453,440	 	 	 	(3,669,148	)	 	 	(43	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest	 	 	61,518,288	 	 	 	61,668,004	 	 	 	(149,716	)	 	 	—	 	
Income allocated to minority interest	 	 	11,104,481	 	 	 	11,280,981	 	 	 	(176,500	)	 	 	(2	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	50,413,807	 	 	$	50,387,023	 	 	$	26,784	 	 	 	—	 	

 	 	 	
 	 	nm — not meaningful	
 
Revenue
 
Interest income increased $51.7 million, or 43%, to $172.8 million in 2006 from $121.1 million in 2005. Included in interest income is the recognition of $10.4 million and $17.2 million of income in 2006 and 2005, respectively from a 16.7% carried profits interest in a $30.1 million mezzanine loan that was repaid in January 2006. This income was a result of excess proceeds from the refinances of a portfolio of properties securing the loan. Excluding these transactions, interest income increased $58.5 million, or 56%, over the same period. This increase was primarily due to a 53% increase in the average balance of the loan and investment portfolio from $978.8 million in 2005 to $1.50 billion in 2006 due to increased loan and investment originations, as well as a 1% increase in the average yield on assets from 10.4% in 2005 to 10.5% in 2006. This increase in yield is a result of increased interest rates on our floating rate portfolio due to the rise in LIBOR, largely offset by margin compression on new originations compared to loan payoffs from the same period in 2005 and 2006. In addition, interest earned on cash balances increased $3.5 million from 2005 to 2006 as a result of 123% increase in the average cash balance directly attributable to the addition of two CDOs in 2006.
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Income from swap derivative totaled $0.7 million and is the result of a change in accounting treatment according to a new technical clarification of accounting for interest rate swaps on one of our junior subordinated notes relating to trust preferred securities. This reflects the cumulative fair value of the interest rate swap on one of our trust preferred securities on the date it was deemed an ineffective cash flow hedge.
 
Other income decreased $0.3 million, or 66%, to $0.2 million from $0.5 million in 2005. This decrease was primarily due to $0.4 million in structuring fees received for services rendered in arranging a loan facility for a borrower in 2005, partially offset by increased miscellaneous asset management fees on our loan and investment portfolio.
 
Expenses
 
Interest expense increased $47.0 million, or 103%, to $92.7 million in 2006 from $45.7 million in 2005. This increase was due to a 79% increase in the average debt financing on our loan and investment portfolio from $717.5 million in 2005 to $1.29 billion in 2006 directly attributable to increased loan and investment originations and increased leverage, combined with a 15% increase in the average cost of borrowings from 6.2% to 7.1% as a result of increased market interest rates, partially offset by income from interest rate swaps on our variable rate debt associated with certain of our fixed rate loans as well as reduced borrowing costs primarily due to an increase in total CDO debt in 2006 from 2005.
 
Employee compensation and benefits expense increased $0.4 million, or 9%, to $4.7 million in 2006 from $4.3 million in 2005. This increase was primarily due to the expansion of staffing needs associated with the growth of the business and increased size of our portfolio. These expenses represent salaries, benefits, and incentive compensation for those employed by us during these periods.
 
Stock-based compensation expense increased $0.7 million, or 46%, to $2.3 million in 2006 from $1.6 million in 2005. These expenses represent the cost of restricted stock granted to certain of our employees, directors and executive officers, and employees of our manager. This increase was primarily due to an increase in the ratable portion of unvested restricted stock granted as a result of 94,695 restricted stock shares granted in 2006, partially offset by a decrease in the ratable portion of unvested restricted stock from prior grants.
 
Selling and administrative expense increased $0.1 million, or 3%, to $4.5 million in 2006 from $4.4 million in 2005. These expenses remained largely unchanged from 2005 to 2006. They include, but are not limited to, professional and consulting fees, marketing costs, insurance expense, director’s fees, licensing fees, travel and placement fees.
 
Management fees increased $0.4 million, or 3%, to $12.8 million in 2006 from $12.4 million in 2005. These amounts represent compensation in the form of base management fees and incentive management fees as provided for in the management agreement with our manager. The base management fees increased by $0.1 million, or 4%, to $2.6 million in 2006 from $2.5 million in 2005. The increase is primarily due to increased stockholder’s equity directly attributable to increased capital over the same period in 2005. The incentive management fees increased $0.3 million, or 3% to $10.2 million in 2006 from $9.9 million in 2005. This increase was primarily due to increased profitability in 2006 as compared to 2005.
 
Income From Equity Affiliates
 
Income from equity affiliates decreased $3.7 million, or 43%, to $4.8 million in 2006 from $8.5 million for 2005. This decrease was primarily due to the recognition of $4.8 million and $8.0 million of income from excess proceeds received from the refinance of properties in the portfolio of one of our equity investments in 2006 as compared to 2005, respectively.
 
Income Allocated to Minority Interest
 
Income allocated to minority interest decreased $0.2 million, or 2%, to $11.1 million in 2006 from $11.3 million in 2005. These amounts represent the portion of our income allocated to our manager. This decrease was due to a decrease in our manager’s limited partnership interest in us. Our manager had a weighted average limited partnership interest of 18.0% and 18.3% in our operating partnership in 2006 and 2005, respectively.
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The following table sets forth our results of operations for the years ended December 31, 2005 and 2004:

 	 	Year Ended December 31,	 	 	Increase/(Decrease)	 	
 	 	2005	 	 	2004	 	 	Amount	 	 	Percent	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	$	121,109,157	 	 	$	57,927,230	 	 	$	63,181,927	 	 	 	109	%	
Other income	 	 	498,250	 	 	 	42,265	 	 	 	455,985	 	 	 	1079	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	 	121,607,407	 	 	 	57,969,495	 	 	 	63,637,912	 	 	 	110	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	45,745,424	 	 	 	19,372,575	 	 	 	26,372,849	 	 	 	136	%	
Employee compensation and benefits	 	 	4,274,609	 	 	 	2,325,727	 	 	 	1,948,882	 	 	 	84	%	
Stock based compensation	 	 	1,590,898	 	 	 	324,343	 	 	 	1,266,555	 	 	 	390	%	
Selling and administrative	 	 	4,351,366	 	 	 	1,908,522	 	 	 	2,442,844	 	 	 	128	%	
Management fee — related party	 	 	12,430,546	 	 	 	3,614,830	 	 	 	8,815,716	 	 	 	244	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	68,392,843	 	 	 	27,545,997	 	 	 	40,846,846	 	 	 	148	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest and          income from equity affiliates	 	 	53,214,564	 	 	 	30,423,498	 	 	 	22,791,066	 	 	 	75	%	
Income from equity affiliates	 	 	8,453,440	 	 	 	525,000	 	 	 	7,928,440	 	 	 	1510	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest	 	 	61,668,004	 	 	 	30,948,498	 	 	 	30,719,506	 	 	 	99	%	
Income allocated to minority interest	 	 	11,280,981	 	 	 	5,875,816	 	 	 	5,405,165	 	 	 	92	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	50,387,023	 	 	$	25,072,682	 	 	$	25,314,341	 	 	 	101	%	

Revenue
 
Interest income increased $63.2 million, or 109%, to $121.1 million in 2005 from $57.9 million in 2004. This increase was due in part to a distribution of $17.2 million in 2005 representing a 16.7% carried profits interest in a $30.1 million mezzanine loan that we have outstanding. This distribution was a result of excess proceeds from the refinance of a portfolio of properties securing the loan. Excluding this transaction, interest income increased $46.0 million, or 79%, over the same period. This increase was due to a 50% increase in the average balance of the loan and investment portfolio from $653.1 million in 2004 to $978.8 million in 2005 due to increased loan and investment originations, as well as an 18% increase in the average yield on the assets from 8.8% in 2004 to 10.4% in 2005 primarily due to increased market interest rates, partially offset by an increased average balance of our fixed rate loan portfolio. Interest income from available for sale securities decreased $0.3 million, or 25%, to $0.8 million in 2005 from $1.1 million in 2004. This decrease is due to a lower average balance in 2005 as a result of prepayments received on our investment.
 
Other income totaled $0.5 million in 2005, up from $42,265 in 2004. This is primarily due to increased structuring fees received for services rendered in arranging loan facilities in 2005.
 
Expenses
 
Interest expense increased $26.4 million, or 136%, to $45.7 million in 2005 from $19.4 million in 2004. This increase was due to an 87% increase in the average debt financing on our loan and investment portfolio from $383.8 million in 2004 to $717.5 million in 2005 due to increased loan and portfolio originations, a 29% increase in the average cost of borrowings from 4.8% to 6.2% as a result of increased market interest rates, as well as the cost of interest rate swaps on our variable rate debt associated with certain of our fixed rate loans. In addition, interest expense on debt financing of our available-for-sale securities portfolio increased $0.6 million, or 100%, to $1.3 million in 2005 from $0.6 million in 2004. This increase is due to a higher cost of borrowings in 2005 as a result of increased market interest rates, partially offset by a lower average balance in 2005 as a result of prepayments received on our investment.
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Employee compensation and benefits expense increased $1.9 million or 84%, to $4.3 million in 2005 from $2.3 million in 2004. This increase was primarily due to the expansion of staffing needs associated with the growth of the business and increased size of our portfolio. These expenses represent salaries, benefits, and incentive compensation for those employed by us during these periods.
 
Stock-based compensation expense totaled $1.6 million in 2005, up from $0.3 million in 2004. These expenses represent the cost of restricted stock granted to certain of our employees, directors and executive officers, and employees of our manager. The increase was primarily due to the initial one-fifth vesting of 118,500 shares granted in 2005 combined with the initial one-third vesting of 6,000 shares granted in 2005, partially offset by a decrease in the ratable portion of the 2003 unvested restricted stock grants in 2005 as compared to 2004.
 
Selling and administrative expense increased $2.4 million, or 128%, to $4.4 million in 2005 from $1.9 million in 2004. This increase is directly attributable to professional fees, including legal, accounting services, and consulting fees relating to investor relations and Sarbanes-Oxley compliance, marketing costs, insurance expense and director’s fees.
 
Management fees totaled $12.4 million in 2005, up from $3.6 million in 2004. These amounts represent compensation in the form of base management fees and incentive management fees as provided for in the management agreement with our manager. The base management fees increased by $0.5 million, or 27%, to $2.5 million in 2005 from $2.0 million in 2004. This increase was primarily due to increased stockholder’s equity directly attributable to increased profits and contributed capital over the same period in 2004. The incentive management fees totaled $9.9 million in 2005, up from $1.6 million in 2004. This increase was primarily due to increased profitability.
 
Income From Equity Affiliates
 
Income from equity affiliates totaled $8.5 million in 2005, up from $0.5 million in 2004. This increase was primarily due to excess proceeds received from the refinance of properties in the portfolio of one of our investments in equity affiliates in 2005.
 
Income Allocated to Minority Interest
 
Income allocated to minority interest increased $5.4 million, or 92%, to $11.3 million in 2005 from $5.9 million in 2004. These amounts represent the portion of our income allocated to our manager. This increase was due to a 99% increase in income before minority interest, partially offset by a decrease in our manager’s limited partnership interest in us. Our manager had a weighted average limited partnership interest of 18.3% and 20.1% in our operating partnership in 2005 and 2004, respectively.
 
Liquidity and Capital Resources
 
Sources of Liquidity
 
Liquidity is a measurement of the ability to meet potential cash requirements, including ongoing commitments to repay borrowings, pay dividends, fund loans and investments and other general business needs. Our primary sources of funds for liquidity consist of funds raised from our private equity offering in July 2003, net proceeds from our initial public offering of our common stock in April 2004, the issuance of floating rate notes resulting from our CDO’s (described below) in January 2005, January 2006 and December 2006, the issuance of junior subordinated notes to subsidiary trusts issuing preferred securities (described below) in 2005 and 2006, borrowings under credit agreements, net cash provided by operating activities including cash from equity participation interests, repayments of outstanding loans and investments, funds from junior loan participation arrangements and the future issuance of common, convertible and/or preferred equity securities.
 
In 2003, we received gross proceeds from the private placement totaling $120.2 million, which combined with ACM’s equity contribution of $43.9 million, resulted in total contributed capital of $164.1 million. These proceeds were used to pay down borrowings under our existing credit facilities.
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In 2004, we sold 6,750,000 shares of our common stock in a public offering on April 13, 2004 for net proceeds of approximately $125.4 million. In addition, in May 2004 the underwriters exercised a portion of their over allotment option, which resulted in the issuance of 524,200 additional shares for net proceeds of approximately $9.8 million. Additionally, in 2004, 1.3 million common stock warrants were exercised which resulted in proceeds of $12.9 million. Also, Arbor Realty Limited Partnership (“ARLP”), the operating partnership of Arbor Realty Trust received proceeds of $9.4 million from the exercise of ACM’s warrants for a total of 629,345 operating partnership units. These proceeds were used to pay down borrowings under our existing credit facilities.
 
We also maintain liquidity through four master repurchase agreements, one warehouse credit facility and one bridge loan warehousing credit agreement with five different financial institutions. In addition, we have issued three collateralized debt obligations and seven separate junior subordinated notes. London interbank offered rate, or LIBOR, refers to one-month LIBOR unless specifically stated.
 
We have a $500.0 million master repurchase agreement with Wachovia Bank National Association, dated as of December 23, 2003, with an initial term of three years and bears interest at LIBOR plus pricing of 0.94% to 3.50%, varying on the type of asset financed. In December 2005, we amended this facility on a temporary basis which provided for an increase in the amount of financing available under this facility from $350 million to $500 million. This increase expired in January of 2006 in conjunction with the close of CDO II. Subsequent to December 31, 2005, $269.1 million of this facility was paid down in connection with the CDO II closing (see below). In September 2006, we amended this facility on a temporary basis which provided for an increase in the amount of financing available under this facility from $350 million to $550 million in preparation for the CDO III closing (see below). In October 2006, this repurchase agreement was amended, increasing the amount of available financing from $350 million to $500 million and extended the maturity to March 2007. On December 14, 2006, $200.0 million of this facility was paid down in connection with the closing of CDO III. At December 31, 2006, the outstanding balance under this facility was $328.5 million with a current weighted average note rate of 6.99%. In addition, we have a $100 million repurchase agreement with the same financial institution that we entered into for the purpose of financing our securities available for sale. This agreement expires in July 2007 and has an interest rate of LIBOR plus 0.20%. At December 31, 2006, the outstanding balance under this facility was $20.7 million with a current weighted average note rate of 5.55%.
 
We have a $100.0 million master repurchase agreement with a second financial institution, effective in December 2005, which was extended in December 2006 for one year and bears interest at LIBOR plus pricing of 1.00% to 3.00%, varying on the type of asset financed. At December 31, 2006, the outstanding balance under this facility was $46.6 million with a current weighted average note rate of 7.29%.
 
We have a $150.0 million master repurchase agreement with a third financial institution, effective in October 2006, that has a term expiring in October 2009 and bears interest at LIBOR plus pricing of 1.00% to 1.80%, varying on the type of asset financed. At December 31, 2006, there was no outstanding balance under this facility.
 
We have a $75.0 million bridge loan warehousing credit agreement with a fourth financial institution, to provide financing for bridge loans. This agreement bears a variable rate of interest, payable monthly, based on Prime plus 0% or 1,2,3 or 6-month LIBOR plus 1.75%, at the Company’s option. In September 2006, this repurchase agreement was amended extending the maturity date to August 2007, increasing the amount of available financing from $50 million to $75 million and amending certain terms of this agreement. At December 31, 2006, the outstanding balance under this facility was $20.2 million with a current weighted average note rate of 7.10%.
 
We have a $50.0 million warehousing credit facility with a fifth financial institution, effective in December 2005, that has a term expiring in December 2007 and bears interest at LIBOR plus pricing of 1.50% to 2.50%, varying on the type of asset financed. At December 31, 2006, the outstanding balance under this facility was $11.8 million with a current weighted average note rate of 7.06%.
 
We had a $50.0 million master repurchase agreement with a sixth financial institution, dated as of July 1, 2003, which expired in July 2006 and bore interest at LIBOR plus pricing of 1.75% to 3.50%, varying on the type of asset financed. This facility was not utilized.
 
We had a $50.0 million warehouse credit facility with a seventh financial institution, who beneficially owned approximately 2% of our outstanding common stock as of December 31, 2005 which was terminated in January
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2006. This agreement had a term of one year with two six-month extension periods and bore interest at LIBOR plus 6.00%.
 
We have a non-recourse collateralized debt obligation transaction or CDO, which closed on January 19, 2005, whereby $469 million of real estate related and other assets were contributed to a newly-formed consolidated subsidiary which issued $305 million of investment grade-rated floating-rate notes in a private placement. These notes are secured by the portfolio of assets and pay interest quarterly at a weighted average rate of approximately 77 basis points over a floating rate of interest based on three-month LIBOR. The CDO may be replenished with substitute collateral for loans that are repaid during the first four years. Thereafter, the outstanding debt balance will be reduced as loans are repaid. The Company incurred approximately $7.2 million of issuance costs which is being amortized on a level yield basis over the average estimated life of the CDO. Proceeds from the CDO were used to repay outstanding debt under our existing facilities totaling $267 million. By contributing these real estate assets to the CDO, this transaction resulted in a decreased cost of funds relating to the CDO assets and created capacity in our existing credit facilities. At December 31, 2006, the outstanding balance under this facility was $291.3 million with a weighted average current note rate of 6.10%. Proceeds from the repayment of assets which serve as collateral for our CDO must be retained in the CDO structure until such collateral can be replaced or used to paydown the secured notes and therefore not available to fund current cash needs. If such cash is not used to replenish collateral, it could have a negative impact on our anticipated returns. For accounting purposes, the CDO is consolidated in our financial statements.
 
On January 11, 2006, we completed our second non-recourse collateralized debt obligation transaction, or CDO II, whereby $475 million of real estate related and other assets were contributed to a newly-formed consolidated subsidiary which issued $356 million of investment grade-rated floating-rate notes in a private placement. These notes are secured by the portfolio of assets and pay interest quarterly at a weighted average rate of approximately 74 basis points over a floating rate of interest based on three-month LIBOR. CDO II may be replenished with substitute collateral for loans that are repaid during the first five years. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Proceeds from CDO II were used to repay outstanding debt under our existing facilities totaling $301.0 million. The Company incurred approximately $6.2 million of issuance costs which is being amortized on a level yield basis over the average estimated life of CDO II. By contributing these real estate assets to CDO II, this transaction resulted in a decreased cost of funds relating to CDO II’s assets and created capacity in our existing credit facilities. Proceeds from the repayment of assets which serve as collateral for CDO II must be retained in its structure until such collateral can be replaced and therefore not available to fund current cash needs. If such cash is not used to replenish collateral, it could have a negative impact on our anticipated returns. For accounting purposes, CDO II is consolidated in our financial statements. At December 31, 2006, the outstanding balance under this facility was $352.7 million with a weighted average current note rate of 6.11%.
 
On December 14, 2006, we completed our third non-recourse collateralized debt obligation transaction, or CDO III, whereby $500.0 million of real estate related and other assets were contributed to a newly-formed consolidated subsidiary which issued $547.5 million of investment grade-rated floating-rate notes, including a $100.0 million revolving note class that provides a revolving note facility in a private placement. These notes are secured by the portfolio of assets and pay interest quarterly at a weighted average rate of approximately 44 basis points over a floating rate of interest based on three-month LIBOR. In addition, the revolving note facility has a commitment fee of 0.22% per annum on the undrawn portion. CDO III may be replenished with substitute collateral for loans that are repaid during the first five years. Thereafter, the outstanding debt balance will be reduced as loans are repaid. The Company incurred approximately $9.7 million of issuance costs which is being amortized on a level yield basis over the average estimated life of the CDO III. Proceeds from CDO III were used to repay outstanding debt under our existing facilities totaling $317.1 million. By contributing these real estate assets to CDO III, this transaction resulted in a decreased cost of funds relating to CDO III’s assets and created capacity in our existing credit facilities. Proceeds from the repayment of assets which serve as collateral for CDO III must be retained in its structure until such collateral can be replaced and therefore not available to fund current cash needs. If such cash is not used to replenish collateral, it could have a negative impact on our anticipated returns. For accounting purposes, CDO III is consolidated in our financial statements. At December 31, 2006, the outstanding balance under this facility was $447.5 million with a weighted average current note rate of 5.82%.
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In 2005, we, through newly-formed wholly-owned subsidiaries of our operating partnership, issued a total of $155.9 million of junior subordinated notes in five separate private placements. In 2006, we, through wholly-owned subsidiaries of our operating partnership, issued a total of $67.0 million of junior subordinated notes in two separate private placements. These junior subordinated notes are described in Note 6 “Debt Obligations” of our consolidated financial statements, which appears in “Financial Statements and Supplementary Data”. These securities are unsecured, have a maturity of 29 to 30 years, pay interest quarterly at a floating rate of interest based on three-month LIBOR and, absent the occurrence of special events, are not redeemable during the first five years. At December 31, 2006, the outstanding balance under these facilities was $222.9 million with a current weighted average note rate of 8.36%.
 
The warehouse credit agreement, bridge loan warehousing credit agreement, and the master repurchase agreements require that we pay interest monthly, based on pricing over LIBOR. The amount of our pricing over LIBOR varies depending upon the structure of the loan or investment financed pursuant to the specific agreement.
 
The warehouse credit agreement, bridge loan warehousing credit agreement, and the master repurchase agreements require that we pay down borrowings under these facilities pro-rata as principal payments on our loans and investments are received. In addition, if upon maturity of a loan or investment we decide to grant the borrower an extension option, the financial institutions have the option to extend the borrowings or request payment in full on the outstanding borrowings of the loan or investment extended. The financial institutions also have the right to request immediate payment of any outstanding borrowings on any loan or investment that is at least 60 days delinquent.
 
As of December 31, 2006, these facilities had an aggregate capacity of $2.5 billion and borrowings were approximately $1.8 billion.
 
Each of the credit facilities contains various financials covenants and restrictions, including minimum net worth and debt-to-equity ratios. In addition to the financial terms and capacities described above, our credit facilities generally contain covenants that prohibit us from effecting a change in control, disposing of or encumbering assets being financed and restrict us from making any material amendment to our underwriting guidelines without approval of the lender. If we violate these covenants in any of our credit facilities, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of these covenants may result in our being unable to borrow unused amounts under our credit facilities, even if repayment of some or all borrowings is not required. As of December 31, 2006, we are in compliance with all covenants and restrictions under these credit facilities.
 
We have three junior loan participations with a total outstanding balance at December 31, 2006 of $62.5 million. These participation borrowings have maturity dates equal to the corresponding mortgage loans and are secured by the participant’s interests in the mortgage loans. Interest expense is based on a portion of the interest received from the loans.
 
We believe our existing sources of funds will be adequate for purposes of meeting our short-term liquidity (within one year) and long-term liquidity needs. Our short-term and long-term liquidity needs include ongoing commitments to repay borrowings, fund future investments, fund operating costs and fund distributions to our stockholders. Our loans and investments are financed under existing credit facilities and their credit status is continuously monitored; therefore, these loans and investments are expected to generate a generally stable return. Our ability to meet our long-term liquidity and capital resource requirements is subject to obtaining additional debt and equity financing. If we are unable to renew our sources of financing on substantially similar terms or at all, it would have an adverse effect on our business and results of operations. Any decision by our lenders and investors to enter into such transactions with us will depend upon a number of factors, such as our financial performance, compliance with the terms of our existing credit arrangements, industry or market trends, the general availability of and rates applicable to financing transactions, such lenders’ and investors’ resources and policies concerning the terms under which they make such capital commitments and the relative attractiveness of alternative investment or lending opportunities.
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To maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our taxable income. These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations. However, we believe that our significant capital resources and access to financing will provide us with financial flexibility and market responsiveness at levels sufficient to meet current and anticipated capital requirements, including expected new lending and investment opportunities.
 
In order to maximize the return on our funds, cash generated from operations is generally used to temporarily pay down borrowings under credit facilities whose primary purpose is to fund our new loans and investments. When making distributions, we borrow the required funds by drawing on credit capacity available under our credit facilities. To date, all distributions have been funded in this manner. All funds borrowed to make distributions have been repaid by funds generated from operations.
 
Share Repurchase Plan
 
In August 2006, the Board of Directors authorized a stock repurchase plan that enabled us to buy up to one million shares of our common stock. At management’s discretion, shares may be acquired on the open market, through privately negotiated transactions or pursuant to a Rule 10b5-1 plan. A Rule 10b5-1 plan permits us to repurchase shares at times when we might otherwise be prevented from doing so. As of December 31, 2006, we repurchased 279,400 shares of our common stock in the open market and under a 10b5-1 plan at a total cost of $7.0 million (an average cost of $25.10 per share). This plan expired on February 9, 2007.
 
Contractual Commitments
 
As of December 31, 2006, we had the following material contractual obligations (payments in thousands):

 	 	Payments Due by Period(1)	 	
Contractual Obligations	 	2007	 	 	2008	 	 	2009	 	 	2010	 	 	2011	 	 	Thereafter	 	 	Total	 	

Notes payable	 	$	21,315	 	 	$	2,522	 	 	$	—	 	 	$	—	 	 	$	1,733	 	 	$	6,479	 	 	$	32,049	 	
Collateralized debt obligations(2)	 	 	12,720	 	 	 	12,720	 	 	 	96,493	 	 	 	96,493	 	 	 	295,778	 	 	 	577,325	 	 	 	1,091,529	 	
Repurchase agreements	 	 	118,095	 	 	 	140,492	 	 	 	60,000	 	 	 	4,000	 	 	 	36,060	 	 	 	37,200	 	 	 	395,847	 	
Trust preferred securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	222,962	 	 	 	222,962	 	
Loan participations	 	 	125	 	 	 	62,400	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	62,525	 	
Outstanding unfunded commitments(3)	 	 	40,815	 	 	 	7,669	 	 	 	7,511	 	 	 	920	 	 	 	18,190	 	 	 	—	 	 	 	75,105	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Totals	 	$	193,070	 	 	$	225,803	 	 	$	164,004	 	 	$	101,413	 	 	$	351,761	 	 	$	843,966	 	 	$	1,880,017	 	

 
 	 	 	
(1)	 	Represents amounts due based on contractual maturities.	
 	 	 	
(2)	 	Comprised of $291.3 million of CDO I debt, $352.7 million of CDO II debt and $447.5 million of CDO III debt with a weighted average remaining maturity of 3.40, 4.88 and 5.48 years, respectively, as of December 31, 2006.	
 	 	 	
(3)	 	In accordance with certain of our loans and investments, we have outstanding unfunded commitments of $75.1 million as of December 31, 2006, that we are obligated to fund as the borrowers meet certain requirements. Specific requirements include but are not limited to property renovations, building construction, and building conversions based on criteria met by the borrower in accordance with the loan agreements.	
 
Management Agreement
 
Base Management Fees.  In exchange for the services that ACM provides us pursuant to the management agreement, we pay our manager a monthly base management fee in an amount equal to:
 
(1) 0.75% per annum of the first $400 million of our operating partnership’s equity (equal to the month-end value computed in accordance with GAAP of total partners’ equity in our operating partnership, plus or minus any unrealized gains, losses or other items that do not affect realized net income),
 
(2) 0.625% per annum of our operating partnership’s equity between $400 million and $800 million, and
 
(3) 0.50% per annum of our operating partnership’s equity in excess of $800 million.
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The base management fee is not calculated based on the manager’s performance or the types of assets its selects for investment on our behalf, but it is affected by the performance of these assets because it is based on the value of our operating partnership’s equity. We incurred $2.6 million and $2.5 million in base management fees for services rendered in 2006 and 2005, respectively.
 
Incentive Compensation.  Pursuant to the management agreement, our manager is also entitled to receive incentive compensation in an amount equal to:
 
(1) 25% of the amount by which:
 
(a) our operating partnership’s funds from operations per operating partnership unit, adjusted for certain gains and losses, exceeds
 
(b) the product of (x) the greater of 9.5% per annum or the Ten Year U.S. Treasury Rate plus 3.5%, and (y) the weighted average of (i) $15.00, (ii) the offering price per share of our common stock (including any shares of common stock issued upon exercise of warrants or options) in any subsequent offerings (adjusted for any prior capital dividends or distributions), and (iii) the issue price per operating partnership unit for subsequent contributions to our operating partnership, multiplied by
 
(2) the weighted average of our operating partnership’s outstanding operating partnership units.
 
In 2006, our manager earned a total of $10.2 million of incentive compensation and elected to receive it partially in cash totaling, $1.7 million, and partially in 306,764 shares of common stock. In 2005, our manager earned a total of $9.9 million of incentive compensation and elected to receive it partially in cash totaling $4.4 million and partially in 205,069 shares of common stock.
 
We pay the annual incentive compensation in four installments, each within 60 days of the end of each fiscal quarter. The calculation of each installment is based on results for the 12 months ending on the last day of the fiscal quarter for which the installment is payable. These installments of the annual incentive compensation are subject to recalculation and potential reconciliation at the end of such fiscal year. Subject to the ownership limitations in our charter, at least 25% of this incentive compensation is payable to our manager in shares of our common stock having a value equal to the average closing price per share for the last 20 days of the fiscal quarter for which the incentive compensation is being paid.
 
The incentive compensation is accrued as it is earned. In accordance with Issue 4(b) of EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” the expense incurred for incentive compensation paid in common stock is determined using the valuation method described above and the quoted market price of our common stock on the last day of each quarter. At December 31 of each year, we remeasure the incentive compensation paid to our manager in the form of common stock in accordance with Issue 4(a) of EITF 96-18 which discusses how to measure at the measurement date when certain terms are not known prior to the measurement date. Accordingly, the expense recorded for such common stock is adjusted to reflect the fair value of the common stock on the measurement date when the final calculation of the annual incentive compensation is determined. In the event that the annual incentive compensation calculated as of the measurement date is less than the four quarterly installments of the annual incentive compensation paid in advance, our manager will refund the amount of such overpayment in cash and we would record a negative incentive compensation expense in the quarter when such overpayment is determined.
 
Origination Fees.  Our manager is entitled to 100% of the origination fees paid by borrowers on all loans and investments that do not exceed 1% of the loan’s principal amount. We retain 100% of the origination fee that exceeds 1% of the loan’s principal amount.
 
Term and Termination.  The management agreement has an initial term of two years and is renewable automatically for an additional one year period every year thereafter, unless terminated with six months’ prior written notice. If we terminate or elect not to renew the management agreement in order to manage our portfolio internally, we are required to pay a termination fee equal to the base management fee and incentive compensation for the 12-month period preceding the termination. If, without cause, we terminate or elect not to renew the management agreement for any other reason, including a change of control of us, we are required to pay a
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termination fee equal to two times the base management fee and incentive compensation paid for the 12-month period preceding the termination.
 
Inflation
 
In our two most recent fiscal years, inflation and changing prices have not had a material effect on our net income and revenue. Changes in the general level of interest rates prevailing in the economy in response to changes in the rate of inflation generally have little effect on our income because the majority of our interest-earning assets and interest-bearing liabilities have floating rates of interest. Additionally, we also have various fixed rate loans in our portfolio which are financed with variable rate LIBOR borrowings. In connection with these loans, we have entered into various interest swaps to hedge our exposure to the interest rate risk on our variable rate LIBOR borrowings as it relates to certain fixed rate loans in our portfolio. However, the value of our interest-earning assets, our ability to realize gains from the sale of assets, and the average life of our interest-earning assets, among other things, may be effected. See Item 7A — “Quantitative and Qualitative Disclosures about Market Risk.”
 
Related Party Transactions
 
Related Party Loans
 
As of December 31, 2006 and 2005, we had a $7.75 million first mortgage loan receivable that bore interest at a variable rate of one month LIBOR plus 4.25% and was scheduled to mature in March 2006. In March 2006, this loan was extended for one year with no other change in terms. This loan was made to a not-for-profit corporation that holds and manages investment property from the endowment of a private academic institution. Two of our directors are members of the board of trustees of the borrower and the private academic institution. Interest income recorded from this loan for the year ended December 31, 2006 and 2005, was approximately $0.7 million and $0.6 million, respectively.
 
ACM had a 50% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. In 2005, ACM received all of the invested capital and retained its interest in the joint venture. All loans outstanding to this joint venture were repaid in full in 2004. In 2003, we had a $16.0 million bridge loan outstanding to the joint venture, which was collateralized by a first lien position on a commercial real estate property. This loan was funded by ACM in June 2003 and was purchased by us in July 2003. The loan required monthly interest payments based on one month LIBOR and was repaid in full in 2004. We had agreed to provide the borrower with additional mezzanine financing in the amount of up to $8.0 million. The mezzanine financing required interest payments based on one month LIBOR and was repaid in full in 2004.
 
Our $16.0 million bridge loan to the joint venture was contributed by ACM as one of the structured finance assets contributed to us on July 1, 2003 at book value, which approximates fair value. At the time of contribution, ACM also agreed to provide a limited guarantee of the loan’s principal amount based on any profits realized on its retained 50% interest in the joint venture with the borrower and ACM’s participating interests in borrowers under three other contributed structured finance assets.
 
At the time of ACM’s origination of three of the structured finance assets that it contributed to us on July 1, 2003 at book value, which approximates fair value, each of the property owners related to these contributed assets granted ACM participating interests that share in a percentage of the cash flows of the underlying properties. Upon contribution of the structured finance assets, ACM retained these participating interests and its 50% non-controlling interest in the joint venture to which it had made the $16.0 million bridge loan. ACM agreed that if any portion of the outstanding amount of any of these four contributed assets is not paid at its maturity or repurchase date, ACM will pay to us, subject to the limitation described below, the portion of the unpaid amount of the contributed asset up to the total amount then received by ACM due to the realization of any profits on its retained interests associated with any of the four contributed assets (which had an aggregate balance of $22.3 million and $48.3 million as of December 31, 2004 and 2003, respectively). However, ACM will no longer be obligated to make such payments to us when the remaining accumulated principal amount of the four contributed assets, collectively, falls below $5 million and none of the four contributed assets were in default. In 2004 and 2005, these four investments matured, the borrowers paid the amounts due in full and ACM’s guarantee on these investments has been satisfied.
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ACM has a 50% non-controlling interest in an entity, that owns 15% of a real estate holding company that owns and operates a factory outlet center. At December 31, 2006, ACM’s investment in this joint venture was approximately $0.2 million. The Company had a $28.3 million preferred equity investment in this joint venture, which was collateralized by a pledge of the ownership interest in this commercial real estate property. This loan was funded by ACM in September 2005 and was purchased by us in March 2006. The loan required monthly interest payments based on one month LIBOR and matures in September 2007. Interest income recorded from this loan for the year ended December 31, 2006 was approximately $2.7 million. The loan was repaid in full in November 2006.
 
In 2005, ACM received a brokerage fee for services rendered in arranging a loan facility for a borrower. We provided a portion of the loan facility. We were credited $0.4 million of this brokerage fee, which was included in other income.
 
During the first quarter 2006, ACM originated permanent financing of $31.5 million to a borrower to repay an existing $30.0 million bridge loan with us. Pursuant to the terms of the bridge loan agreement, we had a right of first offer to provide permanent financing, a right of first refusal to match the terms and conditions from a third party lender and a potential prepayment fee of $0.9 million. In August 2006, ACM received a $0.5 million fee for the securitization of the $31.5 million permanent financing. This fee was remitted to us in August 2006 in lieu of waving our right of first refusal and potential prepayment fee under the original terms of the bridge loan.
 
As of December 31, 2006 and 2005, $0.1 million and $0.2 million, respectively of escrows received at loan closings were due to ACM and included in due to related party. These payments were remitted in January 2007 and January 2006, respectively. In addition, as of December 31, 2005, approximately $0.1 million of net expenses due from ACM were included in due to related party. These payments were remitted in January 2006.
 
Other Related Party Transactions
 
ACM contributed the majority of its structured finance portfolio to our operating partnership pursuant to a contribution agreement. The contribution agreement contains representations and warranties concerning the ownership and terms of the structured finance assets it contributed and other customary matters. ACM has agreed to indemnify us and our operating partnership against breaches of those representations and warranties. In exchange for ACM’s asset contribution, we issued to ACM approximately 3.1 million operating partnership units, each of which ACM may redeem for one share of our common stock or an equivalent amount in cash, at our election, and 629,345 warrants, each of which entitled ACM to purchase one additional operating partnership unit at an initial exercise price of $15.00. The operating partnership units and warrants for additional operating partnership units issued to ACM were valued at approximately $43.9 million at July 1, 2003, based on the price offered to investors in our units in the private placement, adjusted for the initial purchaser’s discount. We also granted ACM certain demand and other registration rights with respect to the shares of common stock issuable upon redemption of its operating partnership units. In 2004, ACM exercised all of its warrants for a total of 629,345 operating partnership units and proceeds of $9.4 million.
 
Each of the approximately 3.8 million operating partnership units owned by ACM is paired with one share of our special voting preferred stock that entitles the holder to one vote on all matters submitted to a vote of our stockholders. As operating partnership units are redeemed for shares of our common stock or cash an equivalent number of shares of special voting preferred stock will be redeemed and cancelled. As a result of the ACM asset contribution and the related formation transactions, ACM owns approximately an 18% limited partnership interest in our operating partnership and the remaining 82% interest in our operating partnership is owned by us. In addition, ACM has approximately 20% of the voting power of our outstanding stock.
 
We and our operating partnership have entered into a management agreement with ACM pursuant to which ACM has agreed to provide us with structured finance investment opportunities and loan servicing as well as other services necessary to operate our business. As discussed above in “— Contractual Commitments,” we have agreed to pay our manager an annual base management fee and incentive compensation each fiscal quarter and share with ACM a portion of the origination fees that we receive on loans we originate with ACM pursuant to this agreement.
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Under the terms of the management agreement, ACM is also required to provide us with a right of first refusal with respect to all structured finance transactions identified by ACM or its affiliates. We have agreed not to pursue, and to allow ACM to pursue, any real estate opportunities other than structured finance transactions.
 
In addition, Mr. Kaufman has entered into a non-competition agreement with us pursuant to which he has agreed not to pursue structured finance investment opportunities, except as approved by our board of directors.
 
We are dependent upon our manager, ACM, to provide services to us that are vital to our operations with whom we have conflicts of interest. Our chairman, chief executive officer and president, Mr. Ivan Kaufman, is also the chief executive officer and president of our manager, and, our chief financial officer, Mr. Paul Elenio, is the chief financial officer of our manager. In addition, Mr. Kaufman and the Kaufman entities together beneficially own approximately 90% of the outstanding membership interests of ACM and certain of our employees and directors, also hold an ownership interest in ACM. Furthermore, one of our directors also serves as the trustee of one of the Kaufman entities that holds a majority of the outstanding membership interests in ACM and co-trustee of another Kaufman entity that owns an equity interest in our manager. ACM currently holds an 18% limited partnership interest in our operating partnership and 20% of the voting power of our outstanding stock.
 
We and our operating partnership have also entered into a services agreement with ACM pursuant to which our asset management group provides asset management services to ACM. In the event the services provided by our asset management group pursuant to the agreement exceed by more than 15% per quarter the level of activity anticipated by our board of directors, we will negotiate in good faith with our manager an adjustment to our manager’s base management fee under the management agreement, to reflect the scope of the services, the quantity of serviced assets or the time required to be devoted to the services by our asset management group.
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ITEM 7A.  	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	
 
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and real estate values. The primary market risks that we are exposed to are real estate risk, interest rate risk, market value risk and prepayment risk.
 
Real Estate Risk
 
Commercial mortgage assets may be viewed as exposing an investor to greater risk of loss than residential mortgage assets since such assets are typically secured by larger loans to fewer obligors than residential mortgage assets. Multi-family and commercial property values and net operating income derived from such properties are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors), local real estate conditions (such as an oversupply of housing, retail, industrial, office or other commercial space); changes or continued weakness in specific industry segments; construction quality, construction cost, age and design; demographic factors; retroactive changes to building or similar codes; and increases in operating expenses (such as energy costs). In the event net operating income decreases, a borrower may have difficulty repaying our loans, which could result in losses to us. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay our loans, which could also cause us to suffer losses. Even when the net operating income is sufficient to cover the related property’s debt service, there can be no assurance that this will continue to be the case in the future.
 
Interest Rate Risk
 
Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
 
Our operating results will depend in large part on differences between the income from our loans and our borrowing costs. Most of our loans and borrowings are variable-rate instruments, based on LIBOR. The objective of this strategy is to minimize the impact of interest rate changes on our net interest income. In addition, we have various fixed rate loans in our portfolio, which are financed with variable rate LIBOR borrowings. We have entered into various interest swaps (as discussed below) to hedge our exposure to interest rate risk on our variable rate LIBOR borrowings as it relates to our fixed rate loans. Many of our loans and borrowings are subject to various interest rate floors. As a result, the impact of a change in interest rates may be different on our interest income than it is on our interest expense.
 
Based on the loans and liabilities as of December 31, 2006, and assuming the balances of these loans and liabilities remain unchanged for the subsequent twelve months, a 1% increase in LIBOR would increase our annual net income and cash flows by approximately $2.0 million. This is primarily due to our interest rate swaps that effectively convert a portion of the variable rate LIBOR based debt, as it relates to certain fixed rate assets, to a fixed basis that is not subject to a 1% increase. Based on the loans and liabilities as of December 31, 2006, and assuming the balances of these loans and liabilities remain unchanged for the subsequent twelve months, a 1% decrease in LIBOR would decrease our annual net income and cash flows by approximately $1.5 million. This is primarily due to our interest rate swaps that effectively convert a portion of the variable rate LIBOR based debt, as it relates to certain fixed rate assets, to a fixed basis that is not subject to a 1% decrease, partially offset by loans currently subject to interest rate floors (and, therefore, not be subject to the full downward interest rate adjustment).
 
As of December 31, 2005, a 1% increase in LIBOR would have increased our annual net income and cash flows in the subsequent twelve months by approximately $2.0 million. This is primarily due to our interest rate swaps that effectively convert a portion of the variable rate LIBOR based debt, as it relates to certain fixed rate assets, to a fixed basis that is not subject to a 1% increase. As of December 31, 2005, a 1% decrease in LIBOR would have decreased our annual net income and cash flows in the subsequent twelve months by approximately $1.1 million. This is primarily due to our interest rate swaps that effectively convert a portion of the variable rate LIBOR based debt, as it relates to certain fixed rate assets, to a fixed basis that is not subject to a 1% decrease, partially offset by loans currently subject to interest rate floors (and, therefore, not be subject to the full downward interest rate adjustment).
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In the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses to us, which could adversely affect our liquidity and operating results. Further, such delinquencies or defaults could have an adverse effect on the spreads between interest-earning assets and interest-bearing liabilities.
 
We invest in securities, which are designated as available-for-sale. These securities are adjustable rate securities that have a fixed component for three years and, thereafter, generally reset annually. These securities are financed with a repurchase agreement that bears interest at a rate of one month LIBOR plus .20%. Since the repricing of the debt obligations occurs more quickly than the repricing of the securities, on average, our cost of borrowings will rise more quickly in response to an increase in market interest rates than the earnings rate on the securities. This will result in a reduction to our net interest income and cash flows related to these securities. Based on the securities and borrowings as of December 31, 2006, and assuming the balances of these securities and borrowings remain unchanged for the subsequent twelve months, a 1% increase in LIBOR would reduce our annual net income and cash flows by approximately $0.2 million. A 1% decrease in LIBOR would increase our annual net income and cash flows by approximately $0.2 million. As of December 31, 2005, assuming the balances of these securities and borrowings remained unchanged for the subsequent twelve months, a 1% increase in LIBOR would have reduced our annual net income and cash flows by approximately $0.3 million. A 1% decrease in LIBOR would have increased our annual net income and cash flows by approximately $0.3 million.
 
In connection with our CDOs described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we entered into interest rate swap agreements to hedge the exposure to the risk of changes in the difference between three-month LIBOR and one-month LIBOR interest rates. These interest rate swaps became necessary due to the investor’s return being paid based on a three-month LIBOR index while the assets contributed to the CDOs are yielding interest based on a one-month LIBOR index.
 
As of December 31, 2006 we had ten of these interest rate swap agreements outstanding that have a combined notional value of $1.2 billion. As of December 31, 2005 we had five of these interest rate swap agreements outstanding with a combined notional value of $757.3 million. The market value of these interest rate swaps is dependent upon existing market interest rates and swap spreads, which change over time. As of December 31, 2006, and December 31, 2005, if there were a 50 basis point increase in forward interest rates, the value of these interest rate swaps would have decreased by approximately $0.7 million and $0.1 million, respectively. If there were a 50 basis point decrease in forward interest rates, the value of these interest rate swaps would have increased by approximately $0.7 million and $0.1 million, respectively.
 
In connection with the issuance of variable rate junior subordinate notes during 2006 and 2005, we entered into various interest rate swap agreements. These swaps have total notional values of $140.0 million and $50.0 million, respectively, as of December 31, 2006 and December 31, 2005. The market value of these interest rate swaps is dependent upon existing market interest rates and swap spreads, which change over time. As of December 31, 2006 and December 31, 2005, if there had been a 50 basis point increase in forward interest rates, the fair market value of these interest rate swaps would have increased by approximately $2.5 million and $0.9 million, respectively. If there were a 50 basis point decrease in forward interest rates, the fair market value of these interest rate swaps would have decreased by approximately $2.4 million and $0.9 million, respectively.
 
As of December 31, 2006, we had eighteen interest rate swap agreements outstanding that have a combined notional value of $330.4 million. As of December 31, 2005 we had two interest rate swap agreements outstanding with combined notional values of $140.0 million to hedge current and outstanding LIBOR based debt relating to certain fixed rate loans within our portfolio. The fair market value of these interest rate swaps is dependent upon existing market interest rates and swap spreads, which change over time. As of December 31, 2006, and December 31, 2005, if there had been a 50 basis point increase in forward interest rates, the fair market value of these interest rate swaps would have increased by approximately $8.9 million and $4.7 million respectively. If there were a 50 basis point decrease in forward interest rates, the fair market value of these interest rate swaps would have decreased by approximately $9.2 million and $4.7 million, respectively.
 
Our hedging transactions using derivative instruments also involve certain additional risks such as counterparty credit risk, the enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates will cause a significant loss of basis in the contract. The counterparties to our derivative arrangements
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are major financial institutions with high credit ratings with which we and our affiliates may also have other financial relationships. As a result, we do not anticipate that any of these counterparties will fail to meet their obligations. There can be no assurance that we will be able to adequately protect against the foregoing risks and will ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging strategies.
 
We utilize interest rate swaps to limit interest rate risk. Derivatives are used for hedging purposes rather than speculation. We do not enter into financial instruments for trading purposes.
 
Market Value Risk
 
Our available-for-sale securities are reflected at their estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income pursuant to SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities.” The estimated fair value of these securities fluctuate primarily due to changes in interest rates and other factors; however, given that these securities are guaranteed as to principal and/or interest by an agency of the U.S. Government, such fluctuations are generally not based on the creditworthiness of the mortgages securing these securities. Generally, in a rising interest rate environment, the estimated fair value of these securities would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of these securities would be expected to increase.
 
Prepayment Risk
 
As we receive repayments of principal on these securities, premiums paid on such securities are amortized against interest income using the effective yield method through the expected maturity dates of the securities. In general, an increase in prepayment rates will accelerate the amortization of purchase premiums, thereby reducing the interest income earned on the securities.
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ITEM 8.  	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	
 
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

 	 	Page	
 	 	 	 	 	
Report of Independent Registered Public Accounting Firm	 	 	50	 	
Consolidated Balance Sheets at December 31, 2006 and 2005	 	 	51	 	
Consolidated Income Statements for the years ended December 31, 2006, 2005, and 2004	 	 	52	 	
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2006, 2005 and 2004	 	 	53	 	
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004	 	 	54	 	
Notes to Consolidated Financial Statements	 	 	55	 	
Schedule IV — Loans and Other Lending Investments	 	 	93	 	
 
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
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Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders of
Arbor Realty Trust, Inc. and Subsidiaries
 
We have audited the accompanying consolidated balance sheets of Arbor Realty Trust, Inc. and Subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. Our audits also included the financial statement schedule listed in the Index to the Consolidated Financial Statements. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Arbor Realty Trust, Inc. and Subsidiaries at December 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2007 expressed an unqualified opinion thereon.
 
/s/  ERNST & YOUNG LLP
 
New York, New York
February 28, 2007
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 	 	December 31,
	 	 	December 31,
	 	
 	 	2006	 	 	2005	 	
 	 	 	 	 	 	 	 	 	
ASSETS:	
Cash and cash equivalents	 	$	7,756,857	 	 	$	19,427,309	 	
Restricted cash	 	 	84,772,062	 	 	 	35,496,276	 	
Loans and investments, net	 	 	1,993,525,064	 	 	 	1,246,825,906	 	
Related party loans, net	 	 	7,752,038	 	 	 	7,749,538	 	
Available-for-sale securities, at fair value	 	 	22,100,176	 	 	 	29,615,420	 	
Investment in equity affiliates	 	 	25,376,949	 	 	 	18,094,242	 	
Other assets	 	 	63,062,065	 	 	 	38,866,666	 	
 	 	 	 	 	 	 	 	 	
Total Assets	 	$	2,204,345,211	 	 	$	1,396,075,357	 	

LIABILITIES AND STOCKHOLDERS’ EQUITY:	
Repurchase agreements	 	$	395,847,359	 	 	$	413,624,385	 	
Collateralized debt obligations	 	 	1,091,529,000	 	 	 	299,319,000	 	
Junior subordinated notes to subsidiary trust issuing preferred securities	 	 	222,962,000	 	 	 	155,948,000	 	
Notes payable	 	 	94,574,240	 	 	 	115,400,377	 	
Notes payable — related party	 	 	—	 	 	 	30,000,000	 	
Due to related party	 	 	3,983,647	 	 	 	1,777,412	 	
Due to borrowers	 	 	16,067,295	 	 	 	10,691,355	 	
Other liabilities	 	 	17,802,341	 	 	 	18,014,755	 	
 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	1,842,765,882	 	 	 	1,044,775,284	 	
 	 	 	 	 	 	 	 	 	
Minority interest	 	 	65,468,252	 	 	 	63,691,556	 	
Stockholders’ equity:	 	 	 	 	 	 	 	 	
Preferred stock, $0.01 par value: 100,000,000 shares authorized; 3,776,069 shares issued and outstanding	 	 	37,761	 	 	 	37,761	 	
Common stock, $0.01 par value: 500,000,000 shares authorized; 17,388,770 shares issued, 17,109,370 shares outstanding at December 31, 2006 and 17,051,391 shares issued and outstanding at December 31, 2005	 	 	173,888	 	 	 	170,514	 	
Additional paid-in capital	 	 	273,037,744	 	 	 	264,691,931	 	
Treasury stock, at cost — 279,400 shares	 	 	(7,023,361	)	 	 	—	 	
Retained earnings	 	 	27,732,489	 	 	 	21,452,789	 	
Accumulated other comprehensive income	 	 	2,152,556	 	 	 	1,255,522	 	
 	 	 	 	 	 	 	 	 	
Total stockholders’ equity	 	 	296,111,077	 	 	 	287,608,517	 	
 	 	 	 	 	 	 	 	 	
Total liabilities and stockholders’ equity	 	$	2,204,345,211	 	 	$	1,396,075,357	 	

See notes to consolidated financial statements
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

 	 	For the
	 	 	For the
	 	 	For the
	 	
 	 	Year Ended
	 	 	Year Ended
	 	 	Year Ended
	 	
 	 	December 31, 2006	 	 	December 31, 2005	 	 	December 31, 2004	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	$	172,833,401	 	 	$	121,109,157	 	 	$	57,927,230	 	
Income from swap derivative	 	 	696,960	 	 	 	—	 	 	 	—	 	
Other income	 	 	170,197	 	 	 	498,250	 	 	 	42,265	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	 	173,700,558	 	 	 	121,607,407	 	 	 	57,969,495	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	92,693,419	 	 	 	45,745,424	 	 	 	19,372,575	 	
Employee compensation and benefits	 	 	4,648,644	 	 	 	4,274,609	 	 	 	2,325,727	 	
Stock based compensation	 	 	2,329,689	 	 	 	1,590,898	 	 	 	324,343	 	
Selling and administrative	 	 	4,463,019	 	 	 	4,351,366	 	 	 	1,908,522	 	
Management fee — related party	 	 	12,831,791	 	 	 	12,430,546	 	 	 	3,614,830	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	116,966,562	 	 	 	68,392,843	 	 	 	27,545,997	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest and income from equity affiliates	 	 	56,733,996	 	 	 	53,214,564	 	 	 	30,423,498	 	
Income from equity affiliates	 	 	4,784,292	 	 	 	8,453,440	 	 	 	525,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest	 	 	61,518,288	 	 	 	61,668,004	 	 	 	30,948,498	 	
Income allocated to minority interest	 	 	11,104,481	 	 	 	11,280,981	 	 	 	5,875,816	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	50,413,807	 	 	$	50,387,023	 	 	$	25,072,682	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings per common share	 	$	2.94	 	 	$	2.99	 	 	$	1.81	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per common share	 	$	2.93	 	 	$	2.98	 	 	$	1.78	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends declared per common share	 	$	2.57	 	 	$	2.24	 	 	$	1.16	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average number of shares of common stock outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	17,161,346	 	 	 	16,867,466	 	 	 	13,814,199	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	 	 	21,001,804	 	 	 	20,672,502	 	 	 	17,366,015	 	

See notes to consolidated financial statements
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

 	 	 	 	 	 	 	 	Preferred
	 	 	 	 	 	Common
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated
	 	 	 	 	
 	 	 	 	 	Preferred
	 	 	Stock
	 	 	Common
	 	 	Stock
	 	 	Additional
	 	 	Treasury
	 	 	 	 	 	 	 	 	Other
	 	 	 	 	
 	 	Comprehensive
	 	 	Stock
	 	 	Par
	 	 	Stock
	 	 	Par
	 	 	Paid-In
	 	 	Stock
	 	 	Treasury
	 	 	Retained
	 	 	Comprehensive
	 	 	 	 	
 	 	Income	 	 	Shares	 	 	Value	 	 	Shares	 	 	Value	 	 	Capital	 	 	Shares	 	 	Stock	 	 	Earnings	 	 	Income/(Loss)	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance- January 1, 2004	 	 	 	 	 	 	3,146,724	 	 	$	31,467	 	 	 	8,199,567	 	 	$	81,996	 	 	$	111,694,516	 	 	 	—	 	 	$	—	 	 	$	(691,865	)	 	$	—	 	 	$	111,116,114	 	
Issuance of preferred stock	 	 	 	 	 	 	629,345	 	 	 	6,294	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	6,294	 	
Issuance of common stock, net	 	 	 	 	 	 	 	 	 	 	 	 	 	 	7,274,200	 	 	 	72,742	 	 	 	134,115,399	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	134,188,141	 	
Issuance of common stock from exercise of warrants	 	 	 	 	 	 	 	 	 	 	 	 	 	 	973,354	 	 	 	9,733	 	 	 	12,862,937	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	12,872,670	 	
Deferred compensation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	22,498	 	 	 	225	 	 	 	499,234	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	499,459	 	
Stock based compensation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	324,343	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	324,343	 	
Distributions — common stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(15,567,679	)	 	 	 	 	 	 	(15,567,679	)	
Forfeited unvested restricted stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(2,401	)	 	 	(24	)	 	 	24	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	
Adjustment to minority interest from increased ownership in ARLP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(5,229,251	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(5,229,251	)	
Net income	 	$	25,072,682	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	25,072,682	 	 	 	 	 	 	 	25,072,682	 	
Net unrealized loss on securities available for sale	 	 	(529,600	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(529,600	)	 	 	(529,600	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance-December 31, 2004	 	$	24,543,082	 	 	 	3,776,069	 	 	$	37,761	 	 	 	16,467,218	 	 	$	164,672	 	 	$	254,267,202	 	 	 	—	 	 	$	—	 	 	$	8,813,138	 	 	$	(529,600	)	 	$	262,753,173	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Issuance of common stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	191,342	 	 	 	1,913	 	 	 	5,265,142	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,267,055	 	
Issuance of common stock from exercise of warrants	 	 	 	 	 	 	 	 	 	 	 	 	 	 	282,776	 	 	 	2,828	 	 	 	4,189,027	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	4,191,855	 	
Deferred compensation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	124,500	 	 	 	1,245	 	 	 	(1,245	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	
Stock based compensation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,590,898	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,590,898	 	
Distributions — common stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(37,747,372	)	 	 	 	 	 	 	(37,747,372	)	
Forfeited unvested restricted stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(14,445	)	 	 	(144	)	 	 	144	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	
Adjustment to minority interest from increased ownership in ARLP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(619,237	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(619,237	)	
Net income	 	$	50,387,023	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	50,387,023	 	 	 	 	 	 	 	50,387,023	 	
Net unrealized loss on securities available for sale	 	 	(365,698	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(365,698	)	 	 	(365,698	)	
Unrealized gain on derivative financial instruments	 	 	2,150,820	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2,150,820	 	 	 	2,150,820	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance-December 31, 2005	 	$	52,172,145	 	 	 	3,776,069	 	 	$	37,761	 	 	 	17,051,391	 	 	$	170,514	 	 	$	264,691,931	 	 	 	—	 	 	$	—	 	 	$	21,452,789	 	 	$	1,255,522	 	 	$	287,608,517	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Issuance of common stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	243,129	 	 	 	2,431	 	 	 	6,277,782	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	6,280,213	 	
Purchase of treasury stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(279,400	)	 	 	(7,023,361	)	 	 	 	 	 	 	 	 	 	 	(7,023,361	)	
Deferred compensation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	94,695	 	 	 	947	 	 	 	(947	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	
Stock based compensation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2,329,689	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2,329,689	 	
Distributions — common stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(44,134,107	)	 	 	 	 	 	 	(44,134,107	)	
Forfeited unvested restricted stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(445	)	 	 	(4	)	 	 	4	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—	 	
Adjustment to minority interest from increased ownership in ARLP	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(260,715	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(260,715	)	
Net income	 	$	50,413,807	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	50,413,807	 	 	 	 	 	 	 	50,413,807	 	
Net unrealized gain on securities available for sale	 	 	796,922	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	796,922	 	 	 	796,922	 	
Unrealized gain on derivative financial instruments	 	 	100,112	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	100,112	 	 	 	100,112	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance-December 31, 2006	 	$	51,310,842	 	 	 	3,776,069	 	 	$	37,761	 	 	 	17,388,770	 	 	$	173,888	 	 	$	273,037,744	 	 	 	(279,400	)	 	$	(7,023,361	)	 	$	27,732,489	 	 	$	2,152,556	 	 	$	296,111,077	 	

See notes to consolidated financial statements
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

 	 	For the
	 	 	For the
	 	 	For the
	 	
 	 	Year Ended
	 	 	Year Ended
	 	 	Year Ended
	 	
 	 	December 31,
	 	 	December 31,
	 	 	December 31,
	 	
 	 	2006	 	 	2005	 	 	2004	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	50,413,807	 	 	$	50,387,023	 	 	$	25,072,682	 	
Adjustments to reconcile net income to cash provided by operating activities	 	 	 	 	 	 	 	 	 	 	 	 	
Stock based compensation	 	 	2,329,689	 	 	 	1,590,898	 	 	 	324,343	 	
Minority interest	 	 	11,104,481	 	 	 	11,280,981	 	 	 	5,875,816	 	
Amortization and accretion of interest	 	 	(219,820	)	 	 	(165,906	)	 	 	(1,431,146	)	
Non-cash incentive compensation to manager	 	 	8,453,489	 	 	 	5,545,506	 	 	 	1,623,106	 	
Income from equity affiliates	 	 	—	 	 	 	—	 	 	 	(525,000	)	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Others assets	 	 	(6,336,004	)	 	 	(7,771,987	)	 	 	(6,192,238	)	
Other liabilities	 	 	(212,413	)	 	 	12,207,088	 	 	 	838,159	 	
Deferred origination fees	 	 	(471,814	)	 	 	(130,560	)	 	 	1,163,039	 	
Due to related party	 	 	32,956	 	 	 	292,927	 	 	 	1,324,901	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	$	65,094,371	 	 	$	73,235,970	 	 	$	28,073,662	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Investing activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Loans and investments originated and purchased, net	 	 	(1,449,405,924	)	 	 	(989,797,797	)	 	 	(733,136,131	)	
Payoffs and paydowns of loans and investments	 	 	704,467,014	 	 	 	574,393,425	 	 	 	221,425,780	 	
Due to borrowers	 	 	5,375,940	 	 	 	2,104,285	 	 	 	177,125	 	
Securities available for sale	 	 	—	 	 	 	—	 	 	 	(57,228,552	)	
Prepayments on securities available for sale	 	 	7,897,845	 	 	 	15,999,968	 	 	 	9,722,630	 	
Change in restricted cash	 	 	(49,275,786	)	 	 	(35,496,276	)	 	 	—	 	
Contributions to equity affiliates	 	 	(7,282,707	)	 	 	(18,280,824	)	 	 	(9,562,190	)	
Distributions from equity affiliates	 	 	—	 	 	 	5,441,315	 	 	 	3,525,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash used in investing activities	 	$	(788,223,618	)	 	$	(445,635,904	)	 	$	(565,076,388	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Financing activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from notes payable and repurchase agreements	 	 	702,024,038	 	 	 	759,168,998	 	 	 	605,600,178	 	
Payoffs and paydowns of notes payable and repurchase agreements	 	 	(770,627,202	)	 	 	(775,025,055	)	 	 	(203,247,830	)	
Proceeds from issuance of collateralized debt obligation	 	 	803,750,000	 	 	 	305,319,000	 	 	 	—	 	
Payoffs and paydowns of collateralized debt obligation	 	 	(11,540,000	)	 	 	(6,000,000	)	 	 	—	 	
Proceeds from issuance of junior subordinated notes	 	 	67,014,000	 	 	 	155,948,000	 	 	 	—	 	
Issuance of common stock	 	 	—	 	 	 	5,381,172	 	 	 	158,356,670	 	
Purchases of treasury stock	 	 	(7,023,361	)	 	 	—	 	 	 	—	 	
Issuance of ARSR preferred stock	 	 	116,000	 	 	 	—	 	 	 	—	 	
Exercise of warrants from minority interest	 	 	—	 	 	 	—	 	 	 	9,440,175	 	
Distributions paid to minority interest	 	 	(9,704,497	)	 	 	(8,458,394	)	 	 	(3,920,819	)	
Offering expenses paid	 	 	—	 	 	 	—	 	 	 	(11,236,483	)	
Distributions paid on common stock	 	 	(44,134,107	)	 	 	(37,747,372	)	 	 	(15,567,679	)	
Payment of deferred financing costs	 	 	(18,416,076	)	 	 	(13,160,807	)	 	 	(2,135,360	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by financing activities	 	$	711,458,795	 	 	$	385,425,542	 	 	$	537,288,852	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (decrease)/increase in cash	 	$	(11,670,452	)	 	$	13,025,608	 	 	$	286,176	 	
Cash at beginning of period	 	 	19,427,309	 	 	 	6,401,701	 	 	 	6,115,525	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash at end of period	 	$	7,756,857	 	 	$	19,427,309	 	 	$	6,401,701	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Supplemental cash flow information:	 	 	 	 	 	 	 	 	 	 	 	 	
Cash used to pay interest, net of capitalized interest	 	$	85,650,217	 	 	$	41,376,179	 	 	$	18,547,842	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Supplemental schedule of non-cash financing and investing activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Accrued offering expenses	 	 	—	 	 	 	—	 	 	 	59,377	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Conversion of investment in equity affiliates to loan	 	 	—	 	 	 	—	 	 	 	6,700,000	 	

See notes to consolidated financial statements
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 
Note 1 — Description of Business and Basis of Presentation
 
Arbor Realty Trust, Inc. (the “Company”) is a Maryland corporation that was formed in June 2003 to invest in real estate related bridge and mezzanine loans, preferred and direct equity and, in limited cases, mortgage backed securities, discounted mortgage notes and other real estate related assets. The Company has not invested in any discounted mortgage notes for the periods presented. The Company conducts substantially all of its operations through its operating partnership, Arbor Realty Limited Partnership (“ARLP”), and its wholly owned subsidiaries.
 
On July 1, 2003, Arbor Commercial Mortgage, LLC (“ACM”) contributed $213.1 million of structured finance assets and $169.2 million of borrowings supported by $43.9 million of equity in exchange for a commensurate equity ownership in ARLP. In addition, certain employees of ACM were transferred to ARLP. These assets, liabilities and employees represent a substantial portion of ACM’s structured finance business (the “SF Business”). The Company is externally managed and advised by ACM and pays ACM a management fee in accordance with a management agreement. ACM also sources originations, provides underwriting services and services all structured finance assets on behalf of ARLP, and its wholly owned subsidiaries.
 
On July 1, 2003, the Company completed a private equity offering of units, each consisting of five shares of common stock and one warrant to purchase one share of common stock. Gross proceeds from the private equity offering totaled $120.2 million. Gross proceeds from the private equity offering combined with the concurrent equity contribution by ACM totaled approximately $164.1 million in equity capital. The Company paid and accrued offering expenses of $10.1 million resulting in stockholders’ equity and minority interest of $154.0 million as a result of the private placement.
 
On April 13, 2004, the Company sold 6,750,000 shares of its common stock in a public offering at a price of $20.00 per share, for net proceeds of approximately $124.4 million after deducting the underwriting discount and the other estimated offering expenses. The Company used the proceeds to pay down indebtedness. After giving effect to this offering, the Company had 14,949,567 shares of common stock outstanding. In May 2004, the underwriters exercised a portion of their over-allotment option, which resulted in the issuance of 524,200 additional shares. The Company received net proceeds of approximately $9.8 million after deducting the underwriting discount. In October 2004, ARLP received proceeds of approximately $9.4 million from the exercise of warrants for a total of 629,345 operating partnership units. Additionally, in 2004 and 2005, the Company issued 973,354 and 282,776 shares of common stock respectively from the exercise of warrants under its Warrant Agreement dated July 1, 2003, the (“Warrant Agreement”). As of December 31, 2006, the Company had 17,109,370 shares of common stock outstanding.
 
The accompanying consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries, and partnerships or other joint ventures in which the Company controls. Entities which the Company does not control and entities which are variable interest entities (see Note 2 “Summary of Significant Accounting Policies”), which the Company is not the primary beneficiary, are accounted for under the equity method. All significant intercompany transactions and balances have been eliminated.
 
Note 2 — Summary of Significant Accounting Policies
 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principals (“GAAP”) requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 
Reclassifications
 
Certain prior year amounts have been reclassified to conform to current period presentation.
 
Cash and Cash Equivalents
 
All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. The Company places its cash and cash equivalents in high quality financial institutions. The consolidated account balances at each institution periodically exceeds FDIC insurance coverage and the Company believes that this risk is not significant.
 
Restricted Cash
 
At December 31, 2006 and 2005, the Company had restricted cash of $84.8 million and $35.5 million, respectively, on deposit with the trustees for the Company’s collateralized debt obligations (“CDOs”), see Note 6 “Debt Obligations”, primarily representing “ramp-up” proceeds received from the Company’s third collateralized debt obligation (“CDO III”) which will be used to purchase underlying assets, proceeds from loan repayments which will be used to purchase replacement loans as collateral for the CDOs and interest payments received from loans in the CDOs which are remitted to the Company quarterly in the month following the quarter.
 
Loans and Investments
 
SFAS No. 115 requires that at the time of purchase, we designate a security as held to maturity, available for sale, or trading depending on ability and intent. Securities available for sale are reported at fair value, while securities and investments held to maturity are reported at amortized cost. We do not have a trading security at this time. Loans held for investment are intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan origination costs and fees, unless such loan or investment is deemed to be impaired.
 
The Company invests in preferred equity interests that, in some cases, allow the Company to participate in a percentage of the underlying property’s cash flows from operations and proceeds from a sale or refinancing. At the inception of each such investment, management must determine whether such investment should be accounted for as a loan, joint venture or as real estate. To date, management has determined that all such investments are properly accounted for and reported as loans.
 
Specific valuation allowances are established for impaired loans based on the fair value of collateral on an individual loan basis. The fair value of the collateral is determined by an evaluation of operating cash flow from the property during the projected holding period, and estimated sales value computed by applying an expected capitalization rate to the stabilized net operating income of the specific property, less selling costs, discounted at market discount rates.
 
If upon completion of the valuation, the fair value of the underlying collateral securing the impaired loan is less than the net carrying value of the loan, an allowance is created with a corresponding charge to the provision for loan losses. An allowance for each loan would be maintained at a level believed adequate by management to absorb probable losses. As of December 31, 2006 and 2005, no impairment has been identified and no valuation allowances have been established.
 
At December 31, 2006, there was an $8.5 million loan in the loan and investment portfolio that is non-performing and income recognition has been suspended. The principal amount of the loan is not deemed to be impaired and no loan loss reserve has been recorded at this time. Income recognition will resume when the loan becomes contractually current and performance has recommenced.
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 
Capitalized Interest
 
The Company capitalizes interest in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 58 “Capitalization of Interest Costs in Financial Statements that Include Investments Accounted for by the Equity Method”. This statement amended SFAS No. 34 “Capitalization of Interest Costs” to include investments (equity, loans and advances) accounted for by the equity method as qualifying assets of the investor while the investee has activities in progress necessary to commence its planned principal operations, provided that the investee’s activities include the use of funds to acquire qualifying assets for its operations. One of the Company’s joint ventures accounted for using the equity method, is in the process of using funds to acquire qualifying assets for its planned principal operations. During the year ended December 31, 2006 and 2005 the Company capitalized $0.9 million and $0.5 million, respectively of interest relating to this investment.
 
Available-For-Sale Securities
 
The Company invests in agency-sponsored whole pool mortgage related securities. Pools of Federal National Mortgage Association, or FNMA, and Federal Home Loan Mortgage Corporation, or FHLMC, adjustable rate residential mortgage loans underlie these mortgage related securities. The Company receives payments from the payments that are made on these underlying mortgage loans, which have a fixed rate of interest for three years and adjust annually thereafter. These securities are carried at their estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income pursuant to SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities.” Unrealized losses other than temporary losses are recognized currently in income. The estimated fair value of these securities fluctuate primarily due to changes in interest rates and other factors; however, given that these securities are guaranteed as to principal and/or interest by an agency of the U.S. Government, such fluctuations are generally not based on the creditworthiness of the mortgages securing these securities.
 
Revenue Recognition
 
Interest Income — Interest income is recognized on the accrual basis as it is earned from loans, investments and available-for-sale securities. In many instances, the borrower pays an additional amount of interest at the time the loan is closed, an origination fee, and deferred interest upon maturity. In some cases interest income may also include the amortization or accretion of premiums and discounts arising at the purchase or origination. This additional income, net of any direct loan origination costs incurred, is deferred and accreted into interest income on an effective yield or “interest” method adjusted for actual prepayment activity over the life of the related loan or available-for-sale security as a yield adjustment. Income recognition is suspended for loans when in the opinion of management a full recovery of income and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. Several of the loans provide for accrual of interest at specified rates, which differ from current payment terms. Interest is recognized on such loans at the accrual rate subject to management’s determination that accrued interest and outstanding principal are ultimately collectible, based on the underlying collateral and operations of the borrower. If management cannot make this determination regarding collectibility, interest income above the current pay rate is recognized only upon actual receipt. Additionally, interest income is recorded when earned from equity participation interests, referred to as equity kickers. These equity kickers have the potential to generate additional revenues to the Company as a result of excess cash flows being distributed and/or as appreciated properties are sold or refinanced. For the years ended December 31, 2006 and 2005, the Company recorded $13.2 million and $19.7 million of interest on such loans and investments, respectively. These amounts represent interest collected in accordance with the contractual agreement with the borrower.
 
Other income — Other income represents fees received for loan structuring and miscellaneous asset management fees associated with the Company’s loans and investments portfolio.
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 
Gain on Sale of Loans and Real Estate
 
For the sale of loans and real estate, recognition occurs when all the incidence of ownership passes to the buyer.
 
Income from Equity Affiliates
 
The Company invests in joint ventures that are formed to acquire, develop and/or sell real estate assets. These joint ventures are not majority owned or controlled by us, and are not consolidated in our financial statements. These investments are recorded under the equity method of accounting. The Company records its share of the net income and losses from the underlying properties on a single line item in the consolidated income statements as income from equity affiliates.
 
Other Comprehensive Income (Loss)
 
SFAS No. 130 “Reporting comprehensive income”, divides comprehensive income into net income and other comprehensive income (loss), which includes unrealized gains and losses on available for sale securities. In addition, to the extent the Company’s derivative instruments qualify as hedges under SFAS No. 133, net unrealized gains or losses are reported as a component of accumulated other comprehensive income, see “Derivatives and Hedging Activities” below.
 
Income Taxes
 
The Company is organized and conducts its operations to qualify as a real estate investment trust (“REIT”) and to comply with the provisions of the Internal Revenue Code with respect thereto. A REIT is generally not subject to federal income tax on that portion of its REIT taxable income (“Taxable Income”) which is distributed to its stockholders, provided that at least 90% of Taxable Income is distributed and provided that certain other requirements are met. Certain assets of the Company that produce non-qualifying income are held in taxable REIT subsidiaries. Unlike other subsidiaries of a REIT, the income of a taxable REIT subsidiary is subject to federal and state income taxes. During the year ended December 31, 2006 and 2005 the Company recorded a $0.2 million and a $0.1 million provision for income taxes related to these assets that are held in taxable REIT subsidiaries. This provision is included in selling and administrative expense on the income statement.
 
Earnings Per Share
 
In accordance with SFAS No. 128 “Earnings Per Share,” the Company presents both basic and diluted earnings per share. Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower earnings per share amount.
 
Derivatives and Hedging Activities
 
The Company accounts for derivative financial instruments in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), as amended by Statement of Financial Accounting Standards No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities” (“SFAS 138”). SFAS 133, as amended by SFAS 138, requires an entity to recognize all derivatives as either assets or liabilities in the consolidated balance sheets and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either shareholders’ equity in other comprehensive income until the hedged item is recognized in earnings or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 
In the normal course of business, the Company may use a variety of derivative financial instruments to manage, or hedge, interest rate risk. These derivative financial instruments must be effective in reducing its interest rate risk exposure in order to qualify for hedge accounting. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income for each period until the derivative instrument matures or is settled. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market with the changes in value included in net income.
 
Derivatives are used for hedging purposes rather than speculation. The Company relies on quotations from a third party to determine these fair values.
 
The following is a summary of derivative financial instruments held by the Company as of December 31, 2006 and 2005 (in thousands):
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Notional Value
	 	 	Notional Value
	 	 	 	 	 	 	Fair Value
	 	 	Fair Value
	 	
 	 	December 31,
	 	 	December 31,
	 	 	 	 	Designation/
	 	December 31,
	 	 	December 31,
	 	
Date Executed	 	2006	 	 	2005	 	 	Expiration Date	 	Cash Flow	 	2006	 	 	2005	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
December 21, 2004	 	$	386,321	 	 	$	338,095	 	 	January 2012	 	Non-Qualifying	 	$	326	 	 	$	52	 	
December 21, 2004	 	 	82,706	 	 	 	130,931	 	 	December 2009	 	Non-Qualifying	 	 	162	 	 	 	183	 	
June 22, 2005	 	 	25,000	 	 	 	25,000	 	 	March 2010	 	Non-Qualifying	 	 	682	 	 	 	653	 	
December 23, 2005	 	 	119,171	 	 	 	119,171	 	 	July 2015	 	Non-Qualifying	 	 	205	 	 	 	(30	)	
December 23, 2005	 	 	111,000	 	 	 	111,000	 	 	July 2013	 	Non-Qualifying	 	 	113	 	 	 	(24	)	
December 23, 2005	 	 	58,085	 	 	 	58,085	 	 	January 2013	 	Non-Qualifying	 	 	47	 	 	 	(13	)	
December 13, 2006	 	 	112,425	 	 	 	—	 	 	January 2013	 	Non-Qualifying	 	 	(4	)	 	 	—	 	
December 13, 2006	 	 	25,000	 	 	 	—	 	 	January 2013	 	Non-Qualifying	 	 	(1	)	 	 	—	 	
December 13, 2006	 	 	221,900	 	 	 	—	 	 	January 2013	 	Non-Qualifying	 	 	(7	)	 	 	—	 	
December 13, 2006	 	 	31,170	 	 	 	—	 	 	January 2013	 	Non-Qualifying	 	 	(5	)	 	 	—	 	
December 13, 2006	 	 	31,170	 	 	 	—	 	 	January 2013	 	Non-Qualifying	 	 	(4	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Non-Qualifying	 	$	1,203,948	 	 	$	782,282	 	 	 	 	 	 	$	1,514	 	 	$	821	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
June 16, 2005	 	$	25,000	 	 	$	25,000	 	 	April 2010	 	Qualifying	 	$	612	 	 	$	554	 	
December 23, 2005	 	 	134,050	 	 	 	134,050	 	 	October 2015	 	Qualifying	 	 	1,037	 	 	 	(844	)	
December 23, 2005	 	 	—	 	 	 	5,922	 	 	November 2010	 	Qualifying	 	 	—	 	 	 	(15	)	
February 28, 2006	 	 	5,000	 	 	 	—	 	 	September 2010	 	Qualifying	 	 	(11	)	 	 	—	 	
March 2, 2006	 	 	20,000	 	 	 	—	 	 	November 2012	 	Qualifying	 	 	(133	)	 	 	—	 	
March 10, 2006	 	 	10,000	 	 	 	—	 	 	March 2016	 	Qualifying	 	 	(132	)	 	 	—	 	
March 14, 2006	 	 	7,200	 	 	 	—	 	 	April 2011	 	Qualifying	 	 	(37	)	 	 	—	 	
March 15, 2006	 	 	9,000	 	 	 	—	 	 	November 2010	 	Qualifying	 	 	(39	)	 	 	—	 	
March 15, 2006	 	 	3,709	 	 	 	—	 	 	November 2010	 	Qualifying	 	 	(16	)	 	 	—	 	
May 17, 2006	 	 	9,000	 	 	 	—	 	 	June 2007	 	Qualifying	 	 	0	 	 	 	—	 	
June 1, 2006	 	 	1,889	 	 	 	—	 	 	June 2016	 	Qualifying	 	 	(71	)	 	 	—	 	
June 2, 2006	 	 	15,000	 	 	 	—	 	 	June 2011	 	Qualifying	 	 	(217	)	 	 	—	 	
July 21, 2006	 	 	7,215	 	 	 	—	 	 	July 2011	 	Qualifying	 	 	(120	)	 	 	—	 	
July 28, 2006	 	 	25,000	 	 	 	—	 	 	July 2011	 	Qualifying	 	 	(398	)	 	 	—	 	
August 4, 2006	 	 	5,165	 	 	 	—	 	 	August 2011	 	Qualifying	 	 	(55	)	 	 	—	 	
August 15, 2006	 	 	25,000	 	 	 	—	 	 	July 2011	 	Qualifying	 	 	(322	)	 	 	—	 	
September 21, 2006	 	 	25,000	 	 	 	—	 	 	January 2011	 	Qualifying	 	 	(44	)	 	 	—	 	
September 27, 2006	 	 	7,000	 	 	 	—	 	 	June 2016	 	Qualifying	 	 	16	 	 	 	—	 	
September 27, 2006	 	 	6,500	 	 	 	—	 	 	May 2016	 	Qualifying	 	 	16	 	 	 	—	 	
November 29, 2006	 	 	7,950	 	 	 	—	 	 	February 2017	 	Qualifying	 	 	64	 	 	 	—	 	
December 1, 2006	 	 	2,800	 	 	 	—	 	 	July 2011	 	Qualifying	 	 	32	 	 	 	—	 	
December 13, 2006	 	 	39,285	 	 	 	—	 	 	July 2011	 	Qualifying	 	 	218	 	 	 	—	 	
December 20, 2006	 	 	11,796	 	 	 	—	 	 	June 2011	 	Qualifying	 	 	28	 	 	 	—	 	
December 22, 2006	 	 	42,807	 	 	 	—	 	 	December 2016	 	Qualifying	 	 	230	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Qualifying	 	$	445,366	 	 	$	164,972	 	 	 	 	 	 	$	658	 	 	$	(305	)	

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
The fair value of Non-Qualifying Hedges as of December 31, 2006 and December 31, 2005 was $1.5 million and $0.8 million, respectively, and is recorded in other assets and other liabilities on the Balance Sheet. For the year ended December 31, 2006 and 2005 the change in unrealized fair value of the Non-Qualifying Swaps was $0.7 million and $0.1 million respectively, and is recorded as a reduction to interest expense on the Consolidated Income Statement.
 
The fair value of Qualifying Cash Flow Hedges as of December 31, 2006 and December 31, 2005 was $0.7 million and $(0.3) million, respectively and is recorded in Other Comprehensive Income and other assets and other liabilities on the Balance Sheet, respectively. As of December 31, 2006 the Company expects to reclassify approximately $0.7 million of Other Comprehensive Income from Qualifying Cash Flow Hedges to earnings over the next twelve months assuming interest rates on that date are held constant.
 
In June 2005, the Company entered into an interest rate swap agreement on one of its junior subordinated notes relating to one of its series of Trust Preferred securities (“Trust Preferred swap”) that was accounted for as a cash flow hedge under SFAS No. 133. The Company elected an abbreviated method (the “short-cut” method) of documenting the effectiveness of the Trust Preferred swap as a hedge, which allowed the Company to assume no ineffectiveness in this transaction as long as critical terms did not change. The Company recently concluded that the Trust Preferred swap did not qualify for this method in prior periods. The presence of an interest deferral feature in the Trust Preferred security, in retrospect, violated short-cut method criteria. Hedge accounting under SFAS No. 133 is not allowed retrospectively because the hedge documentation required for the “long-haul” method was not in place at the inception of the hedge. Eliminating the application of cash flow hedge accounting reverses the fair value adjustments that were made to the hedged item and results in the reclassification of approximately $0.7 million of the cumulative fair value of the Trust Preferred swap on the balance sheet to income from swap derivative on the income statement. This is a result of a change in accounting treatment according to a new technical clarification of accounting for interest rate swaps on Trust Preferred securities. As of December 31, 2006, the Company re-evaluated the overall effectiveness of this swap, as required under SFAS 133, and determined it does not qualify as a cash flow hedge. During the fourth quarter of 2006, the Company has recorded a $14,575 decrease in the market value of this swap in the income statement and subsequent to year end this swap was terminated.
 
The cumulative amount of Other Comprehensive Income related to net unrealized gains on derivatives designated as Cash Flow Hedges as of December 31, 2006 and December 31, 2005 of $2.3 million and $2.2 million, respectively, is a combination of the fair value of qualifying cash flow hedges of $0.7 million and $0.4 million, respectively, and deferred gain on termination of interest swaps of $1.6 million and $1.8 million, respectively. The remaining portion included in Other Comprehensive Income is related to the Company’s Available for Sale Securities as discussed in Note 4 “Available For Sale Securities” of these Consolidated Financial Statements.
 
The following interest rate swap agreements designated as hedging the Company’s exposure to interest rate risk on current and future forecasted outstanding LIBOR based debt were entered into at various times during 2006 and 2005, two of these swap agreements were terminated in 2006 and six were terminated in 2005.

 	 	 	 	Original
	 	Notional Value
	 	 	 	 	 	
Date Terminated	 	Date Executed	 	Maturity Date	 	(Thousands)	 	 	Hedge Type	 	Designation	
 	 	 	 	 	 	 	 	 	 	 	 	 	
December 13, 2006	 	December 23, 2005	 	November 1, 2010	 	$	5,921	 	 	Interest Rate Swap	 	Qualifying Cash Flow Hedge	
December 13, 2006	 	December 1, 2006	 	May 31, 2011	 	 	20,000	 	 	Interest Rate Swap	 	Qualifying Cash Flow Hedge	
December 22, 2005	 	May 2, 2005	 	April 2015	 	 	9,860	 	 	Interest Rate Swap	 	Qualifying Cash Flow Hedge	
December 22, 2005	 	May 27, 2005	 	March 2015	 	 	37,537	 	 	Interest Rate Swap	 	Qualifying Cash Flow Hedge	
December 22, 2005	 	June 24, 2005	 	August 2010	 	 	23,500	 	 	Interest Rate Swap	 	Qualifying Cash Flow Hedge	
December 22, 2005	 	August 9, 2005	 	November 2009	 	 	6,382	 	 	Interest Rate Swap	 	Qualifying Cash Flow Hedge	
December 22, 2005	 	August 9, 2005	 	November 2009	 	 	7,973	 	 	Interest Rate Swap	 	Qualifying Cash Flow Hedge	
December 22, 2005	 	August 9, 2005	 	July 2015	 	 	7,032	 	 	Interest Rate Swap	 	Qualifying Cash Flow Hedge	

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
The Company had accounted for these derivatives as cash flow hedges. As a result of terminating these derivatives at market value, unrealized deferred hedging gains of $0.1 million and $1.8 million have been recorded to other comprehensive income for the years ended December 31, 2006 and 2005, respectively. As of December 31, 2006, and 2005, respectively $1.6 million and $1.8 million of such gains are deferred through other comprehensive income. These deferred gains are being accreted to income over the remaining life of the related swap agreement. For the years ended December 31, 2006 and 2005, respectively, the Company accreted approximately $0.3 million and less than $0.1 million to earnings. The Company expects to accrete approximately $0.3 million of these deferred gains to earnings over the next twelve months.
 
Variable Interest Entities
 
Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46”), which requires a variable interest entity (“VIE”) to be consolidated by its primary beneficiary (“PB”). The PB is the party that absorbs a majority of the VIE’s anticipated losses and/or a majority of the expected returns.
 
The Company has evaluated its loans and investments and investments in equity affiliates to determine whether they are VIE’s. This evaluation resulted in the Company determining that its bridge loans, mezzanine loans, preferred equity investments and investments in equity affiliates were potential variable interests. For each of these investments, the Company has evaluated (1) the sufficiency of the fair value of the entities’ equity investments at risk to absorb losses, (2) that as a group the holders of the equity investments at risk have (a) the direct or indirect ability through voting rights to make decisions about the entities’ significant activities, (b) the obligation to absorb the expected losses of the entity and their obligations are not protected directly or indirectly, (c) the right to receive the expected residual return of the entity and their rights are not capped, (3) the voting rights of these investors are proportional to their obligations to absorb the expected losses of the entity, their rights to receive the expected returns of the equity, or both, and that substantially all of the entities’ activities do not involve or are not conducted on behalf of an investor that has disproportionately few voting rights. As of December 31, 2006, the Company has identified 27 loans and investments which were made to entities determined to be VIE’s.
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 
The following is a summary of the identified VIE’s as of December 31, 2006:

Type	 	Carrying Amount	 	 	Property	 	 	Location	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Loan and investment	 	$	63,962,648	 	 	 	Commercial	 	 	 	California	 	
Loan and investment	 	 	47,710,938	 	 	 	Office	 	 	 	New York	 	
Loan	 	 	30,653,000	 	 	 	Hotel	 	 	 	Various	 	
Loan and investment	 	 	97,418,115	 	 	 	Condo	 	 	 	New York	 	
Loan	 	 	17,050,000	 	 	 	Office	 	 	 	New York	 	
Loan	 	 	7,752,038	 	 	 	Multifamily	 	 	 	Indiana	 	
Loan	 	 	1,900,000	 	 	 	Multifamily	 	 	 	New York	 	
Loan	 	 	10,000,000	 	 	 	Office	 	 	 	Pennsylvania	 	
Loan	 	 	7,063,275	 	 	 	Multifamily	 	 	 	South Carolina	 	
Loan	 	 	4,464,285	 	 	 	Multifamily	 	 	 	Indiana	 	
Loan	 	 	7,000,000	 	 	 	Office	 	 	 	Texas	 	
Loan	 	 	2,800,000	 	 	 	Office	 	 	 	Rhode Island	 	
Loan	 	 	28,000,000	 	 	 	Office	 	 	 	New York	 	
Loan	 	 	4,000,000	 	 	 	Multifamily	 	 	 	Virginia	 	
Loan	 	 	1,600,000	 	 	 	Multifamily	 	 	 	South Carolina	 	
Loan	 	 	2,400,000	 	 	 	Multifamily	 	 	 	North Carolina	 	
Loan	 	 	30,000,000	 	 	 	Commercial	 	 	 	New York	 	
Loan	 	 	14,500,000	 	 	 	Multifamily	 	 	 	Florida	 	
Loan	 	 	112,600,000	 	 	 	Multifamily	 	 	 	Various	 	
Loan	 	 	33,100,000	 	 	 	Multifamily	 	 	 	Maryland	 	
Investment	 	 	1,550,000	 	 	 	Junior subordinated notes	(1)	 	 	N/A	 	
Investment	 	 	1,550,000	 	 	 	Junior subordinated notes	(1)	 	 	N/A	 	
Investment	 	 	820,000	 	 	 	Junior subordinated notes	(1)	 	 	N/A	 	
Investment	 	 	780,000	 	 	 	Junior subordinated notes	(1)	 	 	N/A	 	
Investment	 	 	774,000	 	 	 	Junior subordinated notes	(1)	 	 	N/A	 	
Investment	 	 	774,000	 	 	 	Junior subordinated notes	(1)	 	 	N/A	 	
Investment	 	 	464,000	 	 	 	Junior subordinated notes	(1)	 	 	N/A	 	

 	 	 	
(1)	 	These entities that issued the junior subordinated notes are VIE’s, it is not appropriate to consolidate these entities under the provisions of FIN 46 as equity interests are variable interests only to the extent that the investment is considered to be at risk. Since the Company’s investments were funded by the entities that issued the junior subordinated notes, it is not considered to be at risk.	
 
For the 27 VIE’s identified, the Company has determined that they are not the primary beneficiaries of the VIE’s and as such the VIE’s should not be consolidated in the Company’s financial statements. The Company’s maximum exposure to loss would not exceed the carrying amount of such investments. For all other investments, the Company has determined they are not VIE’s. As such, the Company has continued to account for these loans and investments as a loan or investment in equity affiliate, as appropriate.
 
Recently Issued Accounting Pronouncements
 
In December 2004, the FASB published SFAS 123(R) entitled “Share-Based Payment.” It requires all public companies to report share-based compensation expense at the grant date fair value of the related share-based awards. We are required to adopt the provisions of the standard effective for periods beginning after June 15, 2005.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
The Company believes that our current method of accounting for share-based payments is consistent with SFAS 123(R).
 
Deferred compensation of $1.7 million for the period ending December 31, 2005, relating to unvested restricted stock was reclassified to additional paid-in capital in accordance with SFAS 123(R). As of December 31, 2006, the Company has deferred unearned compensation related to its unvested restricted stock of approximately $1.9 million.
 
In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155 (“SFAS 155”), “Accounting for Certain Hybrid Financial Instruments”, which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS 140”). SFAS 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring after January 1, 2007. The Company does not expect adoption to have a material impact on the Company’s Consolidated Financial Statements.
 
In April 2006, the FASB issued FASB Staff Position (“FSP”) FIN 46(R)-6, “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)”, that became effective beginning third quarter of 2006. FSP FIN No. 46(R)-6 clarifies that the variability to be considered in applying Interpretation 46(R) shall be based on an analysis of the design of the variable interest entity. The Company believes that its current method of accounting for variable interest entities is consistent with FIN 46(R)-6.
 
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation prescribes a recognition threshold and measurement in the financial statements of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance as to its application and related transition, and is effective for fiscal years beginning after December 15, 2006. The Company does not expect adoption to have a material impact on the Company’s Consolidated Financial Statements.
 
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements”, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. The Company does not expect adoption to have a material impact on the Company’s Consolidated Financial Statements.
 
In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Current Year Misstatements”, effective for fiscal years ending after November 15, 2006. SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement for the purpose of a materiality assessment. The adoption of SAB 108 did not have a material impact on the Company’s Consolidated Financial Statements.
 
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose to measure many financial instruments, and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect, if any; the adoption of SFAS 159 may have on the Company’s Consolidated Financial Statements.
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 
Note 3 — Loans and Investments

 	 	 	 	 	 	 	 	At December 31, 2006	 	 	At December 31, 2005	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Wtd. Avg.
	 	 	 	 	 	 	 	 	Wtd. Avg.
	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	Remaining
	 	 	 	 	 	 	 	 	Remaining
	 	
 	 	December 31,
	 	 	December 31,
	 	 	Loan
	 	 	Wtd. Avg.
	 	 	Months to
	 	 	Loan
	 	 	Wtd. Avg.
	 	 	Months to
	 	
 	 	2006	 	 	2005	 	 	Count	 	 	Pay Rate	 	 	Maturity	 	 	Count	 	 	Pay Rate	 	 	Maturity	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Bridge loans	 	$	956,963,018	 	 	$	405,702,234	 	 	 	39	 	 	 	8.54	%	 	 	21.5	 	 	 	21	 	 	 	8.21	%	 	 	17.7	 	
Mezzanine loans	 	 	1,012,422,010	 	 	 	821,454,043	 	 	 	50	 	 	 	9.56	%	 	 	29.6	 	 	 	42	 	 	 	9.81	%	 	 	27.5	 	
Preferred equity investments	 	 	23,436,955	 	 	 	18,855,388	 	 	 	9	 	 	 	10.32	%	 	 	59.6	 	 	 	4	 	 	 	9.64	%	 	 	26.1	 	
Other	 	 	12,345,865	 	 	 	13,891,005	 	 	 	3	 	 	 	5.89	%	 	 	42.7	 	 	 	4	 	 	 	5.63	%	 	 	53.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	2,005,167,848	 	 	 	1,259,902,670	 	 	 	101	 	 	 	9.06	%	 	 	26.2	 	 	 	71	 	 	 	9.25	%	 	 	24.6	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unearned revenue	 	 	(11,642,784	)	 	 	(13,076,764	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans and investments, net	 	$	1,993,525,064	 	 	$	1,246,825,906	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

Bridge loans are loans to borrowers who are typically seeking short term capital to be used in an acquisition of property and are predominantly secured by first mortgage liens on the property.
 
Mezzanine loans are loans that are subordinate to a conventional first mortgage loan and senior to the borrower’s equity in a transaction. These loans may be in the form of a junior participating interest in the senior debt. Mezzanine financing may take the form of loans secured by pledges of ownership interests in entities that directly or indirectly control the real property or subordinated loans secured by second mortgage liens on the property.
 
A preferred equity investment is another form of financing in which preferred equity investments in entities that directly or indirectly own real property are formed. In cases where the terms of a first mortgage prohibit additional liens on the ownership entity, investments structured as preferred equity in the entity owning the property serve as viable financing substitutes. With preferred equity investments, the Company typically becomes a special limited partner or member in the ownership entity.
 
In June 2006, the Company originated a $60.0 million bridge loan secured by approximately 769 acres of land, partially improved by an operating ski resort in Lake Tahoe, California. In October 2006, we provided additional financing of $3.9 million which is secured by an adjacent parcel of land partially improved by an inn and cross collateralized with the original bridge loan. The additional financing carries the same terms and conditions of the original bridge loan. The loan accrues interest on a monthly basis at a rate of 12.74%, requires a monthly fixed interest payment at 10.37% and matures in June 2011. In addition, the Company has a 25.6% equity kicker in the borrowing entity. At December 31, 2006 the outstanding balance on this loan was $63.9 million. No income from the equity kicker has been recognized for the year ended December 31, 2006.
 
In July and August 2006, the Company originated two bridge and preferred equity loans totaling $13.0 million. The loans accrue interest based on LIBOR on a monthly basis and mature in 2011. In addition, the Company has a 25% equity kicker in the borrowing entities. At December 31, 2006 the outstanding balance on these loans was $11.5 million. No income from the equity kickers has been recognized for the year ended December 31, 2006.
 
At December 31, 2006, there was an $8.5 million loan in the loan and investment portfolio that is non-performing and income recognition has been suspended. The principal amount of the loan is not deemed to be impaired and no loan loss reserve has been recorded at this time. Income recognition will resume when the loan becomes contractually current and performance has recommenced.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 
Concentration of Credit Risk
 
Loans and investments can potentially subject the Company to concentrations of credit risk. The Company is subject to concentration risk in that, as of December 31, 2006, the unpaid principal balance related to 16 loans with five unrelated borrowers represented approximately 27% of total assets, and as of December 31, 2005, the unpaid principal balance related to 32 loans with five unrelated borrowers represented approximately 31% of total assets. As of December 31, 2006 and 2005, the Company had 102 and 72 loans and investments, respectively.
 
In addition, in 2006 and 2005, no single loan or investment represented at least 10% of the Company’s total assets. In 2006, the Company generated approximately 17% of revenue from the Chetrit Group L.L.C. In 2005, the Company generated approximately 12% and 19% of revenue from the Chetrit Group L.L.C. and Prime Outlet Acquisition Group L.L.C. two of the Company’s borrowers, respectively.
 
Geographic Concentration Risk
 
As of December 31, 2006, 53%, 11%, and 5% of the outstanding balance of the Company’s loans and investments portfolio had underlying properties in New York, Florida and California, respectively. As of December 31, 2005, 57%, 8%, and 8% of the outstanding balance of the Company’s loans and investments portfolio had underlying properties in New York, Florida and California, respectively.
 
Note 4 — Available-For-Sale Securities
 
The following is a summary of the Company’s available-for-sale securities at December 31, 2006.

 	 	 	 	 	 	 	 	 	 	 	Estimated Fair
	 	
 	 	Face Value	 	 	Amortized Cost	 	 	Unrealized Loss	 	 	Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Home Loan Mortgage Corporation, variable rate security, fixed rate of interest for three years at 3.783% and adjustable rate interest thereafter, due March 2034 (including unamortized premium of $37,680)	 	$	11,754,694	 	 	$	11,792,374	 	 	$	(37,679	)	 	$	11,754,695	 	
Federal Home Loan Mortgage Corporation, variable rate security, fixed rate of interest for three years at 3.778% and adjustable rate interest thereafter, due March 2034 (including unamortized premium of $15,238)	 	 	4,084,000	 	 	 	4,099,238	 	 	 	(35,658	)	 	 	4,063,580	 	
Federal National Mortgage Association, variable rate security, fixed rate of interest for three years at 3.804% and adjustable rate interest thereafter, due March 2034 (including unamortized premium of $25,039)	 	 	6,281,900	 	 	 	6,306,940	 	 	 	(25,039	)	 	 	6,281,901	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	22,120,594	 	 	$	22,198,552	 	 	$	(98,376	)	 	$	22,100,176	 	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
The following is a summary of the Company’s available-for-sale securities at December 31, 2005.

 	 	 	 	 	 	 	 	 	 	 	Estimated Fair
	 	
 	 	Face Value	 	 	Amortized Cost	 	 	Unrealized Loss	 	 	Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Federal Home Loan Mortgage Corporation, variable rate security, fixed rate of interest for three years at 3.797% and adjustable rate interest thereafter, due March 2034 (including unamortized premium of $226,895)	 	$	15,228,360	 	 	$	15,455,255	 	 	$	(441,044	)	 	$	15,014,211	 	
Federal Home Loan Mortgage Corporation, variable rate security, fixed rate of interest for three years at 3.758% and adjustable rate interest thereafter, due March 2034 (including unamortized premium of $83,967)	 	 	4,763,621	 	 	 	4,847,588	 	 	 	(156,909	)	 	 	4,690,679	 	
Federal National Mortgage Association, variable rate security, fixed rate of interest for three years at 3.800% and adjustable rate interest thereafter, due March 2034 (including unamortized premium of $181,415)	 	 	10,026,460	 	 	 	10,207,875	 	 	 	(297,345	)	 	 	9,910,530	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	30,018,441	 	 	$	30,510,718	 	 	$	(895,298	)	 	$	29,615,420	 	

As of December 31, 2006 and 2005, all available-for-sale securities were carried at their estimated fair market value based on current market quotes received from financial sources that trade such securities. The estimated fair value of these securities fluctuate primarily due to changes in interest rates and other factors; however, given that these securities are guaranteed as to principal and/or interest by an agency of the U.S. Government, such fluctuations are generally not based on the creditworthiness of the mortgages securing these securities. The Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity; the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2006.
 
During the years ended December 31, 2006 and 2005, the Company received prepayments of $8.0 million and $16.0 million on these securities and amortized $0.4 million and $0.6 million, respectively, of the premium paid for these securities against interest income.
 
These securities are pledged as collateral for borrowings under a repurchase agreement — (See Note 6 “Debt Obligations”).
 
The cumulative amount of Other Comprehensive Income related to unrealized gains or (losses) on these securities as of December 31, 2006 and December 31, 2005 was ($98,376) and ($895,298), respectively.
 
Note 5 — Investment in Equity Affiliates
 
As of December 31, 2006 and 2005, the Company had approximately $25.4 million and $18.1 million of investments in equity affiliates, respectively, which are described below.
 
In 2006, the Company invested $2.0 million for 100% of the common shares of two affiliate entities of the Company which were formed to facilitate the issuance of $67.0 million of junior subordinate notes. In 2005, the Company invested $4.7 million for 100% of the common shares of five affiliate entities of the Company which were formed to facilitate the issuance of $155.9 million of junior subordinate notes. These entities pay dividends on both the common shares and preferred securities on a quarterly basis at a variable rate based on LIBOR. The financing
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
terms of these junior subordinate notes are presented in the notes payable table of Note 6. The impact of these entities in accordance with FIN 46R “Consolidation of Variable Interest Entities” is discussed in Note 2.
 
In December 2003, the Company invested approximately $2.1 million in exchange for a 50% non-controlling interest in Prime Outlets Member, LLC “POM,” which owns 15% of a real estate holding company that owns and operates a portfolio of factory outlet shopping centers. The Company accounts for this investment under the equity method. As of December 31, 2005 the Company had a mezzanine loan outstanding to an affiliate entity of the joint venture for $30.1 million. In addition, the Company had a $10.0 million junior loan participation interest outstanding to an affiliate entity of the joint venture as of December 31, 2005. The loans required monthly interest payments based on one month LIBOR and matured in January 2006. Additionally, the Company has a 16.7% carried profits interest in the borrowing entity. The Company received $1.2 million of distributions from this investment in 2004 as a result of the 16.7% carried profits interest which was recorded in interest income. In addition, The Company received $0.5 million from its 50% non-controlling interest in this joint venture, which was recorded as income from equity affiliates. In June 2005, POM refinanced the debt on a portion of the assets in its portfolio, receiving proceeds in excess of the amount of the previously existing debt. The excess proceeds were distributed to each of the partners in accordance with POM’s operating agreement of which the Company received $36.5 million. In accordance with this transaction, the joint venture members of POM agreed to guarantee $38 million of the new debt. The guarantee expires at the earlier of maturity or prepayment of the debt and would require performance by the members if not repaid in full. This guarantee was allocated to the members in accordance with their ownership percentages. Of the distribution received by the Company, $17.2 million was recorded as interest income, representing the portion attributable to the 16.7% carried profits interest, $2.1 million was recorded as a return of the Company’s equity investment, $8.0 million was recorded as income from equity affiliates, representing the portion attributable to the 7.5% equity interest, and $9.2 million was recorded as deferred revenue, representing the Company’s portion of the $38 million guarantee. In January 2006, POM refinanced the debt on a portion of the assets in its portfolio and repaid in full the debt that was added in June 2005 and the $30.1 million mezzanine loan and the $10.0 million junior loan participating interest that the Company had outstanding as of December 31, 2005. As a result, the $38 million guarantee was removed and the Company recorded the $9.2 million of deferred revenue, $6.3 million as interest income and $2.9 million as income from equity affiliates. In 2006, POM refinanced the debt on a portion of the assets in its portfolio, receiving proceeds in excess of the amount of the previously existing debt. The excess proceeds were distributed to each of the partners in accordance with POM’s operating agreement. In December 2006, the Company received a $6.0 million distribution from POM and recorded $4.1 million as interest income, representing the portion attributable to the 16.7% carried profits interest and $1.9 million as income from equity affiliates, representing the portion attributable to the 7.5% equity interest.
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December 31, 2006
 
Summarized consolidated financial information of POM (amounts in thousands):

 	 	December 31,	 	
 	 	2006	 	 	2005	 	
 	 	 	 	 	 	 	 	 	
Balance Sheets	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	58,338	 	 	$	14,658	 	
Real estate assets	 	 	661,349	 	 	 	638,712	 	
Other assets	 	 	132,611	 	 	 	116,001	 	
 	 	 	 	 	 	 	 	 	
Total assets	 	$	852,298	 	 	$	769,371	 	

Liabilities:	 	 	 	 	 	 	 	 	
Notes payable	 	$	958,678	 	 	$	855,902	 	
Other liabilities	 	 	12,547	 	 	 	17,503	 	
Total liabilities	 	 	971,225	 	 	 	873,405	 	
Shareholders’ equity Arbor	 	 	—	 	 	 	—	 	
Shareholders’ (deficit)/equity	 	 	(118,927	)	 	 	(104,034	)	
 	 	 	 	 	 	 	 	 	
Total shareholders’ (deficit)/equity	 	 	(118,927	)	 	 	(104,034	)	
 	 	 	 	 	 	 	 	 	
Total liabilities and equity	 	$	852,298	 	 	$	769,371	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	For the
	 	 	For the
	 	 	For the
	 	
 	 	Year Ended
	 	 	Year Ended
	 	 	Year Ended
	 	
 	 	December 31,
	 	 	December 31,
	 	 	December 31,
	 	
 	 	2006	 	 	2005	 	 	2004	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income Statements:	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	 	$	93,624	 	 	$	82,759	 	 	$	68,447	 	
Reimbursement income	 	 	45,578	 	 	 	42,978	 	 	 	37,305	 	
Other income	 	 	51,970	 	 	 	11,353	 	 	 	18,440	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	 	 	191,172	 	 	 	137,090	 	 	 	124,192	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses	 	 	82,707	 	 	 	73,198	 	 	 	40,665	 	
Interest expense	 	 	61,796	 	 	 	35,725	 	 	 	30,332	 	
Depreciation and amortization	 	 	29,209	 	 	 	31,211	 	 	 	24,207	 	
Other expenses	 	 	—	 	 	 	2,691	 	 	 	17,031	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	173,712	 	 	 	142,825	 	 	 	112,235	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss)/income	 	$	17,460	 	 	$	(5,735	)	 	$	11,957	 	

During 2005, the Company invested $6.1 million in a joint venture, which as part of an investor group, used these proceeds to make a deposit on the potential purchase of a property in New York City. In April 2005, this joint venture closed on the purchase of the property and the Company invested additional capital that, combined with its deposit, represented a $10 million equity investment, in exchange for a 20% ownership interest in a limited liability corporation of this joint venture (200 Fifth LLC). It is intended that the property, with over one million square feet of space, will be converted from an office property into condominium units. In addition, the Company provided
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December 31, 2006
loans to three partners in the investor group totaling $13 million, of which $10.5 million is outstanding as of December 31, 2006. The loans are secured by their ownership interest in the joint venture and mature in April 2008. In 2005, the Company purchased three mezzanine loans totaling $137 million from the primary lender. These loans are secured by the property, require monthly interest payments based on one month LIBOR and mature in April 2008. The Company sold a participating interest in one of the loans for $59 million which was recorded as a financing and is included in notes payable. For the years ended December 31, 2006 and 2005 the Company capitalized $0.9 million and $0.5 million, respectively, of interest on its equity investment. During 2006, the Company contributed an additional $4.2 million to the joint venture increasing its equity investment to approximately $15.6 million. In January 2007, the Company contributed an additional $0.5 million to the joint venture increasing its equity investment to approximately $16.1 million.
 
Summarized consolidated financial information of 200 Fifth LLC (amounts in thousands):

 	 	December 31,	 	
 	 	2006	 	 	2005	 	
 	 	 	 	 	 	 	 	 	
Balance Sheets	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	6,123	 	 	$	61,122	 	
Real estate assets	 	 	362,294	 	 	 	355,177	 	
Other assets	 	 	121,509	 	 	 	50,672	 	
 	 	 	 	 	 	 	 	 	
Total assets	 	$	489,926	 	 	$	466,971	 	

Liabilities:	 	 	 	 	 	 	 	 	
Notes payable	 	$	415,614	 	 	$	415,864	 	
Other liabilities	 	 	3,078	 	 	 	1,107	 	
 	 	 	 	 	 	 	 	 	
Total liabilities	 	 	418,692	 	 	 	416,971	 	
Shareholders’ equity Arbor	 	 	14,247	 	 	 	10,000	 	
Shareholders’ (deficit)/equity	 	 	56,987	 	 	 	40,000	 	
 	 	 	 	 	 	 	 	 	
Total shareholders’ (deficit)/equity	 	 	71,234	 	 	 	50,000	 	
 	 	 	 	 	 	 	 	 	
Total liabilities and equity	 	$	489,926	 	 	$	466,971	 	

The Company did not include summarized income statement information because the project is under development and any income statement activity was deemed to be incidental operations as defined by Financial Accounting Standard No. 67. The income generated by the incidental operations has been recorded as a reduction to the development cost of the project.
 
In October 2004, the Company invested $0.5 million in exchange for an 8.7% non-managing preferred interest in a LBREP York Avenue Holdings, LLC that was formed to operate as a real estate business, to acquire, own, manage, develop, and sell real estate assets. The Company accounts for this investment under the equity method. In December 2005, the joint venture issued new debt on an existing property. The proceeds were distributed to each of the partners in accordance with the operating agreement of which the Company received $0.5 million which was recorded as a return of the Company’s equity investment.
 
As of December 31, 2004, the Company had two mezzanine loans outstanding, totaling $45 million, to 450 Partners Mezz III LLC, a wholly-owned subsidiary of 450 Westside Partners, LLC and the owner of 100% of the outstanding membership interests in 450 Partners Mezz II LLC, who used the proceeds to acquire and renovate an office building. In addition, as of December 31, 2004, the Company had a $1.5 million equity interest in an affiliate of the borrower. The Company also has participating profits interests in several affiliates of the borrower
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
aggregating approximately 29%. In March 31, 2005, the property was refinanced with new debt and the Company’s loans totaling $45 million were repaid in full. In accordance with the refinancing, the Company was repaid its $1.5 million investment, including approximately $0.4 million of a preferred return which was recorded in income from equity affiliates. In addition, the Company received a structuring fee of $0.4 million for arranging the financing which was recorded in other income. The Company participated in $45 million of new debt in the form of a mezzanine loan that matures in March 2015 with a fixed rate of 8.17%. In addition, the Company invested $2.7 million in an affiliate of the borrower which entitles the Company to a preferred return of 12.5% in this limited liability corporation.
 
In June 2003, ACM invested approximately $0.8 million in exchange for a 12.5% preferred interest in a joint venture, which owns and operates two commercial properties. The Company purchased this investment from ACM in August 2003. The Company subsequently contributed an additional $0.3 million and $0.4 million in 2004 and 2005, respectively. The Company accounts for this investment under the equity method. The Company had a $4.8 million bridge loan and a $3.5 million mezzanine loan outstanding to affiliated entities of the joint venture. The loans required monthly interest payments based on one month LIBOR and matured in November 2006 and June 2006, respectively. In August 2005, the joint venture refinanced one of these properties with a $25 million bridge loan that the Company provided which matures in August 2010 with a fixed rate of 6.45%. Proceeds from this loan were used to pay off senior debt as well as the Company’s $3.5 million mezzanine loan. Excess proceeds were distributed to each of the members in accordance with the operating agreement of which the Company received $1.3 million. The Company recorded this amount as a return of its equity investment. In October 2006, the $4.8 million bridge loan was extended for one year with no other change in terms. In December 2006, the Company contributed an additional $0.1 million to the joint venture increasing its equity investment to approximately $0.3 million at December 31, 2006.
 
The condensed combined balance sheets for the unconsolidated investments in equity affiliates that are individually not greater than 10% of total assets at December 31, 2006 and 2005, are as follows (amounts in thousands):

 	 	December 31,	 	
 	 	2006	 	 	2005	 	
 	 	 	 	 	 	 	 	 	
Condensed Combined Balance Sheets	 	 	 	 	 	 	 	 	
Assets:	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	639	 	 	$	7,281	 	
Real estate assets	 	 	320,082	 	 	 	331,713	 	
Other assets	 	 	31,268	 	 	 	39,181	 	
 	 	 	 	 	 	 	 	 	
Total assets	 	$	351,989	 	 	$	378,175	 	

Liabilities:	 	 	 	 	 	 	 	 	
Notes payable	 	$	379,800	 	 	$	413,800	 	
Other liabilities	 	 	7,287	 	 	 	5,071	 	
Total liabilities	 	 	387,087	 	 	 	418,871	 	
Shareholders’ equity Arbor	 	 	3,037	 	 	 	2,920	 	
Shareholders’ (deficit)/equity	 	 	(38,135	)	 	 	(43,616	)	
 	 	 	 	 	 	 	 	 	
Total shareholders’ (deficit)/equity	 	 	(35,098	)	 	 	(40,696	)	
 	 	 	 	 	 	 	 	 	
Total liabilities and equity	 	$	351,989	 	 	$	378,175	 	

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December 31, 2006
The condensed combined statements of operations for the unconsolidated investments in equity affiliates that are individually not greater than 10% of total income for the years ended December 31, 2006, 2005 and 2004, are as follows (amounts in thousands):

 	 	2006	 	 	2005	 	 	2004	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income Statements:	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	
Rental income	 	$	36,449	 	 	$	40,865	 	 	$	34,304	 	
Reimbursement income	 	 	9,064	 	 	 	13,510	 	 	 	6,726	 	
Other income	 	 	3,587	 	 	 	24	 	 	 	2,098	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	 	 	49,100	 	 	 	54,399	 	 	 	43,128	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses	 	 	23,851	 	 	 	22,791	 	 	 	19,516	 	
Interest expense	 	 	23,581	 	 	 	33,367	 	 	 	20,893	 	
Depreciation and amortization	 	 	8,248	 	 	 	8,275	 	 	 	387	 	
Other expenses	 	 	384	 	 	 	477	 	 	 	475	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	56,064	 	 	 	67,910	 	 	 	41,271	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss)/income	 	$	(6,964	)	 	$	(13,511	)	 	$	1,857	 	

Note 6 — Debt Obligations
 
Repurchase Agreements
 
The Company utilizes repurchase agreements, warehouse lines of credit, loan participations, collateralized debt obligations and junior subordinated notes to finance certain of its loans and investments. Borrowings underlying these arrangements are primarily secured by a significant amount of the Company’s loans and investments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 
The following table outlines borrowings under the Company’s repurchase agreements as of December 31, 2006 and 2005:

 	 	December 31, 2006	 	 	December 31, 2005	 	
 	 	Debt Carrying
	 	 	Collateral Carrying
	 	 	Debt Carrying
	 	 	Collateral Carrying
	 	
 	 	Value	 	 	Value	 	 	Value	 	 	Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Repurchase agreement, Wachovia Bank National Association, $500 million committed line, expiration March 2007, interest is variable based on one-month LIBOR; the weighted average note rate was 6.99% and 6.37%, respectively	 	$	328,546,202	 	 	$	521,561,563	 	 	$	380,544,323	 	 	$	554,322,023	 	
Repurchase agreement, Nomura Credit and Capital, Inc., $100 million committed line, expiration July 2007, interest is variable based on one-month LIBOR; the weighted average note rate was 5.55% and 4.48%, respectively	 	 	20,653,994	 	 	 	22,100,176	 	 	 	28,425,062	 	 	 	29,615,420	 	
Repurchase agreement, financial institution, $100 million committed line, expiration December 2007, interest is variable based on one-month LIBOR; the weighted average note rate was 7.29% and 5.37%, respectively	 	 	46,647,163	 	 	 	83,459,519	 	 	 	4,655,000	 	 	 	4,834,000	 	
Repurchase agreement, financial institution, $150 million committed line, expiration October 2009, interest is variable based on one-month LIBOR;	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Repurchase agreement, financial institution, $50 million committed line, expired July 2006, interest was variable based on one-month LIBOR	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total repurchase agreements	 	$	395,847,359	 	 	$	627,121,258	 	 	$	413,624,385	 	 	$	588,771,443	 	

In December 2005, the Wachovia Bank National Association repurchase agreement was amended to provide for an increase in the committed amount of this facility to $500 million from $350 million until January 2006 in conjunction with the close of the Company’s second collateralized debt obligation at which time approximately $269.1 million was repaid. In September 2006, this facility was amended to provide for a temporary increase in the committed amount of this facility to $550 million from $350 million in preparation for the close of the Company’s third collateralized debt obligation. In October 2006, this repurchase agreement was amended, increasing the amount of available financing from $350 million to $500 million and extending the maturity to March 2007. The Company is in the process of renewing this agreement. On December 14, 2006, in conjunction with the close of the Company’s third collateralized debt obligation approximately $200 million of this facility was repaid. In addition, the $100 million repurchase agreement with the same financial institution entered into for the purpose of financing securities available for sale and was extended in July 2006 for one year. The current borrowings equate to 97% of the estimated fair value of the securities (net of principal payment receivables of approximately $1.0 million) and
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December 31, 2006
bear interest at a rate of one month LIBOR plus 0.20%. If the estimated fair value of the securities decreases, the Company may be required to pay down borrowings from the repurchase agreement due to such a decline in the estimated fair value of the securities collateralizing the repurchase agreement.
 
In October 2006, the Company entered into a $150.0 million master repurchase agreement with a financial institution. The facility has a rolling one year term not to exceed three years from the effective date of the agreement and bears interest at a spread over LIBOR.
 
In certain circumstances, the Company has financed the purchase of investments from counterparty through a repurchase agreement with that same counterparty. The Company currently records these investments in the same manner as other investments financed with repurchase agreements, with the investment recorded as an asset and the related borrowing under any repurchase agreement as a liability on our consolidated balance sheet. Interest income earned on the investments and interest expense incurred on the repurchase obligations are reported separately on the consolidated income statement. There is discussion, based upon a technical interpretation of SFAS 140, that these transactions may not qualify as a purchase by the Company. The Company believes, and it is industry practice, that the accounting for these transactions is recorded in an appropriate manner, however, if these investments do not qualify as a purchase under SFAS 140, the Company would be required to present the net investment on the balance sheet as a derivative with the corresponding change in fair value of the derivative being recorded in the income statement. The value of the derivative would reflect not only changes in the value of the underlying investment, but also changes in the value of the underlying credit provided by the counterparty. As of December 31, 2006 the Company had entered into four such transactions, with a book value of the associated assets of $228.8 million financed with repurchase obligations of $151.0 million. As of December 31, 2005 the Company had entered into eight such transactions, with a book value of the associated assets of $176.7 million financed with repurchase obligations of $124.6 million. Adoption of the aforementioned treatment would result in the Company recording these assets and liabilities net on its balance sheets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 
Junior Subordinated Notes
 
The following table outlines borrowings under the Company’s junior subordinated notes as of December 31, 2006 and 2005:

 	 	December 31, 2006	 	 	December 31, 2005	 	
 	 	Debt
	 	 	Debt
	 	
 	 	Carrying
	 	 	Carrying
	 	
 	 	Value	 	 	Value	 	
 	 	 	 	 	 	 	 	 	
Junior subordinated notes, maturity March 2034, unsecured, face amount of $27.1 million, interest rate variable based on three-month LIBOR, the weighted average note rate was 9.11% and 8.28%, respectively	 	$	27,070,000	 	 	$	27,070,000	 	
Junior subordinated notes, maturity March 2034, unsecured, face amount of $25.8 million, interest rate variable based on three-month LIBOR, the weighted average note rate was 8.63% and 7.49%, respectively	 	 	25,780,000	 	 	 	25,780,000	 	
Junior subordinated notes, maturity April 2035, unsecured, face amount of $25.8 million, interest rate variable based on three-month LIBOR, the weighted average note rate was 8.58% and 7.44%, respectively	 	 	25,774,000	 	 	 	25,774,000	 	
Junior subordinated notes, maturity July 2035, unsecured, face amount of $25.8 million, interest rate variable based on three-month LIBOR, the weighted average note rate was 8.63% and 7.49%, respectively	 	 	25,774,000	 	 	 	25,774,000	 	
Junior subordinated notes, maturity January 2036, unsecured, face amount of $51.6 million, interest rate variable based on three-month LIBOR, the weighted average note rate was 8.13% and 7.21%, respectively	 	 	51,550,000	 	 	 	51,550,000	 	
Junior subordinated notes, maturity July 2036, unsecured, face amount of $51.6 million, interest rate variable based on three-month LIBOR, the weighted average note rate was 7.98%	 	 	51,550,000	 	 	 	—	 	
Junior subordinated notes, maturity June 2036, unsecured, face amount of $15.5 million, interest rate variable based on three-month LIBOR, the weighted average note rate was 7.88%	 	 	15,464,000	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Total junior subordinated notes	 	$	222,962,000	 	 	$	155,948,000	 	

The junior subordinated notes are unsecured, have a maturity of 30 years, pay interest quarterly at a floating rate of interest based on three-month LIBOR and, absent the occurrence of special events, are not redeemable during the first five years.
 
In 2006, the Company, through wholly-owned subsidiaries of the Company’s operating partnership, issued a total of $67.0 million of junior subordinated notes in two separate private placements. These securities are unsecured, have a maturity of 29 to 30 years, pay interest quarterly at a floating rate of interest based on three-month LIBOR and, absent the occurrence of special events, are not redeemable during the first five years. At December 31, 2006, the outstanding balance under these facilities was $222.9 million with a current weighted average note rate of 8.36%. The impact of these entities in accordance with FIN 46R “Consolidation of Variable Interest Entities” is discussed in Note 2.
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December 31, 2006
 
Notes Payable
 
The following table outlines borrowings under the Company’s notes payable as of December 31, 2006 and 2005:

 	 	December 31, 2006	 	 	December 31, 2005	 	
 	 	Debt
	 	 	Collateral
	 	 	Debt
	 	 	Collateral
	 	
 	 	Carrying
	 	 	Carrying
	 	 	Carrying
	 	 	Carrying
	 	
 	 	Value	 	 	Value	 	 	Value	 	 	Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Bridge loan warehouse, financial institution, $75 million committed line, expiration August 2007, interest rate variable based on Prime or LIBOR, the weighted average note rate was 7.10% and 6.32% , respectively	 	$	20,235,000	 	 	$	21,659,275	 	 	$	46,490,512	 	 	$	55,244,721	 	
Secured term credit facility — Related Party, financial institution, $50 million committed line, expiration January 2006 with two six-month renewal options, interest rate variable based on one-month LIBOR, the weighted average note rate was 10.29% as of December 31, 2005. This facility was paid in full in January 2006	 	 	—	 	 	 	—	 	 	 	30,000,000	 	 	 	48,419,907	 	
Warehousing credit facility, financial institution, $50 million committed line, expiration December 2007, interest is variable based on one-month LIBOR; the weighted average note rate was 7.06% and 6.68%, respectively	 	 	11,814,240	 	 	 	13,365,451	 	 	 	2,632,365	 	 	 	3,096,900	 	
Junior loan participation, maturity April 2008, secured by Company’s interest in a second mortgage loan with a principal balance of $60 million, participation interest is based on a portion of the interest received from the loan, the loan’s interest is variable based on one-month LIBOR	 	 	59,400,000	 	 	 	59,400,000	 	 	 	59,400,000	 	 	 	59,400,000	 	
Junior loan participation, maturity April 2008, secured by Company’s interest in a second mortgage loan with a principal balance of $35 million, participation interest is based on a portion of the interest received from the loan, the loan’s interest is variable based on one-month LIBOR. The loan participation was paid in full in July 2006	 	 	—	 	 	 	—	 	 	 	6,752,500	 	 	 	6,752,500	 	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	December 31, 2006	 	 	December 31, 2005	 	
 	 	Debt
	 	 	Collateral
	 	 	Debt
	 	 	Collateral
	 	
 	 	Carrying
	 	 	Carrying
	 	 	Carrying
	 	 	Carrying
	 	
 	 	Value	 	 	Value	 	 	Value	 	 	Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Junior loan participation, maturity December 2008, secured by Company’s interest in a first mortgage loan with a principal balance of $68.5 million, participation interest is based on a portion of the interest received from the loan, the loan’s interest is variable based on one-month LIBOR	 	 	3,000,000	 	 	 	3,000,000	 	 	 	—	 	 	 	—	 	
Junior loan participation, maturity April 2007, secured by Company’s interest in a first mortgage loan with a principal balance of $1.3 million, participation interest is based on a portion of the interest received from the loan, the loan has a fixed rate of interest	 	 	125,000	 	 	 	125,000	 	 	 	125,000	 	 	 	125,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total notes payable	 	$	94,574,240	 	 	$	97,549,726	 	 	$	145,400,377	 	 	$	173,039,028	 	

On January 31, 2005, the Company entered into a $50.0 million secured term credit facility with a shareholder who beneficially owned approximately 2% of the Company’s outstanding common stock as of December 31, 2005. At December 31, 2005, the outstanding balance under this facility was $30.0 million and is reflected in Notes payable — related party on the accompanying balance sheet. In January 2006, this facility was terminated.
 
In October 2006, the $50.0 million bridge loan warehouse credit facility was amended which increased the committed amount of this facility to $75.0 million.
 
In 2005, the Company entered into two junior loan participations with a total outstanding balance at December 31, 2005 of $59.5 million. These participation borrowings have maturity dates equal to the corresponding mortgage loan and are secured by the participant’s interest in the mortgage loan. Interest expense is based on a portion of the interest received from the loan.
 
In 2006, the Company entered into one junior loan participation with a total outstanding balance at December 31, 2006 of $3.0 million. This participation borrowing has a maturity date equal to the corresponding mortgage loan and is secured by the participant’s interest in the mortgage loan. Interest expense is based on a portion of the interest received from the loan.
 
Collateralized Debt Obligations
 
On January 19, 2005, the Company issued to third party investors four tranches of investment grade collateralized debt obligations, CDO, through a newly-formed wholly-owned subsidiary, Arbor Realty Mortgage Securities Series 2004-1, Ltd. (“the Issuer”). The Issuer holds assets, consisting primarily of bridge loans, mezzanine loans and cash totaling approximately $469 million, which serve as collateral for the CDO. The Issuer issued investment grade rated notes with a principal amount of approximately $305 million and a wholly-owned subsidiary of the Company purchased the preferred equity interests of the Issuer. The four investment grade tranches were issued with floating rate coupons with a combined weighted average rate of three-month LIBOR plus 0.77%. The combined weighted average rate was 4.93% at December 31, 2005. The CDO may be replenished with substitute collateral for loans that are repaid during the first four years of the CDO. Thereafter, the outstanding debt balance will be reduced as loans are repaid. The Company incurred approximately $7.2 million of issuance costs which is being amortized on a level yield basis over the average estimated life of the CDO. The Company intends to own the portfolio of real estate-related assets until its maturity and accounts for this transaction on its balance sheet

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December 31, 2006
as a financing facility. For accounting purposes, the CDO is consolidated in the Company’s financial statements. The four investment grade tranches are treated as a secured financing, and are non-recourse to the Company. Proceeds from the CDO are distributed quarterly with approximately $2.0 million being paid to investors as a reduction of their capital invested. In 2006 and 2005, $8.0 million and $6.0 million, respectively of proceeds were distributed and recorded as a reduction of the CDO liability. At December 31, 2006 and 2005 the CDO balance was $291.3 and $299.3 million, respectively.
 
On January 11, 2006, the Company completed its second collateralized debt obligation issuing to third party investors nine tranches of investment grade collateralized debt obligations, (“CDO II”), through a newly-formed wholly-owned subsidiary, Arbor Realty Mortgage Securities Series 2005-1, Ltd. (“the Issuer II”). The Issuer II holds assets, consisting primarily of bridge loans, mezzanine loans and cash totaling approximately $475 million, which serve as collateral for CDO II. The Issuer II issued investment grade rated notes with a principal amount of approximately $356 million and a wholly-owned subsidiary of the Company purchased the preferred equity interests of the Issuer II. The nine investment grade tranches were issued with floating rate coupons with an initial combined weighted average rate of three-month LIBOR plus 0.74%. CDO II may be replenished with substitute collateral for loans that are repaid during the first five years. Thereafter, the outstanding debt balance will be reduced as loans are repaid. The Company incurred approximately $6.2 million of issuance costs which is being amortized on a level yield basis over the average life of CDO II. The Company intends to own the portfolio of real estate-related assets until its maturity and accounts for this transaction on its balance sheet as a financing facility. For accounting purposes, CDO II is consolidated in the Company’s financial statements. The nine investment grade tranches are treated as a secured financing, and are non-recourse to the Company. Proceeds from CDO II are distributed quarterly with approximately $1.2 million being paid to investors as a reduction of their capital invested. In 2006, $3.5 million of proceeds were distributed and recorded as a reduction of the CDO II liability. At December 31, 2006 the CDO II balance was $352.7 million.
 
On December 14, 2006, the Company completed its third collateralized debt obligation issuing to third party investors 10 tranches of investment grade collateralized debt obligations, (“CDO III”), through a newly-formed wholly-owned subsidiary, Arbor Realty Mortgage Securities Series 2006-1, Ltd. (“the Issuer III”). The Issuer III holds assets, consisting primarily of bridge loans, mezzanine loans and cash totaling approximately $500.0 million, which serve as collateral for CDO III. The Issuer III issued investment grade rated notes with a principal amount of approximately $547.5 million, including a $100.0 million revolving note class that provides a revolving note facility and a wholly-owned subsidiary of the Company purchased the preferred equity interests of the Issuer III. The 10 investment grade tranches were issued with floating rate coupons with an initial combined weighted average rate of three-month LIBOR plus 0.44% and the revolving note facility has a commitment fee of 0.22% per annum on the undrawn portion of the facility. CDO III may be replenished with substitute collateral for loans that are repaid during the first five years. Thereafter, the outstanding debt balance will be reduced as loans are repaid. The Company incurred approximately $9.7 million of issuance costs which is being amortized on a level yield basis over the average life of CDO III. The Company intends to own the portfolio of real estate-related assets until its maturity and accounts for this transaction on its balance sheet as a financing facility. For accounting purposes, CDO III is consolidated in the Company’s financial statements. The 10 investment grade tranches are treated as a secured financing, and are non-recourse to the Company. At December 31, 2006 the CDO III balance was $447.5 million and the revolving note facility had not been utilized.
 
Proceeds from the sale of the 23 investment grade tranches issued in CDO, CDO II and CDO III were used to repay outstanding debt under the Company’s repurchase agreements and notes payable. The assets pledged as collateral were contributed from the Company’s existing portfolio of assets.
 
Each of the credit facilities contains various financial covenants and restrictions, including minimum net worth and debt-to-equity ratios. In 2005, the Company had four institutions permanently amend the interest expense coverage ratio covenant. As amended, the Company is required to have an interest expense coverage ratio
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December 31, 2006
of no less than 1.75 to 1.0, calculated on the preceding twelve months. The Company was in compliance with all financial covenants and restrictions at December 31, 2006 and 2005.
 
Note 7 — Minority Interest
 
On July 1, 2003, ACM contributed $213.1 million of structured finance assets and $169.2 million of borrowings supported by $43.9 million of equity in exchange for a commensurate equity ownership in ARLP, the Company’s operating partnership. This transaction was accounted for as minority interest and entitled ACM to a 28% interest in ARLP. In April 2004, the Company issued 6,750,000 shares of its common stock in an initial public offering and a concurrent offering to one of the Company’s directors. In May 2004, the underwriters of the initial public offering exercised a portion of their over-allotment option, which resulted in the issuance of 524,200 additional shares.
 
In 2005, the Company issued 0.6 million shares of common stock, of which approximately 0.3 million shares were issued upon the exercise of approximately 0.3 million warrants, 0.2 million shares were issued as payment to its manager, ACM, for the incentive management fee and 0.1 million shares were issued by means of restricted stock grants issued to certain employees of the company and of ACM. As a result, minority interest was reduced by $0.6 million to properly reflect ACM’s 18% limited partnership interest in ARLP and its wholly-owned subsidiaries at December 31, 2005.
 
In 2006, the Company issued 337,824 shares of common stock, of which 243,129 common shares were payment for ACM’s incentive management fee. In addition, the Company repurchased 279,400 shares of its common stock. This had a nominal effect on ACM’s limited partnership interest and at December 31, 2006, minority interest was increased by $0.3 million to properly reflect ACM’s 18% limited partnership interest in ARLP and its wholly-owned subsidiaries.
 
In order for the Company’s wholly-owned private REIT, ARSR, Inc., to qualify as a REIT under the Internal Revenue Code for the taxable year ending December 31, 2005, it was required to have at least 100 stockholders by January 2006. Accordingly, ARSR, Inc. issued 116 shares of preferred stock in a private offering to approximately 116 investors and certain employees of the Company and ACM for $1,000 per share in January 2006. These shares have a par value of $0.01 and yield a preferred annual return of 12.5%. For accounting purposes, $116,000 was recorded in the Company’s financial statements as minority interest.
 
Note 8 — Commitments and Contingencies
 
As of December 31, 2006, the Company had the following material contractual obligations (payments in thousands):

 	 	Payments Due by Period(1)	 	
Contractual Obligations	 	2007	 	 	2008	 	 	2009	 	 	2010	 	 	2011	 	 	Thereafter	 	 	Total	 	

Notes payable	 	$	21,315	 	 	$	2,522	 	 	$	—	 	 	$	—	 	 	$	1,733	 	 	$	6,479	 	 	$	32,049	 	
Collateralized debt obligations(2)	 	 	12,720	 	 	 	12,720	 	 	 	96,493	 	 	 	96,493	 	 	 	295,778	 	 	 	577,325	 	 	 	1,091,529	 	
Repurchase agreements	 	 	118,095	 	 	 	140,492	 	 	 	60,000	 	 	 	4,000	 	 	 	36,060	 	 	 	37,200	 	 	 	395,847	 	
Trust preferred securities	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	222,962	 	 	 	222,962	 	
Loan participations	 	 	125	 	 	 	62,400	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	62,525	 	
Outstanding unfunded commitments(3)	 	 	40,815	 	 	 	7,669	 	 	 	7,511	 	 	 	920	 	 	 	18,190	 	 	 	—	 	 	 	75,105	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Totals	 	$	193,070	 	 	$	225,803	 	 	$	164,004	 	 	$	101,413	 	 	$	351,761	 	 	$	843,966	 	 	$	1,880,017	 	

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(1)	 	Represents amounts due based on contractual maturities.	
 	 	 	
(2)	 	Comprised of $291.3 million of CDO I debt, $352.7 million of CDO II debt and 447.5 million of CDO III debt with a weighted average remaining maturity of 3.40, 4.88 and 5.48 years, respectively, as of December 31, 2006.	
 	 	 	
(3)	 	In accordance with certain loans and investments, the Company has outstanding unfunded commitments of $75.1 million as of December 31, 2006, that the Company is obligated to fund as the borrowers meet certain requirements. Specific requirements include but are not limited to property renovations, building construction, and building conversions based on criteria met by the borrower in accordance with the loan agreements.	
 
Litigation
 
The Company currently is neither subject to any material adverse litigation nor, to management’s knowledge, is any material adverse litigation currently threatened against the company.
 
Note 9 — Stockholders’ Equity
 
Common Stock
 
The Company’s charter provides for the issuance of up to 500 million shares of common stock, par value $0.01 per share, and 100 million shares of preferred stock, par value $0.01 per share. The Company was incorporated in June 2003 and was initially capitalized through the sale of 67 shares of common stock for $1,005.
 
On July 1, 2003 the Company completed a private placement for the sale of 1,610,000 units (including an over-allotment option), each consisting of five shares of the Company’s common stock and one warrant to purchase one share of common stock, at $75.00 per unit, for proceeds of approximately $110.1 million, net of expenses. 8,050,000 shares of common stock were sold in the offering. In addition, the Company issued 149,500 shares of restricted common stock under the stock incentive plan as described below under “Deferred Compensation.”
 
On April 13, 2004, the Company issued 6,750,000 shares of its common stock in a public offering at a price to the public of $20.00 per share, for net proceeds of approximately $125.4 million after deducting the underwriting discount and the other estimated offering expenses. The Company used the proceeds to pay down indebtedness. In May, 2004, the underwriters exercised a portion of their over-allotment option, which resulted in the issuance of 524,200 additional shares. The Company received net proceeds of approximately $9.8 million after deducting the underwriting discount. The Company issued 973,354 shares of common stock from the exercise of warrants under the Warrant Agreement and received net proceeds of $12.9 million. Additionally, ACM was paid its third quarter incentive management fee in shares of common stock totaling 22,498. After giving effect to these transactions, the Company had approximately 16.5 million shares of common stock issued and outstanding at December 31, 2004.
 
During the year ended December 31, 2005, the Company issued 124,500 shares of restricted stock under the stock incentive plan to its independent directors, certain employees of the company and of ACM. In addition, the Company issued 282,776 shares of common stock from the exercise of warrants under the July 1, 2003 warrant agreement and received net proceeds of $4.2 million. Additionally, ACM elected to be paid a portion of its incentive management fees in shares of stock totaling 191,342. After giving effect to these transactions, the Company had approximately 17.1 million shares issued and outstanding.
 
In February 2006, 1,000 restricted shares were issued to each of three independent members of the board of directors under the stock incentive plan. One third of the restricted stock granted to each of these directors was vested as of the date of grant, another one third vested in January 2007 and the remaining third will vest in January 2008. In addition, upon the resignation of a member of the Company’s board of directors, 445 shares of restricted stock were forfeited. The Company issued 1,445 shares of common stock to this individual in conjunction with an advisory role taken with the Company
 
In April 2006, 1,000 restricted shares were issued to an independent member of the board of directors under the stock incentive plan. One third of the restricted stock grant to the director was vested as of the date of grant,
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another one third will vest in April 2007 and the remaining third will vest on April 2008. In addition, the Company issued 89,250 shares of restricted common stock under the stock incentive plan to certain employees of the Company and of ACM. One fifth of the restricted stock granted to each of these employees were vested as of the date of grant, the second one-fifth will vest in April 2007, the third one-fifth will vest in April 2008, the fourth one-fifth will vest in April 2009, and the remaining one-fifth will vest in April 2010.
 
In August 2006, the Board of Directors authorized a stock repurchase plan that enabled the Company to buy up to one million shares of its common stock. At management’s discretion, shares may be acquired on the open market, through privately negotiated transactions or pursuant to a Rule 10b5-1 plan. A Rule 10b5-1 plan permits the Company to repurchase shares at times when it might otherwise be prevented from doing so. As of December 31, 2006, the Company repurchased 279,400 shares of its common stock in the open market and under a 10b5-1 plan at a total cost of $7.0 million (an average cost of $25.10 per share). This plan expired on February 9, 2007. Furthermore, in February 2006, May 2006, August 2006 and November 2006, ACM was paid the fourth quarter 2005, first quarter 2006, a portion of the second quarter 2006 and third quarter 2006 incentive management fee in 57,370 shares, 64,891 shares, 55,586 shares and 65,282 shares of common stock, respectively. After giving effect to these transactions, the Company had approximately 17.1 million shares outstanding.
 
Deferred Compensation
 
The Company has a stock incentive plan, under which the board of directors has the authority to issue shares of stock to certain directors, officers and employees of the Company and ACM. Under the stock incentive plan as amended in 2005, 685,000 shares of common stock were reserved for issuance pursuant to restricted stock awards. As of December 31, 2004, 149,500 shares of restricted stock were awarded and were outstanding. Of the shares awarded, two-thirds vested immediately and the remaining one-third will vest ratably over three years on the anniversary date of the initial award.
 
In February 2005, 1,000 restricted shares were issued to each of four independent members of the board of directors under the stock incentive plan. One third of the restricted stock granted to each of these directors were vested as of the date of grant, another one third vested on January 31, 2006 and the remaining third will vest on January 31, 2007. In May 2005, the Company issued 41,000 shares of restricted common stock under the stock incentive plan to certain employees of the Company and of ACM. One fifth of the restricted stock granted to each of these employees were vested as of the date of grant and recognized currently in earnings, the second one-fifth vested in May 2006, the third one-fifth will vest in May 2007, the fourth one-fifth will vest in May 2008, and the remaining one-fifth will vest in May 2009. In July 2005, the Company issued 77,500 shares of restricted common stock under the stock incentive plan to certain employees of the Company and of ACM. One fifth of the restricted stock granted to each of these employees were vested as of the date of grant and is recognized currently in earnings, the second one-fifth vested in May 2006, the third one-fifth will vest in May 2007, the fourth one-fifth will vest in May 2008, and the remaining one-fifth will vest in May 2009. In August 2005, the Company issued 2,000 shares of restricted common stock under the stock incentive plan to two of the Company’s directors. One third of the restricted stock granted to each of these directors were vested as of the date of grant and is recognized currently in earnings, the second one-third vested in August 2006, the third one-third will vest in August 2007. Additionally, in 2005, 14,445 shares of unvested restricted stock were forfeited.
 
In February 2006, 1,000 restricted shares were issued to each of three independent members of the board of directors under the stock incentive plan. One third of the restricted stock granted to each of these directors was vested as of the date of grant, another one third vested in February 2007 and the remaining third will vest in February 2008. In addition in February 2006, upon the resignation of a member of the Company’s board of directors, 445 shares of restricted stock were forfeited and the Company issued 1,445 shares of common stock to this individual in conjunction with an advisory role taken with the Company. In April 2006, 1,000 restricted shares were issued to an independent member of the board of directors under the stock incentive plan. One third of the restricted stock grant to the director was vested as of the date of grant, another one third will vest in April 2007 and
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the remaining third will vest on April 2008. In addition in April 2006, the Company issued 89,250 shares of restricted common stock under the stock incentive plan to certain employees of the Company and of ACM. One fifth of the restricted stock granted to each of these employees were vested as of the date of grant, the second one-fifth will vest in April 2007, the third one-fifth will vest in April 2008, the fourth one-fifth will vest in April 2009, and the remaining one-fifth will vest in April 2010.
 
Dividends were paid on the restricted shares as dividends were paid on shares of the Company’s common stock whether or not they are vested. For accounting purposes, the Company measures the compensation costs for these shares as of the date of the grant, with subsequent remeasurement for any unvested shares granted to non-employees of the Company with such amounts expensed against earnings, at the grant date (for the portion that vest immediately) or ratably over the respective vesting periods. For the years ended December 31, 2006, 2005 and 2004, compensation expense related to this plan totaled $2.3 million, $1.6 million and $0.3 million, respectively. Such amounts appear on the Company’s Consolidated Income Statement under ”stock-based compensation expense”.
 
Warrants
 
In connection with the private placement of units by the Company on July 1, 2003, the Company issued warrants to acquire 1,610,000 shares of common stock, as adjusted for dilution, at $15.00 per share. Concurrently, ACM was issued warrants to purchase 629,345 operating partnership units. In July 2004, these warrants became eligible for exercise through a cash payment or by surrendering additional warrants or shares of common stock in a “cashless” transaction.
 
For the year ended December 31, 2004, 1,321,975 common stock warrants were exercised for a total amount of $12.9 million and 973,354 common shares were issued. Of these totals, 115,176 common shares were issued from 463,797 warrants from a “cashless” exercise. As of December 31, 2004, there were 288,025 common stock warrants outstanding. On October 12, 2004, ACM exercised all of its warrants for a total of 629,345 operating partnership units of ARLP and proceeds of $9.4 million.
 
For the year ended December 31, 2005, 287,144 common stock warrants were exercised for a total amount of $4.2 million and 282,766 common shares were issued. As of December 31, 2005, there were no outstanding common stock warrants, as they expired July 1, 2005, under the Company’s July 1, 2003 warrant agreement.
 
Preferred Stock
 
Concurrent with the formation of the Company, ACM contributed a portfolio of structured finance investments and related debt to ARLP, the operating partnership of the Company, in exchange for 3,146,724 units of limited partnership interest in ARLP and warrants to purchase an additional 629,345 operating partnership units. Concurrently, the Company, ARLP and ACM entered into a pairing agreement. Pursuant to the pairing agreement, each operating partnership unit issued to ACM and issuable to ACM upon exercise of its warrants for additional operating partnership units in connection with the contribution of initial assets was paired with one share of the Company’s special voting preferred stock. The preferred stock was issued to ACM by the Company in exchange for a capital contribution in the amount of $31,467. Each share of special voting preferred stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. A holder of special voting preferred stock will not be entitled to any regular or special dividend payments or other distributions, other than a $0.01 per share liquidation preference. The Company has classified and designated 5,000,000 shares of its 100,000,000 authorized shares of preferred stock as special voting preferred stock. In 2004, ACM exercised 629,345 warrants in exchange for operating partnership units resulting in the issuance of 629,345 shares of preferred stock. As of December 31, 2006 and 2005, the Company had 3,776,069 shares issued and outstanding.
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Note 10 — Earnings Per Share
 
Earnings per share (“EPS”) is computed in accordance with SFAS No. 128, Earnings Per Share. Basic earnings per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during each period inclusive of unvested restricted stock which participate fully in dividends. Diluted EPS is calculated by dividing income adjusted for minority interest by the weighted average number of shares of common stock outstanding plus the additional dilutive effect of common stock equivalents during each period. The Company’s common stock equivalents are ARLP’s operating partnership units, warrants to purchase additional shares of common stock and warrants to purchase additional operating partnership units. The dilutive effect of the warrants is calculated using the treasury stock method.
 
In 2004, ACM, the manager of our Company, earned incentive management fees totaling $1.6 million. Based on the terms of the management agreement, ACM elected to be paid its incentive management fee in common shares totaling 66,141, of which 43,643 were issued in 2005. These 43,643 shares were considered anti-dilutive and have been excluded from the calculation of diluted EPS.
 
In 2005, ACM, earned incentive management fees totaling $9.9 million. Based on the terms of the management agreement, ACM elected to be paid its 2005 incentive management fees partially in cash totaling $4.4 million and partially in common shares totaling 205,069, of which 57,370 were issued in 2006.
 
In 2006, ACM, earned incentive management fees totaling $10.2 million. Based on the terms of the management agreement, ACM elected to be paid its 2006 incentive management fees partially in cash totaling $1.7 million and partially in common shares totaling 306,764, of which 121,005 were issued in 2007.
 
The following is a reconciliation of the numerator and denominator of the basic and diluted net earnings per share computations for the years ended December 31, 2006, 2005, and 2004, respectively.
 
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 	 	For the Year Ended December
	 	 	For the Year Ended December
	 	 	For the Period Ended December
	 	
 	 	31, 2006	 	 	31, 2005	 	 	31, 2004	 	
 	 	Basic	 	 	Diluted	 	 	Basic	 	 	Diluted	 	 	Basic	 	 	Diluted	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	50,413,807	 	 	$	50,413,807	 	 	$	50,387,023	 	 	$	50,387,023	 	 	$	25,072,682	 	 	$	25,072,682	 	
Add: Income allocated to minority interest	 	 	 	 	 	 	11,104,481	 	 	 	 	 	 	 	11,280,981	 	 	 	 	 	 	 	5,875,816	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per EPS calculation	 	$	50,413,807	 	 	$	61,518,288	 	 	$	50,387,023	 	 	$	61,668,004	 	 	$	25,072,682	 	 	$	30,948,498	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average number of common shares outstanding	 	 	17,161,346	 	 	 	17,161,346	 	 	 	16,867,466	 	 	 	16,867,466	 	 	 	13,814,199	 	 	 	13,814,199	 	
Weighted average number of operating partnership units	 	 	 	 	 	 	3,776,069	 	 	 	 	 	 	 	3,776,069	 	 	 	 	 	 	 	3,286,387	 	
Dilutive effect of incentive management fee shares	 	 	 	 	 	 	64,389	 	 	 	 	 	 	 	10,934	 	 	 	 	 	 	 	—	 	
Dilutive effect of warrants	 	 	 	 	 	 	—	 	 	 	 	 	 	 	18,033	 	 	 	 	 	 	 	265,429	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total weighted average common shares outstanding	 	 	17,161,346	 	 	 	21,001,804	 	 	 	16,867,466	 	 	 	20,672,502	 	 	 	13,814,199	 	 	 	17,366,015	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share	 	$	2.94	 	 	$	2.93	 	 	$	2.99	 	 	$	2.98	 	 	$	1.81	 	 	$	1.78	 	

Note 11 — Related Party Transactions
 
As of December 31, 2006 and 2005, the Company had a $7.75 million first mortgage loan receivable that bore interest at a variable rate of one month LIBOR plus 4.25% and was scheduled to mature in March 2006. In March 2006, this loan was extended for one year with no other change in terms. This loan was made to a not-for-profit corporation that holds and manages investment property from the endowment of a private academic institution. Two of the Company’s directors are members of the board of trustees of the borrower and the private academic institution. Interest income recorded from this loan for the year ended December 31, 2006 and 2005, was approximately $0.7 million and $0.6 million, respectively.
 
ACM had a 50% non-controlling interest in a joint venture, which was formed to acquire, develop and/or sell real estate assets. In 2005, ACM received all of its investment in this joint venture and retained its interest in the joint venture. All loans outstanding to this joint venture were repaid in full in 2004. In 2003, the Company had a $16.0 million bridge loan outstanding to the joint venture, which was collateralized by a first lien position on a commercial real estate property. This loan was funded by ACM in June 2003 and was purchased by the Company in July 2003. The loan required monthly interest payments based on one month LIBOR and was repaid in full in 2004. The Company had agreed to provide the borrower with additional mezzanine financing in the amount of up to $8.0 million. The mezzanine financing required interest payments based on one month LIBOR and was repaid in full in 2004.
 
The Company’s $16.0 million bridge loan to the joint venture was contributed by ACM as one of the structured finance assets contributed to the Company on July 1, 2003 at book value, which approximates fair value. At the time of contribution, ACM also agreed to provide a limited guarantee of the loan’s principal amount based on any profits

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realized on its retained 50% interest in the joint venture with the borrower and ACM’s participating interests in borrowers under three other contributed structured finance assets.
 
At the time of ACM’s origination of three of the structured finance assets that it contributed to the company on July 1, 2003 at book value, which approximates fair value, each of the property owners related to these contributed assets granted ACM participating interests that share in a percentage of the cash flows of the underlying properties. Upon contribution of the structured finance assets, ACM retained these participating interests and its 50% non-controlling interest in the joint venture to which it had made the $16.0 million bridge loan. ACM agreed that if any portion of the outstanding amount of any of these four contributed assets is not paid at its maturity or repurchase date, ACM will pay to the Company, subject to the limitation described below, the portion of the unpaid amount of the contributed asset up to the total amount then received by ACM due to the realization of any profits on its retained interests associated with any other of the four contributed assets. However, ACM will no longer be obligated to make such payments to the Company when the remaining accumulated principal amount of the four contributed assets, collectively, falls below $5 million and none of the four contributed assets were in default. In 2004 and 2005, these four investments matured, the borrowers paid the amounts due in full and ACM’s guarantee on these investments has been satisfied.
 
ACM has a 50% non-controlling interest in an entity, which owns 15% of a real estate holding company that owns and operates a factory outlet center. At December 31, 2006, ACM’s investment in this joint venture was approximately $0.2 million. The Company had a $28.3 million preferred equity investment to this joint venture, which was collateralized by a pledge of the ownership interest in this commercial real estate property. This loan was funded by ACM in September 2005 and was purchased by the Company in March 2006. The loan required monthly interest payments based on one month LIBOR and matures in September 2007. Interest income recorded from this loan for the year ended December 31, 2006 was approximately $2.7 million. The loan was repaid in full in November 2006.
 
In 2005, ACM received a brokerage fee for services rendered in arranging a loan facility for a borrower. The Company provided a portion of the loan facility. The Company was credited $0.4 million of this brokerage fee, which was included in other income.
 
During the first quarter 2006, ACM originated permanent financing of $31.5 million to a borrower to repay an existing $30.0 million bridge loan with the Company. Pursuant to the terms of the bridge loan agreement, the Company had a right of first offer to provide permanent financing, a right of first refusal to match the terms and conditions from a third party lender and a potential prepayment fee of $0.9 million. In August 2006, ACM received a $0.5 million fee for the securitization of the $31.5 million permanent financing. This fee was remitted to the Company in August 2006 in lieu of the Company waving its right of first refusal and potential prepayment fee under the original terms of the bridge loan.
 
As of December 31, 2006 and 2005, $0.1 million and $0.2 million, respectively of escrows received at loan closings were due to ACM and included in due to related party. These payments were remitted in January 2007 and January 2006, respectively. In addition, as of December 31, 2005, approximately $0.1 million of net expenses payments due from ACM were included in due to related party. These payments were remitted in January 2006.
 
The Company is dependent upon its manager, ACM, to provide services to the Company that are vital to its operations with whom it has conflicts of interest. The Company’s chairman, chief executive officer and president, Mr. Ivan Kaufman, is also the chief executive officer and president of ACM, and, the Company’s chief financial officer, Mr. Paul Elenio, is the chief financial officer of ACM. In addition, Mr. Kaufman and the Kaufman entities together beneficially own approximately 90% of the outstanding membership interests of ACM and certain of the Company’s employees and directors, also hold an ownership interest in ACM. Furthermore, one of the Company’s directors also serves as the trustee of one of the Kaufman entities that holds a majority of the outstanding membership interests in ACM and co-trustee of another Kaufman entity that owns an equity interest in ACM. ACM
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currently holds an 18% limited partnership interest in the Company’s operating partnership and 20% of the voting power of its outstanding stock.
 
Note 12 — Distributions
 
In order to qualify as a REIT, the Company must currently distribute at least 90% of its taxable income and must distribute 100% of its taxable income in order not to be subject to corporate federal income taxes on retained income. The Company anticipates it will distribute all of its taxable income to its stockholders. Because taxable income differs from cash flow from operations due to non-cash revenues or expenses (such as depreciation), in certain circumstances, the Company may generate operating cash flow in excess of its distributions or, alternatively, may be required to borrow to make sufficient distribution payments.
 
During the year ended December 31, 2006 the Company paid distributions totaling $44.1 million, or $2.57 per share. During the year ended December 31, 2005 the Company paid distributions totaling $37.7 million, or $2.24 per share. During the year ended December 31, 2004 the Company declared and paid distributions totaling $15.6 million, or $1.16 per share.
 
For tax purposes, 77.43% or $1.99 per share of dividends declared in 2006 were classified as ordinary income with 22.57% or $0.58 per share of dividends represented a return of capital. Of the ordinary taxable dividend, approximately 0.50% represents “qualified dividend income” and will be eligible for reduced dividend rates. For tax purposes, 70.44% or $1.58 per share of dividends declared in 2005 were classified as ordinary income with 29.56% or $0.66 per share of dividends represented a return of capital. Of the ordinary taxable dividend, approximately 0.65% represents “qualified dividend income” and will be eligible for reduced dividend rates. In 2004, 100% of dividends declared were classified as ordinary income.
 
On December 11, 2006 the Company declared distributions of $14,143. This distribution represents a 12.5% return on the preferred shares of its private REIT with respect to the year ended December 31, 2006 to stockholders of record at the close of business on December 15, 2006. These distributions were paid on December 29, 2006.
 
On January 25, 2007 the Company declared distributions of $0.60 per share of common stock, payable with respect to the three months ended December 31, 2006, to stockholders of record at the close of business on February 5, 2007. These distributions were subsequently paid on February 20, 2007.
 
Note 13 — Management Agreement
 
The Company and ARLP have entered into a management agreement with ACM which has an initial term of two years with automatic one year extensions, subject to certain termination rights. After the initial two year term, the Company will be able to terminate the management agreement without cause for any reason upon six months’ prior written notice to ACM. If the Company terminates the management agreement without cause, or gives ACM notice of non-renewal, in order to manage its operations internally, the Company will be required to pay ACM a termination fee equal to the base management fee and the incentive compensation earned by ACM during the 12-month period preceding the termination. If, without cause, the Company terminates the management agreement or elects not to renew it for any other reason, the Company will be required to pay ACM a termination fee equal to two times the base management fee and the incentive compensation earned by ACM during the 12-month period preceding the termination.
 
The Company’s chief executive officer is also ACM’s chief executive officer and controlling equity owner. ACM has agreed to provide the Company with structured finance investment opportunities and loan servicing as well as other services necessary to operate its business. The Company’s chief executive officer and chief financial officer are not employees of the Company. The Company relies to a significant extent on the facilities and resources of ACM to conduct its operations. The management agreement requires ACM to manage the business affairs in conformity with the policies and the general investment guidelines that are approved and monitored by the
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Company’s board of directors. ACM’s management of the Company is under the direction or supervision of the Company’s board of directors.
 
For performing services under the management agreement, the Company pays ACM an annual base management fee payable monthly in cash as a percentage of ARLP’s equity and equal to 0.75% per annum of the equity up to $400 million, 0.625% per annum of the equity from $400 million to $800 million and 0.50% per annum of the equity in excess of $800 million. For purposes of calculating the base management fee, equity equals the month end value computed in accordance with GAAP of (1) total partners’ equity in ARLP, plus or minus (2) any unrealized gains, losses or other items that do not affect realized net income.
 
The Company also pays ACM incentive compensation each fiscal quarter, calculated as (1) 25% of the amount by which (a) ARLP’s funds from operations per unit of partnership interest in ARLP, adjusted for certain gains and losses, exceeds (b) the product of (x) 9.5% per annum or the Ten Year U.S. Treasury Rate plus 3.5%, whichever is greater, and (y) the weighted average of book value of the net assets contributed by ACM to ARLP per ARLP partnership unit, the offering price per share of the Company’s common equity in the private offering on July 1, 2003 and subsequent offerings and the issue price per ARLP partnership unit for subsequent contributions to ARLP, multiplied by (2) the weighted average of ARLP’s outstanding partnership units. With respect to all loans and investments originated during the term of the management agreement, the Company has also agreed with ACM that the Company pays ACM an amount equal to 100% of the origination fees paid by the borrower up to 1% of the loan’s principal amount.
 
The incentive compensation is measured annually in arrears; provided, however, ACM shall receive quarterly installments thereof in advance. The quarterly installments are calculated based on the results for the period of twelve months ending on the last day of the fiscal quarter with respect to which such installment is payable. Each quarterly installment payment is deemed to be an advance of a portion of the incentive fee payable for the year. At least 25% of this incentive compensation fee is paid to ACM in shares of the Company’s common stock, subject to ownership limitations in the Company’s charter. For purposes of determining the number of shares that are paid to ACM to satisfy the common stock portion of the incentive management fee from and after the date the Company’s common shares are publicly traded, each common share shall have a value equal to the average closing price per common share based on the last twenty days of the fiscal quarter with respect to which the incentive fee is being paid. The incentive compensation fee is accrued as it is earned. In accordance with Issue 4(b) of EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” the expense incurred for incentive fee paid in common stock is determined using the amount of stock calculated as noted above and the quoted market price of the stock on the last day of each quarter. At December 31, the Company remeasures the incentive fee expense paid to ACM in shares of the company’s common stock in accordance with the guidance provided by Issue 4(a) of EITF 96-18, which discusses how to measure at the measurement date when certain terms are not known prior to the measurement date. Accordingly, expense recorded related to common stock issued as a portion of incentive fee was adjusted to reflect the fair value of the stock on the measurement date when the final calculation of total incentive fee was determined. In the event the calculated incentive compensation for the full year is an amount less than the total of the installment payments made to ACM for the year, ACM will refund to the Company the amount of such overpayment in cash regardless of whether such installments were paid in cash or common stock. In such case, the Company would record a negative incentive fee expense in the quarter when such overpayment is determined. In 2006, 2005 and 2004, the full year incentive fee was greater than the sum of the quarterly installments.
 
ACM is responsible for all costs incident to the performance of its duties under the management agreement, including compensation of its employees, rent for facilities and other “overhead” expenses. The Company is required to pay or reimburse ACM for all expenses incurred on behalf of the Company in connection with the raising of capital or the incurrence of debt, interest expenses, taxes and license fees, litigation and extraordinary or non recurring expenses.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 
Under the terms of the management agreement, ACM is also required to provide the Company with a right of first refusal with respect to all structured finance transactions identified by ACM or its affiliates. The Company has agreed not to pursue, and to allow ACM to pursue, any real estate opportunities other than structured finance transactions. In addition, ACM’s chief executive officer, Ivan Kaufman, has entered into a non-competition agreement with the Company pursuant to which he has agreed not to pursue structured finance investment opportunities, except as approved by the board of directors of the Company.
 
In 2006, ACM earned incentive compensation installments totaling $10.2 million, of which $8.5 million was elected by ACM to be paid in 306,764 shares of common stock. As of December 31, 2006, ACM’s fourth quarter installment of $3.6 million was included in due to related party. As provided for in the management agreement, ACM elected to receive this entire incentive compensation fee in common stock, which was subsequently paid in February 2007 in common shares totaling 121,005. In 2005, ACM earned incentive compensation installments totaling $9.9 million, of which $5.5 million was elected by ACM to be paid in 205,069 shares of common stock. As of December 31, 2005, ACM’s fourth quarter installment of $1.5 million was included in due to related party. As provided for in the management agreement, ACM elected to receive this entire incentive compensation fee in common stock, which was subsequently paid in February 2006 in common shares totaling 57,370. In 2004, ACM earned incentive compensation installments totaling $1.6 million. ACM elected to receive the entire incentive management fee in 66,141 shares of common stock. As of December 31, 2004, ACM’s fourth quarter installment of $1.1 million was included in due to related party, which was subsequently paid in February 2005 in common shares totaling 43,643.
 
For the years ended December 31, 2006, 2005 and 2004 ACM earned $2.6 million, $2.5 million, and $2.0 million, respectively in base management fees, of which approximately $0.2 million in 2004, 2005 and 2006 was included in due to related party. These amounts were paid in the quarters subsequent to each year end.
 
Note 14 — Due to Borrowers
 
Due to borrowers represents borrowers’ funds held by the Company to fund certain expenditures or to be released at the Company’s discretion upon the occurrence of certain pre-specified events, and to serve as additional collateral for borrowers’ loans. While retained, these balances earn interest in accordance with the specific loan terms they are associated with.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 
Note 15 — Fair Value of Financial Instruments
 
SFAS No. 107 requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. The following table summarizes the carrying values and the estimated fair values of financial instruments as of December 31, 2006 and 2005. Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions.

 	 	December 31, 2006	 	 	December 31, 2005	 	
 	 	 	 	 	Estimated
	 	 	 	 	 	Estimated
	 	
 	 	Carrying Value	 	 	Fair Value	 	 	Carrying Value	 	 	Fair Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Financial assets:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loans and investments, net	 	$	1,993,525,064	 	 	$	1,989,504,880	 	 	$	1,246,825,906	 	 	$	1,256,126,306	 	
Related party loans, net	 	 	7,752,038	 	 	 	7,752,038	 	 	 	7,749,538	 	 	 	7,749,538	 	
Available-for-sale securities	 	 	22,100,176	 	 	 	22,100,176	 	 	 	29,615,420	 	 	 	29,615,420	 	
Derivative financial instruments	 	 	2,193,219	 	 	 	2,193,219	 	 	 	1,440,783	 	 	 	1,440,783	 	
Financial liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Repurchase agreements	 	$	395,847,359	 	 	$	395,847,359	 	 	$	413,624,385	 	 	$	413,624,385	 	
Collateralized debt obligations	 	 	1,091,529,000	 	 	 	1,091,529,000	 	 	 	299,319,000	 	 	 	299,319,000	 	
Junior subordinated notes to subsidiary trust issuing preferred securities	 	 	222,962,000	 	 	 	222,962,000	 	 	 	155,948,000	 	 	 	155,948,000	 	
Notes payable	 	 	94,574,240	 	 	 	94,574,240	 	 	 	115,400,377	 	 	 	115,400,377	 	
Notes payable — related party	 	 	—	 	 	 	—	 	 	 	30,000,000	 	 	 	30,000,000	 	
Derivative financial instruments	 	 	21,577	 	 	 	21,577	 	 	 	925,525	 	 	 	925,525	 	
 
The following methods and assumptions were used by the Company in estimating the fair value of each class of financial instrument:
 
Loans and Investments, Net:  Fair values of variable-rate loans and investments with no significant change in credit risk are based on carrying values. Fair values of other loans and investments are estimated using discounted cash flow methodology, using discount rates, which, in the opinion of management, best reflect current market interest rates that would be offered for loans with similar characteristics and credit quality.
 
Related Party Loans, Net:  Fair values of variable-rate loans and investments with no significant change in credit risk are based on carrying values. Fair values of other loans and investments are estimated using discounted cash flow methodology, using discount rates, which, in the opinion of management, best reflect current market interest rates that would be offered for loans with similar characteristics and credit quality.
 
Available-for-Sale Securities:  Fair values are approximated on current market quotes received from financial sources that trade such securities.
 
Derivative financial instruments:  Fair values are approximated on current market quotes received from financial sources that trade such securities. These items are included in other assets and other liabilities on the balance sheet.
 
Financial Liabilities:  Financial liabilities bear interest at rates that are similar to those available in the market currently. Therefore, fair values approximate the carrying values reported in the balance sheets.
 
Note 16 — Subsequent Events
 
In January 2007, the Company entered into three interest rate swap agreements with notional amounts of $42.5 million, $25.0 million and $7.5 million that expire in February 2012, March 2010 and February 2012,
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
respectively. These interest rate swap agreements are to hedge the exposure to interest rate risk on its variable rate current and future forecasted LIBOR based debt.
 
In February 2007, the Company entered into an interest rate swap having a notional value of $15.3 million that expires in February 2012. This interest rate swap agreement is to hedge the exposure to interest rate risk on its variable rate current and future forecasted LIBOR based debt.
 
In February 2007, the Company sold its Available-for-Sale Securities at a nominal gain and repaid the related outstanding debt on these securities.
 
Note 17 — Summary Quarterly Consolidated Financial Information -Unaudited
 
The following tables represent summarized quarterly financial data of the Company which, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s results of operations:
 
Net income shown agrees with the Company’s quarterly report(s) on Form 10-Q as filed with the Securities and Exchange Commission. However, in 2004, individual line items vary from such report(s) due to participation’s interest recorded as an offset to interest income, during subsequent periods being retroactively reclassified to interest expense for the third and fourth quarters of 2004.

 	 	For the Three Months Ended	 	
 	 	December 31,
	 	 	September 30,
	 	 	June 30,
	 	 	March 31,
	 	
For the Year Ended December 31, 2006:	 	2006	 	 	2006	 	 	2006	 	 	2006	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	$	52,399,216	 	 	$	40,897,083	 	 	$	38,848,431	 	 	$	40,688,671	 	
Interest from swap derivative	 	 	—	 	 	 	696.960	 	 	 	—	 	 	 	—	 	
Other income	 	 	8,250	 	 	 	41,550	 	 	 	49,050	 	 	 	71,347	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	 	52,407,466	 	 	 	41,635,593	 	 	 	38,897,481	 	 	 	40,760,018	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	29,360,656	 	 	 	23,405,789	 	 	 	21,576,662	 	 	 	18,350,312	 	
Employee compensation and benefits	 	 	1,218,640	 	 	 	1,120,596	 	 	 	1,154,477	 	 	 	1,154,931	 	
Stock based compensation	 	 	536,627	 	 	 	427,609	 	 	 	943,038	 	 	 	422,415	 	
Selling and administrative	 	 	1,275,518	 	 	 	1,118,724	 	 	 	1,392,431	 	 	 	837,822	 	
Management fee — related party	 	 	4,301,079	 	 	 	2,327,012	 	 	 	2,050,927	 	 	 	4,152,773	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	36,692,520	 	 	 	28,399,730	 	 	 	26,956,059	 	 	 	24,918,253	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest and income from equity affiliates	 	 	15,714,946	 	 	 	13,236,863	 	 	 	11,941,422	 	 	 	15,841,765	 	
Income from equity affiliates	 	 	1,875,000	 	 	 	—	 	 	 	—	 	 	 	2,909,292	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest	 	 	17,589,946	 	 	 	13,236,863	 	 	 	11,941,422	 	 	 	18,751,057	 	
Income allocated to minority interest	 	 	3,182,794	 	 	 	2,379,607	 	 	 	2,145,270	 	 	 	3,396,810	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income	 	$	14,407,152	 	 	$	10,856,256	 	 	$	9,796,152	 	 	$	15,354,247	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings per common share	 	$	0.84	 	 	$	0.63	 	 	$	0.57	 	 	$	0.90	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per common share	 	$	0.84	 	 	$	0.63	 	 	$	0.57	 	 	$	0.90	 	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	For the Three Months Ended	 	
 	 	December 31,
	 	 	September 30,
	 	 	June 30,
	 	 	March 31,
	 	
For the Year Ended December 31, 2005:	 	2005	 	 	2005	 	 	2005	 	 	2005	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	$	31,619,614	 	 	$	27,073,076	 	 	$	39,295,309	 	 	$	23,121,158	 	
Other income	 	 	74,676	 	 	 	35,730	 	 	 	46	 	 	 	387,798	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	 	31,694,290	 	 	 	27,108,806	 	 	 	39,295,355	 	 	 	23,508,956	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	15,266,253	 	 	 	12,462,458	 	 	 	9,690,559	 	 	 	8,326,154	 	
Employee compensation and benefits	 	 	1,215,401	 	 	 	948,312	 	 	 	956,687	 	 	 	1,154,209	 	
Stock based compensation	 	 	317,356	 	 	 	808,687	 	 	 	372,828	 	 	 	92,027	 	
Selling and administrative	 	 	1,363,703	 	 	 	1,213,889	 	 	 	927,895	 	 	 	845,879	 	
Management fee — related party	 	 	2,116,638	 	 	 	1,322,643	 	 	 	7,360,947	 	 	 	1,630,318	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	20,279,351	 	 	 	16,755,989	 	 	 	19,308,916	 	 	 	12,048,587	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest and income from equity affiliates	 	 	11,414,939	 	 	 	10,352,817	 	 	 	19,986,439	 	 	 	11,460,369	 	
Income from equity affiliates	 	 	—	 	 	 	—	 	 	 	8,006,443	 	 	 	446,997	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest	 	 	11,414,939	 	 	 	10,352,817	 	 	 	27,992,882	 	 	 	11,907,366	 	
Income allocated to minority interest	 	 	2,071,691	 	 	 	1,881,055	 	 	 	5,126,510	 	 	 	2,201,725	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income	 	$	9,343,248	 	 	$	8,471,762	 	 	$	22,866,372	 	 	$	9,705,641	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings per common share	 	$	0.55	 	 	$	0.50	 	 	$	1.36	 	 	$	0.58	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per common share	 	$	0.55	 	 	$	0.50	 	 	$	1.36	 	 	$	0.58	 	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2006
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	For the Three Months Ended	 	
 	 	December 31,
	 	 	September 30,
	 	 	June 30,
	 	 	March 31,
	 	
For the Year Ended December 31, 2004:	 	2004	 	 	2004	 	 	2004	 	 	2004	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest income	 	$	20,674,843	 	 	$	17,149,646	 	 	$	11,939,350	 	 	$	8,163,391	 	
Other income	 	 	6,636	 	 	 	9,098	 	 	 	5,427	 	 	 	21,104	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	 	20,681,479	 	 	 	17,158,744	 	 	 	11,944,777	 	 	 	8,184,495	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	 	 	7,539,501	 	 	 	5,898,637	 	 	 	3,310,544	 	 	 	2,623,893	 	
Employee compensation and benefits	 	 	646,720	 	 	 	448,564	 	 	 	617,137	 	 	 	613,306	 	
Stock based compensation	 	 	67,544	 	 	 	49,792	 	 	 	92,806	 	 	 	114,201	 	
Selling and administrative	 	 	752,793	 	 	 	544,575	 	 	 	366,843	 	 	 	244,311	 	
Management fee — related party	 	 	1,721,928	 	 	 	1,058,845	 	 	 	540,939	 	 	 	293,118	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	10,728,486	 	 	 	8,000,413	 	 	 	4,928,269	 	 	 	3,888,829	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest and income from equity affiliates	 	 	9,952,993	 	 	 	9,158,331	 	 	 	7,016,508	 	 	 	4,295,666	 	
Income from equity affiliates	 	 	525,000	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interest	 	 	10,477,993	 	 	 	9,158,331	 	 	 	7,016,508	 	 	 	4,295,666	 	
Income allocated to minority interest	 	 	1,923,558	 	 	 	1,524,359	 	 	 	1,236,560	 	 	 	1,191,339	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income	 	$	8,554,435	 	 	$	7,633,972	 	 	$	5,779,948	 	 	$	3,104,327	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings per common share	 	$	0.52	 	 	$	0.48	 	 	$	0.39	 	 	$	0.38	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per common share	 	$	0.52	 	 	$	0.47	 	 	$	0.38	 	 	$	0.38	 	

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SCHEDULE IV — LOANS AND OTHER LENDING INVESTMENTS
DECEMBER 31, 2006

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Periodic
	 	 	 	Interest Pay
	 	Interest
	 	 	 	 	 	 	 	 	
 	 	 	 	Payment
	 	 	 	Rate
	 	Accrual
	 	Prior
	 	Face
	 	 	Carrying
	 	
Type	 	Location	 	Terms	 	Maturity Date	 	Index(1)	 	Rate Index	 	Liens	 	Amount	 	 	Amount(2)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Bridge Loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Co-op(3)	 	New York, NY	 	Interest Only	 	Apr-07	 	12% Fixed	 	N/A	 	$—	 	 	$1,300,000	 	 	 	$1,300,000	 	
Multifamily(3)(8)	 	Indiana	 	Interest Only	 	Mar-07	 	LIBOR + 4.25%	 	N/A	 	—	 	 	7,749,538	 	 	 	7,749,538	 	
Multifamily(8)	 	Evansville, IN	 	Interest Only	 	Mar-07	 	LIBOR + 4.25%	 	N/A	 	—	 	 	2,500	 	 	 	2,500	 	
Commercial(3)	 	Brooklyn, NY	 	Interest Only	 	Oct-07	 	LIBOR + 4.75%	 	N/A	 	—	 	 	4,663,944	 	 	 	4,663,944	 	
Condo	 	New York, NY	 	Interest Only	 	Apr-07	 	LIBOR + 4.00%	 	N/A	 	—	 	 	37,125,265	 	 	 	37,125,976	 	
Multifamily(3)	 	Marion, IN	 	Interest Only	 	Feb-11	 	7.07% Fixed
LIBOR + 3.65% LIBOR	 	N/A	 	—	 	 	7,200,000	 	 	 	7,173,811	 	
Condo	 	New York, NY	 	Interest Only	 	May-07	 	Floor 3.09%
LIBOR + 4.50% LIBOR	 	N/A	 	—	 	 	44,448,281	 	 	 	44,343,014	 	
Commercial	 	Brooklyn, NY	 	Interest Only	 	Aug-07	 	Floor 3.38%	 	N/A	 	—	 	 	27,000,000	 	 	 	26,969,178	 	
Commercial	 	Brooklyn, NY	 	Interest Only	 	Aug-10	 	6.45% Fixed	 	N/A	 	—	 	 	25,000,000	 	 	 	25,000,000	 	
Condo	 	New York, NY	 	Interest Only	 	Nov-07	 	LIBOR + 4.00%
LIBOR + 2.50% LIBOR	 	N/A	 	—	 	 	20,902,764	 	 	 	20,223,955	 	
Multifamily	 	Columbia, SC	 	Interest Only	 	Jan-08	 	Floor 4.37%
LIBOR + 4.35% LIBOR	 	N/A	 	—	 	 	4,525,300	 	 	 	4,501,484	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Office	 	New York, NY	 	Interest Only	 	Feb-07	 	Floor 4.57%
LIBOR + 5.00% LIBOR	 	N/A	 	—	 	 	1,986,158	 	 	 	1,986,158	 	
Commercial	 	New York, NY	 	Interest Only	 	Feb-08	 	Floor 4.53%
LIBOR + 6.00% LIBOR	 	N/A	 	—	 	 	13,603,239	 	 	 	13,603,239	 	
Hotel	 	St. Louis, MO	 	Interest Only	 	Feb-08	 	Floor 4.42%	 	N/A	 	—	 	 	4,776,889	 	 	 	4,791,148	 	
Land	 	Homewood, CA	 	Interest Only	 	Jun-11	 	10.3715% Fixed	 	Fixed 12.742%	 	—	 	 	53,962,648	(7)	 	 	53,820,062	 	
Multifamily	 	Moline, IL	 	Interest Only	 	Apr-07	 	LIBOR + 2.75%	 	N/A	 	—	 	 	1,200,000	 	 	 	1,200,000	 	
Hotel(3)	 	New York, NY	 	Interest Only	 	Jan-08	 	LIBOR + 4.00%	 	N/A	 	—	 	 	50,159,187	 	 	 	50,159,187	 	
Office	 	New York, NY	 	Interest Only	 	Feb-07	 	LIBOR + 4.00%	 	N/A	 	—	 	 	51,244,378	 	 	 	51,244,378	 	
Office	 	New York, NY	 	Interest Only	 	Feb-07	 	12.00% Fixed	 	N/A	 	—	 	 	2,943,323	 	 	 	2,943,324	 	
Multifamily	 	Fort Wayne, IN	 	Interest Only	 	May-07	 	7.75% Fixed	 	N/A	 	—	 	 	8,837,956	 	 	 	8,806,870	 	
Condo	 	Philadelphia, PA	 	Interest Only	 	Jul-08	 	LIBOR + 3.50%	 	N/A	 	—	 	 	20,152,735	 	 	 	19,955,843	 	
Office	 	Brooklyn, NY	 	Interest Only	 	Aug-07	 	11.00% Fixed	 	N/A	 	—	 	 	1,348,624	 	 	 	1,348,624	 	
Multifamily	 	Columbia, SC	 	Interest Only	 	Jul-11	 	8.271% Fixed	 	N/A	 	—	 	 	6,813,275	(5)	 	 	6,813,275	 	
Multifamily	 	Fort Wayne, IN	 	Interest Only	 	Aug-11	 	8.15% Fixed	 	N/A	 	—	 	 	4,177,330	(6)	 	 	4,177,330	 	
Condo	 	Clearwater, FL	 	Interest Only	 	Dec-08	 	LIBOR + 3.50%	 	N/A	 	—	 	 	67,777,660	 	 	 	67,795,661	 	
Multifamily	 	Baltimore, MD	 	Interest Only	 	Sep-08	 	LIBOR + 1.75%	 	N/A	 	—	 	 	30,690,000	 	 	 	30,429,578	 	
Multifamily	 	Gainesville, GA	 	Interest Only	 	Sep-08	 	LIBOR + 1.75%	 	N/A	 	—	 	 	18,810,000	 	 	 	18,650,620	 	
Multifamily	 	New York, NY	 	Interest Only	 	Apr-07	 	LIBOR + 5.00% LIBOR
Floor 5.33%	 	N/A	 	—	 	 	28,568,564	 	 	 	28,568,564	 	
Hotel	 	Daytona, FL	 	Interest Only	 	Jan-09	 	LIBOR + 1.1583%	 	N/A	 	—	 	 	60,000,000	 	 	 	59,743,587	 	
Retail	 	New York, NY	 	Interest Only	 	Nov-07	 	LIBOR + 2.30%	 	N/A	 	—	 	 	30,000,000	 	 	 	30,019,153	 	
Office	 	Phoenix ,AZ	 	Interest Only	 	Jun-08	 	LIBOR + 1.50%	 	N/A	 	—	 	 	22,400,000	 	 	 	22,420,994	 	
Multifamily	 	Tallahassee, FL	 	Interest Only	 	Jun-08	 	LIBOR + 2.50%	 	N/A	 	—	 	 	14,500,000	 	 	 	14,520,565	 	
Hotel	 	Long Beach, CA	 	Interest Only	 	Nov-07	 	LIBOR + 4.75%	 	N/A	 	—	 	 	9,160,000	 	 	 	9,076,726	 	
Land	 	West Hollywood, CA	 	Interest Only	 	Jan-08	 	8.5228% Fixed	 	N/A	 	—	 	 	18,315,000	 	 	 	18,315,609	 	
Office	 	New York, NY	 	Interest Only	 	Aug-08	 	LIBOR + 2.50%	 	N/A	 	—	 	 	96,000,000	 	 	 	96,034,671	 	
Retail	 	Lower Burrell, PA	 	Interest Only	 	Jun-08	 	LIBOR + 4.50%	 	N/A	 	—	 	 	2,802,300	 	 	 	2,761,055	 	
Multifamily	 	New York, NY	 	Interest Only	 	Dec-16	 	6.2993% Fixed	 	N/A	 	—	 	 	42,806,799	 	 	 	42,167,813	 	
Multifamily	 	New York, NY	 	Interest Only	 	Mar-08	 	LIBOR + 1.50%	 	N/A	 	—	 	 	28,000,000	 	 	 	28,030,658	 	
Land	 	Jacksonville, FL	 	Interest Only	 	Oct-07	 	12.00% Fixed	 	N/A	 	—	 	 	22,840,000	 	 	 	22,690,682	 	
Condo	 	New York, NY	 	Interest Only	 	Dec-07	 	LIBOR + 4.15%	 	N/A	 	—	 	 	70,921,399	(4)	 	 	70,943,840	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	$—	 	 	$964,715,056	 	 	 	$962,072,613	 	

 
 	 	 	
(1)	 	References to LIBOR are to one-month LIBOR unless specifically stated otherwise.	
 	 	 	
(2)	 	The carrying amounts approximate the federal income tax basis.	
 	 	 	
(3)	 	Reflects loans that have been extended during the period.	
 	 	 	
(4)	 	The loans are collateralized by the same underlying real estate property.	
 	 	 	
(5)	 	The loans are collateralized by the same underlying real estate property.	
 	 	 	
(6)	 	The loans are collateralized by the same underlying real estate property.	
 	 	 	
(7)	 	The loans are collateralized by the same underlying real estate property.	
 	 	 	
(8)	 	Related party loans as discussed in Note #11 of the consolidated financial statements.	
 
93

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
SCHEDULE IV — LOANS AND OTHER LENDING INVESTMENTS — (Continued)
DECEMBER 31, 2006
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Periodic
	 	 	 	Interest Pay
	 	Interest
	 	 	 	 	 	 	 	 	 	
 	 	 	 	Payment
	 	 	 	Rate
	 	Accrual
	 	Prior
	 	 	Face
	 	 	Carrying
	 	
Type	 	Location	 	Terms	 	Maturity Date	 	Index(1)	 	Rate Index	 	Liens	 	 	Amount	 	 	Amount(2)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mezzanine Loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Condo	 	New York, NY	 	Interest Only	 	Dec-07	 	LIBOR + 7.00%	 	Fixed 14.00%	 	 	$70,921,399	 	 	 	$26,496,716	(4)	 	 	$26,496,716	 	
Office(3)	 	New York, NY	 	Interest Only	 	Dec-07	 	LIBOR + 6.25% LIBOR
Floor 1.75%	 	N/A	 	 	82,814,859	 	 	 	35,185,141	 	 	 	35,146,090	 	
Office(3)	 	New York, NY	 	Interest Only	 	Dec-07	 	LIBOR +3.00%	 	N/A	 	 	50,000,000	 	 	 	32,814,859	 	 	 	32,816,317	 	
Multifamily	 	Tampa, FL	 	Interest Only	 	Dec-09	 	LIBOR + 5.50% LIBOR
Floor 1.50%	 	N/A	 	 	7,581,197	 	 	 	4,000,000	 	 	 	3,974,111	 	
Office	 	Washington D.C.	 	Interest Only	 	May-07	 	LIBOR + 7.00%	 	N/A	 	 	120,000,000	 	 	 	25,000,000	 	 	 	25,000,000	 	
Land	 	New York, NY	 	Interest Only	 	Feb-09	 	LIBOR + 5.00% LIBOR
Floor 2.59%	 	N/A	 	 	5,942,925	 	 	 	10,957,870	 	 	 	10,957,870	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Condo	 	Kapaa Kauai, HI	 	Interest Only	 	Apr-07	 	LIBOR + 5.00% LIBOR
Floor 2.85%	 	N/A	 	 	—	 	 	 	13,800,000	 	 	 	13,800,000	 	
Office	 	New York, NY	 	Interest Only	 	Mar-15	 	8.166% Fixed	 	N/A	 	 	265,000,000	 	 	 	45,000,000	 	 	 	44,011,081	 	
Multifamily	 	Ypsilanti, MI	 	Interest Only	 	Jan-08	 	LIBOR + 6.05%	 	N/A	 	 	34,564,892	 	 	 	8,541,899	 	 	 	8,551,976	 	
Hotel	 	New York, NY	 	Interest Only	 	Apr-07	 	9.00% Fixed	 	N/A	 	 	35,926,370	 	 	 	28,000,000	 	 	 	28,000,000	 	
Office	 	Various	 	Interest Only	 	Apr-15	 	9.39% Fixed	 	N/A	 	 	127,500,000	 	 	 	12,500,000	 	 	 	12,485,034	 	
Condo	 	New York, NY	 	Interest Only	 	Apr-08	 	LIBOR + 10.5% LIBOR
Floor 2.50%	 	N/A	 	 	344,290,401	 	 	 	28,000,000	 	 	 	28,000,000	 	
Condo	 	New York, NY	 	Interest Only	 	Apr-08	 	LIBOR + 6.75% LIBOR
Floor 2.50%	 	N/A	 	 	235,290,401	 	 	 	49,000,000	 	 	 	49,028,976	 	
Office	 	Manhasset, NY	 	Interest Only	 	Jun-15	 	10.00% Fixed	 	N/A	 	 	50,595,000	 	 	 	9,000,000	 	 	 	8,839,041	 	
Office	 	New York, NY	 	Interest Only	 	Nov-09	 	5.3979% Fixed	 	N/A	 	 	246,000,000	 	 	 	9,500,000	 	 	 	9,035,641	 	
Office	 	New York, NY	 	Interest Only	 	Nov-09	 	5.3979% Fixed	 	N/A	 	 	238,450,000	 	 	 	7,550,000	 	 	 	6,930,245	 	
Retail	 	Richmond, KY	 	Interest Only	 	Oct-08	 	LIBOR + 5.00% LIBOR
Floor 3.85%	 	N/A	 	 	15,008,954	 	 	 	3,000,000	 	 	 	2,973,420	 	
Office	 	St. Louis, MO	 	Interest Only	 	Aug-15	 	5.32% Fixed	 	N/A	 	 	125,500,000	 	 	 	25,500,000	 	 	 	19,273,056	 	
Multifamily	 	Salt Lake City, UT	 	Interest Only	 	Oct-08	 	LIBOR + 6.25% LIBOR
Floor 4.07%	 	N/A	 	 	17,996,409	 	 	 	2,182,642	 	 	 	2,157,482	 	
Hotel	 	various	 	Interest Only	 	Sep-07	 	LIBOR + 2.75%	 	N/A	 	 	1,293,695,000	 	 	 	30,653,000	 	 	 	30,661,742	 	
Multifamily	 	Winter Springs, FL	 	Interest Only	 	Dec-10	 	8.21% Fixed	 	N/A	 	 	30,612,100	 	 	 	5,001,516	 	 	 	5,001,516	 	
 	 	 	 	Principal and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Multifamily	 	Las Vegas, NV	 	Interest	 	Jan-14	 	6.93% Fixed	 	N/A	 	 	4,688,901	 	 	 	748,485	 	 	 	748,485	 	
Office	 	Various	 	Interest Only	 	Oct-07	 	LIBOR + 2.75% LIBOR
Floor 4.375%	 	N/A	 	 	215,000,000	 	 	 	40,000,000	 	 	 	40,034,993	 	
Condo	 	New York, NY	 	Interest Only	 	Apr-08	 	LIBOR + 6.20% LIBOR
Floor 2.50%	 	N/A	 	 	284,290,401	 	 	 	60,000,000	 	 	 	60,010,766	 	
Commercial	 	New York, NY	 	Interest Only	 	Apr-08	 	LIBOR + 3.00% LIBOR
Floor 2.50%	 	N/A	 	 	—	 	 	 	30,000,000	 	 	 	30,000,000	 	
Office	 	Philadelphia, PA	 	Interest Only	 	Mar-16	 	10.07% Fixed	 	N/A	 	 	122,000,000	 	 	 	10,000,000	 	 	 	9,828,807	 	
Office	 	New York, NY	 	Interest Only	 	Feb-07	 	LIBOR + 4.39% LIBOR
Floor 4.57%	 	N/A	 	 	1,986,159	 	 	 	37,414,989	 	 	 	37,414,989	 	
Office	 	New York, NY	 	Interest Only	 	Nov-12	 	9.3471% Fixed	 	N/A	 	 	545,000,000	 	 	 	20,000,000	 	 	 	20,041,210	 	
 	 	 	 	Principal and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Multifamily	 	Fort Wayne, IN	 	Interest	 	Mar-11	 	7.10% Fixed	 	N/A	 	 	7,540,000	 	 	 	1,913,086	 	 	 	1,913,086	 	
 	 	 	 	 	 	 	 	LIBOR + 3.735%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Hotel	 	Daytona Beach, FL	 	Interest Only	 	Jan-09	 	LIBOR Floor 3.95%	 	N/A	 	 	60,000,000	 	 	 	20,000,000	 	 	 	19,928,835	 	
 	 	 	 	 	 	 	 	LIBOR + 3.985%	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Hotel	 	Daytona Beach, FL	 	Interest Only	 	Jan-09	 	LIBOR Floor 3.95%	 	N/A	 	 	80,000,000	 	 	 	15,000,000	 	 	 	14,969,249	 	
Hotel	 	New York, NY	 	Interest Only	 	Jan-08	 	LIBOR + 3.50%	 	N/A	 	 	450,000,000	 	 	 	40,000,000	 	 	 	40,002,059	 	
Hotel	 	Various	 	Interest Only	 	Feb-10	 	LIBOR + 3.25% LIBOR
Floor 4.57%	 	N/A	 	 	2,535,000,000	 	 	 	25,000,000	 	 	 	25,009,378	 	
Multifamily	 	College Park, MD	 	Interest Only	 	Sep-10	 	8.86% Fixed	 	N/A	 	 	93,000,000	 	 	 	5,000,000	 	 	 	5,016,555	 	
 	 	 	 	 	 	 	 	LIBOR + 6.00% LIBOR	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Multifamily	 	Los Angeles, CA	 	Interest Only	 	Jan-09	 	Floor 4.437%	 	N/A	 	 	18,400,000	 	 	 	3,500,000	 	 	 	3,458,070	 	

 	 	 	
(1)	 	References to LIBOR are to one-month LIBOR unless specifically stated otherwise.	
 	 	 	
(2)	 	The carrying amounts approximate the federal income tax basis.	
 	 	 	
(3)	 	Reflects loans that have been extended during the period.	
 	 	 	
(4)	 	The loans are collateralized by the same underlying real estate property.	

94

Table of Contents
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
SCHEDULE IV — LOANS AND OTHER LENDING INVESTMENTS — (Continued)
DECEMBER 31, 2006
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Periodic
	 	 	 	Interest
	 	Interest
	 	 	 	 	 	 	 	 	 	
 	 	 	 	Payment
	 	Maturity
	 	Pay Rate
	 	Accrual
	 	Prior
	 	 	Face
	 	 	Carrying
	 	
Type	 	Location	 	Terms	 	Date	 	Index(1)	 	Rate Index	 	Liens	 	 	Amount	 	 	Amount(2)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mezzanine Loans (Continued):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Hotel	 	Groton, CT	 	Principal and
Interest	 	Nov-10	 	7.89% Fixed	 	N/A	 	 	21,051,293	 	 	 	3,714,426	 	 	 	3,769,052	 	
Hotel	 	Groton, CT	 	Interest Only	 	Nov-10	 	8.55% Fixed	 	N/A	 	 	24,765,717	 	 	 	9,000,000	 	 	 	9,003,092	 	
Condo	 	San Jose, CA	 	Interest Only	 	Jun-09	 	9.00% Fixed	 	Fixed 15.00%	 	 	—	 	 	 	10,745,800	 	 	 	10,745,804	 	
Multifamily	 	Los Angeles, CA	 	Principal and
Interest	 	Jun-16	 	7.65% Fixed	 	N/A	 	 	11,012,056	 	 	 	1,815,380	 	 	 	1,815,380	 	
Multifamily	 	Moline, IL	 	Interest Only	 	May-16	 	7.94% Fixed	 	N/A	 	 	7,735,000	 	 	 	886,200	 	 	 	886,200	 	
Office	 	Washington, DC	 	Interest Only	 	Jul-08	 	LIBOR + 4.50%	 	N/A	 	 	105,038,686	 	 	 	20,000,000	 	 	 	20,005,873	 	
Land	 	Homewood, CA	 	Interest Only	 	Jun-11	 	—	 	N/A	 	 	53,962,648	 	 	 	10,000,000	(7)	 	 	10,000,000	 	
Office	 	Cincinnati, OH	 	Interest Only	 	May-16	 	10.50% Fixed	 	N/A	 	 	83,500,000	 	 	 	6,500,000	 	 	 	6,523,695	 	
Office	 	Dallas, TX	 	Interest Only	 	Jun-16	 	9.333% Fixed	 	N/A	 	 	81,000,000	 	 	 	7,000,000	 	 	 	7,014,352	 	
Hotel	 	Chicago, IL	 	Interest Only	 	Jun-08	 	LIBOR +6.00%	 	N/A	 	 	55,900,000	 	 	 	20,000,000	 	 	 	19,941,965	 	
Office	 	Providence, RI	 	Interest Only	 	Aug-11	 	12.80% Fixed	 	N/A	 	 	16,000,000	 	 	 	2,800,000	 	 	 	2,800,000	 	
Multifamily	 	Various	 	Interest Only	 	Oct-08	 	LIBOR + 5.625%	 	N/A	 	 	3,006,500,000	 	 	 	112,600,000	 	 	 	112,350,565	 	
Hotel	 	Various	 	Interest Only	 	May-08	 	LIBOR +1.70%	 	N/A	 	 	115,000,000	 	 	 	50,000,000	 	 	 	49,893,097	 	
Multifamily	 	Chesapeake, VA	 	Interest Only	 	Dec-16	 	LIBOR + 4.25%	 	N/A	 	 	63,000,000	 	 	 	4,000,000	 	 	 	4,000,000	 	
Multifamily	 	MD	 	Interest Only	 	Dec-11	 	5.00% Fixed	 	Fixed 11.246%	 	 	135,280,000	 	 	 	33,100,000	 	 	 	33,100,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	$	11,594,340,768	 	 	$	1,012,422,010	 	 	$	1,003,365,871	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Preferred Equity Loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Hotel	 	New York, NY	 	Interest Only	 	Apr-07	 	9.00% Fixed	 	N/A	 	$	63,926,370	 	 	$	2,000,000	 	 	$	2,000,000	 	
Office	 	New York, NY	 	Interest Only	 	Oct-08	 	LIBOR + 5.50% LIBOR
Floor 4.037%	 	N/A	 	 	12,578,809	 	 	 	11,000,000	 	 	 	11,000,000	 	
Multifamily	 	Brooklyn, NY	 	Interest Only	 	Jan-16	 	LIBOR + 5.00% LIBOR
Floor 4.48%	 	N/A	 	 	16,000,000	 	 	 	1,900,000	 	 	 	1,912,030	 	
Multifamily	 	Houston, TX	 	Interest Only	 	Jul-16	 	LIBOR + 4.50%	 	N/A	 	 	38,600,000	 	 	 	2,000,000	 	 	 	2,000,485	 	
Multifamily	 	Columbia, SC	 	Interest Only	 	Jul-11	 	11.13% Fixed	 	N/A	 	 	6,813,275	 	 	 	250,000	(5)	 	 	250,000	 	
Multifamily	 	Tuscaloosa, Al	 	Interest Only	 	Aug-16	 	LIBOR + 4.50%	 	N/A	 	 	25,000,000	 	 	 	2,000,000	 	 	 	2,003,879	 	
Multifamily	 	Fort Wayne, IN	 	Interest Only	 	Aug-11	 	11.40% Fixed	 	N/A	 	 	4,177,330	 	 	 	286,955	(6)	 	 	286,955	 	
Multifamily	 	Charlotte, NC	 	Interest Only	 	Oct-16	 	LIBOR + 4.50%	 	N/A	 	 	32,940,000	 	 	 	2,400,000	 	 	 	2,419,520	 	
Multifamily	 	Columbia, SC	 	Interest Only	 	Oct-16	 	LIBOR + 4.50%	 	N/A	 	 	24,560,000	 	 	 	1,600,000	 	 	 	1,619,884	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	$	224,595,784	 	 	$	23,436,955	 	 	$	23,492,753	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Loans:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Hotel	 	Miami, FL	 	Interest Only	 	Sep-23	 	7.39% Fixed	 	N/A	 	$	8,833,602	 	 	$	1,845,865	 	 	$	1,845,865	 	
Commercial	 	New York, NY	 	Interest Only	 	Apr-08	 	5.00% Fixed	 	Fixed 10.00%	 	 	—	 	 	 	9,000,000	 	 	 	9,000,000	 	
Commercial	 	New York, NY	 	Interest Only	 	Apr-08	 	LIBOR + 4.00%	 	N/A	 	 	—	 	 	 	1,500,000	 	 	 	1,500,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	$	8,833,602	 	 	$	12,345,865	 	 	$	12,345,865	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	$	11,827,770,154	 	 	$	2,012,919,886	 	 	$	2,001,277,102	 	

 
 	 	 	
(1)	 	References to LIBOR are to one-month LIBOR unless specifically stated otherwise.	
 	 	 	
(2)	 	The carrying amounts approximate the federal income tax basis.	
 	 	 	
(3)	 	Reflects loans that have been extended during the period.	
 	 	 	
(4)	 	The loans are collateralized by the same underlying real estate property.	
 	 	 	
(5)	 	The loans are collateralized by the same underlying real estate property.	
 	 	 	
(6)	 	The loans are collateralized by the same underlying real estate property.	
 	 	 	
(7)	 	The loans are collateralized by the same underlying real estate property.	
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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
SCHEDULE IV — LOANS AND OTHER LENDING INVESTMENTS — (Continued)
DECEMBER 31, 2006
 
The following table reconciles the Company’s loans and investments carrying amounts from January 1, 2006 to December 31, 2006:

Balance — January 1, 2006	 	$	1,254,575,444	 	
Additions during period:	 	 	 	 	
New loan originations	 	 	1,458,153,387	 	
Funding of unfunded loan commitments(1)	 	 	99,403,188	 	
Accretion of unearned revenue	 	 	4,536,713	 	
Deductions during period:	 	 	 	 	
Loan payoffs	 	 	(694,679,234	)	
Loan partial payoffs	 	 	(9,787,780	)	
Unfunded loan commitments(1)	 	 	(107,821,883	)	
Unearned revenue	 	 	(3,102,733	)	
 	 	 	 	 	
Balance — December 31, 2006	 	$	2,001,277,102	 	

 
 	 	 	
(1)	 	In accordance with certain loans and investments, the Company has outstanding unfunded commitments that the Company is obligated to fund as the borrowers meet certain requirements. Specific requirements include but are not limited to property renovations, building construction, and building conversions based on criteria met by the borrower in accordance with the loan agreements.	

96

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ITEM 9.  	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	
 
Not applicable.

ITEM 9A.  	CONTROLS AND PROCEDURES	
 
Under the direction of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2006. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2006.
 
No change in internal control over financial reporting occurred during the quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
 
Management’s Report on Internal Control Over Financial Reporting
 
Management of Arbor Realty Trust, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 	• 	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;	
 	 	 	
 	• 	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with the authorization of management and directors of the Company; and	
 	 	 	
 	• 	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.	
 
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.
 
Based on this assessment, management concluded that, as of December 31, 2006, the Company’s internal control over financial reporting is effective.
 
The Company’s independent registered public accounting firm has issued a report on management’s assessment of the Company’s internal control over financial reporting. This report appears on the following page of this annual report on Form 10-K.
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Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders of
Arbor Realty Trust, Inc. and Subsidiaries
 
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Arbor Realty Trust, Inc. and Subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respect. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the polices or procedures may deteriorate.
 
In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006, and our report dated February 28, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New York, New York
February 28, 2007

ITEM 9B.  	OTHER INFORMATION	
 
Not applicable.
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PART III

ITEM 10.  	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	
 
The information regarding our directors and executive officers set forth under the captions “Board of Directors” and “Executive Officers” of the 2007 Proxy Statement is incorporated herein by reference.
 
The information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the 2007 Proxy Statement is incorporated herein by reference.
 
The information regarding our code of ethics for our chief executive and other senior financial officers under the caption “Senior Officer Code of Ethics and Code of Business Conduct and Ethics” in the 2007 Proxy Statement is incorporated herein by reference.

ITEM 11  	EXECUTIVE COMPENSATION	
 
The information contained in the section captioned “Executive Compensation” of the 2007 Proxy Statement is incorporated herein by reference.

ITEM 12  	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	
 
The information contained in the section captioned “Security Ownership of Certain Beneficial Owners & Management” of the 2007 proxy Statement is incorporated herein by reference.

ITEM 13  	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	
 
The information contained in the section captioned “Certain Relationships and Related Transactions and Director Independence” of the 2007 proxy Statement is incorporated herein by reference.

ITEM 14  	PRINCIPAL ACCOUNTANT FEES AND SERVICES	
 
The information regarding our independent accountant’s fees and services in the sections captioned “Independent Accountants’ Fees” and “Audit Committee Pre-Approval Policy” of the 2007 proxy Statement is incorporated herein by reference.
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PART IV

ITEM 15  	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K	

(a) 	and (c) Financial Statements and Schedules.	
 
See the “Index to the Consolidated Financial Statements of Arbor Realty Trust, Inc. and Subsidiaries” and the “Index to the Consolidated Financial Statements of the Structured Finance Business of Arbor Commercial Mortgage, LLC and Subsidiaries,” each included in Item 8 of this report.

(b)  	Exhibits.	
 
See the Index to Exhibits on the following page.
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Exhibit
	 	 	
Number	 	Description	
 	 	 	 	 	
 	2	.1	 	Contribution Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership*	
 	2	.2	 	Guaranty, dated July 1, 2003, made by Arbor Commercial Mortgage, LLC and certain wholly-owned subsidiaries of Arbor Commercial Mortgage, LLC in favor of Arbor Realty Limited Partnership, ANMB Holdings, LLC and ANMB Holdings II, LLC*	
 	2	.3	 	Indemnity Agreement, dated July 1, 2003 by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC, Ivan Kaufman and Arbor Realty Limited Partnership*	
 	3	.1	 	Articles of Incorporation of the Registrant*	
 	3	.2	 	Articles of Amendment to Articles of Incorporation of the Registrant.‡	
 	3	.3	 	Articles Supplementary of the Registrant*	
 	3	.4	 	Bylaws of the Registrant*	
 	4	.1	 	Form of Certificate for Common Stock*	
 	4	.2	 	Registration Rights Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. and JMP Securities, LLC*	
 	10	.1	 	Amended and Restated Management Agreement, dated January 19, 2005, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC, Arbor Realty Limited Partnership and Arbor Realty SR, Inc.†	
 	10	.2	 	Services Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership*	
 	10	.3	 	Non-Competition Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Realty Limited Partnership and Ivan Kaufman*	
 	10	.4	 	Second Amended and Restated Agreement of Limited Partnership of Arbor Realty Limited Partnership, dated January 19, 2005, by and among Arbor Commercial Mortgage, LLC, Arbor Realty Limited Partnership, Arbor Realty LPOP, Inc. and Arbor Realty GPOP, Inc.†	
 	10	.5	 	Warrant Agreement, dated July 1, 2003, between Arbor Realty Limited Partnership, Arbor Realty Trust, Inc. and Arbor Commercial Mortgage Commercial Mortgage, LLC*	
 	10	.6	 	Registration Rights Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. and Arbor Commercial Mortgage, LLC*	
 	10	.7	 	Pairing Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC Arbor Realty Limited Partnership, Arbor Realty LPOP, Inc. and Arbor Realty GPOP, Inc.*	
 	10	.8	 	2003 Omnibus Stock Incentive Plan, (as amended and restated on July 29, 2004)*	
 	10	.9	 	Amendment No. 1 to the 2003 Omnibus Stock Incentive Plan (as amended and restated)‡‡	
 	10	.10	 	Form of Restricted Stock Agreement*	
 	10	.11	 	Benefits Participation Agreement, dated July 1, 2003, between Arbor Realty Trust, Inc. and Arbor Management, LLC*	
 	10	.12	 	Form of Indemnification Agreement*	
 	10	.13	 	Structured Facility Warehousing Credit and Security Agreement, dated July 1, 2003, between Arbor Realty Limited Partnership and Residential Funding Corporation*	
 	10	.14	 	Amended and Restated Loan Purchase and Repurchase Agreement, dated July 12, 2004, by and among Arbor Realty Funding LLC, as seller, Wachovia Bank, National Association, as purchaser, and Arbor Realty Trust, Inc., as guarantor.**	
 	10	.15	 	Master Repurchase Agreement, dated as of November 18, 2002, by and between Nomura Credit and Capital, Inc. and Arbor Commercial Mortgage, LLC*	
 	10	.16	 	Assignment and Assumption Agreement, dated as of July 1, 2003, by and between Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership*	
 	10	.17	 	Subscription Agreement between Arbor Realty Trust, Inc. and Kojaian Ventures, L.L.C.*	

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Exhibit
	 	 	
Number	 	Description	
 	 	 	 	 	
 	10	.18	 	Revolving Credit Facility Agreement, dated as of December 7, 2004, by and between Arbor Realty Trust, Inc., Arbor Realty Limited Partnership and Watershed Administrative LLC and the lenders named therein.†	
 	10	.19	 	Indenture, dated January 19, 2005, by and between Arbor Realty Mortgage Securities Series 2004-1, Ltd., Arbor Realty Mortgage Securities Series 2004-1 LLC, Arbor Realty SR, Inc. and LaSalle Bank National Association.†	
 	10	.20	 	Note Purchase Agreement, dated January 19, 2005, by and between Arbor Realty Mortgage Securities Series 2004-1, Ltd., Arbor Realty Mortgage Securities Series 2004-1 LLC and Wachovia Capital Markets, LLC.†	
 	10	.21	 	Indenture, dated January 11, 2006, by and between Arbor Realty Mortgage Securities Series 2005-1, Ltd., Arbor Realty Mortgage Securities Series 2005-1 LLC, Arbor Realty SR, Inc. and LaSalle Bank National Association.‡	
 	10	.22	 	Note Purchase Agreement, dated January 11, 2006, by and between Arbor Realty Mortgage Securities Series 2005-1, Ltd., Arbor Realty Mortgage Securities Series 2005-1 LLC and Wachovia Capital Markets, LLC.‡	
 	10	.23	 	Master Repurchase Agreement, dated as of October 26, 2006, by and between Column Financial, Inc. and Arbor Realty SR, Inc. and Arbor TRS Holding Company Inc., as sellers, Arbor Realty Trust, Inc. Arbor Realty Limited Partnership, as guarantors, and Arbor Realty Mezzanine LLC***	
 	10	.24	 	Indenture, dated December 14, 2006, by and between Arbor Realty Mortgage Securities Series 2006-1, Ltd., Arbor Realty Mortgage Securities Series 2006-1 LLC, Arbor Realty SR, Inc. and Wells Fargo Bank, National Association.	
 	10	.25	 	Note Purchase and Placement Agreement, dated December 14, 2006, by and between Arbor Realty Mortgage Securities Series 2006-1, Ltd., Arbor Realty Mortgage Securities Series 2006-1 LLC and Wachovia Capital Markets, LLC and Credit Suisse Securities (USA) LLC.	
 	10	.26	 	Note Purchase Agreement, dated December 14, 2006, by and between Arbor Realty Mortgage Securities Series 2006-1, Ltd., Arbor Realty Mortgage Securities Series 2006-1 LLC and Wells Fargo Bank, National Association.	
 	21	.1	 	Subsidiaries of the registrant	
 	23	.1	 	Consent of Ernst & Young LLP	
 	31	.1	 	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14.	
 	31	.2	 	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14.	
 	32	.1	 	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	32	.2	 	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	

 	 	 	
*	 	Incorporated by reference to the Registrant’s Registration Statement on Form S-11 (Registration No. 333-110472), as amended. Such registration statement was originally filed with the Securities and Exchange Commission on November 13, 2003.	
 	 	 	
**	 	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.	
 	 	 	
***	 	Incorporated by reference to the Registrant’s Quarterly Report of Form 10-Q for the quarter ended September 30, 2006.	
 	 	 	
†	 	Incorporated by reference to the Registrant’s Annual Report of Form 10-K for the year ended December 31, 2004.	
 	 	 	
‡	 	Incorporated by reference to the Registrant’s Annual Report of Form 10-K for the year ended December 31, 2005.	
 	 	 	
‡‡	 	Incorporated by reference to the Registrant’s Quarterly Report of Form 10-Q for the quarter ended June 30, 2005.	
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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on February 28, 2007.
 
ARBOR REALTY TRUST, INC.

 	By: 	/s/  Ivan Kaufman	
Name:     Ivan Kaufman
 	 	 	
 	Title: 	Chief Executive Officer	
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below on behalf of the Registrant in the capacities and on the dates indicated.

Signature	 	Title	 	Date	
 	 	 	 	 	 	 	
/s/  Ivan Kaufman

Ivan Kaufman	 	Chairman of the Board of Directors, Chief Executive Officer and President (Principal Executive Officer)	 	February 28, 2007	
 	 	 	 	 	
/s/  Paul Elenio

Paul Elenio	 	Chief Financial Officer (Principal Financial Officer)	 	February 28, 2007	
 	 	 	 	 	
/s/  William Helmreich

William Helmreich	 	Director	 	February 28, 2007	
 	 	 	 	 	
/s/  C. Michael Kojaian

C. Michael Kojaian	 	Director	 	February 28, 2007	
 	 	 	 	 	
/s/  Melvin F. Lazar

Melvin F. Lazar	 	Director	 	February 28, 2007	
 	 	 	 	 	
/s/  Walter K. Horn

Walter K. Horn	 	Director	 	February 28, 2007	
 	 	 	 	 	
/s/  Joseph Martello

Joseph Martello	 	Director	 	February 28, 2007	
 	 	 	 	 	
/s/  Karen Edwards

Karen Edwards	 	Director	 	February 28, 2007	
 	 	 	 	 	
/s/  Kyle Permut

Kyle Permut	 	Director	 	February 28, 2007	
 	 	 	 	 	
/s/  Archie R. Dykes

Archie R. Dykes	 	Director	 	February 28, 2007	

103

Exhibit 10.24   

================================================================================

ARBOR REALTY MORTGAGE SECURITIES SERIES 2006-1, LTD.,
as Issuer,

ARBOR REALTY MORTGAGE SECURITIES SERIES 2006-1 LLC,
as Co-Issuer,

ARBOR REALTY SR, INC.,
as Advancing Agent

AND

WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee, Paying Agent, Calculation Agent, Transfer Agent,
Custodial Securities Intermediary, Backup Advancing Agent and Notes Registrar

INDENTURE

Dated as of December 14, 2006

================================================================================

TABLE OF CONTENTS

Page
----

ARTICLE 1

DEFINITIONS

Section 1.1     Definitions..............................................      2
Section 1.2     Assumptions as to Pledged Obligations....................     91
Section 1.3     Interest Calculation Convention..........................     93
Section 1.4     Rounding Convention......................................     93

ARTICLE 2

THE NOTES

Section 2.1     Forms Generally..........................................     93
Section 2.2     Forms of Notes and Certificate of Authentication.........     93
Section 2.3     Authorized Amount; Stated Maturity; and Denominations....     95
Section 2.4     Execution, Authentication, Delivery and Dating...........     95
Section 2.5     Registration, Registration of Transfer and Exchange......     96
Section 2.6     Mutilated, Defaced, Destroyed, Lost or Stolen Note.......    106
Section 2.7     Payment of Principal and Interest and Class A-1AR
Commitment Fee and Other Amounts; Principal and
Interest Rights Preserved.............................    107
Section 2.8     Persons Deemed Owners....................................    117
Section 2.9     Cancellation.............................................

117
Section 2.10    Global Securities; Temporary Notes.......................    117
Section 2.11    U.S. Tax Treatment of Notes and the Issuer...............    119
Section 2.12    Authenticating Agents....................................    119
Section 2.13    Forced Sale on Failure to Comply with Restrictions.......    120
Section 2.14    No Gross Up..............................................    121

ARTICLE 3

CONDITIONS PRECEDENT; PLEDGED OBLIGATIONS

Section 3.1     General Provisions.......................................    121
Section 3.2     Security for Notes.......................................    124
Section 3.3     Transfer of Pledged Obligations..........................    125

-i-

ARTICLE 4

SATISFACTION AND DISCHARGE

Section 4.1     Satisfaction and Discharge of Indenture..................    131
Section 4.2     Application of Trust Money...............................    133
Section 4.3     Repayment of Monies Held by Paying Agent.................    133

ARTICLE 5

REMEDIES

Section 5.1     Events of Default........................................    134
Section 5.2     Acceleration of Maturity; Rescission and Annulment.......    137
Section 5.3     Collection of Indebtedness and Suits for Enforcement by      140
Trustee...............................................    143
Section 5.4     Remedies.................................................    144
Section 5.5     Preservation of Assets...................................    146
Section 5.6     Trustee May Enforce Claims Without Possession of Notes...    146
Section 5.7     Application of Money Collected...........................    146
Section 5.8     Limitation on Suits......................................
Section 5.9     Unconditional Rights of Noteholders to Receive Principal,
Interest and the Class A-1AR Commitment Fee...........    147
Section 5.10    Restoration of Rights and Remedies.......................    147
Section 5.11    Rights and Remedies Cumulative...........................    148
Section 5.12    Delay or Omission Not Waiver.............................    148
Section 5.13    Control by the Controlling Class.........................    148
Section 5.14    Waiver of Past Defaults..................................    149
Section 5.15    Undertaking for Costs....................................    149
Section 5.16    Waiver of Stay or Extension Laws.........................    150
Section 5.17    Sale of Assets...........................................    150
Section 5.18    Action on the Notes......................................    151

ARTICLE 6

THE TRUSTEE

Section 6.1     Certain Duties and Responsibilities......................    151
Section 6.2     Notice of Default........................................    153
Section 6.3     Certain Rights of Trustee................................    154
Section 6.4     Not Responsible for Recitals or Issuance of Notes........    155
Section 6.5     May Hold Notes...........................................    156
Section 6.6     Money Held in Trust......................................    156
Section 6.7     Compensation and Reimbursement...........................    156
Section 6.8     Corporate Trustee Required; Eligibility..................    157
Section 6.9     Resignation and Removal; Appointment of Successor........    158
Section 6.10    Acceptance of Appointment by Successor...................    159

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Section 6.11    Merger, Conversion, Consolidation or Succession to
Business of Trustee...................................    160
Section 6.12    Co-Trustees and Separate Trustee.........................    160
Section 6.13    Certain Duties of Trustee Related to Delayed Payment of
Proceeds..............................................    161
Section 6.14    Representations and Warranties of the Trustee............    162
Section 6.15    Requests for Consents....................................    163
Section 6.16    Withholding..............................................    163

ARTICLE 7

COVENANTS

Section 7.1     Payment of Principal and Interest and Class A-1AR
Commitment Fee........................................    164
Section 7.2     Maintenance of Office or Agency..........................    164
Section 7.3     Money for Note Payments to be Held in Trust..............    165
Section 7.4     Existence of the Issuer and Co-Issuer....................    167
Section 7.5     Protection of Assets.....................................    169
Section 7.6     Notice of Any Amendments.................................    170
Section 7.7     Performance of Obligations...............................    170
Section 7.8     Negative Covenants.......................................    171
Section 7.9     Statement as to Compliance...............................    173
Section 7.10    Issuer and Co-Issuer May Consolidate or Merge Only on
Certain Terms.........................................    173
Section 7.11    Successor Substituted....................................    177
Section 7.12    No Other Business........................................    177
Section 7.13    Reporting................................................    177
Section 7.14    Calculation Agent........................................    178
Section 7.15    Maintenance of Listing...................................    179
Section 7.16    Purchase of Assets.......................................    180
Section 7.17    Effective Date Actions...................................    180
Section 7.18    REIT Status..............................................    181

ARTICLE 8

SUPPLEMENTAL INDENTURES

Section 8.1     Supplemental Indentures Without Consent of
Securityholders.......................................    182
Section 8.2     Supplemental Indentures with Consent of Securityholders..    184
Section 8.3     Execution of Supplemental Indentures.....................    186
Section 8.4     Effect of Supplemental Indentures........................    187
Section 8.5     Reference in Notes to Supplemental Indentures............    187
Section 8.6     Certain Consents Required for all Supplemental
Indentures............................................    187

ARTICLE 9

REDEMPTION OF SECURITIES; REDEMPTION PROCEDURES

Section 9.1     Clean-up Call; Tax Redemption and Optional Redemption....    187

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Section 9.2     Auction Call Redemption..................................    189
Section 9.3     Notice of Redemption.....................................    190
Section 9.4     Notice of Redemption or Maturity by the Issuer...........    191
Section 9.5     Notes Payable on Redemption Date.........................    191
Section 9.6     Mandatory Redemption.....................................    192
Section 9.7     Special Amortization.....................................    192

ARTICLE 10

ACCOUNTS, ACCOUNTINGS AND RELEASES

Section 10.1    Collection of Money; Custodial Account...................    193
Section 10.2    Collection Accounts......................................    194
Section 10.3    Payment Account..........................................    196
Section 10.4    Unused Proceeds Account..................................    196
Section 10.5    Interest Reserve Account.................................    198
Section 10.6    Delayed Funding Obligations Account......................    198
Section 10.7    Expense Account..........................................    199
Section 10.8    Defeased Collateral Accounts.............................    200
Section 10.9    Interest Advances........................................    201
Section 10.10   Reports by Parties.......................................    204
Section 10.11   Reports; Accountings.....................................    205
Section 10.12   Release of Pledged Collateral Debt Securities; Release
of Assets.............................................    214
Section 10.13   Reports by Independent Accountants.......................    215
Section 10.14   Reports to Rating Agencies...............................    216
Section 10.15   Certain Procedures.......................................    217

ARTICLE 11

APPLICATION OF MONIES

Section 11.1    Disbursements of Monies from Payment Account.............    218
Section 11.2    Trust Accounts...........................................    231

ARTICLE 12

SALE OF COLLATERAL DEBT SECURITIES

Section 12.1    Sales of Collateral Debt Securities......................    231
Section 12.2    Reinvestment Criteria and Trading Restrictions...........    235
Section 12.3    Conditions Applicable to all Transactions Involving Sale
or Grant..............................................    238
Section 12.4    Sale of Collateral Debt Securities with respect to an
Auction Call Redemption...............................    239
Section 12.5    Modifications to Collateral Quality Tests or Coverage
Tests.................................................    242

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ARTICLE 13

NOTEHOLDERS' RELATIONS

Section 13.1    Subordination............................................    243
Section 13.2    Standard of Conduct......................................    247

ARTICLE 14

MISCELLANEOUS

Section 14.1    Form of Documents Delivered to the Trustee...............    247
Section 14.2    Acts of Securityholders..................................    248
Section 14.3    Notices, etc., to the Trustee, the Issuer, the Co-Issuer,
the Advancing Agent, the Collateral Manager, the
Initial Purchaser, each Hedge Counterparty, the Class
A-1AR Note Agent, each Rating Agency and MBIA.........    249
Section 14.4    Notices to Noteholders; Waiver...........................    251
Section 14.5    Effect of Headings and Table of Contents.................    252
Section 14.6    Successors and Assigns...................................    252
Section 14.7    Severability.............................................    252
Section 14.8    Benefits of Indenture....................................    252
Section 14.9    Governing Law............................................    253
Section 14.10   Submission to Jurisdiction...............................    253
Section 14.11   Counterparts.............................................    253
Section 14.12   Liability of Co-Issuers..................................    253

ARTICLE 15

ASSIGNMENT OF COLLATERAL DEBT SECURITIES PURCHASE AGREEMENTS AND
COLLATERAL MANAGEMENT AGREEMENT

Section 15.1    Assignment of Collateral Debt Securities Purchase
Agreement and the Collateral Management Agreement.....    254

ARTICLE 16

HEDGE AGREEMENT; CURE RIGHTS; PURCHASE RIGHTS; SUBSEQUENT
COLLATERAL DEBT SECURITIES

Section 16.1    Issuer's Obligations under Hedge Agreement...............    256
Section 16.2    Collateral Debt Securities Purchase Agreements...........    260
Section 16.3    Cure Rights..............................................    260
Section 16.4    Purchase Right; Holder of a Majority of the Preferred
Shares................................................    261
Section 16.5    Representations and Warranties Related to Subsequent
Collateral Debt Securities............................    262

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Section 16.6    Operating Advisor; Additional Debt.......................    264

ARTICLE 17

ADVANCING AGENT

Section 17.1    Liability of the Advancing Agent.........................    264
Section 17.2    Merger or Consolidation of the Advancing Agent...........    264
Section 17.3    Limitation on Liability of the Advancing Agent and
Others................................................    264
Section 17.4    Representations and Warranties of the Advancing Agent....    265
Section 17.5    Resignation and Removal; Appointment of Successor........    266
Section 17.6    Acceptance of Appointment by Successor Advancing Agent...    267

ARTICLE 18

CLASS A-1AR NOTES

Section 18.1    Draws on the Class A-1AR Notes and Class A-1AR
Commitments...........................................    267
Section 18.2    Class A-1AR Interest and Class A-1AR Commitment Fee......    269
Section 18.3    Prepayments of Class A-1AR Notes.........................    269
Section 18.4    Class A-1AR Ratings Criteria.............................    270
Section 18.5    Class A-1AR Holder Collateral Account....................    270

SCHEDULES

Schedule A   Moody's Matrix
Schedule B   Moody's Recovery Rate Assumptions
Schedule C   S&P Matrix
Schedule D   S&P Recovery Matrix
Schedule E   S&P Non-Eligible Notching Asset Types
Schedule F   S&P Eligible Notching Asset Types
Schedule G   Fitch Matrix
Schedule H   Initial Fixed Rate Securities
Schedule I   Schedule of Closing Date Collateral Debt Securities
Schedule J   LIBOR
Schedule K   List of Authorized Officers of Collateral Manager
Schedule L   Form of Underlying Term Loan and Underlying Mortgage
Property Representations and Warranties
Schedule M   Form of B Note Representations and Warranties
Schedule N   Form of Participation Representations and Warranties
Schedule O   Form of Mezzanine Loan Representations and Warranties
Schedule P   Form of Preferred Equity Security Representations and Warranties
Schedule Q   Form of CRE CDO Securities, CMBS Securities, REIT Debt Securities
and Rake Bonds Representations and Warranties

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EXHIBITS

Exhibit A-1   Form of Class A-1 Floating Rate Note
Exhibit A-2   Form of Class A-2 Floating Rate Note
Exhibit A-3   Form of Definitive Class A-1AR Note
Exhibit B     Form of Class B Floating Rate Note
Exhibit C     Form of Class C Floating Rate Note
Exhibit D     Form of Class D Floating Rate Note
Exhibit E     Form of Class E Floating Rate Note
Exhibit F     Form of Class F Floating Rate Note
Exhibit G     Form of Class G Floating Rate Note
Exhibit H     Form of Class H Floating Rate Note
Exhibit I     Form of Transfer Certificate for (1) Transfer at the Closing to a
Regulation S Global Security or (2) Subsequent Transfer
from a Rule 144A Global Security to a Regulation S Global Security
Exhibit J     Form of Transfer Certificate for (1) Transfer at the Closing to a
Rule 144A Global Security or (2) Subsequent Transfer
from a Regulation S Global Security to a Rule 144A Global Security
Exhibit K     Form of Transferee Certificate for Transfer of a Definitive
Class A-1AR Note (1) At the Closing and (2) After the Closing
Exhibit L     Form of Transferor Certificate for Transfer of a Definitive Class
A-1AR Note (1) At the Closing and (2) After the Closing
Exhibit M     Form of Trust Receipt
Exhibit N     Form of Request for Release
Exhibit O     Rating Agency Pool Contribution Analysis

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INDENTURE, dated as of December 14, 2006, by and between ARBOR REALTY
MORTGAGE SECURITIES SERIES 2006-1, LTD., a Cayman Islands exempted company with
limited liability (the "Issuer"), ARBOR REALTY MORTGAGE SECURITIES SERIES 2006-1
LLC, a limited liability company formed under the laws of Delaware (the
"Co-Issuer"), WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking
association, as trustee (herein, together with its permitted successors and
assigns in the trusts hereunder, the "Trustee"), paying agent, calculation
agent, transfer agent, custodial securities intermediary, backup advancing agent
and notes registrar, and ARBOR REALTY SR, INC. (including any successor by
merger, the "Arbor Parent"), a Maryland corporation, as advancing agent (herein,
together with its permitted successors and assigns in the trusts hereunder, the
"Advancing Agent").

PRELIMINARY STATEMENT

Each of the Issuer and the Co-Issuer is duly authorized to execute and
deliver this Indenture to provide for the Notes issuable as provided in this
Indenture. All covenants and agreements made by the Issuer and Co-Issuer herein
are for the benefit and security of the Secured Parties. The Issuer, the
Co-Issuer, Wells Fargo Bank, National Association, in its capacities other than
as Trustee, and the Advancing Agent are entering into this Indenture, and the
Trustee is accepting the trusts created hereby, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged.

All things necessary to make this Indenture a valid agreement of the
Issuer and Co-Issuer in accordance with this Indenture's terms have been done.

GRANTING CLAUSES

The Issuer hereby Grants to the Trustee, for the benefit and security
of the Secured Parties, all of its right, title and interest in, to and under,
in each case, whether now owned or existing, or hereafter acquired or arising
(other than Excepted Assets), (a) the Collateral Debt Securities listed in the
Schedule of Closing Date Collateral Debt Securities which the Issuer purchases
on the Closing Date and causes to be delivered to the Trustee (directly or
through an agent or bailee) herewith, all payments thereon or with respect
thereto and all Collateral Debt Securities which are delivered to the Trustee
(directly or through an agent or bailee) after the Closing Date pursuant to the
terms hereof (including the Collateral Debt Securities listed, as of the
Effective Date, on the Schedule of Closing Date Collateral Debt Securities
delivered by the Issuer pursuant to Section 7.17) and all payments thereon or
with respect thereto, (b) the rights of the Issuer under each Hedge Agreement,
(c) the Collection Accounts, the Payment Account, the Expense Account, the
Unused Proceeds Account, the Interest Reserve Account, the Delayed Funding
Obligations Account, the Custodial Account, each Hedge Termination Account, each
Hedge Collateral Account and the related security entitlements and all income
from the investment of funds in any of the foregoing, (d) the Eligible
Investments, (e) the rights of the Issuer under the Collateral Management
Agreement, the Class A-1AR Note Purchase Agreement, each Collateral Debt
Securities Purchase Agreement (including any Collateral Debt Securities Purchase
Agreement entered into after the Closing Date) and the Servicing Agreement, (f)
all Cash or Money delivered to the Trustee (or its bailee)

(directly or through a securities intermediary), (g) all other investment
property, accounts, instruments and general intangibles in which the Issuer has
an interest, other than the Excepted Assets and (h) all proceeds with respect to
the foregoing clauses (a) through (g). The collateral described in the foregoing
clauses (a) through (h) is referred to herein as the "Assets." Such Grants are
made, however, in trust, to secure the Notes and each Hedge Agreement, subject
to the Priority of Payments, equally and ratably without prejudice, priority or
distinction between any Note and any other Note by reason of difference in time
of issuance or otherwise, except as expressly provided in this Indenture, and to
secure (i) the payment of all amounts due on and in respect of the Notes and
each Hedge Agreement in accordance with their terms, (ii) the payment of all
other sums payable under this Indenture and (iii) compliance with the provisions
of this Indenture, all as provided in this Indenture. For the avoidance of
doubt, the Assets shall not include the Excepted Assets. The foregoing Grant
shall, for the purpose of determining the property subject to the lien of this
Indenture (but not for the purpose of determining compliance with any of the
Coverage Tests or compliance by the Issuer with any of the other provisions
hereof), be deemed to include any securities and any investments granted by or
on behalf of the Issuer to the Trustee for the benefit of the Secured Parties,
whether or not such securities or such investments satisfy the criteria set
forth in the definitions of "Collateral Debt Security" or "Eligible Investment,"
as the case may be.

Except to the extent otherwise provided in this Indenture, this
Indenture shall constitute a security agreement under the laws of the State of
New York applicable to agreements made and to be performed therein, for the
benefit of the Noteholders and each Hedge Counterparty. Upon the occurrence and
during the continuation of any Event of Default hereunder, and in addition to
any other rights available under this Indenture or any other Assets held for the
benefit and security of the Noteholders and each Hedge Counterparty or otherwise
available at law or in equity but subject to the terms hereof, the Trustee shall
have all rights and remedies of a secured party on default under the laws of the
State of New York and other applicable law to enforce the assignments and
security interests contained herein and, in addition, shall have the right,
subject to compliance with any mandatory requirements of applicable law and the
terms of this Indenture, to sell or apply any rights and other interests
assigned or pledged hereby in accordance with the terms hereof at public and
private sale.

The Trustee acknowledges such Grants, accepts the trusts hereunder in
accordance with the provisions hereof, and agrees to perform the duties herein
in accordance with, and subject to, the terms hereof, in order that the
interests of the Secured Parties may be adequately and effectively protected in
accordance with this Indenture.

ARTICLE 1

DEFINITIONS

Section 1.1 Definitions.

Except as otherwise specified herein or as the context may otherwise
require, the following terms have the respective meanings set forth below for
all purposes of this Indenture, and the definitions of such terms are equally
applicable both to the singular and plural forms of such terms and to the
masculine, feminine and neuter genders of such terms. The word

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"including" and its variations shall mean "including without limitation."
Whenever any reference is made to an amount the determination of which is
governed by Section 1.2 hereof, the provisions of Section 1.2 shall be
applicable to such determination or calculation, whether or not reference is
specifically made to Section 1.2, unless some other method of calculation or
determination is expressly specified in the particular provision. All references
in this Indenture to designated "Articles," "Sections," "Subsections" and other
subdivisions are to the designated Articles, Sections, Subsections and other
subdivisions of this Indenture as originally executed. The words "herein,"
"hereof," "hereunder" and other words of similar import refer to this Indenture
as a whole and not to any particular Article, Section, Subsection or other
subdivision.

"10% Limit": The meaning specified in Section 12.1(b) hereof.

"A Note": A promissory note secured by a mortgage on commercial real
estate property that is not subordinate in right of payment to any separate
promissory note secured by a direct or beneficial interest in the same property.

"Above Cap Security": Any Collateral Debt Security, which initially
bore interest based upon a floating rate index subject to a cap (which, if
exceeded, would cause such Collateral Debt Security to bear interest at a fixed
rate) and which currently bears interest at a fixed rate as a result of such cap
being exceeded, but only for so long as such cap is exceeded.

"Accepted Loan Servicer": Any Approved Servicer or any other entity
that, among other things, is engaged in the business of servicing Whole Loans,
Mezzanine Loans, B Notes and/or Participations (with a minimum servicing
portfolio of U.S.$100,000,000) that are comparable to the Loans owned or to be
owned by the Issuer.

"Account": Any of the Interest Collection Account, the Principal
Collection Account, the Unused Proceeds Account, the Interest Reserve Account,
the Delayed Funding Obligations Account, the Payment Account, the Expense
Account, the Custodial Account, each Defeased Collateral Account, each Hedge
Termination Account, the Preferred Shares Distribution Account, each Hedge
Collateral Account and each Holder Subaccount and any subaccount thereof that
the Trustee deems necessary or appropriate.

"Accountants' Report": A report of a firm of Independent certified
public accountants of recognized national reputation appointed by the Issuer
pursuant to Section 10.13(a), which may be the firm of independent accountants
that reviews or performs procedures with respect to the financial reports
prepared by the Issuer or the Collateral Manager.

"Accounts Receivable": The meaning specified in Section 3.3(a)(vi)
hereof.

"Act" or "Act of Securityholders": The meaning specified in Section
14.2 hereof.

"Advancing Agent": Arbor Realty SR, Inc., unless a successor Person
shall have become the Advancing Agent pursuant to the applicable provisions of
this Indenture, and thereafter "Advancing Agent" shall mean such successor
Person.

"Advancing Agent Fee": The fee payable quarterly in arrears on each
Payment Date to the Advancing Agent in accordance with the Priority of Payments,
equal to 0.07% per

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annum on the Aggregate Outstanding Amount of the Class A Notes (assuming for
purposes of the calculation that the Class A-1AR Commitments are fully drawn)
and the Class B Notes on such Payment Date prior to giving effect to
distributions with respect to such Payment Date.

"Advisers Act": The Investment Advisers Act of 1940, as amended.

"Advisory Committee": The meaning specified in the Collateral
Management Agreement.

"Affiliate" or "Affiliated": With respect to a Person, (i) any other
Person who, directly or indirectly, is in control of, or controlled by, or is
under common control with, such Person or (ii) any other Person who is a
director, Officer or employee (a) of such Person, (b) of any subsidiary or
parent company of such Person or (c) of any Person described in clause (i)
above. For the purposes of this definition, control of a Person shall mean the
power, direct or indirect, (i) to vote more than 50% of the securities having
ordinary voting power for the election of directors of such Person, or (ii) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise; provided that neither the Company
Administrator nor any other company, corporation or person to which the Company
Administrator provides directors and/or administrative services and/or acts as
share trustee shall be an Affiliate of the Issuer or Co-Issuer; provided,
further, that neither the Collateral Manager, the Arbor Parent nor any of the
Arbor Parent's subsidiaries shall be deemed to be Affiliates of the Issuer.

"Agent Members": Members of, or participants in, the Depository,
Clearstream, Luxembourg or Euroclear.

"Aggregate Class A-1AR Undrawn Amount": At any time, the excess, if
any, of the aggregate amount of the Class A-1AR Commitments over the Aggregate
Outstanding Amount of the Class A-1AR Notes.

"Aggregate Collateral Balance": The sum of (without duplication) (i)
the aggregate Principal Balance of Collateral Debt Securities (excluding for
purposes of this clause (i), for the avoidance of doubt, the then unfunded
portion of any Delayed Draw Term Loan), (ii) the sum of cash and the aggregate
Principal Balance of Eligible Investments held as Principal Proceeds, (iii) the
sum of cash and the aggregate Principal Balance of Eligible Investments held in
the Unused Proceeds Account that have not been designated as Interest Proceeds
by the Collateral Manager pursuant to Section 10.4(c) with respect to the
Effective Date, (iv) the sum of cash and the aggregate Principal Balance of
Eligible Investments held in the Delayed Funding Obligations Account and (v) the
Aggregate Class A-1AR Undrawn Amount.

"Aggregate Outstanding Amount": With respect to any Class or Classes
of the Notes, the aggregate principal balance (excluding any Class C Capitalized
Interest, Class D Capitalized Interest, Class E Capitalized Interest, Class F
Capitalized Interest, Class G Capitalized Interest and Class H Capitalized
Interest, as applicable) of such Class or Classes Outstanding at the date of
determination; provided that with respect to any action, consent, vote or waiver
by any Class or Classes of Noteholders, the Aggregate Outstanding Amount of the
Class A-1AR Notes shall include any unfunded Class A-1AR Commitments. Except as
provided

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in the foregoing sentence and as otherwise provided herein, the Aggregate
Outstanding Amount of the Notes at any time shall not include any unfunded Class
A-1AR Commitments.

"Aggregate Principal Balance": When used with respect to any Pledged
Collateral Debt Securities as of any date of determination, the sum of the
Principal Balances on such date of determination of all such Pledged Collateral
Debt Securities.

"Applicable Recovery Rate": The lowest of the Moody's Recovery Rate,
the Fitch Applicable Recovery Rate and the S&P Recovery Rate, as applicable;
provided that the Applicable Recovery Rate for any Collateral Debt Security with
respect to which substitute or additional collateral (in the form of Cash or
Eligible Investments) in an amount at least equal to the sum of the principal
amount of such Collateral Debt Security and the aggregate of all remaining
scheduled interest payments thereon through the earliest permissible prepayment
date has been delivered by or on behalf of the related obligor to the Trustee
and deposited into a Defeased Collateral Account (or to the Servicer in
accordance with the Servicing Agreement and deposited into an Eligible Account)
(by defeasance or otherwise) shall be 100%.

"Approved Lender": An entity (x) with a long-term, unsecured debt
rating of "A-" or higher from S&P and "A3" or higher from Moody's, or (y) with
respect to which the Rating Agency Condition has been satisfied.

"Approved Servicer": A commercial mortgage loan master or primary
servicer on S&P's Select Servicer List as a U.S. Commercial Mortgage Servicer or
Master Servicer, as applicable, and a commercial mortgage loan special servicer
on S&P's Select Servicer List as a U.S. Commercial Mortgage Special Servicer.

"Arbor Parent": The meaning specified in the first paragraph of this
Indenture.

"ARD Loan": A Loan with an anticipated repayment date, after which (if
not repaid in full by such anticipated repayment date) the loan provides for
changes in payments and accrual of interest.

"ARMS Equity": ARMS 2006-1 Equity Holdings LLC, a Delaware limited
liability company.

"Article 15 Agreement": The meaning specified in Section 15.1(a)
hereof.

"Asset Specific Hedge": Any agreement, in the form of an interest rate
exchange agreement, between the Issuer and a Hedge Counterparty that is entered
into by the Issuer in connection with the purchase or holding of (i) a Fixed
Rate Security or (ii) a Floating Rate Security that bears interest upon a
floating rate index other than LIBOR, and which, in each case, entitles the
Issuer to receive from the related Hedge Counterparty payments based on LIBOR at
prevailing market rates, as determined by the Collateral Manager at the date of
execution of such agreement. In addition to the foregoing, each Asset Specific
Hedge will be subject to the following conditions:

(a) the notional balance of each Asset Specific Hedge shall be equal
to the scheduled principal amount of the Collateral Debt Security to which it is
related;

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(b) each Asset Specific Hedge (A) will amortize according to the same
schedule as, and terminate no earlier than the Initial Maturity Date (or, in the
case of an ARD Loan, on the anticipated repayment date) of, the Collateral Debt
Security to which it is related and (B) any such amounts so payable shall be
paid in accordance with the Priority of Payments;

(c) the payment dates of the Asset Specific Hedge must match the
payment dates of the Collateral Debt Security to which it is related or
correspond to the Payment Dates for the Notes;

(d) if the Collateral Debt Security related to an Asset Specific Hedge
(i) is a Defaulted Security, or (ii) is sold by the Issuer, such Asset Specific
Hedge shall be terminated; provided that if any unscheduled Hedge Payment Amount
is payable by the Issuer under the related Hedge Agreement solely as a result of
the early termination of such Asset Specific Hedge and is not offset by any
amount payable by the relevant Hedge Counterparty, (A) such Asset Specific Hedge
may only be terminated if the Rating Agency Condition with respect to Moody's
and S&P shall have been satisfied in connection with such termination and if
Fitch shall have been given notice of such termination and, so long as MBIA is
deemed to be the Controlling Class hereunder, MBIA consents, unless, in either
case, there will be sufficient Interest Proceeds on the following Payment Date
to pay in full any termination payment due from the Issuer in connection
therewith plus all of the amounts required to be paid by the Issuer on such
Payment Date pursuant to clauses (1) through (28) of Section 11.1(a)(i) and (B)
such Hedge Payment Amount shall be paid in accordance with the Priority of
Payments;

(e) if the Collateral Debt Security related to such Asset Specific
Hedge is not a Defaulted Obligation and such Collateral Debt Security is called
or prepaid, such Asset Specific Hedge shall be terminated; provided that if any
unscheduled Hedge Payment Amount is payable by the Issuer solely as a result of
the early termination of such Asset Specific Hedge and is not offset by any
amount payable by the relevant Hedge Counterparty, (A) such Asset Specific Hedge
may only be terminated if the Rating Agency Condition with respect to Moody's
and S&P shall have been satisfied in connection with such termination and if
Fitch shall have been given notice of such termination and, so long as MBIA is
deemed to be the Controlling Class hereunder, MBIA consents, unless, in either
case, there will be sufficient Interest Proceeds on the following Payment Date
to pay in full any termination payment due from the Issuer in connection
therewith plus all of the amounts required to be paid by the Issuer on such
Payment Date pursuant to clauses (1) through (28) of Section 11.1(a)(i), (B) any
such Hedge Payment Amount shall first be paid from any call, redemption and
prepayment premiums received from such Collateral Debt Security, and (C) any
remaining amount so payable shall be paid in accordance with the Priority of
Payments; and

(f) each Asset Specific Hedge will contain appropriate limited
recourse and non-petition provisions equivalent (mutatis mutandis) to those
contained in this Indenture.

"Assets": The meaning specified in the first paragraph of the Granting
Clause of this Indenture.

"Assigned Rating": The Moody's Assigned Rating or the S&P Assigned
Rating, as applicable.

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"Assumed Portfolio": The portfolio with characteristics developed in
accordance with the Eligibility Criteria and Collateral Quality Tests for
purposes of determining the Class A-1A/A-1AR Break-Even Loss Rate, the Class A-2
Break-Even Loss Rate, the Class B Break-Even Loss Rate, the Class C Break-Even
Loss Rate, the Class D Break-Even Loss Rate, the Class E Break-Even Loss Rate
and the Class F Break-Even Loss Rate.

"Auction": Any auction conducted in connection with an Auction Call
Redemption.

"Auction Bid Date": The meaning specified in Section 12.4(b)(ii)
hereof.

"Auction Call Period": The meaning specified in Section 9.2(a) hereof.

"Auction Call Redemption": The meaning specified in Section 9.2(a)
hereof.

"Auction Call Redemption Date": The meaning specified in Section
9.2(a) hereof.

"Auction Date": The meaning specified in Section 12.4(a)(i) hereof.

"Auction Procedures": The required procedures with respect to an
Auction set forth in Section 12.4(b) hereof.

"Auction Purchase Agreement": The meaning specified in Section
12.4(a)(iii) hereof.

"Auction Purchase Closing Date": The meaning specified in Section
12.4(b)(v) hereof.

"Authenticating Agent": With respect to the Notes or a Class of the
Notes, the Person designated by the Trustee to authenticate such Notes on behalf
of the Trustee pursuant to Section 2.12 hereof.

"Authorized Officer": With respect to the Issuer or Co-Issuer, any
Officer (or attorney-in-fact appointed by the Issuer or the Co-Issuer) who is
authorized to act for the Issuer or Co-Issuer in matters relating to, and
binding upon, the Issuer or Co-Issuer. With respect to the Collateral Manager,
the persons listed on Schedule K attached hereto. With respect to the Trustee or
any other bank or trust company acting as trustee of an express trust or as
custodian, a Trust Officer. Each party may receive and accept a certification of
the authority of any other party as conclusive evidence of the authority of any
person to act, and such certification may be considered as in full force and
effect until receipt by such other party of written notice to the contrary.

"Average Life": On any Measurement Date with respect to any Collateral
Debt Security (other than a Defaulted Security), the quotient obtained by the
Collateral Manager by dividing (i) the sum of the products of (a) the number of
years (rounded to the nearest one tenth thereof) from such Measurement Date to
the respective dates of each successive expected distribution of principal of
such Collateral Debt Security and (b) the respective amounts of such

-7-

expected distributions of principal by (ii) the sum of all successive expected
distributions of principal on such Collateral Debt Security.

"B Note": A promissory note secured by a mortgage on commercial real
estate property that is subordinate in right of payment to one or more separate
promissory notes secured by a direct interest in the same property.

"Backup Advancing Agent": Wells Fargo Bank, National Association, a
national banking association, solely in its capacity as Backup Advancing Agent
hereunder, or any successor Backup Advancing Agent; provided that any such
successor Backup Advancing Agent must be a financial institution having a (i)
long-term debt rating from S&P at least equal to "A-" and a short-term debt
rating from S&P at least equal to "A-1," (ii) long-term debt rating from Moody's
at least equal to "A2" and a short-term debt rating from Moody's at least equal
to "P-1," and (iii) long-term debt rating from Fitch at least equal to "A-" and
a short-term debt rating from Fitch at least equal to "F1."

"Backup Advancing Agent Fee": The fee payable quarterly in arrears on
each Payment Date to the Backup Advancing Agent in accordance with the Priority
of Payments, equal to 0.00125% per annum on the Aggregate Outstanding Amount of
the Class A Notes (assuming for purposes of the calculation that the Class A-1AR
Commitments are fully drawn) and the Class B Notes on such Payment Date prior to
giving effect to distributions with respect to such Payment Date.

"Bailee Letter": The meaning specified in Section 12.4(b)(v) hereof.

"Bank": Wells Fargo Bank, National Association, a national banking
association, in its individual capacity and not as Trustee and, if any Person is
appointed as a successor Trustee, such Person in its individual capacity and not
as Trustee.

"Bankruptcy Code": The federal Bankruptcy Code, Title 11 of the United
States Code, as amended.

"Bearer Securities": The meaning specified in Section 3.3(a)(iv)
hereof.

"Benefit Plan": The meaning specified in Section 2.5(h)(vi) hereof.

"Board of Directors": With respect to the Issuer, the directors of the
Issuer duly appointed in accordance with the Governing Documents of the Issuer
and, with respect to the Co-Issuer, the LLC Managers duly appointed by the sole
member of the Co-Issuer or otherwise.

"Board Resolution": With respect to the Issuer, a resolution of the
Board of Directors of the Issuer and, with respect to the Co-Issuer, a
resolution or unanimous written consent of the LLC Managers or the sole member
of the Co-Issuer.

"Business Day": Any day other than (i) a Saturday or Sunday and (ii) a
day on which commercial banks are authorized or required by applicable law,
regulation or executive order to close in New York, New York or the location of
the Corporate Trust Office; provided that, if any action is required of the
Irish Paying Agent, then, for purposes of determining when

-8-

such Irish Paying Agent action is required, Dublin, Ireland will be considered
in determining "Business Day."

"Buy/Sell Interest": A Collateral Debt Security for which one of the
participants has exercised its right to purchase its corresponding participant's
interest, or sell its interest to such corresponding participant for the same
price, in accordance with the related Underlying Instrument.

"Calculation Agent": The meaning specified in Section 7.14(a) hereof.

"Calculation Amount": With respect to any Collateral Debt Security, at
any time, the lesser of (i) the Market Value of such Collateral Debt Security
and (ii) the Applicable Recovery Rate multiplied by the Principal Balance of
such Collateral Debt Security.

"Capitalized Interest": Collectively, the Class C Capitalized
Interest, the Class D Capitalized Interest, the Class E Capitalized Interest,
the Class F Capitalized Interest, the Class G Capitalized Interest and the Class
H Capitalized Interest.

"Cash": Such coin or currency of the United States of America as at
the time shall be legal tender for payment of all public and private debts.

"Cash Flow Swap Agreement": Any Hedge Agreement entered into by the
Issuer with a Hedge Counterparty to manage potential mismatches between the
timing of receipts of interest on the Collateral Debt Securities and Eligible
Investments and the timing of interest payments due on the Notes, including an
agreement to convert the periodicity of payments on Collateral Debt Securities,
pursuant to which the Issuer shall be entitled to receive payments from the
related Hedge Counterparty on a certain date in exchange for the Issuer's
obligation to make payments to such Hedge Counterparty on one or more Payment
Dates to the extent that funds are available therefor pursuant to Section
11.1(a).

"Cash Flow Swap Counterparty": Any Hedge Counterparty with whom the
Issuer enters into a Cash Flow Swap Agreement.

"Certificate of Authentication": The meaning specified in Section 2.1
hereof.

"Certificated Notes": The meaning specified in Section 2.10(b) hereof.

"Certificated Security": A "certificated security" as defined in
Section 8-102(a)(4) of the UCC.

"Class": The Class A-1A Notes, the Class A-1AR Notes, the Class A-2
Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E
Notes, the Class F Notes, the Class G Notes or the Class H Notes, as applicable.

"Class A Defaulted Interest Amount": Collectively, the Class A-1A
Defaulted Interest Amount, the Class A-1AR Defaulted Interest Amount and the
Class A-2 Defaulted Interest Amount.

-9-

"Class A Interest Distribution Amount": Collectively, the Class A-1A
Interest Distribution Amount, the Class A-1AR Interest Distribution Amount and
the Class A-2 Interest Distribution Amount.

"Class A Notes": The Class A-1 Notes and the Class A-2 Notes,
collectively.

"Class A-1 Defaulted Interest Amount": Collectively, the Class A-1A
Defaulted Interest Amount and the Class A-1AR Defaulted Interest Amount.

"Class A-1 Interest Distribution Amount": Collectively, the Class A-1A
Interest Distribution Amount and the Class A-1AR Interest Distribution Amount.

"Class A-1 Notes": Collectively, the Class A-1A Notes and the Class
A-1AR Notes.

"Class A-1A Defaulted Interest Amount": With respect to the Class A-1A
Notes as of each Payment Date, the accrued and unpaid amount due to Holders of
the Class A-1A Notes on account of any shortfalls in the payment of the Class
A-1A Interest Distribution Amount with respect to any preceding Payment Date or
Payment Dates, together with interest accrued thereon (to the extent lawful).

"Class A-1A Interest Distribution Amount": On each Payment Date, the
amount due to Holders of the Class A-1A Notes on account of interest equal to
the product of (i) the Aggregate Outstanding Amount of the Class A-1A Notes with
respect to the related Interest Accrual Period, (ii) the actual number of days
in such Interest Accrual Period divided by 360 and (iii) the Class A-1A Rate.

"Class A-1A Notes": The Class A-1A Senior Secured Floating Rate Term
Notes due 2042, issued by the Issuer and the Co-Issuer pursuant to this
Indenture.

"Class A-1A Rate": With respect to any Class A-1A Note, the per annum
rate at which interest accrues on such Note for any Interest Accrual Period,
which shall be equal to (a) three-month LIBOR for the related Interest Accrual
Period plus (b) 0.28% per annum.

"Class A-1A/A-1AR Break-Even Loss Rate": At any time, the maximum
percentage of defaults that the Assumed Portfolio should be able to sustain,
which after giving effect to S&P's assumptions on recoveries and timing and to
the Priority of Payments, will result in sufficient funds remaining for the
timely payment of interest and the ultimate payment of principal of the Class
A-1A and the Class A-1AR Notes.

"Class A-1A/A-1AR Loss Differential": At any time, the rate calculated
by subtracting the Class A-1A/A-1AR Scenario Loss Rate from the Class A-1A/A-1AR
Break-Even Loss Rate at such time.

"Class A-1A/A-1AR Pro Rata Allocation": With respect to any Payment
Date and in the case of a redemption of the Notes in full or the acceleration of
the Notes following an Event of Default, the allocation based on the Aggregate
Outstanding Amount of each of the Class A-1A Notes and the Class A-1AR Notes as
of the related Determination Date.

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"Class A-1A/A-1AR Scenario Loss Rate": At any time, an estimate of the
cumulative default rate for the Current Portfolio or the Proposed Portfolio, as
applicable, consistent with the then-current rating of the Class A-1A Notes and
the Class A-1AR Notes by S&P, determined by application of the S&P CDO Monitor
at such time (which rate, for the avoidance of doubt, will vary depending on the
then-current levels of the other variables included in the S&P Matrix).

"Class A-1AR Breakage Costs": With respect to any Due Period, the
amount, as determined by the Class A-1AR Note Agent and as set forth in a
certificate with respect to a Holder of Class A-1AR Notes delivered to the
Issuer and the Trustee by the Class A-1AR Note Agent on or prior to the related
Determination Date, of "breakage costs," if any, incurred by a Holder of Class
A-1AR Notes as a result of prepayment of amounts under the Class A-1AR Notes on
a day other than a Payment Date and calculated as provided in the Class A-1AR
Note Purchase Agreement.

"Class A-1AR Commitment": With respect to each Holder of a Class A-1AR
Note, the maximum aggregate outstanding principal amount of advances (whether at
the time funded or unfunded) that the Holder of such Class A-1AR Note (or the
related Liquidity Provider) is obligated to make to the Issuer from time to time
under the Class A-1AR Note Purchase Agreement.

"Class A-1AR Commitment Fee": On each Payment Date, the amount due in
arrears to the Holders of the Class A-1AR Notes equal to the product of (i) the
result obtained by subtracting the Weighted Average Drawn Class A-1AR Note
Portion for such Payment Date from the Maximum Class A-1AR Commitment as of such
Payment Date, (ii) the actual number of days in such Interest Accrual Period
divided by 360 and (iii) 0.22%.

"Class A-1AR Defaulted Interest Amount": With respect to the Class
A-1AR Notes, as of each Payment Date, the accrued and unpaid amount due to
Holders of the Class A-1AR Notes on account of any shortfalls in the payment of
the Class A-1AR Interest Distribution Amount with respect to any preceding
Payment Date or Payment Dates, together with interest accrued thereon (to the
extent lawful).

"Class A-1AR Draw": An advance by a Holder of a Class A-1AR Note made
in accordance with Section 18.1(a) hereof.

"Class A-1AR Draw Date": The meaning specified in Section 18.1(a)
hereof.

"Class A-1AR Eligible Investments": The meaning specified in Section
18.5(f) hereof.

"Class A-1AR Holder Collateral Account": The meaning specified in
Section 18.5(a) hereof.

"Class A-1AR Interest Allocation Percentage": For each Interest
Accrual Period and with respect to each Holder of Class A-1AR Notes, a fraction,
expressed as a percentage, (i) the numerator of which is the Weighted Average
Drawn Class A-1AR Note Portion of such

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Holder and (ii) the denominator of which is the Weighted Average Drawn Class
A-1AR Note Portion of all of the Holders of Class A-1AR Notes.

"Class A-1AR Interest Distribution Amount": On each Payment Date, the
amount due to Holders of the Class A-1AR Notes on account of interest equal to
the product of (i) the Weighted Average Drawn Class A-1AR Note Portion of the
Class A-1AR Notes with respect to the related Interest Accrual Period (or each
related Interest Accrual Period, if there were multiple Class A-1AR Draws since
the prior Payment Date or Closing Date, as applicable), (ii) the actual number
of days in such Interest Accrual Period divided by 360 and (iii) the Class A-1AR
Rate; provided that interest accrued in respect of amounts borrowed under the
Class A-1AR Notes during the period following the Determination Date through
such Payment Date will be payable (without penalty interest thereon) on the next
succeeding Payment Date.

"Class A-1AR Note Agent": Wells Fargo Bank, National Association.

"Class A-1AR Note Purchase Agreement": The Class A-1AR Note Purchase
Agreement, dated as of the Closing Date, by and among the Issuer, the Co-Issuer,
the Class A-1AR Note Agent and the Holders from time to time of the Class A-1AR
Notes, as amended, supplemented or otherwise modified from time to time in
accordance with its terms.

"Class A-1AR Notes": The Class A-1AR Revolving Senior Secured Floating
Rate Term Notes due 2042, issued by the Issuer and the Co-Issuer pursuant to
this Indenture.

"Class A-1AR Prepayment": Any payment of principal of the Class A-1AR
Notes prior to the Stated Maturity of the Class A-1AR Notes.

"Class A-1AR Prepayment Date": The date of any Class A-1AR Prepayment.

"Class A-1AR Proportion": 30.303%.

"Class A-1AR Rate": With respect to any Class A-1AR Note, the per
annum rate at which interest accrues on such Note for any Interest Accrual
Period, which shall be equal to (a) three-month (or such shorter period as is
applicable) LIBOR for the related Interest Accrual Period plus (b) 0.31% per
annum; provided that interest accrued in respect of amounts borrowed under the
Class A-1AR Notes during the period following the Determination Date through the
related Payment Date will be payable (without interest thereon) on the next
succeeding Payment Date.

"Class A-1AR Ratings Criteria": The criteria set forth below which, if
satisfied with respect to any Holder of Class A-1AR Notes (or prospective
transferee) at the time such Class A-1AR Notes are purchased (or transferred),
will make such Holder (or prospective transferee) eligible to purchase (or
receive) such Class A-1AR Notes:

(a) such Holder of Class A-1AR Notes (or prospective transferee) has
(i) unless the Rating Agency Condition with respect to Moody's is
satisfied, a long-term senior unsecured debt rating of (x) "Aa3" to the
extent such holder (or prospective transferee) has a long-term rating only
or (y) "A-1" to the extent such Holder (or prospective transferee) has both
a long-term and short-term rating and the short-term

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debt, deposit or similar obligations rating is "P-1," (ii) a short-term
debt, deposit or similar obligations rating of at least "A-1" by S&P and
(iii) a short-term debt, deposit or similar obligations rating of least
"F1" by Fitch;

(b) the obligations of such Holder of Class A-1AR Notes (or
prospective transferee) under the Class A-1AR Note Purchase Agreement are
guaranteed (pursuant to a guarantee which complies with the then-current
S&P criteria regarding guarantees) by an entity meeting the Class A-1AR
Ratings Criteria set forth in clause (a) above; or

(c) such Holder of Class A-1AR Notes (or prospective transferee) is
then entitled under a Liquidity Facility to borrow from, or sell an
interest in assets to, a Liquidity Provider so long as:

(i) each such Liquidity Provider has (1) unless the Rating Agency
Condition with respect to Moody's is satisfied, a long-term senior
unsecured debt rating of (x) "Aa3" to the extent such Liquidity
Providers have a long-term rating only or (y) "A-1" to the extent such
Liquidity Providers have both a long-term and short-term rating and
the short-term debt, deposit or similar obligations rating is "P-1,"
(2) a short-term debt, deposit or similar obligations rating of at
least "A-1" by S&P and (3) a short-term debt, deposit or similar
obligations rating of least "F1" by Fitch; and

(ii) the aggregate amount of commitments to make loans or
purchase interests in assets under such Liquidity Facility (1) are
held by Liquidity Providers who meet the rating requirements set forth
above and (2) is not less than the Class A-1AR Commitment in respect
of the Class A-1AR Notes held by such Holder of Class A-1AR Notes (or
prospective transferee).

"Class A-2 Break-Even Loss Rate": At any time, the maximum percentage
of defaults that the Assumed Portfolio should be able to sustain, which after
giving effect to S&P's assumptions on recoveries and timing and to the Priority
of Payments, will result in sufficient funds remaining for the timely payment of
interest on and the ultimate payment of principal of the Class A-2 Notes.

"Class A-2 Defaulted Interest Amount": With respect to the Class A-2
Notes as of each Payment Date, the accrued and unpaid amount due to Holders of
the Class A-2 Notes on account of any shortfalls in the payment of the Class A-2
Interest Distribution Amount with respect to any preceding Payment Date or
Payment Dates, together with interest accrued thereon (to the extent lawful).

"Class A-2 Interest Distribution Amount": On each Payment Date, the
amount due to Holders of the Class A-2 Notes on account of interest equal to the
product of (i) the Aggregate Outstanding Amount of the Class A-2 Notes with
respect to the related Interest Accrual Period, (ii) the actual number of days
in such Interest Accrual Period divided by 360 and (iii) the Class A-2 Rate.

"Class A-2 Loss Differential": At any time, the rate calculated by
subtracting the Class A-2 Scenario Loss Rate from the Class A-2 Break-Even Loss
Rate at such time.

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"Class A-2 Notes": The Class A-2 Second Priority Senior Secured
Floating Rate Term Notes due 2042, issued by the Issuer and the Co-Issuer
pursuant to this Indenture.

"Class A-2 Rate": With respect to any Class A-2 Note, the per annum
rate at which interest accrues on such Note for any Interest Accrual Period,
which shall be equal to (a) three-month LIBOR for the related Interest Accrual
Period plus (b) 0.31% per annum.

"Class A-2 Scenario Loss Rate": At any time, an estimate of the
cumulative default rate for the Current Portfolio or the Proposed Portfolio, as
applicable, consistent with the then-current rating of the Class A-2 Notes by
S&P, determined by application of the S&P CDO Monitor at such time (which rate,
for the avoidance of doubt, will vary depending on the then-current levels of
the other variables included in the S&P Matrix).

"Class A-2 Subordinate Interests": The meaning specified in Section
13.1(a) hereof.

"Class A/B Coverage Tests": The Class A/B Par Value Test and the Class
A/B Interest Coverage Test.

"Class A/B Interest Coverage Ratio": The meaning specified in the
definition of "Interest Coverage Ratio."

"Class A/B Interest Coverage Test": The test that will be deemed met
as of any Measurement Date prior to the Effective Date and will be met as of any
Measurement Date on which any Class A Notes or any Class B Notes remain
Outstanding if the Class A/B Interest Coverage Ratio as of such Measurement Date
is equal to or greater than 126.65%.

"Class A/B Par Value Ratio": As of any Measurement Date, the
number (expressed as a percentage) calculated by dividing (a) the sum of the Net
Outstanding Portfolio Balance and the Aggregate Class A-1AR Undrawn Amount
(without duplication), in each case, on such Measurement Date by (b) the sum of
the Aggregate Outstanding Amount of the Class A Notes (assuming for purposes of
the calculation that the Class A-1AR Commitments are fully drawn) and the Class
B Notes and the amount of any unreimbursed Interest Advances.

"Class A/B Par Value Test": The test that will be deemed met as of any
Measurement Date prior to the Effective Date and will be met as of any
Measurement Date on or after the Effective Date on which any Class A Notes or
Class B Notes remain Outstanding if the Class A/B Par Value Ratio on such
Measurement Date is equal to or greater than 126.65%.

"Class B Break-Even Loss Rate": At any time, the maximum percentage of
defaults that the Assumed Portfolio should be able to sustain, which after
giving effect to S&P's assumptions on recoveries and timing and to the Priority
of Payments, will result in sufficient funds remaining for the timely payment of
interest on and the ultimate payment of principal of the Class B Notes.

"Class B Defaulted Interest Amount": With respect to the Class B Notes
as of each Payment Date, the accrued and unpaid amount due to Holders of the
Class B Notes on account of any shortfalls in the payment of the Class B
Interest Distribution Amount with respect

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to any preceding Payment Date or Payment Dates, together with interest accrued
thereon (to the extent lawful).

"Class B Interest Distribution Amount": On each Payment Date, the
amount due to Holders of the Class B Notes on account of interest equal to the
product of (i) the Aggregate Outstanding Amount of the Class B Notes with
respect to the related Interest Accrual Period, (ii) the actual number of days
in such Interest Accrual Period divided by 360 and (iii) the Class B Rate.

"Class B Loss Differential": At any time, the rate calculated by
subtracting the Class B Scenario Loss Rate from the Class B Break-Even Loss Rate
at such time.

"Class B Notes": The Class B Third Priority Floating Rate Term Notes
due 2042, issued by the Issuer and the Co-Issuer pursuant to this Indenture.

"Class B Rate": With respect to any Class B Note, the per annum rate
at which interest accrues on such Note for any Interest Accrual Period, which
shall be equal to (a) three-month LIBOR for the related Interest Accrual Period
plus (b) 0.39% per annum.

"Class B Scenario Loss Rate": At any time, an estimate of the
cumulative default rate for the Current Portfolio or the Proposed Portfolio, as
applicable, consistent with the then-current rating of the Class B Notes by S&P,
determined by application of the S&P CDO Monitor at such time (which rate, for
the avoidance of doubt, will vary depending on the then-current levels of the
other variables included in the S&P Matrix).

"Class B Subordinate Interests": The meaning specified in Section
13.1(b) hereof.

"Class C Break-Even Loss Rate": At any time, the maximum percentage of
defaults that the Assumed Portfolio should be able to sustain, which after
giving effect to S&P's assumptions on recoveries and timing and to the Priority
of Payments, will result in sufficient funds remaining for the ultimate payment
of interest on and principal of the Class C Notes.

"Class C Capitalized Interest": The meaning specified in Section
2.7(e) hereof.

"Class C Defaulted Interest Amount": With respect to the Class C
Notes, on or after any Payment Date on which no Class A Notes or Class B Notes
are Outstanding, any interest on the Class C Notes (other than Class C
Capitalized Interest) that is due and payable but is not punctually paid or duly
provided for on or prior to the due date therefor and which remains unpaid,
together with interest accrued thereon (to the extent lawful).

"Class C Interest Distribution Amount": On each Payment Date, the
amount due to Holders of the Class C Notes on account of interest equal to the
product of (i) the Aggregate Outstanding Amount (including the current balance
of any Class C Capitalized Interest) of the Class C Notes with respect to the
related Interest Accrual Period, (ii) the actual number of days in such Interest
Accrual Period divided by 360 and (iii) the Class C Rate.

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"Class C Loss Differential": At any time, the rate calculated by
subtracting the Class C Scenario Loss Rate from the Class C Break-Even Loss Rate
at such time.

"Class C Notes": The Class C Fourth Priority Floating Rate Capitalized
Interest Term Notes due 2042, issued by the Issuer and the Co-Issuer pursuant to
this Indenture.

"Class C Rate": With respect to any Class C Note, the per annum rate
at which interest accrues on such Note for any Interest Accrual Period, which
shall be equal to (a) three-month LIBOR for the related Interest Accrual Period
plus (b) 0.60% per annum.

"Class C Scenario Loss Rate": At any time, an estimate of the
cumulative default rate for the Current Portfolio or the Proposed Portfolio, as
applicable, consistent with the then-current rating of the Class C Notes by S&P,
determined by application of the S&P CDO Monitor at such time (which rate, for
the avoidance of doubt, will vary depending on the then-current levels of the
other variables included in the S&P Matrix).

"Class C Subordinate Interests": The meaning specified in Section
13.1(c) hereof.

"Class C/D/E Coverage Tests": The Class C/D/E Par Value Test and the
Class C/D/E Interest Coverage Test.

"Class C/D/E Interest Coverage Ratio": The meaning specified in the
definition of "Interest Coverage Ratio."

"Class C/D/E Interest Coverage Test": The test that will be deemed met
as of any Measurement Date prior to the Effective Date and will be met as of any
Measurement Date on or after the Effective Date on which any Class C Notes,
Class D Notes or Class E Notes remain Outstanding if the Class C/D/E Interest
Coverage Ratio as of such Measurement Date is equal to or greater than 112.80%.

"Class C/D/E Par Value Ratio": As of any Measurement Date, the number
(expressed as a percentage) calculated by dividing (a) the sum of the Net
Outstanding Portfolio Balance and the Aggregate Class A-1AR Undrawn Amount
(without duplication), in each case, on such Measurement Date by (b) the sum of
the Aggregate Outstanding Amount (including any Class C Capitalized Interest,
Class D Capitalized Interest and Class E Capitalized Interest) of the Class A
Notes (assuming for purposes of the calculation that the Class A-1AR Commitments
are fully drawn), the Class B Notes, the Class C Notes, the Class D and the
Class E Notes and the amount of any unreimbursed Interest Advances.

"Class C/D/E Par Value Test": The test that will be deemed met as of
any Measurement Date prior to the Effective Date and will be met as of any
Measurement Date on or after the Effective Date on which any Class C Notes,
Class D Notes or Class E Notes remain Outstanding if the Class C/D/E Par Value
Ratio on such Measurement Date is equal to or greater than 112.80%.

"Class D Break-Even Loss Rate": At any time, the maximum percentage of
defaults that the Assumed Portfolio should be able to sustain, which after
giving effect to S&P's

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assumptions on recoveries and timing and to the Priority of Payments, will
result in sufficient funds remaining for the ultimate payment of interest on and
principal of the Class D Notes.

"Class D Capitalized Interest": The meaning specified in Section
2.7(f) hereof.

"Class D Defaulted Interest Amount": With respect to the Class D
Notes, on or after any Payment Date on which no Class A Notes, Class B Notes or
Class C Notes are Outstanding, any interest on the Class D Notes (other than
Class D Capitalized Interest) that is due and payable but is not punctually paid
or duly provided for on or prior to the due date therefor and which remains
unpaid, together with interest accrued thereon (to the extent lawful).

"Class D Interest Distribution Amount": On each Payment Date, the
amount due to Holders of the Class D Notes on account of interest equal to the
product of (i) the Aggregate Outstanding Amount (including the current balance
of any Class D Capitalized Interest) of the Class D Notes with respect to the
related Interest Accrual Period, (ii) the actual number of days in such Interest
Accrual Period divided by 360 and (iii) the Class D Rate.

"Class D Loss Differential": At any time, the rate calculated by
subtracting the Class D Scenario Loss Rate from the Class D Break-Even Loss Rate
at such time.

"Class D Notes": The Class D Fifth Priority Floating Rate Capitalized
Interest Term Notes due 2042, issued by the Issuer and the Co-Issuer pursuant to
this Indenture.

"Class D Rate": With respect to any Class D Note, the per annum rate
at which interest accrues on such Note for any Interest Accrual Period, which
shall be equal to (a) three-month LIBOR for the related Interest Accrual Period
plus (b) 0.70% per annum.

"Class D Scenario Loss Rate": At any time, an estimate of the
cumulative default rate for the Current Portfolio or the Proposed Portfolio, as
applicable, consistent with the then-current rating of the Class D Notes by S&P,
determined by application of the S&P CDO Monitor at such time (which rate, for
the avoidance of doubt, will vary depending on the then-current levels of the
other variables included in the S&P Matrix).

"Class D Subordinate Interests": The meaning specified in Section
13.1(d) hereof.

"Class E Break-Even Loss Rate": At any time, the maximum percentage of
defaults that the Assumed Portfolio should be able to sustain, which after
giving effect to S&P's assumptions on recoveries and timing and to the Priority
of Payments, will result in sufficient funds remaining for the ultimate payment
of interest on and principal of the Class E Notes.

"Class E Capitalized Interest": The meaning specified in Section
2.7(g) hereof.

"Class E Defaulted Interest Amount": With respect to the Class E Notes
on or after any Payment Date on which no Class A Notes, Class B Notes, Class C
Notes or Class D Notes are Outstanding, any interest on the Class E Notes (other
than Class E Capitalized Interest) that is due and payable but is not punctually
paid or duly provided for on or prior to the due date therefor and which remains
unpaid, together with interest accrued thereon (to the extent lawful).

-17-

"Class E Interest Distribution Amount": On each Payment Date, the
amount due to Holders of the Class E Notes on account of interest equal to the
product of (i) the Aggregate Outstanding Amount (including the current balance
of any Class E Capitalized Interest) of the Class E Notes with respect to the
related Interest Accrual Period, (ii) the actual number of days in such Interest
Accrual Period divided by 360 and (iii) the Class E Rate.

"Class E Loss Differential": At any time, the rate calculated by
subtracting the Class E Scenario Loss Rate from the Class E Break-Even Loss Rate
at such time.

"Class E Notes": The Class E Sixth Priority Floating Rate Capitalized
Interest Term Notes due 2042, issued by the Issuer and the Co-Issuer pursuant to
this Indenture.

"Class E Rate": With respect to any Class E Note, the per annum rate
at which interest accrues on such Note for any Interest Accrual Period, which
shall be equal to (a) three-month LIBOR for the related Interest Accrual Period
plus (b) 0.80% per annum.

"Class E Scenario Loss Rate": At any time, an estimate of the
cumulative default rate for the Current Portfolio or the Proposed Portfolio, as
applicable, consistent with the then-current rating of the Class E Notes by S&P,
determined by application of the S&P CDO Monitor at such time (which rate, for
the avoidance of doubt, will vary depending on the then-current levels of the
other variables included in the S&P Matrix).

"Class E Subordinate Interests": The meaning specified in Section
13.1(e) hereof.

"Class F Break-Even Loss Rate": At any time, the maximum percentage of
defaults that the Assumed Portfolio should be able to sustain, which after
giving effect to S&P's assumptions on recoveries and timing and to the Priority
of Payments, will result in sufficient funds remaining for the ultimate payment
of interest on and principal of the Class F Notes.

"Class F Capitalized Interest": The meaning specified in Section
2.7(h) hereof.

"Class F Defaulted Interest Amount": With respect to the Class F Notes
on or after any Payment Date on which no Class A Notes, Class B Notes, Class C
Notes, Class D Notes or Class E Notes are Outstanding, any interest on the Class
F Notes (other than Class F Capitalized Interest) that is due and payable but is
not punctually paid or duly provided for on or prior to the due date therefor
and which remains unpaid, together with interest accrued thereon (to the extent
lawful).

"Class F Interest Distribution Amount": On each Payment Date, the
amount due to Holders of the Class F Notes on account of interest equal to the
product of (i) the Aggregate Outstanding Amount (including the current balance
of any Class F Capitalized Interest) of the Class F Notes with respect to the
related Interest Accrual Period, (ii) the actual number of days in such Interest
Accrual Period divided by 360 and (iii) the Class F Rate.

"Class F Loss Differential": At any time, the rate calculated by
subtracting the Class F Scenario Loss Rate from the Class F Break-Even Loss Rate
at such time.

-18-

"Class F Notes": The Class F Seventh Priority Floating Rate
Capitalized Interest Term Notes due 2042, issued by the Issuer and the Co-Issuer
pursuant to this Indenture.

"Class F Rate": With respect to any Class F Note, the per annum rate
at which interest accrues on such Note for any Interest Accrual Period, which
shall be equal to (a) three-month LIBOR for the related Interest Accrual Period
plus (b) 1.05% per annum.

"Class F Scenario Loss Rate": At any time, an estimate of the
cumulative default rate for the Current Portfolio or the Proposed Portfolio, as
applicable, consistent with the then-current rating of the Class F Notes by S&P,
determined by application of the S&P CDO Monitor at such time (which rate, for
the avoidance of doubt, will vary depending on the then-current levels of the
other variables included in the S&P Matrix).

"Class F Subordinate Interests": The meaning specified in Section
13.1(f) hereof.

"Class F/G/H Coverage Tests": The Class F/G/H Par Value Test and the
Class F/G/H Interest Coverage Test.

"Class F/G/H Interest Coverage Ratio": The meaning specified in the
definition of "Interest Coverage Ratio."

"Class F/G/H Interest Coverage Test": The test that will be deemed met
as of any Measurement Date prior to the Effective Date and will be met as of any
Measurement Date on or after the Effective Date on which any Class F Notes,
Class G Notes or Class H Notes remain Outstanding if the Class F/G/H Interest
Coverage Ratio as of such Measurement Date is equal to or greater than 105.60%.

"Class F/G/H Par Value Ratio": As of any Measurement Date, the number
(expressed as a percentage) calculated by dividing (a) the sum of the Net
Outstanding Portfolio Balance and the Aggregate Class A-1AR Undrawn Amount
(without duplication), in each case, on such Measurement Date by (b) the sum of
the Aggregate Outstanding Amount (including any Class C Capitalized Interest,
Class D Capitalized Interest, Class E Capitalized Interest, Class F Capitalized
Interest, Class G Capitalized Interest and Class H Capitalized Interest) of the
Class A Notes (assuming for purposes of the calculation that the Class A-1AR
Commitments are fully drawn), the Class B Notes, the Class C Notes, the Class D
Notes, the Class E Notes, the Class F Notes, the Class G Notes and the Class H
Notes and the amount of any unreimbursed Interest Advances.

"Class F/G/H Par Value Test": The test that will be deemed met as of
any Measurement Date prior to the Effective Date and will be met as of any
Measurement Date on or after the Effective Date on which any Class F Notes,
Class G Notes or Class H Notes remain Outstanding if the Class F/G/H Par Value
Ratio on such Measurement Date is equal to or greater than 105.60%.

"Class G Capitalized Interest": The meaning specified in Section
2.7(i) hereof.

-19-

"Class G Defaulted Interest Amount": With respect to the Class G
Notes, on or after any Payment Date on which no Class A Notes, Class B Notes,
Class C Notes, Class D Notes, Class E Notes or Class F Notes are Outstanding,
any interest on the Class G Notes (other than Class G Capitalized Interest) that
is due and payable but is not punctually paid or duly provided for on or prior
to the due date therefor and which remains unpaid, together with interest
accrued thereon (to the extent lawful).

"Class G Interest Distribution Amount": On each Payment Date, the
amount due to Holders of the Class G Notes on account of interest equal to the
product of (i) the Aggregate Outstanding Amount (including the current balance
of any Class G Capitalized Interest) of the Class G Notes with respect to the
related Interest Accrual Period, (ii) the actual number of days in such Interest
Accrual Period divided by 360 and (iii) the Class G Rate.

"Class G Notes": The Class G Eighth Priority Floating Rate Capitalized
Interest Term Notes due 2042, issued by the Issuer and the Co-Issuer pursuant to
this Indenture.

"Class G Rate": With respect to any Class G Note, the per annum rate
at which interest accrues on such Note for any Interest Accrual Period, which
shall be equal to (a) three-month LIBOR for the related Interest Accrual Period
plus (b) 1.45% per annum.

"Class G Subordinate Interests": The meaning specified in Section
13.1(g), hereof.

"Class H Capitalized Interest": The meaning specified in Section
2.7(j) hereof.

"Class H Defaulted Interest Amount": With respect to the Class H
Notes, on or after any Payment Date on which no Class A Notes, Class B Notes,
Class C Notes, Class D Notes, Class E Notes, Class F Notes or Class G Notes are
Outstanding, any interest on the Class H Notes (other than Class H Capitalized
Interest) that is due and payable but is not punctually paid or duly provided
for on or prior to the due date therefor and which remains unpaid, together with
interest accrued thereon (to the extent lawful).

"Class H Interest Distribution Amount": On each Payment Date, the
amount due to Holders of the Class H Notes on account of interest equal to the
product of (i) the Aggregate Outstanding Amount (including the current balance
of any Class H Capitalized Interest) of the Class H Notes with respect to the
related Interest Accrual Period, (ii) the actual number of days in such Interest
Accrual Period divided by 360 and (iii) the Class H Rate.

"Class H Notes": The Class H Ninth Priority Floating Rate Capitalized
Interest Term Notes due 2042, issued by the Issuer and the Co-Issuer pursuant to
this Indenture.

"Class H Rate": With respect to any Class H Note, the per annum rate
at which interest accrues on such Note for any Interest Accrual Period, which
shall be equal to (a) three-month LIBOR for the related Interest Accrual Period
plus (b) 1.85% per annum.

"Class H Subordinate Interests": The meaning specified in Section
13.1(h) hereof.

-20-

"Clean-up Call": The meaning specified in Section 9.1 hereof.

"Clean-up Call Date": The meaning specified in Section 9.1 hereof.

"Clearing Agency": An organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.

"Clearing Corporation": The meaning specified in Section 8-102(a)(5)
of the UCC.

"Clearing Corporation Security": A security subject to book-entry
transfers and pledges deposited with the Clearing Agency.

"Clearstream, Luxembourg": Clearstream Banking, societe anonyme, a
limited liability company organized under the laws of the Grand Duchy of
Luxembourg.

"Closing": The transfer of any Note to the initial registered Holder
of such Note.

"Closing Date": December 14, 2006.

"CMBS Conduit Securities": Collateral Debt Securities (A) issued by a
single-seller or multi-seller conduit under which the holders of such Collateral
Debt Securities have recourse to a specified pool of assets (but not other
assets held by the conduit that support payments on other series of securities)
and (B) that entitle the holders thereof to receive payments that depend (except
for rights or other assets designed to assure the servicing or timely
distribution of proceeds to holders of the Collateral Debt Securities) on the
cash flow from a pool of commercial mortgage loans generally having the
following characteristics: (i) the commercial mortgage loans have varying
contractual maturities; (ii) the commercial mortgage loans are secured by real
property purchased or improved with the proceeds thereof (or to refinance an
outstanding loan the proceeds of which were so used); (iii) the commercial
mortgage loans are obligations of a relatively limited number of obligors (with
the creditworthiness of individual obligors being less material than for CMBS
Large Loan Securities) and accordingly represent a relatively undiversified pool
of obligor credit risk; (iv) upon original issuance of such Collateral Debt
Securities no five commercial mortgage loans account for more than 20% of the
aggregate principal balance of the entire pool of commercial mortgage loans
supporting payments on such securities; and (v) repayment thereof can vary
substantially from the contractual payment schedule (if any), with early
prepayment of individual loans depending on numerous factors specific to the
particular obligors and upon whether, in the case of loans bearing interest at a
fixed rate, such loans or securities include an effective prepayment premium.

"CMBS Large Loan Securities": Collateral Debt Securities (other than
CMBS Conduit Securities) that entitle the holders thereof to receive payments
that depend (except for rights or other assets designed to assure the servicing
or timely distribution of proceeds to holders of the Collateral Debt Securities)
on the cash flow from a pool of commercial mortgage loans made to finance the
acquisition, construction and improvement of properties. They generally have the
following characteristics: (i) the commercial mortgage loans have varying
contractual maturities; (ii) the commercial mortgage loans are secured by real
property purchased or improved with the proceeds thereof (or to refinance one or
more outstanding loans the

-21-

proceeds of which were so used); (iii) the commercial mortgage loans are
obligations of a relatively limited number of obligors and accordingly represent
a relatively undiversified pool of obligor credit risk; (iv) repayment thereof
can vary substantially from the contractual payment schedule (if any), with
early prepayment of individual loans depending on numerous factors specific to
the particular obligors and upon whether, in the case of loans bearing interest
at a fixed rate, such loans or securities include an effective prepayment
premium; and (v) the valuation of individual properties securing the commercial
mortgage loans is the primary factor in any decision to invest in those
securities.

"CMBS Security": A CMBS Conduit Security or a CMBS Large Loan
Security, as the case may be, but excluding any Single Asset Mortgage Security,
Single Borrower Mortgage Security or Rake Bond.

"Co-Issuer": Arbor Realty Mortgage Securities Series 2006-1 LLC, a
limited liability company formed under the laws of the State of Delaware, until
a successor Person shall have become the Co-Issuer pursuant to the applicable
provisions of this Indenture, and thereafter "Co-Issuer" shall mean such
successor Person.

"Co-Issuers": The Issuer and the Co-Issuer.

"Code": The United States Internal Revenue Code of 1986, as amended.

"Collateral Debt Securities Purchase Agreement": Any collateral debt
securities purchase agreement entered into on or about the Closing Date and any
other collateral debt securities purchase agreement entered into after the
Closing Date if a purchase agreement is necessary to comply with this Indenture,
which agreement is assigned to the Trustee pursuant to this Indenture.

"Collateral Debt Security" and "Collateral Debt Securities": Any loan,
security or other obligation (other than Eligible Investments) purchased by the
Issuer (including those acquired after the Closing Date) that complied with the
Eligibility Criteria at the time the Issuer entered into the commitment to
acquire such loan, security or obligation.

"Collateral Management Agreement": The Collateral Management
Agreement, dated as of the Closing Date, by and between the Issuer and the
Collateral Manager, as amended, supplemented or otherwise modified from time to
time in accordance with its terms.

"Collateral Management Fee": The Senior Collateral Management Fee and
the Subordinate Collateral Management Fee.

"Collateral Manager" or "ARCM": Arbor Realty Collateral Management,
LLC, each of Arbor Realty Collateral Management, LLC's permitted successors and
assigns or any successor Person that shall have become the Collateral Manager
pursuant to the provisions of the Collateral Management Agreement and thereafter
"Collateral Manager" shall mean such successor Person.

"Collateral Manager Servicing Standard": With respect to the
Collateral Manager, to manage the Collateral Debt Securities that such Person is
obligated to service and

-22-

administer pursuant to this Indenture and the Collateral Management Agreement
(i) in accordance with (A) the higher of the following standards of care: (1)
customary and usual standards of practice of prudent institutional commercial
mortgage lenders servicing their own mortgage loans and (2) the same manner in
which, and with the same care, skill, prudence and diligence with which, the
Arbor Parent manages securities comparable to the Collateral Debt Securities for
its own account; (B) applicable law and (C) the terms of this Indenture, the
Collateral Management Agreement and the terms of the Collateral Debt Security
and the related Underlying Instruments and (ii) without regard to (A) any
relationship, including as lender on any other debt, that the Collateral Manager
or any Affiliate of the Collateral Manager, may have with the underlying
borrower, or any Affiliate of the borrower, or any other party to this Indenture
(or any agreements relating to this Indenture); (B) the obligation of the
Collateral Manager to make Cure Advances; (C) the right of the Collateral
Manager or any Affiliate thereof, to receive compensation or reimbursement of
costs hereunder generally or with respect to any particular transaction
(including, without limitation, any transaction related to the Collateral
Management Agreement); and (D) the ownership, servicing or management for others
of any security not subject to this Indenture by the Collateral Manager or any
Affiliate thereof or the obligation of any Affiliate of the Collateral Manager
to repurchase the Collateral Debt Security.

"Collateral Quality Test Modification": The meaning specified in
Section 12.5 hereof.

"Collateral Quality Tests": The tests that are satisfied if, as of any
Measurement Date, in the aggregate, the Collateral Debt Securities purchased or
irrevocably committed to be purchased (and not sold) comply with all of the
requirements set forth below:

(i) not more than 5% of the Aggregate Collateral Balance of
Collateral Debt Securities with payments less frequently than
quarterly are not covered by a Cash Flow Swap Agreement obtained by
the Collateral Manager for the Issuer;

(ii) not more than 20% of the Aggregate Collateral Balance
consists of Collateral Debt Securities (other than CRE CDO Securities
and REIT Debt Securities) backed or otherwise invested in properties
located in any single U.S. state, except that (A) up to 55% of the
Aggregate Collateral Balance may consist of Collateral Debt Securities
(other than CRE CDO Securities and REIT Debt Securities) backed or
otherwise invested in properties located in the State of New York, (B)
up to 50% of the Aggregate Collateral Balance may consist of
Collateral Debt Securities (other than CRE CDO Securities and REIT
Debt Securities) backed or otherwise invested in properties located in
the State of California, (C) up to 35% of the Aggregate Collateral
Balance may consist of Collateral Debt Securities (other than CRE CDO
Securities and REIT Debt Securities) backed or otherwise invested in
properties located in the northern region of the State of California,
(D) up to 35% of the Aggregate Collateral Balance may consist of
Collateral Debt Securities (other than CRE CDO Securities and REIT
Debt Securities) backed or otherwise invested in properties located in
the southern region of the State of California, (E) up to 30% of the

-23-

Aggregate Collateral Balance may consist of Collateral Debt Securities
(other than CRE CDO Securities and REIT Debt Securities) backed or
otherwise invested in properties located in the District of Columbia
and (F) up to 30% of the Aggregate Collateral Balance may consist of
Collateral Debt Securities (other than CRE CDO Securities and REIT
Debt Securities) backed or otherwise invested in properties located in
the State of Florida; provided that, for purposes of this clause (ii),
any Collateral Debt Security described in the proviso to the
definition of "Applicable Recovery Rate" shall be treated as if such
Collateral Debt Security were Cash or an Eligible Investment, as
applicable, and not as a Collateral Debt Security backed or otherwise
invested in properties;

(iii) not more than 10% of the Aggregate Collateral Balance
consists of CMBS Securities;

(iv) not more than 5% of the Aggregate Collateral Balance
consists of CRE CDO Securities;

(v) not more than 10% of the Aggregate Collateral Balance
consists of CMBS Securities and CRE CDO Securities;

(vi) not more than 5% of the Aggregate Collateral Balance
consists of REIT Debt Securities;

(vii) not more than 10% of the Aggregate Collateral Balance
consists of Collateral Debt Securities issued by any single issuer;
provided that, for avoidance of doubt, with respect to any Loan, the
issuer of such Loan shall be deemed to be the borrower of such Loan;

(viii) (A) not more than 50% of the Aggregate Collateral Balance
may consist of Collateral Debt Securities (other than CRE CDO
Securities and REIT Debt Securities but including any REIT Debt
Security the related issuer of which is required pursuant to its
governing documents to invest substantially all of its assets in Urban
Office Properties or Suburban Office Properties) that are
collateralized or backed by interests on any Urban Office Properties
or Suburban Office Properties; (B) not more than 40% of the Aggregate
Collateral Balance may consist of Collateral Debt Securities (other
than CRE CDO Securities and REIT Debt Securities but including any
REIT Debt Security the related issuer of which is required pursuant to
its governing documents to invest substantially all of its assets in
Multi-Family Properties) that are collateralized or backed by
interests on any Multi-Family Properties; (C) not more than 30% of the
Aggregate Collateral Balance may consist of Collateral Debt Securities
(other than CRE CDO Securities and REIT Debt Securities but including
any REIT Debt Security the related issuer of which is required
pursuant to its governing documents to invest substantially all of its
assets in Retail Properties) that are collateralized or backed by
interests on Retail Properties; (D) not more than 25% of the Aggregate
Collateral Balance may consist of Collateral Debt Securities (other
than CRE CDO Securities and REIT Debt Securities but including any
REIT Debt Security

-24-

the related issuer of which is required pursuant to its governing
documents to invest substantially all of its assets in Industrial
Properties) that are collateralized or backed by interests on
Industrial Properties; (E) not more than 35% of the Aggregate
Collateral Balance may consist of Collateral Debt Securities (other
than CRE CDO Securities and REIT Debt Securities but including any
REIT Debt Security the related issuer of which is required pursuant to
its governing documents to invest substantially all of its assets in
Hospitality Properties) that are collateralized or backed by interests
on Hospitality Properties; (F) not more than 30% of the Aggregate
Collateral Balance may consist of Collateral Debt Securities (other
than CRE CDO Securities and REIT Debt Securities but including any
REIT Debt Security the related issuer of which is required pursuant to
its governing documents to invest substantially all of its assets in
Condo Conversion Properties) that are collateralized or backed by
interests on Condo Conversion Properties; (G) not more than 20% of the
Aggregate Collateral Balance may consist of Collateral Debt Securities
(other than CRE CDO Securities and REIT Debt Securities) that are
collateralized or backed by interests on Condo Conversion Properties
with respect to which the aggregate purchase price relating to signed
contracts is less than the outstanding principal amount of the related
Collateral Debt Securities; (H) not more than 25% of the Aggregate
Collateral Balance may consist of Collateral Debt Securities (other
than CRE CDO Securities and REIT Debt Securities but including any
REIT Debt Security the related issuer of which is required pursuant to
its governing documents to invest substantially all of its assets in
Mixed Use Properties) that are collateralized or backed by interests
on Mixed Use Properties; (I) not more than 15% of the Aggregate
Collateral Balance may consist of Collateral Debt Securities (other
than CRE CDO Securities and REIT Debt Securities but including any
REIT Debt Security the related issuer of which is required pursuant to
its governing documents to invest substantially all of its assets in
Warehouse Properties) that are collateralized or backed by interests
on Warehouse Properties; (J) not more than 15% of the Aggregate
Collateral Balance may consist of Collateral Debt Securities (other
than CRE CDO Securities and REIT Debt Securities but including any
REIT Debt Security the related issuer of which is required pursuant to
its governing documents to invest substantially all of its assets in
Land) that are collateralized or backed by interests on Land; and (K)
not more than 10% of the Aggregate Collateral Balance may consist of
Collateral Debt Securities (other than CRE CDO Securities and REIT
Debt Securities) that are collateralized or backed by interests on
Other Properties; provided that for purposes of this subclause (K) of
this clause (viii) not more than 5% of the Aggregate Collateral
Balance may consist of Collateral Debt Securities (other than CRE CDO
Securities and REIT Debt Securities but including any REIT Debt
Security the related issuer of which is required pursuant to its
governing documents to invest substantially all of its assets in any
single property type included in the definition of "Other Properties")
that are collateralized or backed by interests on any single property
type included in the definition of "Other Properties"; provided,
further, that, for purposes of this clause (viii), any Collateral Debt
Security described in the proviso to the definition of "Applicable
Recovery Rate" shall be treated as if

-25-

such Collateral Debt Security were Cash or an Eligible Investment, as
applicable, and not as a Collateral Debt Security collateralized or
backed by any particular Property Type;

(ix) not more than 6.50% of the Aggregate Collateral Balance
consists of Fixed Rate Securities that are not subject to Asset
Specific Hedges;

(x) not more than 5% of the Aggregate Collateral Balance consists
of CMBS Securities and CRE CDO Securities that have a stated maturity
date or rated final distribution date later than the Stated Maturity;
provided that such 5% limitation may be increased after the Closing
Date if the Rating Agency Condition has been satisfied with respect
thereto and, so long as MBIA is deemed to be the Controlling Class
hereunder, MBIA consents;

(xi) not more than 5% of the Aggregate Collateral Balance
consists of CMBS Securities that have a stated maturity later than the
Stated Maturity;

(xii) not more than 5% of the Aggregate Collateral Balance
consists of CRE CDO Securities that have a stated maturity later than
the Stated Maturity;

(xiii) not more than 3.5% of the Aggregate Collateral Balance
consists of CRE CDO Securities and CMBS Securities issued by any
single issuer;

(xiv) not more than 10% of the Aggregate Collateral Balance
consists of Loans or Preferred Equity Securities that are secured by
or relate to collateral more than 10% of the value of which is located
outside of the United States or a commonwealth, territory or
possession of the United States; provided that not more than 5% of the
Aggregate Collateral Balance consists of Loans or Preferred Equity
Securities that are secured by or relate to collateral more than 10%
of the value of which is located in any one of the following: Aruba,
the Bahamas, Bermuda, the British Virgin Islands, Canada, the Cayman
Islands, Guernsey, Jersey, Luxembourg, Mexico, or the Netherlands
Antilles;

(xv) not more than 10% of the Aggregate Collateral Balance
consists of Loans or Preferred Equity Securities that are issued by an
issuer incorporated or organized outside of the United States or a
commonwealth, territory or possession of the United States; provided
that not more than 5% of the Aggregate Collateral Balance consists of
Loans or Preferred Equity Securities that are issued by issuers
incorporated or organized under the laws of any one of the following:
Aruba, the Bahamas, Bermuda, the British Virgin Islands, Canada, the
Cayman Islands, Guernsey, Jersey, Luxembourg, Mexico, or the
Netherlands Antilles;

(xvi) not more than 5% of the Aggregate Collateral Balance
consists of Floating Rate Securities that bear interest based upon a
floating index other than LIBOR that are not subject to Asset Specific
Hedges;

(xvii) not more than 5% of the Aggregate Collateral Balance
consists of Interest Only Securities;

-26-

(xviii) not more than 10% of the Aggregate Collateral Balance
consists of Loans that are serviced by Accepted Loan Servicers that
are not Approved Servicers;

(xix) on or after the date that is 61 days after the Closing
Date, not more than 10% of the Aggregate Collateral Balance consists
of Loans in the form of participations with respect to which the
Participating Institution is a "qualified institutional lender" as
typically defined in the Underlying Instruments related to
Participations and is not either a "special purpose entity" meeting
S&P's then published criteria for bankruptcy-remote special purpose
entities (but excluding any such criteria requiring non-consolidation
opinions) or an entity that has a long-term unsecured debt rating of
"A-" or higher by S&P and a long-term unsecured debt rating of "A3" or
higher by Moody's; provided that, notwithstanding anything herein to
the contrary, each of a securitization trust, a CDO issuer or a
similar securitization vehicle and Arbor Realty Participation, LLC, a
Delaware limited liability company, for so long as the separateness
provisions of its organizational documents have not been amended
(unless the Rating Agency Condition was satisfied in connection with
such amendment), will be deemed a "special purpose entity" meeting
S&P's then-published criteria for bankruptcy-remote special purpose
entities for purposes of the Eligibility Criteria and the Collateral
Quality Tests;

(xx) the Moody's Maximum Tranched Rating Factor Test is
satisfied;

(xxi) the Moody's Weighted Average Extended Maturity Test is
satisfied;

(xxii) the Moody's Recovery Rate Test is satisfied;

(xxiii) the Herfindahl Diversity Test is satisfied;

(xxiv) the Minimum Weighted Average Coupon Test is satisfied;

(xxv) the Minimum Weighted Average Spread Test is satisfied;

(xxvi) the Weighted Average Life Test is satisfied;

(xxvii) the S&P CDO Monitor Test is satisfied;

(xxviii) the S&P Recovery Test is satisfied;

(xxix) the Fitch Loan Diversity Index Test is satisfied; and

(xxx) the Fitch Poolwide Expected Loss Test is satisfied.

For the avoidance of doubt, for purposes of the foregoing clauses (ii)
and (viii) above, such percentage determinations will be made by
"looking-through" the CMBS Securities included in the Collateral Debt
Securities; provided that such determinations shall be based

-27-

solely on publicly available information in respect of such securities or other
information available to the Collateral Manager without undue expense.

Notwithstanding the foregoing, during the Ramp-Up Period, the
Collateral Quality Tests need not be met.

"Collection Accounts": The trust accounts so designated and
established pursuant to Section 10.2(a) hereof.

"Commitment Termination Time": The date on which any of the following
first occurs: (i) the date on which the Delayed Funding Amounts are reduced to
zero and the Collateral Manager has notified the Trustee in writing that it will
not cause the Issuer to acquire any further Delayed Draw Term Loans; (ii) the
date on which the Aggregate Outstanding Amount of each of the Class A-1A Notes
and the Class A-1AR Notes has been paid in full; (iii) the occurrence of the
Mandatory Class A-1AR Draw Date (immediately after the mandatory draw required
on such date); or (iv) the Redemption Date.

"Company Administration Agreement": The administration agreement,
dated on or about the Closing Date, by and among the Issuer and the Company
Administrator, as modified and supplemented and in effect from time to time.

"Company Administrative Expenses": All fees, expenses and other
amounts due or accrued with respect to any Payment Date and payable by the
Issuer or the Co-Issuer to (i) the Trustee pursuant to Section 6.7 hereof or any
co-trustee appointed pursuant to this Indenture (including amounts payable by
the Issuer as indemnification pursuant to this Indenture) and the Class A-1AR
Note Agent pursuant to the Class A-1AR Note Purchase Agreement (including
amounts payable by the Issuer as indemnification pursuant to the Class A-1AR
Note Purchase Agreement and any fee to a successor Class A-1AR Note Agent), (ii)
the Company Administrator under the Company Administration Agreement (including
amounts payable by the Issuer as indemnification pursuant to the Company
Administration Agreement) and to provide for the costs of liquidating the Issuer
following redemption of the Notes, (iii) the LLC Managers (including
indemnification), (iv) the Independent accountants, agents and counsel of the
Issuer for reasonable fees and expenses (including amounts payable in connection
with the preparation of tax forms on behalf of the Issuer and the Co-Issuer) and
any registered office and government filing fees, (v) the Rating Agencies for
fees and expenses in connection with any rating (including the annual fee
payable with respect to the monitoring of any rating) of the Notes, including
fees and expenses due or accrued in connection with any credit estimate or
rating of the Collateral Debt Securities, (vi) the Collateral Manager under this
Indenture and the Collateral Management Agreement (including any interest on
Collateral Management Fees deferred due to the operation of the Priority of
Payments), (vii) the Collateral Manager or other Persons as indemnification
pursuant to the Collateral Management Agreement, (viii) the Advancing Agent or
other Persons as indemnification pursuant to Section 17.3, (ix) each member of
the Advisory Committee (including amounts payable as indemnification) under each
agreement between such Advisory Committee member and the Issuer (and the amounts
payable by the Issuer to each member of the Advisory Committee as
indemnification pursuant to each such agreement); (x) the Preferred Shares
Paying Agent and the Share Registrar under the Preferred Shares Paying Agency
Agreement (including amounts payable as indemnification), (xi) any other Person
in

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respect of any governmental fee, charge or tax in relation to the Issuer or the
Co-Issuer (in each case as certified by an Authorized Officer of the Issuer or
the Co-Issuer to the Trustee), and (xii) any other Person in respect of any
other fees or expenses (including indemnifications) permitted under this
Indenture (including, without limitation, any costs or expenses incurred in
connection with certain modeling systems and services) and the documents
delivered pursuant to or in connection with this Indenture and the Notes and any
amendment or other modification of any such documentation, in each case unless
expressly prohibited under this Indenture (including, without limitation, the
payment of all transaction fees and all legal and other fees and expenses
required in connection with the purchase of any Collateral Debt Securities or
any other transaction authorized by this Indenture and any amounts due in
respect of the listing of any Notes on the Irish Stock Exchange); provided that
Company Administrative Expenses shall not include (a) amounts payable in respect
of the Notes, (b) amounts payable under any Hedge Agreement, (c) any Collateral
Management Fee payable pursuant to the Collateral Management Agreement and (d)
any Class A-1AR Commitment Fees or Class A-1AR Breakage Costs.

"Company Administrator": Maples Finance Limited, a licensed trust
company incorporated in the Cayman Islands, as administrator pursuant to the
Company Administration Agreement, unless a successor Person shall have become
administrator pursuant to the Company Administration Agreement, and thereafter,
Company Administrator shall mean such successor Person.

"Construction Loan": Any Loan with respect to which a material portion
of the related property securing such Loan is subject to "ground up"
construction of new improvements, including, without limitation, new
foundations, new structural steel or wood frame, and new mechanical, electrical
and plumbing systems and either (a) the related future funding obligation
represented more than 30% of the total committed amount of the underlying loan
as of the date the Issuer acquired such Future Advance Loan or (b) the related
future funding obligation represented more than 40% of the total committed
amount of the underlying loan as of the date of origination of such Future
Advance Loan.

"Controlling Class": The Class A-1 Notes, so long as any Class A-1
Notes are Outstanding, then the Class A-2 Notes, so long as any Class A-2 Notes
are Outstanding, then the Class B Notes, so long as Class B Notes are
Outstanding, then the Class C Notes, so long as any Class C Notes are
Outstanding, then the Class D Notes, so long as any Class D Notes are
Outstanding, then the Class E Notes, so long as any Class E Notes are
Outstanding, then the Class F Notes, so long as any Class F Notes are
Outstanding, then the Class G Notes, so long as any Class G Notes are
Outstanding, then the Class H Notes, so long as any Class H Notes are
Outstanding, and then the Preferred Shares; provided that so long as MBIA is
providing credit enhancement with respect to any of the Class A Notes, whether
in the form of a negative basis swap, a standby letter of credit, a surety bond,
an insurance policy, a credit default swap or any other form of credit insurance
or risk management, MBIA will be deemed to be the "Controlling Class" for all
purposes under this Indenture.

"Corporate Trust Office": The principal corporate trust office of the
Trustee, currently located at (i) for Note transfer purposes, Wells Fargo
Center, Sixth Street and Marquette Avenue, Minneapolis, Minnesota, Attention:
Corporate Trust Services Group, Arbor Realty Mortgage Securities Series 2006-1
and (ii) for all other purposes, 9062 Old Annapolis

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Road, Columbia, Maryland 21045, Attention: CDO Trust Services Group, Arbor
Realty Mortgage Securities Series 2006-1, telephone number (410) 884-2000, or
such other address as the Trustee may designate from time to time by notice to
the Noteholders, the Holder of the Preferred Shares, the Collateral Manager, the
Rating Agencies, the Issuer and each Hedge Counterparty or the principal
corporate trust office of any successor Trustee.

"Coverage Test Modification": The meaning specified in Section 12.5
hereof.

"Coverage Tests": The Class A/B Coverage Tests, the Class C/D/E
Coverage Tests and the Class F/G/H Coverage Tests.

"Covered Fixed Rate Security": Any Fixed Rate Security included in the
Initial Collateral Debt Securities (or otherwise identified on Schedule H
hereto) and any other Fixed Rate Security (including any Above Cap Security) (i)
for which the Issuer has entered into one or more Interest Rate Swap Agreements
(either individually or together with other Collateral Debt Securities), which
(A) is a market rate swap that does not require the related Hedge Counterparty
to make any upfront payments, (B) has a term which is at least as long as the
Initial Maturity Date of such Fixed Rate Security, (C) requires the related
Hedge Counterparty to make floating rate payments to the Issuer based on the
related notional amount based on the London interbank offered rate for U.S.
Dollar deposits in Europe and (D) requires the Issuer to make fixed rate
payments to the related Hedge Counterparty or (ii) that is subject to an Asset
Specific Hedge. For the avoidance of doubt, any Fixed Rate Security with respect
to which the Issuer has entered into an Interest Rate Swap Agreement that has a
term expiring prior to the Initial Maturity Date of such Fixed Rate Security
will not be a Covered Fixed Rate Security.

"Covered Unfunded Other Loan": Any Unfunded Other Loan owned by any
CDO issuer with respect to which the remaining future funding obligation in
respect of such Unfunded Other Loan is covered dollar-for-dollar by (x) cash on
deposit in a segregated account maintained by the related trustee, (y) undrawn
capacity under a revolving note purchase agreement or (z) a combination of (x)
and (y).

"CRE CDO Securities": Collateralized debt obligations, collateralized
bond obligations or collateralized loan obligations (including, without
limitation, any synthetic collateralized debt obligations or synthetic
collateralized loan obligations) that entitle the holders thereof to receive
payments that depend (except for rights or other assets designed to assure the
servicing or timely distribution of proceeds to holders of such CRE CDO
Securities) on the cash flow from (and not the market value of) a portfolio of
securities related to commercial mortgage property.

"Credit Risk/Defaulted Security Cash Purchase": The meaning specified
in Section 12.1(b) hereof.

"Credit Risk Security": Any Collateral Debt Security that, in the
Collateral Manager's reasonable business judgment, has a significant risk of
declining in credit quality or, with a lapse of time, becoming a Defaulted
Security.

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"Cure Advance": An advance by the Collateral Manager, in connection
with the exercise of a cure right by the Issuer, as controlling holder or
directing holder or other similar function, with respect to a Collateral Debt
Security.

"Current Portfolio": The portfolio of Collateral Debt Securities and
Eligible Investments prior to giving effect to a proposed reinvestment in a
Substitute Collateral Debt Security.

"Custodial Account": An account at the Custodial Securities
Intermediary in the name of the Trustee pursuant to Section 10.1(b) hereof.

"Custodial Securities Intermediary": The meaning specified in Section
3.3(a) hereof.

"Dealer": Each of Credit Suisse Securities (USA) LLC and Wachovia
Capital Markets, LLC.

"Default": Any Event of Default or any occurrence that is, or with
notice or the lapse of time or both would become, an Event of Default.

"Defaulted Interest Amount": The Class A-1A Defaulted Interest Amount,
the Class A-1AR Defaulted Interest Amount, the Class A-2 Defaulted Interest
Amount, the Class B Defaulted Interest Amount, the Class C Defaulted Interest
Amount, the Class D Defaulted Interest Amount, the Class E Defaulted Interest
Amount, the Class F Defaulted Interest Amount, the Class G Defaulted Interest
Amount and/or the Class H Defaulted Interest Amount, as the context requires.

"Defaulted Security": Any Collateral Debt Security or any other
security included in the Assets:

(i) with respect to a Preferred Equity Security (1) with
respect to which there has occurred and is continuing a payment
default (after giving effect to any applicable grace period but
without giving effect to any waiver); provided, however, that
notwithstanding the foregoing, a Preferred Equity Security shall not
be deemed to be a Defaulted Security as a result of (A) the related
issuer's failure to pay dividends or distributions on the initial due
date therefor, if the Collateral Manager, on behalf of the Issuer,
(subject to the applicable provisions of the Servicing Agreement)
consents to extend the due date when such dividend or distribution is
due and payable, and such dividend or distribution is paid on or
before such extended due date (provided that such dividend or
distribution is paid not more than 60 days (or 30 days if such
dividend or distribution was previously paid 60 days after the initial
date that it was due as a result of the Collateral Manager, on behalf
of the Issuer, previously consenting to extend such due date) after
the initial date that it was due), or (B) the failure of the issuer or
affiliate of the issuer of the Preferred Equity Security to redeem or
purchase such Preferred Equity Security on the date when such
redemption or purchase is required pursuant to the terms of the
agreement setting forth the rights of the holder of that Preferred
Equity Security (after giving effect to all extensions

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of such redemption or purchase date that the issuer or affiliate of
the issuer of the Preferred Equity Security had the right to elect and
did elect under the terms of the agreement setting forth the rights of
the holder of that Preferred Equity Security), if the Collateral
Manager, on behalf of the Issuer, (subject to the applicable
provisions of the Servicing Agreement) consents to extend such
redemption or purchase date; provided that such consent does not
extend the redemption or purchase date by more than two (2) years
after the redemption or purchase date required under such agreement
(that is, the original redemption or purchase date under such
agreement as extended by all extensions of such date that the issuer
or affiliate of the issuer of the Preferred Equity Security had the
right to elect and did elect under the terms of such agreement) and
the amount required to be paid in connection with such redemption or
purchase is paid on or before such extended redemption or purchase
date, or (2) with respect to which there is known to the Issuer or the
Collateral Manager a default (other than any payment default) which
default entitles the holders thereof to accelerate the maturity of all
or a portion of the principal amount of such obligation; provided,
however, that, in each case, if such default is cured or waived then
such asset shall no longer be a Defaulted Security or (3) with respect
to which it is known to the Collateral Manager that (A) any
bankruptcy, insolvency or receivership proceeding has been initiated
in connection with the issuer of such Preferred Equity Security, or
(B) there has been proposed or effected any distressed exchange or
other debt restructuring where the issuer of such Preferred Equity
Security has offered the debt holders a new security or package of
securities that either (x) amounts to a diminished financial
obligation or (y) has the purpose of helping the issuer to avoid
default, or (4) that has been rated "CC," "D" or "SD" or below by S&P
or "CC" or below by Fitch, or (5) there is known to the Collateral
Manager that the issuer of such Preferred Equity Security is in
default (without giving effect to any applicable grace period or
waiver) as to payment of principal and/or interest on another
obligation (and such default has not been cured or waived) which is
senior or pari passu in right of payment to such Preferred Equity
Security, except that a Preferred Equity Security will not constitute
a "Defaulted Security" under this clause (5) if each of the Rating
Agencies has confirmed in writing that such event shall not result in
the reduction, qualification or withdrawal of any rating of the Notes;

(ii) with respect to a Loan (other than a Single Asset
Mortgage Security, a Single Borrower Mortgage Security or a Rake
Bond), if a foreclosure or default (whether or not declared) with
respect to the related commercial mortgage loan has occurred;
provided, however, that notwithstanding the foregoing, a Loan shall
not be deemed to be a Defaulted Security as a result of (1) the
related borrower's failure to pay interest on such Loan or on the
related commercial mortgage loan on the initial due date therefor, if
the related lender or holder of such Loan or of the related commercial
mortgage loan consents to extend the due date when such interest is
due and payable, and such interest is paid on or before such extended
due date (provided that such interest is paid not more than 60 days
(or 30 days if such interest was previously paid 60 days after the
initial date that it was due) as a result of the Collateral Manager,
on behalf of

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the Issuer, (subject to the applicable provisions of the Servicing
Agreement) previously consenting to extend such due date after the
initial date that it was due) after the initial date that it was due),
or (2) the related borrower's failure to pay principal on such Loan or
the related commercial mortgage loan on the original maturity date
thereof (as defined below), if the related lender or holder of such
Loan or of the related commercial mortgage loan consents to extend
such maturity date (so long as the Maturity Extension Requirements are
met) and such principal is paid on or before such extended maturity
date, or (3) the occurrence of any default other than a payment
default with respect to such Loan or the related commercial mortgage
loan, unless and until the earlier of (A) the declaration of default
and acceleration of the maturity of the Loan by the lender or holder
thereof and (B) the continuance of such default uncured for 60 days
after such default became known to the Collateral Manager or the
Servicer or, subject to the satisfaction of the Rating Agency
Condition and, so long as MBIA is deemed to be the Controlling Class
hereunder, the consent of MBIA, such longer period as the Collateral
Manager (subject to the applicable provisions of the Servicing
Agreement) determines. As used above, the term "original maturity
date" means the maturity date of a Loan or the related commercial
mortgage loan as extended by all extensions thereof which the related
borrower had the right to elect and did elect under the terms of the
instruments and agreements relating to such Loan or to the related
commercial mortgage loan, but before taking into account any
additional extensions thereof that are consented to by the lender or
holder of such Loan or of the related commercial mortgage loan; and

(iii) with respect to a CMBS Security, a CRE CDO Security, a
REIT Debt Security, a Single Asset Mortgage Security, a Single
Borrower Mortgage Security or a Rake Bond (1) as to which there has
occurred and is continuing a principal payment default (without giving
effect to any applicable grace period or waiver) or (2) as to which
there is known to the Collateral Manager a default (other than any
payment default) which default entitles the holders thereof to
accelerate the maturity of all or a portion of the principal amount of
such obligation; provided, however, that, in each case, if such
default is cured or waived then such asset shall no longer be a
Defaulted Security, or (3) as to which it is known to the Collateral
Manager that (A) any bankruptcy, insolvency or receivership proceeding
has been initiated in connection with the issuer of such security, or
(B) there has been proposed or effected any distressed exchange or
other debt re-structuring where the issuer of such security has
offered the debt holders a new security or package of securities that
either (x) amounts to a diminished financial obligation or (y) has the
purpose of helping the issuer to avoid default, or (4) that has been
rated "CC," "D" or "SD" or below by S&P, "CC" or below by Fitch, or
"Ca" or "C" by Moody's, or with respect to REIT Debt Securities, the
issuer of which has a credit rating of "D" or "SD" or as to which S&P
has withdrawn its rating, or (5) as to which it is known to the
Collateral Manager that the issuer thereof is in default (without
giving effect to any applicable grace period or waiver) as to payment
of principal and/or interest on another obligation (and such default
has not been cured or waived) which is senior or pari passu in right
of payment to such security, except that any such

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security will not constitute a "Defaulted Security" under this clause
(5) if each of the Rating Agencies has confirmed in writing that such
event shall not result in the reduction, qualification or withdrawal
of any rating of the Notes, or (6)(A) as to which there has been a
failure to pay interest in whole or in part for the lesser of (x) six
months or (y) three payment periods (if such security is rated (or
privately rated for purposes of the issuance of the Securities) below
"Baa3" by Moody's or "BBB-" by S&P or Fitch); provided, however, that
if the Rating Agency Condition for such security is satisfied with
respect to S&P and Moody's and, so long as MBIA is deemed to be the
Controlling Class hereunder, MBIA has consented, the Collateral
Manager may choose not to treat such security as a Defaulted Security
or (B) as to which there has been a failure to pay interest in whole
or in part for the lesser of (x) one year or (y) six consecutive
payment periods (if such security is rated (or privately rated for
purposes of the issuance of the Securities) "BBB-" or higher by S&P or
Fitch, or "Baa3" or higher by Moody's) even if by its terms it
provides for the deferral and capitalization of interest thereon;

provided that any Collateral Debt Security which has sustained a write-down of
Principal Balance in accordance with its terms will not necessarily be
considered a Defaulted Security solely due to such writedown; provided, further,
that, for purposes of calculating the Par Value Ratios, any Collateral Debt
Security that has sustained an implied reduction of principal balance due to an
appraisal reduction will not necessarily be considered a Defaulted Security
solely due to such implied reduction.

For purposes of calculating the Par Value Ratios, an appraisal reduction of a
Collateral Debt Security will be assumed to result in an implied reduction of
principal balance for such Collateral Debt Security only if such appraisal
reduction is intended to reduce the interest payable on such Collateral Debt
Security and only in proportion to such interest reduction. The Collateral
Manager shall notify the Trustee of any appraisal reductions of Collateral Debt
Securities if the Collateral Manager has actual knowledge thereof.

For purposes of the definition of "Defaulted Security," the "Maturity Extension
Requirements" will be satisfied with respect to any extension if the maturity
date is extended (i) in the case of Loans other than ARD Loans, to a new
maturity date that is (A) not more than two years after the original maturity
date and (B) not less than ten years prior to the Stated Maturity and (ii) in
the case of ARD Loans, such that (A) the anticipated repayment date will not be
less than 20 years prior to the Stated Maturity and (B) the new maturity date is
not less than three years prior to the Stated Maturity; provided, however, that
notwithstanding the requirements in the foregoing clauses (i) and (ii),
"Maturity Extension Requirements" will be deemed satisfied with respect to any
extensions as to which the Rating Agency Condition has been satisfied and, so
long as MBIA is deemed to be the Controlling Class hereunder, MBIA has
consented.

For the avoidance of doubt, the parties hereto understand and agree that any
initial permissible 60 day extension period described in paragraphs (i) and (ii)
of this definition shall in no event be combined with any subsequent permissible
30 day extension period described in paragraphs (i) and (ii) of this definition.

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"Defeased Collateral Accounts": The trust accounts so designated and
established pursuant to Section 10.8(a) hereof.

"Definitive Class A-1AR Note": The meaning specified in Section
2.2(b)(iii) hereof.

"Delayed Draw Term Loan": Any Loan that is fully committed on the
initial funding date of such Loan but is required to be fully funded in one or
more installments and which, once all such installments have been made, has the
characteristics of a term loan; provided that no Loan with respect to which any
additional funding obligation is held separately outside the Issuer by the
Seller or an affiliate of the Seller or by an unaffiliated third party shall be
deemed to be a "Delayed Draw Term Loan" under this Indenture; provided, further,
that for purposes of each of the separate tests included within the Collateral
Quality Tests, the Moody's Post-Acquisition Compliance Test and the S&P
Post-Acquisition Compliance Test, the Principal Balance of a Delayed Draw Term
Loan, as of any date of determination, refers to the sum of (i) the outstanding
principal balance of such Delayed Draw Term Loan and (ii) the amount of the
unfunded portion of such Delayed Draw Term Loan.

"Delayed Funding Advance": With respect to Delayed Draw Term Loans,
one or more future advances that the Issuer is required to make to the obligor
under the Underlying Instruments relating thereto, subject to satisfaction of
conditions precedent specified therein.

"Delayed Funding Amount": With respect to Delayed Draw Term Loans, the
amounts obtained pursuant to the related Delayed Funding Advance (which amounts
were determined at the time the related Delayed Draw Term Loan was originated),
to be applied to one or more purposes, including taxes and insurance, capital
expenditures for renovation of the related mortgaged property, tenant
improvements and leasing commissions, or debt service.

"Delayed Funding Obligations Account": The account established
pursuant to Section 10.6(a) hereof.

"Deposit": Any Cash or money deposited with the Trustee by the Issuer
on the Closing Date for inclusion as Assets and deposited by the Trustee in the
Unused Proceeds Account on the Closing Date, which shall be equal to
$123,316,156.50.

"Deposit Accounts": The meaning specified in Section 3.3(e)(xii)
hereof.

"Depository" or "DTC": The Depository Trust Company, its nominees, and
their respective successors.

"Determination Date": With respect to the initial Payment Date, April
20, 2007, and thereafter quarterly on each January 20, April 20, July 20 and
October 20 (or if such date is not a Business Day, then the next succeeding
Business Day).

"Disqualified Transferee": The meaning specified in Section 2.5(l)
hereof.

"Dollar," "U.S. $" or "$": A U.S. dollar or other equivalent unit in
Cash.

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"Due Date": Each date on which a Scheduled Distribution is due on a
Pledged Obligation.

"Due Period": With respect to any Payment Date, the period commencing
on the day immediately succeeding the second preceding Determination Date (or
commencing on the Closing Date, in the case of the Due Period relating to the
first Payment Date) and ending on and including the Determination Date
immediately preceding such Payment Date.

"Effective Date": The date which is the earlier of (i) the 270th day
after the Closing Date and (ii) the first date on which the Aggregate Principal
Balance of the Pledged Collateral Debt Securities (including for this purpose
the unfunded portion of the Delayed Draw Term Loans) is at least equal to the
Minimum Ramp-Up Amount.

"Eligibility Criteria": The criteria set forth below, which if
satisfied with respect to a loan, security or other obligation at the time it is
purchased, as evidenced by an Officer's Certificate of the Collateral Manager
delivered to the Trustee as of the date of such acquisition, will make such
loan, security or other obligation eligible for purchase by the Issuer as a
Collateral Debt Security:

(i) it is a Loan or security related to commercial real estate;

(ii) it is issued by an issuer incorporated or organized under
the laws of, and if it is a Loan or a Preferred Equity Security it is
secured by or related to property located in, (A) the United States
(or a commonwealth, territory or possession of the United States) or
Canada, or (B) except with respect to Mezzanine Loans, Participations,
Preferred Equity Securities and REIT Debt Securities, under the laws
of Aruba, the Bahamas, Bermuda, the British Virgin Islands, the Cayman
Islands, Guernsey, Jersey, Luxembourg, Mexico or the Netherlands
Antilles; provided that, in the case of any Loan or Preferred Equity
Security described in clause (B) of this paragraph (ii), (a) the
Issuer (or the Trustee or the related servicer, as applicable) is
permitted, under the relevant laws of the related jurisdiction, to
foreclose on the collateral securing such Loan, (b) the Issuer
obtains, and maintains at all times in connection with its ownership
of such Collateral Debt Security, political risk insurance in an
amount not less than the outstanding principal balance of such
Collateral Debt Security, (c) the underlying documents require the
owner of the foreign property securing the Collateral Debt Security to
have insurance against those risks (including, without limitation,
windstorm insurance, if applicable) which at the time of origination
of such loan was consistent with prudent commercial lending practices
with respect to like properties in the same locality and (d) the
issuer under such Collateral Debt Security is obligated, under the
relevant underlying documents, to sweep at least weekly all rent
and/or other collections related to the property securing such
Collateral Debt Security, to one or more lockbox accounts held in the
United States;

(iii) with respect to each CMBS Security, REIT Debt Security, or
CRE CDO Security either (a) substantially all the loans or other
assets backing such

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Collateral Debt Security are secured by collateral substantially all
of which is located in the United States or a commonwealth, territory
or possession of the United States or (b) such CMBS Security, REIT
Debt Security, or CRE CDO Security is rated by each of the Rating
Agencies;

(iv) it provides for periodic payments of interest (or, in the
case of Preferred Equity Securities, dividends or other distributions)
no less frequently than semi-annually;

(v) it has a Moody's Rating, a Fitch Rating (except for Loans and
Preferred Equity Securities) and a S&P Rating (and, unless otherwise
agreed by S&P, such S&P Rating does not include the subscript "t");
provided that to the extent permitted under Section 12.2, Loans may be
acquired by the Issuer based on an Estimated Rating;

(vi) its acquisition would not cause the Issuer, the Co-Issuer or
the pool of Pledged Obligations to be required to register as an
investment company under the Investment Company Act; and if the issuer
of such Collateral Debt Security is excepted from the definition of an
"investment company" solely by reason of Section 3(c)(1) of the
Investment Company Act, then either (a) such Collateral Debt Security
does not constitute a "voting security" for purposes of the Investment
Company Act or (b) the aggregate amount of such Collateral Debt
Security held by the Issuer is less than 10% of the entire issue of
such Collateral Debt Security;

(vii) (a) if it is a Loan (including a Mezzanine Loan and a Rake
Bond but excluding an ARD Loan), no commercial mortgage loan
underlying, securing or constituting such Collateral Debt Security has
a maturity date (including any extension option) that is later than
ten years prior to the Stated Maturity, (b) if it is a REIT Debt
Security, such REIT Debt Security (without regard to the maturities of
any collateral underlying such REIT Debt Security) does not have a
stated final maturity date or rated final distribution date later than
the Stated Maturity, (c) if it is an ARD Loan, (i) the anticipated
repayment date of such ARD Loan is not later than 20 years prior to
the Stated Maturity and (ii) the maturity date of such ARD Loan is not
less than three years prior to the Stated Maturity and (d) if it is a
Preferred Equity Security, the date (after giving effect to all
permissible extensions thereof) by which all distributions on such
Preferred Equity Security attributable to the return of capital by its
governing documents are required to be made is not later than ten
years prior to the Stated Maturity (after giving effect to all
anticipated settlement concerns in connection with such return of
capital);

(viii) it is not prohibited under its Underlying Instruments from
being purchased by the Issuer and pledged to the Trustee;

(ix) it is not, and does not provide for conversion or exchange
into, "margin stock" (as defined under Regulations T, U or X by the
Board of Governors of the Federal Reserve System) at any time over its
life;

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(x) it is not the subject of (a) any Offer by the issuer of such
security or by any other person made to all of the holders of such
security to purchase or otherwise acquire such security (other than
pursuant to any redemption in accordance with the terms of the related
Underlying Instruments) or to convert or exchange such security into
or for Cash, securities or any other type of consideration or (b) any
solicitation by an issuer of such security or any other person to
amend, modify or waive any provision of such security or any related
Underlying Instruments, and has not been called for redemption;

(xi) it is not an Equity Security, Principal Only Security,
Step-Up Security, Market Value Collateralized Debt Obligation or any
security the repayment of which is subject to substantial non-credit
related risk, as determined by the Collateral Manager in its
reasonable business judgment;

(xii) except with respect to Preferred Equity Securities, it is
not a security that by the terms of its Underlying Instruments
provides for conversion or exchange (whether mandatory or at the
option of the issuer or the holder thereof) into an Equity Security at
any time prior to its maturity;

(xiii) it is not a financing by a debtor-in-possession in any
insolvency proceeding;

(xiv) except with respect to Delayed Draw Term Loans, it will not
require the Issuer to make any future payments after the initial
purchase thereof;

(xv) if it is a Delayed Draw Term Loan, an amount equal to the
excess, if any, of the sum of (x) the aggregate amount of the Issuer's
remaining future funding obligations with respect to such Delayed Draw
Term Loan and (y) the aggregate of the Issuer's future funding
obligations in respect of all other Delayed Draw Term Loans then
currently owned by the Issuer, over the Aggregate Class A-1AR Undrawn
Amount is deposited into the Delayed Draw Funding Obligations Account
on the date such Delayed Draw Term Loan is acquired by the Issuer;

(xvi) its acquisition will be in compliance with Section 206 of
the Advisers Act;

(xvii) except with respect to Partially Deferred Loans, it does
not have any outstanding deferred or capitalized interest;

(xviii) it is not a security that, in the Collateral Manager's
reasonable business judgment, has a significant risk of declining in
credit quality or, with lapse of time or notice, becoming a Defaulted
Security;

(xix) it is not a Defaulted Security (as determined by the
Collateral Manager after reasonable inquiry);

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(xx) if it is a Participation, (a) it is a real estate related
Participation, that is subject to the Servicing Agreement, (b) either
(i) the Underlying Term Loan, A Note or B Note has been included in a
transaction that would be classified as a CMBS Conduit Security or a
CMBS Large Loan Security or (ii) the Underlying Term Loan is serviced
by an Accepted Loan Servicer pursuant to a commercial mortgage
servicing arrangement, which includes the standard servicing
provisions found in CMBS Securities transactions, (c) the requirements
regarding the representations and warranties with respect to the
Underlying Term Loan, the Underlying Mortgage Property (as applicable)
and the Participation set forth in Section 16.5 hereof have been met
and (d) the terms of the Underlying Instruments are consistent with
the terms of similar Underlying Instruments in the CMBS Securities
industry; (provided that, in the case of any Participation with
respect to which the aggregate principal balance of such Loan and all
other mortgage loans and mezzanine loans, as applicable, secured by or
related to the same real estate asset is below U.S.$30,000,000, it is
presumed that such terms do not include requirements for independent
managers or non-consolidation opinions in respect of the borrower);

(xxi) if it is a B Note, (a) it is a real estate related B Note
that is subject to the Servicing Agreement, (b) either (i) the related
A Note has been included in a transaction that would be classified as
a CMBS Conduit Security or a CMBS Large Loan Security or (ii) the B
Note is serviced by an Accepted Loan Servicer pursuant to a commercial
mortgage servicing arrangement, which includes the standard servicing
provisions found in CMBS Securities transactions, (c) the requirements
regarding the representations and warranties with respect to the
Underlying Term Loan, the Underlying Mortgage Property (as applicable)
and the B Note set forth in Section 16.5 hereof have been met and (d)
the terms of the Underlying Instruments are consistent with the terms
of similar Underlying Instruments in the CMBS Securities industry;
(provided that, in the case of any B Note with respect to which the
aggregate principal balance of such Loan and all other mortgage loans
and mezzanine loans, as applicable, secured by or related to the same
real estate asset is below U.S.$30,000,000, it is presumed that such
terms do not include requirements for independent managers or
non-consolidation opinions in respect of the borrower);

(xxii) if it is a Mezzanine Loan, (a) it is serviced by an
Accepted Loan Servicer pursuant to the Servicing Agreement, (b) in the
case of any Mezzanine Loan in the form of a participation, the
underlying mezzanine loan is serviced by an Accepted Loan Servicer
pursuant to a commercial mortgage servicing arrangement, which
includes the standard servicing provisions found in CMBS transactions,
(c) the requirements regarding the representations and warranties with
respect to the Underlying Term Loan, the Underlying Mortgage Property
(as applicable) and the Mezzanine Loan set forth in Section 16.5
hereof have been met (including, in the case of a Mezzanine Loan in
the form of a participation, any additional representations and
warranties applicable thereto) and (d) the terms of the Underlying
Instruments are consistent with the terms of similar Underlying
Instruments in the CMBS Securities industry with respect to Mezzanine
Loans;

-39-

(provided that, in the case of any Mezzanine Loan with respect to
which the principal balance of such Loan and all other mortgage loans
and mezzanine loans, as applicable secured by or related to the same
real estate asset is below U.S.$30,000,000, it is presumed that such
terms do not include requirements for independent managers or
non-consolidation opinions in respect of the borrower);

(xxiii) if it is a Whole Loan, (a) it is a real estate related
Whole Loan that is serviced by an Accepted Loan Servicer pursuant to
the Servicing Agreement, (b) in the case of any Whole Loan in the form
of a participation, the Underlying Term Loan is serviced by an
Accepted Loan Servicer pursuant to a commercial mortgage servicing
arrangement, which includes the standard servicing provisions found in
CMBS transactions, (c) the requirements regarding the representations
and warranties with respect to the Loan and the Underlying Mortgage
Property (as applicable) set forth in Section 16.5 hereof have been
met (including, in the case of a Whole Loan in the form of a
participation, any additional representations and warranties
applicable thereto) and (d) unless the Rating Agency Condition is
satisfied, the terms of the Underlying Instruments are consistent with
the terms of similar Underlying Instruments in the CMBS Securities
industry; (provided that, in the case of any Whole Loan with respect
to which the aggregate principal balance of such Loan and all other
mortgage loans and mezzanine loans, as applicable, secured by or
related to the same real estate asset is below U.S.$30,000,000, it is
presumed that such terms do not include requirements for independent
managers or non-consolidation opinions in respect of the borrower);

(xxiv) if it is a Preferred Equity Security, (a) it is serviced
by an Accepted Loan Servicer pursuant to the Servicing Agreement and
(b) the requirements set forth in Section 16.5 hereof regarding the
representations and warranties with respect to the Preferred Equity
Security and the underlying real estate assets (as applicable) have
been met;

(xxv) if it is a Participation, or any other Loan in the form of
a participation, except with respect to any Loan with respect to which
the Rating Agency Condition with respect to S&P has been satisfied,
the related Participating Institution is either a "special purpose
entity" meeting S&P's then-published criteria for bankruptcy-remote
special purpose entities (but excluding any such criteria requiring
non-consolidation opinions) or a "qualified institutional lender" as
such terms are typically defined in the Underlying Instruments related
to participations or an entity that has a long-term unsecured debt
rating from S&P of "A-" or higher and a long-term unsecured debt
rating from Moody's of "A3" or higher; provided that, notwithstanding
anything herein the contrary, each of a securitization trust, a CDO
issuer or a similar securitization vehicle and Arbor Realty
Participation, LLC, a Delaware limited liability company, for so long
as the separateness provisions of its organizational documents have
not been amended (unless the Rating Agency Condition was satisfied in
connection with such amendment), will be deemed a "special purpose
entity" meeting S&P's then-published criteria for bankruptcy-remote
special purpose entities for purposes of the Eligibility Criteria and
the Collateral Quality Tests;

-40-

(xxvi) it is U.S. Dollar denominated and may not be converted
into a security payable in any other currencies;

(xxvii) it is one of the Specified Types;

(xxviii) if it is a Loan or CMBS Security, the principal balance
of the Loan or CMBS Security has not been reduced by a realized loss,
expected loss, appraisal event, appraisal reduction or similar item
since initial issuance, other than a Loan as to which a workout or
other restructuring has occurred but as to which no such reduction has
occurred since the completion of such workout or restructuring;

(xxix) any requirements regarding opinions with respect to
certain purchases of Collateral Debt Securities as provided in this
Indenture have been met;

(xxx) if it is a CMBS Security or a CRE CDO Security, at the time
of its acquisition by the Issuer, it was rated investment grade by at
least one Rating Agency;

(xxxi) except with respect to CMBS Securities, CRE CDO Securities
and REIT Debt Securities, it may not be collateralized or backed by
interests on Healthcare Properties;

(xxxii) its acquisition, ownership, enforcement and disposition
will not cause the Issuer to fail to be a Qualified REIT Subsidiary
unless an appropriate tax opinion is delivered by Cadwalader,
Wickersham & Taft LLP or another nationally recognized tax counsel
experienced in such matters that the Issuer will be treated as a
foreign corporation that is not engaged in a trade or business in the
United States for U.S. federal income tax purposes;

(xxxiii) if it is a CMBS Security or a CRE CDO Security, it does
not have a stated maturity or a rated final distribution date
scheduled to occur more than five (5) years later than the Stated
Maturity; provided that, with respect to any such security that has a
stated maturity or a rated final distribution date scheduled to occur
later than the Stated Maturity, (a) if it is a CMBS Security, such
CMBS Security is rated at least "A3" by Moody's (and, if rated "A3,"
it is not on credit watch with negative implications), and (b) if it
is a CRE CDO Security, such CRE CDO Security is rated at least "Aa2"
by Moody's (and, if rated "Aa2," it is not on credit watch with
negative implications);

(xxxiv) if such Collateral Debt Security has attached reciprocal
"buy/sell" rights as a dispute resolution mechanism, such rights in
favor of the Issuer are freely assignable by the Issuer to any of its
affiliates;

(xxxv) if it is a CRE CDO Security, (a) it is rated at least "AA"
by S&P (and, if rated "AA," it is not on credit watch with negative
implications) and (b) the Underlying Instruments related to such CRE
CDO Security do not (1) permit

-41-

the payment of interest thereon to be deferred or capitalized or (2)
allow for the issuance of identical securities in place of payments of
interest in Cash;

(xxxvi) except with respect to an Interest Only Security, it
provides for the repayment of principal at not less than par no later
than upon its maturity or upon redemption, acceleration or its full
prepayment;

(xxxvii) if it is a CRE CDO Security, neither the Collateral
Manager nor any of its affiliates is acting as a collateral manager
for the related issuer;

(xxxviii) it does not provide for any payments which are or will
be subject to deduction or withholding for or on account of any
withholding or similar tax, unless the issuer of such security is
required to make "gross up" payments that ensure that the net amount
actually received by the Issuer (free and clear of taxes, whether
assessed against such obligor or the Issuer) will equal the full
amount that the Issuer would have received had no such deduction or
withholding been required; and

(xxxix) if it is a Future Advance Loan other than the Homewood
Mountain Resort Loan, either (A) the Rating Agency Condition has been
satisfied with respect thereto, or (B) each related Unfunded Other
Loan is either (x) held by an entity with a long-term unsecured debt
rating of "A-" or higher from S&P and "A3" or higher from Moody's,
each of the conditions set forth in clauses (C)(ii), (iii) and (iv)
below are satisfied and the Arbor Parent has agreed to indemnify the
Issuer with respect to losses arising from the failure of such party
to fulfill its future funding obligations under the related Other Loan
in accordance with the related loan documents or (y) held by a CDO
issuer, one or more of the debt obligations of which is rated by S&P
and Moody's, the condition set forth in clause (C)(ii) below is
satisfied and either (1) the condition set forth in clause (C)(iii)
below is satisfied or (2) an entity with a long-term unsecured debt
rating of "A-" or higher from S&P and "A3" of higher from Moody's has
agreed to indemnify the Issuer with respect to losses arising from the
failure of such party to fulfill its future funding obligations under
the related Other Loan in accordance with the related loan documents,
and in any case under clause (y), at the time the Issuer acquires the
Future Advance Loan, the related Seller represents to the Issuer (to
the best of its knowledge based on documentation available to such
Seller) that the Unfunded Other Loan is a Covered Unfunded Other Loan,
or (C) all of the following conditions are satisfied:

(i) the holder of the Other Loan (the "Future Advance
Funder") is Arbor Realty Limited Partnership, the Arbor Parent, Arbor
Realty Funding LLC, Arbor Realty Mezzanine LLC or a special purpose
entity directly or indirectly wholly owned by the Arbor Parent;

(ii) the Issuer does not have any additional funding
obligation under the related Other Loan by virtue of holding the
Future Advance Loan;

-42-

(iii) the borrower under the Future Advance Loan has agreed
(a) to request such advances under the related Other Loan solely from
a Person other than the Issuer (so long as the Issuer does not own the
related Other Loan) and (b) not to assert any defense to, or any right
of offset against, payment of the Future Advance Loan as the result of
any breach by the maker or holder of the related Other Loan in
connection with the future funding obligation, and unless the holder
of the Future Advance Loan and the related Other Loan are then the
same Person, not to assert any claim against the holder of the Future
Advance Loan in connection with the future funding obligation under
the related Other Loan;

(iv) the Future Advance Funder has agreed in writing with
the Issuer not to transfer the related Other Loan, except in
connection with a financing, or an Approved Lender's rights, under any
Warehouse Facility of the Future Advance Funder pursuant to which such
Other Loan has been sold or pledged (or in satisfaction or settlement
of such lender's rights currently or in the future), without
satisfaction of the Rating Agency Condition unless such transferee
either (x) is a CDO issuer one or more of the debt obligations of
which is rated by S&P and Moody's, or (y) has a long-term unsecured
debt rating of "A-" or higher from S&P or is otherwise approved by S&P
and a long-term unsecured debt rating of "A3" or higher from Moody's
or is otherwise approved by Moody's;

(v) an indemnitor (which may, but need not, be the Arbor
Parent or the holder of the Other Loan) has agreed to guarantee the
funding of such obligation and indemnify the Issuer with respect to
any losses arising from the failure of such party to fulfill its
future funding obligations under the related Other Loan in accordance
with the related loan documents; provided that such indemnitor (i) has
a long-term unsecured debt rating of "A-" or higher from S&P and a
long-term unsecured debt rating of "A3" or higher from Moody's, or
(ii) has obtained and delivered to the Issuer a Qualified Letter of
Credit in an amount not less than the amount of the aggregate future
funding obligation under the related Other Loan; and

(vi) after acquiring such Future Advance Loan the aggregate
Principal Balance of all Future Advance Loans (other than any Future
Advance Loan with respect to which the Rating Agency Condition with
respect to Moody's has been satisfied) owned by the Issuer with
respect to which the related Unfunded Other Loans are Construction
Loans will be less than or equal to 10% of the Aggregate Collateral
Balance.

Notwithstanding the foregoing provisions of this definition, with
respect to any Collateral Debt Security acquired by the Issuer on or prior to
the Closing Date, if any of the Eligibility Criteria above pertains to the
subject matter of a representation and warranty under the related Collateral
Debt Securities Purchase Agreement as to which an exception has been disclosed
in the related exception schedule, such Collateral Debt Security shall be deemed
to satisfy such criterion notwithstanding such exception.

-43-

"Eligible Account": The meaning given to such term in the Servicing
Agreement.

"Eligible Investments": Any Dollar-denominated investment that, at the
time it is Granted to the Trustee (directly or through a Securities Intermediary
or bailee), is Registered and is one or more of the following obligations or
securities:

(i) direct obligations of, and obligations the timely payment of
principal of and interest on which is fully and expressly guaranteed
by, the United States, or any agency or instrumentality of the United
States, the obligations of which are expressly backed by the full
faith and credit of the United States;

(ii) demand and time deposits in, certificates of deposit of,
bankers' acceptances issued by, or federal funds sold by, any
depository institution or trust company incorporated under the laws of
the United States or any state thereof or the District of Columbia
(including the Trustee or the commercial department of any successor
Trustee, as the case may be; provided that such successor otherwise
meets the criteria specified herein) and subject to supervision and
examination by federal and/or state banking authorities so long as the
commercial paper and/or the debt obligations of such depositary
institution or trust company (or, in the case of the principal
depositary institution in a holding company system, the commercial
paper or debt obligations of such holding company) at the time of such
investment or contractual commitment providing for such investment
have a credit rating not less than "A1" by Moody's, "A+" by Fitch and
"AA-" by S&P, in the case of long-term debt obligations, and "P-1" by
Moody's, "F1" by Fitch and "A-1+" by S&P for Eligible Investments
which have a maturity of 30 days or less;

(iii) unleveraged repurchase or forward purchase obligations with
respect to (a) any security described in clause (i) above or (b) any
other security issued or guaranteed by an agency or instrumentality of
the United States of America, in either case entered into with a
depository institution or trust company (acting as principal)
described in clause (ii) above (including the Trustee or the
commercial department of any successor Trustee, as the case may be;
provided that such person otherwise meets the criteria specified
herein) or entered into with a corporation (acting as principal) whose
long-term rating is not less than "Aa2" by Moody's, "AA" by Fitch and
"AAA" by S&P (for so long as any Notes rated by S&P are Outstanding)
or whose short-term credit rating is not less than "P-1" by Moody's,
"F1" by Fitch and "A-1+" by S&P for Eligible Investments which have a
maturity of 30 days or less (for so long as any Notes rated by S&P are
Outstanding); provided that the issuer thereof must also have at the
time of such investment a long-term credit rating of not less than
"Aa2" by Moody's, "A+" by Fitch and "AAA" by S&P (for so long as any
Notes rated by S&P are Outstanding);

(iv) registered securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United
States or any state thereof or the District of Columbia that has a
credit rating of not less than "Aa2"

-44-

by Moody's, "AA" by Fitch and "AAA" by S&P (for so long as any Notes
rated by S&P are Outstanding) at the time of such investment or
contractual commitment providing for such investment;

(v) commercial paper or other similar short-term obligations
(including that of the Trustee or the commercial department of any
successor Trustee, as the case may be, or any affiliate thereof;
provided that such person otherwise meets the criteria specified
herein) having at the time of such investment a credit rating of "P-1"
by Moody's, "F1+" by Fitch and "A-1+" by S&P (for so long as any Notes
rated by S&P are Outstanding); provided, further, that the issuer
thereof must also have at the time of such investment a senior
long-term debt rating of not less than "Aa3" by Moody's, "AA" by Fitch
and "AA" by S&P (for so long as any Notes rated by S&P are
Outstanding);

(vi) a reinvestment agreement issued by any bank (if treated as a
deposit by such bank), or a Registered guaranteed investment or
reinvestment agreement issued by an insurance company or other
corporation or entity, in each case that has a credit rating of not
less than "P-1" by Moody's, "F1+" by Fitch and "A-1+" by S&P or "A-1"
by S&P for Eligible Investments which have a maturity of 30 days or
less (for so long as any Notes rated by S&P are Outstanding); provided
that the issuer thereof must also have at the time of such investment
a long-term credit rating of not less than "Aa2" by Moody's, "AA" by
Fitch and "AAA" by S&P (for so long as any Notes rated by S&P are
Outstanding); and

(vii) any other investment similar to those described in clauses
(i) through (vi) above that (1) each of Moody's and S&P has confirmed
may be included in the portfolio of Pledged Obligations as an Eligible
Investment without adversely affecting its then-current ratings on the
Notes and (2) has a long-term credit rating of not less than "Aa2" by
Moody's, "AA" by Fitch and "AAA" by S&P (for so long as any Notes
rated by S&P are Outstanding) or a credit rating of not less than
"P-1" by Moody's, "F1" by Fitch and "A-1+" by S&P or "A-1" by S&P for
Eligible Investments which have a maturity of 30 days or less (for so
long as any Notes rated by S&P are Outstanding);

provided that mortgage-backed securities and Interest Only Securities shall not
constitute Eligible Investments; and provided, further, that (a) Eligible
Investments acquired with funds in the Collection Accounts shall include only
such obligations or securities as mature no later than the Business Day prior to
the next Payment Date succeeding the acquisition of such obligations or
securities, (b) Eligible Investments shall not include obligations bearing
interest at inverse floating rates, (c) Eligible Investments shall be treated as
indebtedness for U.S. federal income tax purposes and such investment shall not
cause the Issuer to fail to be treated as a Qualified REIT Subsidiary (unless
the Issuer has previously received an opinion of Cadwalader, Wickersham & Taft
LLP or another nationally recognized tax counsel experienced in such matters
opining that the Issuer will be treated as a foreign corporation that will not
be treated as engaged in a trade or business in the United States for U.S.
federal income tax purposes, in which case the investment will not cause the
Issuer to be treated as a foreign corporation that will

-45-

be treated as engaged in a trade or business in the United States for U.S.
federal income tax purposes), (d) Eligible Investments shall not be subject to
deduction or withholding for or on account of any withholding or similar tax,
unless the payor is required to make "gross up" payments that ensure that the
net amount actually received by the Issuer (free and clear of taxes, whether
assessed against such obligor or the Issuer) will equal the full amount that the
Issuer would have received had no such deduction or withholding been required,
(e) Eligible Investments shall not be purchased for a price in excess of par,
shall not have an S&P rating which contains a subscript "r," "t," "p," "pi" or
"q" and (f) Eligible Investments shall not include Margin Stock. Eligible
Investments may be obligations of, and may be purchased from, the Trustee and
its Affiliates, and may include obligations for which the Trustee or an
Affiliate thereof receives compensation for providing services.

For the avoidance of doubt, all credit ratings by Fitch required under
this definition shall be deemed to be Fitch Ratings for all purposes under this
Indenture.

"Entitlement Order": The meaning specified in Section 8-102(a)(8) of
the UCC.

"Equity Security": Any security (other than any Preferred Equity
Security or any asset-backed security structured as a certificate or other form
of beneficial interest) that does not entitle the holder thereof to receive
periodic payments of interest and one or more installments of principal.

"ERISA": The United States Employee Retirement Income Security Act of
1974, as amended.

"Estimated Rating": The Moody's Estimated Rating or the S&P Estimated
Rating, as applicable.

"Euroclear": Euroclear Bank S.A./N.V., as operator of the Euroclear
system.

"Event of Default": The meaning specified in Section 5.1 hereof.

"Excepted Assets": (i) The $250 of capital contributed by ARMS Equity
as the holder of the ordinary shares of the Issuer, the $250 transaction fee
paid to the Issuer, together with, in each case, any interest earned thereon and
the bank account in which such monies are held and (ii) the Preferred Shares
Distribution Account and all of the funds and other property from time to time
deposited in or credited to the Preferred Shares Distribution Account.

"Exchange Act": The Securities Exchange Act of 1934, as amended.

"Exchange Security": The meaning specified in Section 12.1(b) hereof.

"Expense Account": The account established pursuant to Section 10.7(a)
hereof.

"Extended Maturity Date": With respect to any Collateral Debt
Security, the maturity date of such Collateral Debt Security, assuming the
exercise of all extension options (if any) that are exercisable at the option of
the related borrower under the terms of such Collateral Debt Security.

-46-

"Extended Weighted Average Maturity": As of any Measurement Date with
respect to the Collateral Debt Securities (other than Defaulted Securities), the
number obtained by (i) summing the products obtained by multiplying (a) the
remaining term to maturity (in years, rounded to the nearest one tenth thereof,
and based on the Extended Maturity Date) of each Collateral Debt Security (other
than Defaulted Securities) by (b) the outstanding Principal Balance at such time
of such Collateral Debt Security and (ii) dividing the sum by the Aggregate
Principal Balance at such time of all Collateral Debt Securities (other than
Defaulted Securities).

"Financial Asset": The meaning specified in Section 8-102(a)(9) of the
UCC.

"Financing Statements": Financing statements relating to the Assets
naming the Issuer, as debtor, and the Trustee, on behalf of the Secured Parties,
as secured party.

"Fitch": Fitch, Inc., Fitch Ratings, Ltd. and their subsidiaries
including Derivative Fitch, Inc. and Derivative Fitch Ltd. and any successor or
successors thereto.

"Fitch Applicable Recovery Rate": With respect to any Collateral Debt
Security that is a CMBS Security, a CRE CDO Security or a REIT Debt Security on
any Measurement Date, an amount equal to the percentage corresponding to the
domicile, original rating, seniority and tranche thickness of such Collateral
Debt Security, as applicable, as currently set forth in the Fitch Recovery Rate
matrix available in the latest version of Fitch's Default Vector model, that can
be downloaded from www.derivativefitch.com.

"Fitch Fixed Rate Excess": As of any Measurement Date, a fraction
(expressed as a percentage) the numerator of which is equal to the product of
(i) the greater of zero and the excess, if any, of the Weighted Average Coupon
over the percentage set forth in the Weighted Average Coupon row in the
applicable column of the Fitch Matrix (which percentage, for the avoidance of
doubt, will vary depending on the then-current levels of the other variables
included in the Fitch Matrix) and (ii) the Aggregate Principal Balance of all
Collateral Debt Securities that are Fixed Rate Securities (excluding all
Defaulted Securities and Written Down Securities) and the denominator of which
is the Aggregate Principal Balance of all Collateral Debt Securities that are
Floating Rate Securities (excluding all Defaulted Securities and Written Down
Securities), multiplying the resulting figure by 360 and then dividing by 365.
As used in this definition, "applicable column" means the column corresponding
to the numbered scenario in the Fitch Matrix, the use of the applicable numbers
or percentages set forth in which would result in satisfaction of the related
Collateral Quality Tests.

"Fitch Loan Diversity Index Score": The amount, determined by the
Collateral Manager on any Measurement Date, equal to the sum of the series of
products obtained for each Collateral Debt Security, by squaring the quotient of
(x) the Principal Balance on such Measurement Date of each such Collateral Debt
Security (and each Cash Security Exposure, if any) and (y) the Aggregate
Principal Balance of all Collateral Debt Securities (and all Cash Security
Exposures, if any) on such Measurement Date, multiplied by 10,000. For purposes
of this definition, on the relevant Measurement Date, the sum of the aggregate
amount held in cash in any account other than the Delayed Funding Obligations
Account plus the excess, if any, of the Aggregate Class A-1AR Undrawn Amount
over the Minimum Class A-1AR Commitment (such sum, the "Available Amount"), will
be divided into one or more "Cash Security 

-47-

Exposures." Each Cash Security Exposure will be sized in an amount equal to the
result obtained by averaging the Principal Balance of all Collateral Debt
Securities on such Measurement Date; provided, that if the Available Amount on
such Measurement Date is less than such average, or if there is a portion of the
Available Amount remaining in an amount less than such average, the Cash
Security Exposure or the additional Cash Security Exposure, as applicable,
represented thereby will be sized in the actual amount of such Available Amount
or portion thereof.

"Fitch Loan Diversity Index Test": A test that will be satisfied on
any Measurement Date if the Fitch Loan Diversity Index Score for the Collateral
Debt Securities on such Measurement Date is less than or equal to 500.

"Fitch Matrix": The matrix set forth in Schedule G attached hereto.

"Fitch Minimum Weighted Average Coupon Test": A test that will be
satisfied on any Measurement Date if the Weighted Average Coupon plus the Fitch
Spread Excess, if any, is greater than or equal to the number set forth in the
Weighted Average Coupon row in the applicable column of the Fitch Matrix (which
number, for the avoidance of doubt, will vary depending on the then-current
levels of the other variables included in the Fitch Matrix). As used in this
definition, "applicable column" means the column corresponding to the numbered
scenario in the Fitch Matrix, the use of the applicable numbers or percentages
set forth in which would result in satisfaction of the related Collateral
Quality Tests.

"Fitch Minimum Weighted Average Spread Test": A test that will be
satisfied as of any Measurement Date if the Weighted Average Spread plus the
Fitch Fixed Rate Excess, if any, is greater than or equal to the number set
forth in the Weighted Average Spread row in the applicable column of the Fitch
Matrix (which number, for the avoidance of doubt, will vary depending on the
then-current levels of the other variables included in the Fitch Matrix). As
used in this definition, "applicable column" means the column corresponding to
the numbered scenario in the Fitch Matrix, the use of the applicable numbers or
percentages set forth in which would result in satisfaction of the related
Collateral Quality Tests.

"Fitch Poolwide Expected Loss": The output generated using Fitch's
CREL Surveyor model as applied to all Collateral Debt Securities that are Loans.

"Fitch Poolwide Expected Loss Test": A test that will be satisfied on
any Measurement Date if the Fitch Poolwide Expected Loss is equal to or less
than the percentage set forth in the Fitch Poolwide Expected Loss row in the
applicable column of the Fitch Matrix (which percentage, for the avoidance of
doubt, will vary depending on the then-current levels of the other variables
included in the Fitch Matrix). As used in this definition, "applicable column"
means the column corresponding to the numbered scenario in the Fitch Matrix, the
use of the applicable numbers or percentages set forth in which would result in
satisfaction of the related Collateral Quality Tests.

"Fitch Rating": With respect to any Collateral Debt Security,

(i) if such Collateral Debt Security is rated by Fitch, the Fitch
Rating shall be such rating;

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(ii) if such Collateral Debt Security is not rated by Fitch and a
rating is published by both S&P and Moody's, the Fitch Rating shall be
the lower of such ratings; and, except with respect to any Loan, if a
rating is published by only one of S&P and Moody's, the Fitch Rating
shall be that published rating by S&P or Moody's, as the case may be;
or

(iii) if the Fitch Rating cannot be assigned in accordance with
clauses (i) or (ii) above, the Issuer (or the Collateral Manager on
behalf of the Issuer) shall apply to Fitch for a credit assessment
which thereafter shall be the Fitch Rating;

provided that (x) if such Collateral Debt Security has been put on
rating watch negative for possible downgrade by any Rating Agency, then the
rating used to determine the Fitch Rating under either of clauses (i) or (ii)
above shall be one rating subcategory below such rating by that Rating Agency,
and (y) if such Collateral Debt Security has been put on rating watch positive
for possible upgrade by any Rating Agency, then the rating used to determine the
Fitch Rating under either of clauses (i) or (ii) above shall be one rating
subcategory above such rating by that Rating Agency, and (z) notwithstanding the
rating definition described above, Fitch reserves the right to issue a rating
estimate for any Collateral Debt Security at any time.

"Fitch Spread Excess": As of any Measurement Date, a fraction
(expressed as a percentage), the numerator of which is equal to the product of
(i) the greater of zero and the excess, if any, of the Weighted Average Spread
over the percentage set forth in the Weighted Average Spread row in the
applicable column of the Fitch Matrix (which percentage, for the avoidance of
doubt, will vary depending on the then-current levels of the other variables
included in the Fitch Matrix) and (ii) the Aggregate Principal Balance of all
Collateral Debt Securities that are Floating Rate Securities (excluding all
Defaulted Securities and Written Down Securities) and the denominator of which
is the Aggregate Principal Balance of all Collateral Debt Securities that are
Fixed Rate Securities (excluding all Defaulted Securities and Written Down
Securities), multiplying the resulting figure by 365 and then dividing by 360.
As used in this definition, "applicable column" means the column corresponding
to the numbered scenario in the Fitch Matrix, the use of the applicable numbers
or percentages set forth in which would result in satisfaction of the related
Collateral Quality Tests.

"Fixed Rate Excess": The Moody's Fixed Rate Excess, the S&P Fixed Rate
Excess or the Fitch Fixed Rate Excess, as the context requires.

"Fixed Rate Security": Any Collateral Debt Security (including,
without limitation, an Above Cap Security) other than a Floating Rate Security.

"Floating Rate Security": Any Collateral Debt Security which bears
interest based upon a floating rate index (including a floating rate index
subject to a cap but other than an Above Cap Security); provided that, for
purposes of calculating each Fixed Rate Excess, each Spread Excess, the Weighted
Average Coupon and the Weighted Average Spread, any Covered Fixed Rate Security
shall be deemed to be a Floating Rate Security and that, for purposes of
calculating each Spread Excess and the Weighted Average Spread, such Covered
Fixed Rate

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Security shall be assumed to have a spread above LIBOR equal to the spread over
the London interbank offered rate for U.S. Dollar deposits in Europe for the
related swap agreement.

"Form-Approved Asset Specific Hedge": Any Asset Specific Hedge (a) the
documentation of which conforms (but for the amount and timing of periodic
payments, the notional amount, the effective date, the termination date and
other similarly necessary changes) to a form for which satisfaction of the
Rating Agency Condition was previously received (as certified to the Trustee by
the Collateral Manager); provided that any Rating Agency may withdraw its
approval of a form at any time (which, for the avoidance of doubt, will not
affect any Form-Approved Asset Specific Hedge entered into prior to the time of
such withdrawal) and (b) as to which there are no upfront payments required to
be made thereunder by the Issuer.

"Future Advance Funder": The meaning specified in clause (xxxix)(C)(i)
of the definition of Eligibility Criteria.

"Future Advance Loan": Any Loan acquired by the Issuer by purchase
(referred to solely for purposes of this definition as the "Issuer's Loan") with
respect to which, at the time of such acquisition and for so long as the Issuer
owns such Loan, there is outstanding and owned by a Person other than the Issuer
one or more other Loans to the same borrower that was made by the maker of the
Issuer's Loan (each such Loan, an "Other Loan") if with respect to such Other
Loan both (i) either it (A) is secured by the same mortgage or deed of trust on
the same underlying mortgage property as the Issuer's Loan or (B) if the
Issuer's Loan is a participation interest in a Mezzanine Loan, is secured by the
same pledged collateral, and (ii) there exists a continuing obligation on the
part of the holder of at least one Other Loan after the Closing Date to provide
additional funding to the borrower under such Other Loan, upon the terms and
conditions of the underlying loan documents for such Other Loan (each such Other
Loan, an "Unfunded Other Loan").

"GAAP": The meaning specified in Section 6.3(k) hereof.

"General Intangible": The meaning specified in Section 9-102(a)(42) of
the UCC.

"Global Securities": The Rule 144A Global Securities and the
Regulation S Global Securities.

"Governing Documents": With respect to (i) the Issuer, the memorandum
and articles of association of the Issuer, as amended and restated and/or
supplemented and in effect from time to time and certain resolutions of its
Board of Directors and (ii) all other Persons, the articles of incorporation,
certificate of incorporation, by-laws, certificate of limited partnership,
limited partnership agreement, limited liability company agreement, certificate
of formation, articles of association and similar charter documents, as
applicable to any such Person.

"Government Items": A security (other than a security issued by the
Government National Mortgage Association) issued or guaranteed by the United
States of America or an agency or instrumentality thereof representing a full
faith and credit obligation of the United States of America and, with respect to
each of the foregoing, that is maintained in book-entry form on the records of a
Federal Reserve Bank.

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"Grant": To grant, bargain, sell, warrant, alienate, remise, demise,
release, convey, assign, transfer, mortgage, pledge, create and grant a security
interest in and right of set-off against, deposit, set over and confirm. A Grant
of the Pledged Obligations or of any other security or instrument shall include
all rights, powers and options (but none of the obligations) of the granting
party thereunder, including without limitation the immediate continuing right to
claim, collect, receive and take receipt for principal and interest payments in
respect of the Pledged Obligations (or any other security or instrument), and
all other Monies payable thereunder, to give and receive notices and other
communications, to make waivers or other agreements, to exercise all rights and
options, to bring Proceedings in the name of the granting party or otherwise,
and generally to do and receive anything that the granting party is or may be
entitled to do or receive thereunder or with respect thereto.

"Hedge Agreement": Collectively, one or more interest rate cap
agreements, interest rate floor agreements, interest rate basis swap agreements,
Interest Rate Swap Agreements (including Asset Specific Hedges), Cash Flow Swap
Agreements or similar agreements, including any related ISDA Master Agreement
(including any schedule and Hedge Counterparty Credit Support thereto) and
confirmations, entered into between the Issuer and one or more Hedge
Counterparties from time to time and any additional or replacement interest rate
cap or swap agreements or other agreements that address interest rate exposure,
basis risk or payment frequency exposure entered into from time to time between
the Issuer and each Hedge Counterparty in accordance with the terms hereof, as
the same may be amended, supplemented or otherwise modified from time to time in
accordance with its terms.

"Hedge Collateral Account": Each trust account established pursuant to
Section 16.1(e) hereof.

"Hedge Counterparty": Any institution or institutions with whom the
Issuer enters into any Hedge Agreements.

"Hedge Counterparty Collateral Threshold Rating": With respect to a
person as an issuer or with respect to the debt of such person, as the case may
be, (i) with respect to a Person as an issuer or with respect to the long-term
senior unsecured debt of such Person, "A" and the short-term debt of such Person
is rated at least "F1", in each case by Fitch (for so long as any Notes are
Outstanding and are rated by Fitch); (ii) with respect to a Person as an issuer
or with respect to the long-term senior unsecured debt of such Person, "A1" and
not on "watch for downgrade" (and the short-term debt of such Person is rated
"P-1" and not on "watch for downgrade") or "Aa3" and not on "watch for
downgrade" (if only the long-term debt obligations of such Person are rated by
Moody's) (for so long as any Notes are Outstanding and rated by Moody's); and
(iii) a short-term debt rating of "A-1" by S&P, or, if such Person does not have
a short-term debt rating, with respect to such Person as an issuer or with
respect to the long-term senior unsecured debt of such Person, "A+" by S&P (for
so long as any Notes are Outstanding and are rated by S& P); provided that,
should a Rating Agency effect an overall downward adjustment of its short-term
or long-term ratings, then the applicable Hedge Counterparty Collateral
Threshold Rating shall be downwardly adjusted accordingly; provided, further,
that any such adjustment to a rating shall be subject to the prior written
consent of the applicable Rating Agency.

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"Hedge Counterparty Credit Support": With respect to a Hedge
Agreement, the agreement to provide collateral, if necessary, substantially in
the form of the ISDA Credit Support Annex attached to the related Hedge
Agreement.

"Hedge Counterparty Credit Support Provider": The meaning specified in
Section 16.1(a) hereof.

"Hedge Counterparty Required Rating": (i) with respect to a Person as
an issuer or with respect to long-term senior unsecured debt of such Person, (a)
"A1" by Moody's to the extent such Person has a long-term rating only (for so
long as any Notes are Outstanding and are rated by Moody's); or (b) "A2" by
Moody's to the extent such Person has both a long-term and short-term rating and
the short-term rating is "P-1" (for so long as any Notes are Outstanding and are
rated by Moody's); (ii) with respect to a Person as an issuer or with respect to
long-term senior unsecured debt of such Person, "BBB+" by Fitch (for so long as
any Notes are Outstanding and are rated by Fitch) and short-term rating of such
Person, of at least "F2" (for so long as any Notes are Outstanding and are rated
by Fitch); and (iii) with respect to a Person as an issuer or with respect to
long-term senior unsecured debt of such Person, "BBB-" by S&P (for so long as
any Notes are Outstanding and are rated by S&P), or short-term rating of such
Person, of "A-3" by S&P (for so long as any Notes are Outstanding and are rated
by S provided that should a Rating Agency effect an overall downward
adjustment of its short-term or long-term ratings, then the applicable Hedge
Counterparty Required Rating shall be downwardly adjusted accordingly; provided,
further, that any adjustment to a rating shall be subject to the prior written
consent of the applicable Rating Agency.

"Hedge Payment Amount": With respect to each Asset Specific Hedge, the
amount of any payment then due and payable thereunder by the Issuer to each
Hedge Counterparty, including without limitation any payments due and payable
upon a termination of such Hedge Agreement.

"Hedge Termination Account": Each trust account established pursuant
to Section 16.1(g) hereof.

"Herfindahl Diversity Test": A test that will be satisfied on any
Measurement Date if the Herfindahl Score for the Collateral Debt Securities on
such Measurement Date is greater than or equal to the number set forth in the
Herfindahl Score row in the applicable column of the Moody's Matrix (which
number, for the avoidance of doubt, will vary depending on the then current
levels of the other variables included in the Moody's Matrix). As used in this
definition, "applicable column" means the column corresponding to the numbered
scenario in the Moody's Matrix, the use of the applicable numbers or percentages
set forth in which would result in satisfaction of the related Collateral
Quality Tests.

"Herfindahl Score": The amount determined by the Collateral Manager on
any Measurement Date, by dividing (i) one by (ii) the sum of the series of
products obtained for each Collateral Debt Security, by squaring the quotient of
(x) the Principal Balance on such Measurement Date of each such Collateral Debt
Security and (y) the aggregate Principal Balance of all Collateral Debt
Securities on such Measurement Date. For purposes of calculating the Herfindahl
Score, each $1,000,000 increment of all amounts held in cash in any account
other

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than the Delayed Funding Obligations Account plus the excess, if any, of the
Aggregate Class A-1AR Undrawn Amount over the Minimum Class A-1AR Commitment,
shall be treated as a single Collateral Debt Security.

"Highest Auction Price": The meaning specified in Section 12.4(b)(iv)
hereof.

"Holder" or "Securityholder": With respect to any Note, the Person in
whose name such Note is registered in the Notes Register. With respect to any
Preferred Share, the Person in whose name such Preferred Share is registered in
the register maintained by the Share Registrar.

"Holder Subaccount": The meaning specified in Section 18.4 hereof.

"Indenture": This instrument as originally executed and, if from time
to time supplemented or amended by one or more indentures supplemental hereto
entered into pursuant to the applicable provisions hereof, as so supplemented or
amended.

"Independent": As to any Person, any other Person (including, in the
case of an accountant, or lawyer, a firm of accountants or lawyers and any
member thereof or an investment bank and any member thereof) who (i) does not
have and is not committed to acquire any material direct or any material
indirect financial interest in such Person or in any Affiliate of such Person,
and (ii) is not connected with such Person as an Officer, employee, promoter,
underwriter, voting trustee, partner, director or Person performing similar
functions. "Independent" when used with respect to any accountant may include an
accountant who audits the books of such Person if in addition to satisfying the
criteria set forth above the accountant is independent with respect to such
Person within the meaning of Rule 101 of the Code of Ethics of the American
Institute of Certified Public Accountants.

Whenever any Independent Person's opinion or certificate is to be
furnished to the Trustee such opinion or certificate shall state that the signer
has read this definition and that the signer is Independent within the meaning
hereof.

"Initial Collateral Debt Securities": The Collateral Debt Securities
listed on Schedule I attached hereto.

"Initial Maturity Date": With respect to any Collateral Debt Security,
the maturity date of such Collateral Debt Security without giving effect to any
extension options available under the terms of such Collateral Debt Security.

"Initial Purchaser": Wachovia Capital Markets, LLC, as initial
purchaser of the Notes (other than the Class A-1AR Notes).

"Instrument": The meaning specified in Section 9-102(a)(47) of the
UCC.

"Interest Accrual Period": (a) With respect to the Notes (other than
the Class A-1AR Notes), (i) with respect to the first Payment Date, the period
from and including the Closing Date to but excluding the initial Payment Date in
April 2007 and (ii) with respect to each successive Payment Date, the period
from and including the immediately preceding Payment

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Date to, but excluding, such Payment Date and (b) with respect to the Class
A-1AR Notes and any Class A-1AR Draw, (i) initially the period from and
including the date of any Class A-1AR Draw to, but excluding, the first Payment
Date immediately following such Class A-1AR Draw and (ii) with respect to each
successive Payment Date, the period from and including the immediately preceding
Payment Date to, but excluding, such Payment Date.

"Interest Advance": The meaning specified in Section 10.9(a) hereof.

"Interest Collection Account": The trust account established pursuant
to Section 10.2(a) hereof.

"Interest Coverage Ratio": With respect to the Class A Notes and the
Class B Notes (the "Class A/B Interest Coverage Ratio"), the Class C Notes, the
Class D Notes and the Class E Notes (the "Class C/D/E Interest Coverage Ratio")
or the Class F Notes, the Class G Notes and the Class H Notes (the "Class F/G/H
Interest Coverage Ratio") as of any Measurement Date, the ratio calculated by
dividing:

(1)  (i) the sum of (A) Cash standing to the credit of the Expense Account,
plus (B) the Scheduled Distributions of interest (or, in the case of
the Preferred Equity Securities, the scheduled payments of dividends
or other distributions not attributable to the return of capital by
their governing documents) due (in each case regardless of whether the
due date for any such interest (or dividend or other distribution)
payment has yet occurred) in the Due Period in which such Measurement
Date occurs on (x) the Collateral Debt Securities (excluding accrued
and unpaid interest on Defaulted Securities); provided that no
interest (or dividends or other distributions) will be included with
respect to any Collateral Debt Security (including, without
limitation, the deferred or capitalized interest component of a
Partially Deferred Loan) to the extent that such Collateral Debt
Security does not provide for the scheduled payment of interest (or
dividends or other distributions) in Cash and (y) the Eligible
Investments held in the Payment Account, the Collection Accounts, the
Interest Reserve Account, the Delayed Funding Obligations Account and
the Expense Account (whether purchased with Interest Proceeds or
Principal Proceeds), plus (C) any net amount (other than any
termination payments) scheduled to be received by the Issuer from any
Hedge Counterparty under any related Hedge Agreement on or before the
following Payment Date, plus (D) Interest Advances, if any, advanced
by the Advancing Agent or the Backup Advancing Agent, with respect to
the related Payment Date, minus (ii) the sum of (A) any net amount
(other than any termination payments) scheduled to be paid by the
Issuer to any Hedge Counterparty under any related Hedge Agreement on
or before the following Payment Date, plus, without duplication, (B)
any amounts scheduled to be paid pursuant to Section 11.1(a)(i)(1)
through (5) (other than any Senior Collateral Management Fees that the
Collateral Manager has agreed to waive permanently in accordance with
the Collateral Management Agreement); by

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(2)  (i) in the case of the Class A/B Interest Coverage Ratio, the sum of
the scheduled interest on the Class A-1 Notes, the Class A-2 Notes and
the Class B Notes payable on the Payment Date immediately following
such Measurement Date plus any Class A-1 Defaulted Interest Amount,
any Class A-2 Defaulted Interest Amount and any Class B Defaulted
Interest Amount payable on the Payment Date immediately following such
Measurement Date plus the Class A-1AR Commitment Fee payable on the
Payment Date immediately following such Measurement Date; (ii) in the
case of the Class C/D/E Interest Coverage Ratio, the amount determined
by the foregoing clause (i) plus the scheduled interest on the Class C
Notes, the Class D Notes and the Class E Notes payable on the Payment
Date immediately following such Measurement Date (including interest
on the Class C Capitalized Interest, the Class D Capitalized Interest
and the Class E Capitalized Interest) plus, without duplication, any
Class C Defaulted Interest Amount, Class D Defaulted Interest Amount
and Class E Defaulted Interest Amount payable on the Payment Date
immediately following such Measurement Date; or (iii) in the case of
the Class F/G/H Interest Coverage Ratio, the amount determined by the
foregoing clause (ii) plus the scheduled interest on the Class F
Notes, the Class G Notes and the Class H Notes payable on the Payment
Date immediately following such Measurement Date (including interest
on the Class F Capitalized Interest, the Class G Capitalized Interest
and the Class H Capitalized Interest) plus, without duplication, any
Class F Defaulted Interest Amount, Class G Defaulted Interest Amount
and Class H Defaulted Interest Amount payable on the Payment Date
immediately following such Measurement Date.

"Interest Coverage Test": Each of the Class A/B Interest Coverage
Test, the Class C/D/E Interest Coverage Test and the Class F/G/H Interest
Coverage Test.

"Interest Distribution Amount": Each of the Class A-1A Interest
Distribution Amount, Class A-1AR Interest Distribution Amount, Class A-2
Interest Distribution Amount, Class B Interest Distribution Amount, Class C
Interest Distribution Amount, Class D Interest Distribution Amount, Class E
Interest Distribution Amount, Class F Interest Distribution Amount, Class G
Interest Distribution Amount and Class H Interest Distribution Amount.

"Interest Only Security": Any security that by its terms provides for
periodic payments of interest on a notional amount and does not provide for the
repayment of a principal amount.

"Interest Proceeds": With respect to any Payment Date, (A) the sum
(without duplication) of (1) all Cash payments of interest (including any
deferred interest and any amount representing the accreted portion of a discount
from the face amount of an Eligible Investment) or dividends and other
distributions (but excluding distributions on Preferred Equity Securities
attributable to the return of capital by their governing documents) received
during the related Due Period on all Collateral Debt Securities other than
Defaulted Securities) (net of the Servicing Fee and other amounts payable in
accordance with the Servicing Agreement) and

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Eligible Investments, including, in the Collateral Manager's commercially
reasonable discretion (exercised as of the trade date), the accrued interest
received in connection with a sale of such Collateral Debt Securities or
Eligible Investments (to the extent such accrued interest was not applied to the
purchase of Substitute Collateral Debt Securities), in each case, excluding any
accrued interest included in Principal Proceeds pursuant to clause (A)(4), (5)
or (7) of the definition of Principal Proceeds, (2) all make whole premiums,
yield maintenance or any interest amount paid in excess of the stated interest
amount of a Collateral Debt Security received during the related Due Period, (3)
all amendment and waiver fees, late payment fees, commitment fees, exit fees,
extension fees and other fees and commissions received by the Issuer during such
Due Period in connection with such Collateral Debt Securities and Eligible
Investments (other than, in each such case, fees and commissions received in
connection with the restructuring of a Defaulted Security or default of
Collateral Debt Securities and Eligible Investments), (4) all payments pursuant
to any Hedge Agreement for the Payment Date immediately following such Due
Period (excluding any amounts payable to the Issuer upon a termination under any
Hedge Agreement during such Due Period), (5) funds in the Unused Proceeds
Account designated as Interest Proceeds by the Collateral Manager pursuant to
Section 10.4(c), (6) funds in the Expense Account designated as Interest
Proceeds by the Collateral Manager pursuant to Section 10.7(a), (7) funds
remaining on deposit in the Expense Account upon redemption of the Notes in
whole, pursuant to Section 10.7(a), (8) except for distributions on Preferred
Equity Securities attributable to the return of capital by their governing
documents and other than as specified in item (1) above, all proceeds received
in respect of equity features, if any, of the Collateral Debt Securities, (9)
Interest Advances, if any, advanced by the Advancing Agent or the Backup
Advancing Agent, with respect to such Payment Date, (10) all payments of
principal on Eligible Investments purchased with proceeds of items (A)(1), (2)
and (3) of this definition, (11) all amounts to be transferred by the Trustee
from each Defeased Collateral Account to the Interest Collection Account in
respect of such Payment Date as directed by the Issuer (or the Collateral
Manager on the Issuer's behalf), (12) any excess proceeds received in respect of
a Collateral Debt Security after required fixed payments are made on the other
classes of securities senior to such Collateral Debt Security to the extent such
proceeds are designated "Interest Proceeds" by the Collateral Manager in its
sole discretion with notice to the Trustee on or before the related
Determination Date and (13) on any Payment Date, all or a portion of the
amounts, as determined by the Collateral Manager in its sole discretion, then on
deposit in the Interest Reserve Account; provided that Interest Proceeds will in
no event include any payment or proceeds specifically defined as "Principal
Proceeds" in the definition thereof, minus (B) (x) the aggregate amount of any
Nonrecoverable Interest Advances that were previously reimbursed to the
Advancing Agent or the Backup Advancing Agent, and the aggregate amount of any
Nonrecoverable Cure Advances reimbursed to the Collateral Manager during the
related Due Period from Interest Proceeds and (y) the aggregate amount of any
Hedge Payment Amounts that were previously paid to the applicable Hedge
Counterparty from Interest Proceeds during the related Due Period as a result of
the early termination of the related Asset Specific Hedge from any call,
redemption and prepayment premiums in accordance with clause (e) of the
definition of Asset Specific Hedge.

"Interest Rate Swap Agreement": An interest rate swap agreement,
including any related ISDA Master Agreement and confirmations, for purposes of
managing the Issuer's interest rate exposure related to the variable rate of
interest applicable to the Notes.

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"Interest Reserve Account": The trust account established pursuant to
Section 10.5 hereof.

"Interest Shortfall": The meaning set forth in Section 10.9(a) hereof.

"Investment Company Act": The United States Investment Company Act of
1940, as amended.

"Irish Paying Agent": J&E Davy, or any successor Irish Paying Agent
under the Irish Paying Agent Agreement.

"Irish Paying Agent Agreement": The agreement between the Issuer and
J&E Davy that will be entered into in the event that the listing of the Notes on
the Irish Stock Exchange is obtained.

"Irish Stock Exchange": The Irish Stock Exchange Limited.

"ISDA": The International Swaps and Derivatives Association, Inc.

"ISDA Credit Support Annex": The credit support annex to the ISDA
Master Agreement.

"ISDA Master Agreement": The 1992 ISDA Master Agreement
(Multicurrency--Cross Border).

"Issuer": Arbor Realty Mortgage Securities Series 2006-1, Ltd., an
exempted company incorporated with limited liability under the laws of the
Cayman Islands, until a successor Person shall have become the Issuer pursuant
to the applicable provisions of this Indenture, and thereafter "Issuer" shall
mean such successor Person.

"Issuer Order" and "Issuer Request": A written order or request (which
may be in the form of a standing order or request) dated and signed in the name
of the Issuer (and the Co-Issuer, if applicable) by an Authorized Officer of the
Issuer (and by an Authorized Officer of the Co-Issuer, if applicable), or by an
Authorized Officer of the Collateral Manager.

"Issuer's Loan": The meaning specified in the definition of Future
Advance Loan.

"LIBOR": The meaning set forth in Schedule J attached hereto.

"LIBOR Determination Date": The meaning set forth in Schedule J
attached hereto.

"Liquidity Facility": A liquidity loan agreement, credit facility
and/or purchase agreement providing for the several commitments of the Liquidity
Providers party thereto in the aggregate to make loans to, or acquire interests
in the assets of, a Holder of Class A-1AR Notes in an aggregate principal amount
at any one time outstanding at least equal to the Class A-1AR Commitment of such
Holder.

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"Liquidity Provider": A bank or other institution or entity that a
Holder of a Class A-1AR Note (or prospective transferee) is entitled under a
Liquidity Facility to borrow from, or sell an interest in assets to.

"List": The meaning specified in Section 12.4(a)(ii) hereof.

"Listed Bidders": The meaning specified in Section 12.4(a)(ii) hereof.

"LLC Managers": The managers of the Co-Issuer duly appointed by the
sole member of the Co-Issuer (or, if there is only one manager of the Co-Issuer
so duly appointed, such sole manager).

"Loan": Any U.S. Dollar-denominated interest in a senior secured or
senior unsecured or senior or junior subordinated loan (including, without
limitation, a mortgage loan, a Whole Loan, an ARD Loan, a Delayed Draw Term
Loan, or a B Note (or other interest in a split loan structure)) or any
Participation interest therein, or any Mezzanine Loan, Single Asset Mortgage
Security, Single Borrower Mortgage Security or Rake Bond.

"London Banking Day": The meaning set forth in Schedule J attached
hereto.

"Majority": With respect to:

(i) any Class of Notes, the Holders of more than 50% of the Aggregate
Outstanding Amount of the Notes of such Class; and

(ii) the Preferred Shares, the Preferred Shareholders representing
more than 50% of the aggregate Notional Amount of the outstanding Preferred
Shares, which are issued and have not been redeemed.

"Mandatory Class A-1AR Draw Date": The earliest to occur of the
following: (i) the last day of the Reinvestment Period; (ii) the occurrence of
an Event of Default described in Section 5.1(f) or 5.1(g); and (iii) the date on
which the Notes are accelerated following any other Event of Default.

"Mandatory Redemption": The meaning specified in Section 9.6 hereof.

"Margin Stock": As defined under Regulation U issued by the Board of
Governors of the Federal Reserve System.

"Market Value": With respect to any date of determination and any
Collateral Debt Security or Eligible Investment, an amount equal to (i) the
median of the bona fide bids for such Collateral Debt Security obtained by the
Collateral Manager at such time from any three nationally recognized dealers,
which dealers are Independent from one another and from the Collateral Manager,
(ii) if the Collateral Manager is in good faith unable to obtain bids from three
such dealers, the lesser of the bona fide bids for such Collateral Debt Security
obtained by the Collateral Manager at such time from any two nationally
recognized dealers chosen by the Collateral Manager, which dealers are
Independent from each other and the Collateral Manager, or (iii) if the
Collateral Manager is in good faith unable to obtain bids from two such dealers,
the

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bona fide bid for such Collateral Debt Security obtained by the Collateral
Manager at such time from any nationally recognized dealer chosen by the
Collateral Manager, which dealer is Independent from the Collateral Manager.

"Market Value Collateralized Debt Obligation": Any collateralized debt
obligation that is valued on the basis of the market value of the underlying
debt obligations rather than the cash flow related to the underlying debt
obligations.

"Maturity": With respect to any Note, the date on which the unpaid
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity or by declaration of acceleration or otherwise.

"Maximum Class A-1AR Commitment": The maximum aggregate Class A-1AR
Commitments, which shall equal $100,000,000 on the Closing Date, as such amount
may be decreased as a result of Mandatory Redemptions, Special Amortizations or
redemptions in connection with Rating Confirmation Failures as described in
Section 18.1(e).

"MBIA": MBIA Insurance Corporation or any successor or assignee
thereto.

"Measurement Date": Any of the following: (i) the Closing Date, (ii)
the date of acquisition or disposition of any Collateral Debt Security, (iii)
any date on which any Collateral Debt Security becomes a Defaulted Security,
(iv) each Determination Date, (v) the last Business Day of each calendar month
(other than any calendar month in which a Determination Date occurs) and (vi)
with reasonable notice to the Issuer and the Trustee, any other Business Day
that any Rating Agency or the Holders of at least 66-2/3% of the Aggregate
Outstanding Amount of any Class of Notes requests be a "Measurement Date";
provided that, if any such date would otherwise fall on a day that is not a
Business Day, the relevant Measurement Date will be the immediately preceding
Business Day.

"Mezzanine Loan": A Loan secured by one or more direct or indirect
ownership interests in a company, partnership or other entity owning, operating
or controlling, directly or through subsidiaries or affiliates, one or more
commercial properties, including a participation interest therein.

"Minimum Class A-1AR Commitment": As of any date, the excess, if any,
of (i) the Total Unfunded Delayed Funding Amount over (ii) the amount then on
deposit in the Delayed Funding Obligations Account.

"Minimum Ramp-Up Amount": An amount equal to $600,000,000.

"Minimum Weighted Average Coupon Test": A test that will be satisfied
on any Measurement Date if each of the Moody's Minimum Weighted Average Coupon
Test, the S&P Minimum Weighted Average Coupon Test and the Fitch Minimum
Weighted Average Coupon Test is satisfied as of such Measurement Date.

"Minimum Weighted Average Spread Test": A test that will be satisfied
as of any Measurement Date if each of the Moody's Minimum Weighted Average
Spread Test, the S&P

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Minimum Weighted Average Spread Test and the Fitch Minimum Weighted Average
Spread Test is satisfied as of such Measurement Date.

"Minnesota Collateral": The meaning specified in Section 3.3(a)(v)
hereof.

"Money": The meaning specified in Section 1-201(24) of the UCC.

"Monthly Report": The meaning specified in Section 10.11(c) hereof.

"Moody's": Moody's Investors Service, Inc., and its successors in
interest.

"Moody's Assigned Rating": A rating determined in accordance with the
definition of "Moody's Rating" other than the Moody's Estimated Rating.

"Moody's Estimated Rating": The estimated rating for a Collateral Debt
Security determined by the Collateral Manager in accordance with clause (v) of
the definition of "Moody's Rating,"

"Moody's Fixed Rate Excess": As of any Measurement Date, a fraction
(expressed as a percentage) the numerator of which is equal to the product of
(a) the greater of zero and the excess, if any, of the Weighted Average Coupon
over the percentage set forth in the Weighted Average Coupon row in the
applicable column of the Moody's Matrix (which percentage, for the avoidance of
doubt, will vary depending on the then-current levels of the other variables
included in the Moody's Matrix) and (b) the Aggregate Principal Balance of all
Collateral Debt Securities that are Fixed Rate Securities (excluding all
Defaulted Securities and Written Down Securities) and the denominator of which
is the Aggregate Principal Balance of all Collateral Debt Securities that are
Floating Rate Securities (excluding all Defaulted Securities and Written Down
Securities), multiplying the resulting figure by 360 and then dividing by 365.
As used in this definition, "applicable column" means the column corresponding
to the numbered scenario in the Moody's Matrix, the use of the applicable
numbers or percentages set forth in which would result in satisfaction of the
related Collateral Quality Tests.

"Moody's Matrix": The matrix set forth in Schedule A attached hereto.

"Moody's Maximum Tranched Rating Factor Test": A test that will be
satisfied on any Measurement Date if the Weighted Average Moody's Rating Factor
does not exceed the number set forth in the Weighted Average Moody's Rating
Factor row in the applicable column of the Moody's Matrix (which number, for the
avoidance of doubt, will vary depending on the then-current levels of the other
variables included in the Moody's Matrix). As used in this definition,
"applicable column" means the column corresponding to the numbered scenario in
the Moody's Matrix, the use of the applicable numbers or percentages set forth
in which would result in satisfaction of the related Collateral Quality Tests.

"Moody's Minimum Weighted Average Coupon Test": A test that will be
satisfied on any Measurement Date if the Weighted Average Coupon plus the
Moody's Spread Excess, if any, is greater than or equal to 7%.

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"Moody's Minimum Weighted Average Spread Test": A test that will be
satisfied as of any Measurement Date if the Weighted Average Spread plus the
Moody's Fixed Rate Excess, if any, is greater than or equal to the number set
forth in the Weighted Average Spread row in the applicable column of the Moody's
Matrix (which number, for the avoidance of doubt, will vary depending on the
then-current levels of the other variables included in the Moody's Matrix). As
used in this definition, "applicable column" means the column corresponding to
the numbered scenario in the Moody's Matrix, the use of the applicable numbers
or percentages set forth in which would result in satisfaction of the related
Collateral Quality Tests.

"Moody's Post-Acquisition Compliance Test": With respect to any
Substitute Collateral Debt Security which did not have a Moody's Assigned Rating
at the time it was acquired by the Issuer, the test that is satisfied if (a) the
Moody's Assigned Rating subsequently determined for such Substitute Collateral
Debt Security is equal to or higher than its Moody's Estimated Rating, (b) as of
the date such Substitute Collateral Debt Security was acquired by the Issuer,
the Moody's Maximum Tranched Rating Factor Test would have been satisfied using
the Moody's Assigned Rating subsequently determined for such Substitute
Collateral Debt Security, or, if such test was not satisfied immediately prior
to such acquisition, the extent of compliance with such test would have been
maintained or improved, or (c) the Moody's Maximum Tranched Rating Factor Test
is satisfied.

"Moody's Post-Acquisition Failure": The meaning specified in Section
12.2(c) hereof.

"Moody's Rating": Of any Collateral Debt Security will be determined
as follows:

(i) (x) if such Collateral Debt Security is publicly rated by
Moody's, the Moody's Rating will be such rating, or, (y) if such
Collateral Debt Security is not publicly rated by Moody's, but the
Issuer has requested that Moody's assign a rating to such Collateral
Debt Security, the Moody's Rating will be the rating so assigned by
Moody's;

(ii) with respect to a CMBS Security or REIT Debt Security, if
such CMBS Security or REIT Debt Security is not rated by Moody's, then
the Moody's Rating of such CMBS Security or REIT Debt Security may be
determined using any one of the methods below:

(A) with respect to any REIT Debt Security not publicly
rated by Moody's that is a REIT Debt Securities--Diversified;
REIT Debt Securities--Health Care; REIT Debt Securities--Hotel;
REIT Debt Securities--Industrial; REIT Debt
Securities--Multi-Family; REIT Debt Securities--Office; REIT Debt
Securities--Residential; REIT Debt Securities--Retail; or REIT
Debt Securities--Storage, if such REIT Debt Security is publicly
rated by S&P, then the Moody's Rating thereof will be (1) one
subcategory below the Moody's equivalent rating assigned by S&P
if the rating assigned by S&P is "BBB" or greater and (2) two
rating

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subcategories below the Moody's equivalent rating assigned by S&P
if the rating assigned by S&P is below "BBB-";

(B) with respect to any CMBS Conduit Security not publicly
rated by Moody's, (x) if Moody's has rated a tranche or class of
CMBS Conduit Security senior to the relevant issue, then the
Moody's Rating thereof will be one and one-half rating
subcategories below the Moody's equivalent of the lower of the
rating assigned by S&P and Fitch for purposes of determining the
Moody's Rating Factor and one rating subcategory below the
Moody's equivalent of the lower rating assigned by S&P and Fitch
for all other purposes and (y) if Moody's has not rated any such
tranche or class and S&P and Fitch have rated the subject CMBS
Conduit Security, then the Moody's Rating thereof will be two
rating subcategories below the Moody's equivalent of the lower of
the rating assigned by S&P and Fitch;

(C) with respect to any CMBS Large Loan Security not rated
by Moody's, the Issuer (or the Collateral Manager on behalf of
the Issuer)will request Moody's to assign a rating to such CMBS
Large Loan Security on a case-by-case basis; and

(D) with respect to any other type of CMBS Security or REIT
Debt Securities of a Specified Type not referred to in clauses
(A) through (C) above, will be determined pursuant to subclause
(y) of clause (i) above;

(iii) with respect to corporate guarantees on REIT Debt
Securities, if such corporate guarantees are not publicly rated by
Moody's but another security or obligation of the guarantor or obligor
(an "other security") is publicly rated by Moody's, and no rating has
been assigned in accordance with clause (i) above, the Moody's Rating
of such Collateral Debt Security will be determined as follows:

(A) if the corporate guarantee is a senior secured obligation of
the guarantor or obligor and the other security is also a senior
secured obligation, the Moody's Rating of such Collateral Debt
Security will be the rating of the other security;

(B) if the corporate guarantee is a senior unsecured obligation
of the guarantor or obligor and the other security is a senior secured
obligation, the Moody's Rating of such Collateral Debt Security will
be one rating subcategory below the rating of the other security;

(C) if the corporate guarantee is a subordinated obligation of
the guarantor or obligor and the other security is a senior secured
obligation that is: (1) rated "Ba3" or higher by Moody's, the Moody's
Rating of such corporate guarantee will be three rating subcategories
below the rating of the other security; or (2) rated "B1" or lower by

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Moody's, the Moody's Rating of such corporate guarantee will be two
rating subcategories below the rating of the other security;

(D) if the corporate guarantee is a senior secured obligation of
the guarantor or obligor and the other security is a senior unsecured
obligation that is: (1) rated "Baa3" or higher by Moody's, the Moody's
Rating of such corporate guarantee will be the rating of the other
security; or (2) rated "Ba1" or lower by Moody's, the Moody's Rating
of such corporate guarantee will be one rating subcategory above the
rating of the other security;

(E) if the corporate guarantee is a senior unsecured obligation
of the guarantor or obligor and the other security is also a senior
unsecured obligation, the Moody's Rating of such corporate guarantee
will be the rating of the other security;

(F) if the corporate guarantee is a subordinated obligation of
the guarantor or obligor and the other security is a senior unsecured
obligation that is: (1) rated "B1" or higher by Moody's, the Moody's
Rating of such corporate guarantee will be two rating subcategories
below the rating of the other security; or (2) rated "B2" or lower by
Moody's, the Moody's Rating of such corporate guarantee will be one
rating subcategory below the rating of the other security;

(G) if the corporate guarantee is a senior secured obligation of
the guarantor or obligor and the other security is a subordinated
obligation that is: (1) rated "Baa3" or higher by Moody's, the Moody's
Rating of such corporate guarantee will be one rating subcategory
above the rating of the other security; (2) rated below "Baa3" but not
rated "B3" by Moody's, the Moody's Rating of such corporate guarantee
will be two rating subcategories above the rating of the other
security; or (3) rated "B3" by Moody's, the Moody's Rating of such
corporate guarantee will be "B2";

(H) if the corporate guarantee is a senior unsecured obligation
of the guarantor or obligor and the other security is a subordinated
obligation that is: (1) rated "Baa3" or higher by Moody's, the Moody's
Rating of such corporate guarantee will be one rating subcategory
above the rating of the other security; or (2) rated "Ba1" or lower by
Moody's, the Moody's Rating of such corporate guarantee will also be
one rating subcategory above the rating of the other security; and

(I) if the REIT Debt Security is a subordinated obligation of the
guarantor or obligor and the other security is also a subordinated
obligation, the Moody's Rating of such corporate guarantee will be the
rating of the other security;

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(iv) if such Collateral Debt Security is a Mezzanine Loan or a
CRE CDO Security, no notching is permitted and the Moody's Rating will
be the rating so assigned by Moody's; or

(v) to the extent permitted under Section 12.2, with respect to
any Loan acquired during the Reinvestment Period, until a rating is
determined in accordance with clauses (i) through (iv) above, the
Moody's Rating will be the rating determined by the Collateral Manager
based on its estimate of the rating that would be assigned by Moody's;

provided that (x) the rating of either S&P or Fitch used to determine the
Moody's Rating pursuant to any of clauses (ii) or (iii) above will be (a) a
public rating that addresses the obligation of the obligor (or guarantor, where
applicable) to pay principal of and interest on the relevant Collateral Debt
Security in full and is monitored on an ongoing basis by the relevant Rating
Agency or (b) if no such public rating is available, a rating determined
pursuant to a method determined by Moody's on a case-by-case basis and (y) the
Aggregate Principal Balance of Collateral Debt Securities the Moody's Rating of
which is based on an S&P rating or a Fitch rating may not exceed 20% of the
Aggregate Principal Balance of all Collateral Debt Securities; provided,
further, that the Moody's Rating of any Collateral Debt Security will be reduced
one subcategory to the extent it is on credit watch with negative implications
and increased one subcategory to the extent it is on credit watch with positive
implications.

"Moody's Rating Factor": Relating to any Collateral Debt Security, the
number set forth in the table below opposite the Moody's Rating of such
Collateral Debt Security:

MOODY'S RATING   MOODY'S RATING FACTOR   MOODY'S RATING   MOODY'S RATING FACTOR
--------------   ---------------------   --------------   ---------------------

Aaa                   1                      Ba1               940
Aa1                  10                      Ba2             1,350
Aa2                  20                      Ba3             1,766
Aa3                  40                       B1             2,220
A1                   70                       B2             2,720
A2                  120                       B3             3,490
A3                  180                     Caa1             4,770
Baa1                 260                     Caa2             6,500
Baa2                 360                     Caa3             8,070
Baa3                 610              Ca or lower            10,000

"Moody's Recovery Rate": With respect to any Collateral Debt Security
on any Measurement Date, an amount equal to (A) if the Specified Type of
Collateral Debt Security is included in the table attached as Schedule B (the
Moody's Recovery Rate Assumptions) hereto, the percentage for such Collateral
Debt Security set forth in Schedule B (the Moody's Recovery Rate Assumptions)
attached hereto in (x) the table corresponding to the relevant Specified Type of
Collateral Debt Security, (y) the column in such table setting forth the Moody's
Rating of such Collateral Debt Security on such Measurement Date and (z) the row
in such table opposite the percentage of the issue of which such Collateral Debt
Security is a part relative to the total

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capitalization of (including both debt and equity securities issued by) the
relevant issuer of or obligor on such Collateral Debt Security determined on the
date on which such Collateral Debt Security was originally issued or (B) if the
Specified Type of Collateral Debt Security is not included in the table attached
as Schedule B (the Moody's Recovery Rate Assumptions) hereto, the Recovery Rate
set forth following such table with respect to the applicable Specified Type.

"Moody's Recovery Rate Test": A test that will be satisfied as of any
Measurement Date, if the Moody's Weighted Average Recovery Rate is greater than
or equal to the number set forth in the Moody's Weighted Average Recovery Rate
row in the applicable column of the Moody's Matrix (which number, for the
avoidance of doubt, will vary depending on the then current levels of the other
variables included in the Moody's Matrix). As used in this definition,
"applicable column" means the column corresponding to the numbered scenario in
the Moody's Matrix, the use of the applicable numbers or percentages set forth
in which would result in satisfaction of the related Collateral Quality Tests.

"Moody's Special Amortization Pro Rata Condition": A condition that
will be satisfied with respect to any Payment Date if either (i)(a) the
Aggregate Principal Balance of the Collateral Debt Securities as of the related
Determination Date is greater than an amount equal to 50% of the Aggregate
Principal Balance of the Collateral Debt Securities on the Effective Date and
(b) the Collateral Quality Tests (other than the Minimum Weighted Average Coupon
Test, the Minimum Weighted Average Spread Test and the S&P CDO Monitor Test) are
satisfied as of the related Determination Date or (ii) the Rating Agency
Condition has been satisfied with respect to Moody's and, so long as MBIA is
deemed to be the Controlling Class hereunder, MBIA consents.

"Moody's Spread Excess": As of any Measurement Date, a fraction
(expressed as a percentage), the numerator of which is equal to the product of
(a) the greater of zero and the excess, if any, of the Weighted Average Spread
over the percentage set forth in the Weighted Average Spread row in the
applicable column of the Moody's Matrix (which percentage, for the avoidance of
doubt, will vary depending on the then-current levels of the other variables
included in the Moody's Matrix) and (b) the Aggregate Principal Balance of all
Collateral Debt Securities that are Floating Rate Securities (excluding all
Defaulted Securities and Written Down Securities) and the denominator of which
is the Aggregate Principal Balance of all Collateral Debt Securities that are
Fixed Rate Securities (excluding all Defaulted Securities and Written Down
Securities), multiplying the resulting figure by 365 and then dividing by 360.
As used in this definition, "applicable column" means the column corresponding
to the numbered scenario in the Moody's Matrix, the use of the applicable
numbers or percentages set forth in which would result in satisfaction of the
related Collateral Quality Tests.

"Moody's Weighted Average Extended Maturity Test": A test that will be
satisfied on any Measurement Date if the Extended Weighted Average Maturity of
the Collateral Debt Securities as of such Measurement Date is (i) from the
Closing Date through and including January 26, 2011, 6.0 years or less or (ii)
thereafter, 5.0 years or less.

"Moody's Weighted Average Recovery Rate": The number obtained as of
any Measurement Date by summing the products obtained by multiplying the
Principal Balance of each Collateral Debt Security (other than a Defaulted
Security) by its Moody's Recovery Rate,

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dividing such sum by the aggregate Principal Balance of all such Collateral Debt
Securities and rounding up to the first decimal place.

"Net Outstanding Portfolio Balance": On any Measurement Date, the sum
(without duplication) of:

(i) the Aggregate Principal Balance on such Measurement Date of
the Collateral Debt Securities (other than Defaulted Securities);

(ii) the Aggregate Principal Balance of all Principal Proceeds
held as Cash and Eligible Investments, all Cash and Eligible
Investments held in the Unused Proceeds Account that have not been
designated as Interest Proceeds by the Collateral Manager with respect
to the Effective Date and all Cash and Eligible Investments held in
the Delayed Funding Obligations Account; and

(iii) with respect to each Defaulted Security, the Calculation
Amount of such Defaulted Security;

provided, however, for purposes of any Par Value Test, any deferred or
capitalized interest component of a Partially Deferred Loan shall be excluded
from such calculation.

"Non-Advancing Collateral Debt Security": Any Collateral Debt
Security, other than a CMBS Security, a CRE CDO Security or a REIT Debt
Security, with respect to which no servicer or other party is required under the
terms of the Underlying Instruments governing such Collateral Debt Security to
make any liquidity advances to ensure the timely receipt of interest by and for
the benefit of the holder of such Collateral Debt Security.

"Non-call Period": The period from the Closing Date to and including
the Business Day immediately preceding the Payment Date in January 2010 during
which the Issuer is not permitted to exercise an Optional Redemption as
described in Section 9.1(c) hereof.

"Non-Core Property Type": Each of Land and Other Properties.

"Non-Permitted Holder": The meaning specified in Section 2.13(b)
hereof.

"Nonrecoverable Cure Advance": Any Cure Advance previously made or
proposed to be made pursuant to Section 16.3 hereof with respect to any
Collateral Debt Security, which in the judgment of the Collateral Manager,
subject to the Collateral Manager Servicing Standard and to the applicable
provisions of the Servicing Agreement, will not be ultimately recoverable from
collections from such Collateral Debt Security.

"Nonrecoverable Interest Advance": Any Interest Advance previously
made or proposed to be made pursuant to Section 10.9 hereof that the Advancing
Agent or the Backup Advancing Agent, as applicable, has determined in its sole
discretion, exercised in good faith, that the amount so advanced or proposed to
be advanced plus interest expected to accrue thereon, will not be ultimately
recoverable from subsequent payments or collections with respect to the
Collateral Debt Securities.

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"Note Liquidation Event": The meaning specified in Section 12.1(e)
hereof.

"Noteholder": The Person in whose name such Note is registered in the
Notes Register.

"Note Interest Rate": With respect to the Class A-1A Notes, the Class
A-1AR Notes, the Class A-2 Notes, the Class B Notes, the Class C Notes, the
Class D Notes, the Class E Notes, the Class F Notes, the Class G Notes and the
Class H Notes, the Class A-1A Rate, the Class A-1AR Rate, the Class A-2 Rate,
the Class B Rate, the Class C Rate, the Class D Rate, the Class E Rate, the
Class F Rate, the Class G Rate and the Class H Rate, respectively.

"Notes": The Class A-1A Notes, the Class A-1AR Notes, the Class A-2
Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E
Notes, the Class F Notes, the Class G Notes and the Class H Notes, collectively,
authorized by, and authenticated and delivered under, this Indenture or any
supplemental indenture.

"Notes Register" and "Notes Registrar": The respective meanings
specified in Section 2.5(a) hereof.

"Notes Valuation Report": The meaning specified in Section 10.11(e)
hereof.

"Notional Amount": In respect of the Preferred Shares, the per share
notional amount of $1.00. The aggregate Notional Amount of the Preferred Shares
on the Closing Date will be $52,500,000.

"Offer": With respect to any security, (i) any offer by the issuer of
such security or by any other person or entity made to all of the holders of
such security to purchase or otherwise acquire such security (other than
pursuant to any redemption in accordance with the terms of the related
Underlying Instruments) or to convert or exchange such security into or for
Cash, securities or any other type of consideration or (ii) any solicitation by
the issuer of such security or any other person or entity to amend, modify or
waive any provision of such security or any related Underlying Instrument.

"Offering Memorandum": The Offering Memorandum, dated December 12,
2006, as supplemented by the Supplement to Offering Memorandum, dated December
13, 2006, relating to the offering of the Notes.

"Officer": With respect to any corporation or limited liability
company, including the Issuer, the Co-Issuer and the Collateral Manager, any
Director, the Chairman of the Board of Directors, the President, any Senior Vice
President any Vice President, the Secretary, any Assistant Secretary, the
Treasurer, any Assistant Treasurer, General Partner of such entity; and with
respect to the Trustee, any Trust Officer.

"Officer's Certificate": With respect to the Issuer, the Co-Issuer and
the Collateral Manager, any certificate executed by an Officer thereof.

"Operating Statement Analysis Report": The year-end report prepared by
the Issuer (or the Collateral Manager on behalf of the Issuer) for each
Collateral Debt Security.

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"Opinion of Counsel": A written opinion addressed to the Trustee and
each Rating Agency in form and substance reasonably satisfactory to the Trustee,
each Rating Agency and each Hedge Counterparty of an attorney at law admitted to
practice before the highest court of any state of the United States or the
District of Columbia (or the Cayman Islands, in the case of an opinion relating
to the laws of the Cayman Islands), which attorney may, except as otherwise
expressly provided in this Indenture, be counsel for the Issuer, and which
attorney shall be reasonably satisfactory to the Trustee. Whenever an Opinion of
Counsel is required hereunder, such Opinion of Counsel may rely on opinions of
other counsel who are so admitted and so satisfactory which opinions of other
counsel shall accompany such Opinion of Counsel and shall either be addressed to
the Trustee and each Rating Agency or shall state that the Trustee and each
Rating Agency shall be entitled to rely thereon.

"Optional Redemption": The meaning specified in Section 9.1(c) hereof.

"Optional Redemption Date": Any Payment Date occurring after the end
of the Non-call Period, where the Issuer and the Co-Issuer may redeem the Notes
and the Issuer may redeem the Preferred Shares in accordance with Section 9.1(c)
hereof.

"Other Loan": The meaning specified in the definition of Future
Advance Loan.

"Outstanding": With respect to the Notes, as of any date of
determination, all of the Notes or any Class of Notes, as the case may be,
theretofore authenticated and delivered under this Indenture except:

(i) Notes theretofore canceled by the Notes Registrar or
delivered to the Notes Registrar for cancellation;

(ii) Notes or portions thereof for whose payment or redemption
funds in the necessary amount have been theretofore irrevocably
deposited with the Trustee or the Paying Agent in trust for the
Holders of such Notes pursuant to Section 4.1(a)(ii); provided that,
if such Notes or portions thereof are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;

(iii) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture, unless
proof satisfactory to the Trustee is presented that any such Notes are
held by a holder in due course; and

(iv) Notes alleged to have been mutilated, destroyed, lost or
stolen for which replacement Notes have been issued as provided in
Section 2.6;

provided that in determining whether the Noteholders of the requisite Aggregate
Outstanding Amount have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, (x) Notes owned by the Issuer, the
Co-Issuer or any Affiliate thereof shall be disregarded and deemed not to be
Outstanding and (y) in relation to (1) any amendment or other modification of,
or assignment or termination of, any of the express rights or obligations of the
Collateral Manager under the Collateral Management Agreement or this Indenture
(including the 

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exercise of any rights to remove the Collateral Manager or terminate the
Collateral Management Agreement or approve or object to a replacement for the
Collateral Manager except as specifically provided in the Collateral Management
Agreement with respect to the termination of the Collateral Manager without
cause and with respect to the replacement of the Collateral Manager in instances
where the Collateral Manager has not been terminated for cause or where such
replacement is not an Affiliate of the Collateral Manager) and (2) the exercise
by the Noteholders of their right, in connection with certain Events of Default,
to accelerate amounts due under the Notes, Notes owned by the Collateral Manager
or any of its Affiliates, or by any accounts managed by them, shall be
disregarded and deemed not to be Outstanding. In determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes that the Trustee knows to be so
owned shall be so disregarded. Notes so owned that have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Notes and that the pledgee is not the Issuer, the Collateral Manager or any
other obligor upon the Notes or any Affiliate of the Issuer, the Collateral
Manager or such other obligor.

"Par Value Ratio": Each of the Class A/B Par Value Ratio, the Class
C/D/E Par Value Ratio and the Class F/G/H Par Value Ratio.

"Par Value Test": Each of the Class A/B Par Value Test, the Class
C/D/E Par Value Test and the Class F/G/H Par Value Test.

"Partially Deferred Loan": A Loan which by its terms provides for the
payment of interest in two components, one of which is payable currently on each
due date under the Loan and the other of which is either deferred or capitalized
until maturity.

"Participating Institution": With respect to any participation, the
entity that holds legal title to the participated asset.

"Participation": A participation interest in all or part of a Loan
that is subordinate to other interests in such Loan or a sub-participation
interest in any such participation interest.

"Paying Agent": Any Person authorized by the Issuer and the Co-Issuer
to pay the principal of or interest on any Notes on behalf of the Issuer and the
Co-Issuer as specified in Section 7.2 hereof.

"Payment Account": The payment account of the Trustee in respect of
the Notes established pursuant to Section 10.3 hereof.

"Payment Date": With respect to each Class of Notes, April 26, 2007
and thereafter quarterly on each January 26, April 26, July 26 and October 26
(or if such day is not a Business Day, the next succeeding Business Day) to and
including the Stated Maturity related to such Class unless redeemed or repaid
prior thereto.

"Permitted Transfer": A transfer, in whole but not in part, to a party
that meets the following requirements:

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(a) the transferee is a recognized dealer in interest rate swaps
organized under the laws of the United States of America or a jurisdiction
located in the United States of America (or another jurisdiction reasonably
acceptable to the Issuer and the Trustee under this Indenture) that, at the
time of the transfer, maintains (or its proposed guarantor maintains) the
Hedge Counterparty Collateral Threshold Rating from each Rating Agency on
its unsecured and unsubordinated debt, deposit or letter of credit
obligations;

(b) each Rating Agency confirms in writing that such transfer will not
result in a reduction or withdrawal of its then current rating of any
outstanding Class of Notes under this Indenture with respect to which it
has previously issued a rating;

(c) the transferee executes and delivers a written agreement
reasonably satisfactory to the Issuer and the Trustee under this Indenture
in which the transferee, among other things, legally and effectively
accepts all the rights and assumes all the obligations under the related
swap documents; and

(d) such transfer otherwise complies with the terms of this Indenture.

"Person": An individual, corporation (including a business trust),
partnership, limited liability company, joint venture, association, joint stock
company, trust (including any beneficiary thereof), unincorporated association
or government or any agency or political subdivision thereof.

"Placement Agent": Wachovia Capital Markets, LLC, in its capacity as
the placement agent with respect to the Class A-1AR Notes.

"Pledged Collateral Debt Security": On any date of determination, any
Collateral Debt Security that has been Granted to the Trustee and not been
released from the lien of this Indenture pursuant to Section 10.12 hereof.

"Pledged Obligations": On any date of determination, any Pledged
Collateral Debt Securities and the Eligible Investments that have been Granted
to the Trustee for the benefit of the Noteholders and each Hedge Counterparty
and which form part of the Assets.

"Preferred Equity Security": A security, providing for regular
payments of dividends or other distributions, representing an equity interest in
an entity (including, without limitation, a partnership or a limited liability
company) that is a borrower under a mortgage loan secured by commercial
properties (or in an entity operating or controlling, directly or through
affiliates, such commercial properties), which is generally senior with respect
to the payments of dividends and other distributions, redemption rights and
rights upon liquidation to such entity's common equity.

"Preferred Shareholder": A registered owner of Preferred Shares as set
forth in the share register maintained by the Share Registrar.

"Preferred Shares": The preferred shares issued by the Issuer
concurrently with the issuance of the Notes.

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"Preferred Shares Distribution Account": A segregated account
established and designated as such by the Preferred Shares Paying Agent pursuant
to the Preferred Shares Paying Agency Agreement.

"Preferred Shares Distribution Amount": Any remaining Interest
Proceeds and Principal Proceeds, if any, to be released from the lien of this
Indenture and paid (upon standing order of the Issuer) to the Preferred Shares
Paying Agent for deposit into the Preferred Shares Distribution Account for
distribution to the holders of the Preferred Shares after payment by the Trustee
of all distributions which take priority pursuant to Section 11.1(a).

"Preferred Shares Paying Agency Agreement": The Preferred Shares
Paying Agency Agreement, dated as of the Closing Date, among the Issuer, the
Preferred Shares Paying Agent relating to the Preferred Shares and the Share
Registrar, as amended from time to time in accordance with the terms thereof.

"Preferred Shares Paying Agent": The Bank, solely in its capacity as
Preferred Shares Paying Agent under the Preferred Shares Paying Agency Agreement
and not individually, unless a successor Person shall have become the Preferred
Shares Paying Agent pursuant to the applicable provisions of the Preferred
Shares Paying Agency Agreement, and thereafter Preferred Shares Paying Agent
shall mean such successor Person.

"Principal Balance" or "par": With respect to any Collateral Debt
Security or Eligible Investment, as of any date of determination, the
outstanding principal amount of such Collateral Debt Security or Eligible
Investment; provided that:

(i) the Principal Balance of a Collateral Debt Security received
upon acceptance of an Offer for another Collateral Debt Security,
which Offer expressly states that failure to accept such Offer may
result in a default under the Underlying Instruments, will be deemed
to be the Calculation Amount of such other Collateral Debt Security
until such time as Interest Proceeds and Principal Proceeds, as
applicable, are received when due with respect to such other
Collateral Debt Security;

(ii) the Principal Balance of any Eligible Investment that does
not pay Cash interest on a current basis will be the accreted value
thereof;

(iii) the Principal Balance of any Preferred Equity Security will
be equal to the component of the liquidation price thereof that is
attributable to the return of capital by its governing documents;

(iv) the Principal Balance of any Written Down Security will
exclude any portion of the principal balance of such security that (a)
has been written down as a result of a "realized loss," "collateral
support deficit," "additional trust fund expense" or other event that
under the terms of such security results in a write-down of principal
balance or (b) would be affected by an appraisal reduction; and

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(v) the Principal Balance of any Partially Deferred Loan will
exclude the portion of the principal amount thereof attributable to
deferred or capitalized interest;

provided that, for purposes of determining compliance with each of the
separate tests included within the Collateral Quality Tests, the Moody's
Post-Acquisition Compliance Test and the S&P Post-Acquisition Compliance Test,
the Principal Balance of a Delayed Draw Term Loan also will be deemed to include
the unfunded portion of such Delayed Draw Term Loan.

"Principal Collection Account": The trust account established pursuant
to Section 10.2(a) hereof.

"Principal Only Security": Any security (other than a Step-Up
Security) that does not provide for payment of interest or provides that all
payments of interest will be deferred until the final maturity thereof.

"Principal Proceeds": With respect to any Payment Date, (A) the sum
(without duplication) of (1) all principal payments (including prepayments and
Unscheduled Principal Payments) received during the related Due Period
(excluding those previously reinvested or designated by the Collateral Manager
for reinvestment in Collateral Debt Securities) on (a) Eligible Investments
(other than Eligible Investments purchased with Interest Proceeds, Eligible
Investments in the Expense Account, Eligible Investments in the Interest Reserve
Account, Eligible Investments in the Unused Proceeds Account designated as
Interest Proceeds by the Collateral Manager with respect to the Effective Date
and Eligible Investments in the Delayed Funding Obligations Account and any
amount representing the accreted portion of a discount from the face amount of
an Eligible Investment) and (b) Collateral Debt Securities as a result of (i) a
maturity, scheduled amortization, mandatory prepayment or mandatory sinking fund
payment on a Collateral Debt Security, (ii) optional redemptions, prepayments,
exchange offers or tender offers made at the option of the issuer thereof, (iii)
recoveries on Defaulted Securities or (iv) any other principal payments with
respect to Collateral Debt Securities (not included in Sale Proceeds), (2) all
distributions on Preferred Equity Securities attributable to the return of
capital by their governing documents, (3) all fees and commissions received
during such Due Period in connection with Defaulted Securities and Eligible
Investments and the restructuring or default of such Defaulted Securities and
Eligible Investments, (4) any interest received during such Due Period on such
Collateral Debt Securities or Eligible Investments to the extent such interest
constitutes proceeds from accrued interest purchased with Principal Proceeds
other than accrued interest purchased by the Issuer on or prior to the Closing
Date and interest included in clause (A)(1) of the definition of Interest
Proceeds, (5) Sale Proceeds received during such Due Period in respect of sales
(excluding those previously reinvested or currently being reinvested in
Collateral Debt Securities in accordance with the Transaction Documents and
excluding accrued interest included in Sale Proceeds (unless such accrued
interest was purchased with Principal Proceeds) that are designated by the
Collateral Manager as Interest Proceeds in accordance with clause (A)(1) of the
definition of Interest Proceeds), (6) all Cash payments of interest or dividends
received during such Due Period on Defaulted Securities, (7) any interest
received during such Due Period on a Written Down Security to the extent such
interest constitutes accrued interest on the excess of the principal amount of
such Written Down Security over the 

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Principal Balance of such Written Down Security, (8) any proceeds resulting from
(a) the termination (in whole or in part) of any Hedge Agreement during such Due
Period to the extent such proceeds are received from the related Hedge
Counterparty and, to the extent such proceeds exceed the cost of entering into a
replacement Hedge Agreement in accordance with the requirements set forth in
Section 16.1(a) hereof, (b) payments received from a replacement Hedge
Counterparty to the extent such proceeds exceed the amount owed to a previous
Hedge Counterparty in connection with the termination of the related Hedge
Agreement and (c) all amounts transferred from each Hedge Termination Account
pursuant to Section 16.1(g) hereof, (9) during the Reinvestment Period, the
Special Amortization Amount, if any, (10) on the first Payment Date following
the Effective Date, if a Rating Confirmation Failure has not occurred, funds in
the Unused Proceeds Account to the extent the Collateral Manager has not
designated such amounts as Interest Proceeds pursuant to Section 10.4(c) hereof,
(11) funds transferred to the Principal Collection Account from the Delayed
Funding Obligations Account in respect of amounts previously held on deposit in
respect of unfunded commitments for Delayed Draw Term Loans that have been sold
or otherwise disposed of before such commitments thereunder have been drawn or
as to which excess funds remain, (12) any Class A-1AR Draw Amount not previously
applied during the Due Period (including amounts received from a Holder
Subaccount upon the failure of the applicable holder of Class A-1AR Notes to
advance funds to the Issuer as required pursuant to the applicable Class A-1AR
Note Purchase Agreement), (13) all other payments received in connection with
the Collateral Debt Securities and Eligible Investments that are not included in
Interest Proceeds, (14) all amounts to be transferred by the Trustee from each
Defeased Collateral Account to the Principal Collection Account in respect of
such Payment Date as directed by the Issuer (or the Collateral Manager on the
Issuer's behalf) and (15) any excess proceeds received in respect of a
Collateral Debt Security after required fixed payments are made on the other
classes of securities senior to such Collateral Debt Security to the extent such
proceeds are designated "Principal Proceeds" by the Collateral Manager in its
sole discretion with notice to the Trustee on or before the related
Determination Date; provided that in no event will Principal Proceeds include
any proceeds from the Excepted Assets minus (B) (x) the aggregate amount of any
Nonrecoverable Interest Advances that were previously reimbursed to the
Advancing Agent or the Backup Advancing Agent, and the aggregate amount of any
Nonrecoverable Cure Advances reimbursed to the Collateral Manager during the
related Due Period from Principal Proceeds and (y) the aggregate amount of any
Hedge Payment Amounts that were previously paid to the applicable Hedge
Counterparty from Principal Proceeds during the related Due Period as a result
of the early termination of the related Asset Specific Hedge from any call,
redemption and prepayment premiums in accordance with clause (e) of the
definition of Asset Specific Hedge.

"Priority of Payments": The meaning specified in Section 11.1(a)
hereof.

"Proceeding": Any suit in equity, action at law or other judicial or
administrative proceeding.

"Property Type": Each of the following types of mortgaged property
(each of which, for the avoidance of doubt, shall be considered commercial real
estate property for purposes of this Indenture):

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(i) "Condo Conversion Properties" means properties that have
been, or are expected to be, converted to condominium form of
ownership for the purpose of re-development and sales during the term
of the Loan in whole or in part, as residential condominium apartments
or time share units;

(ii) "Diversified Properties" means properties used by businesses
for diverse purposes and other similar property interests;

(iii) "Healthcare Properties" means hospitals, clinics, sports
clubs, spas and other health care facilities and other similar real
property interests used in one or more similar businesses (but
excluding medical offices);

(iv) "Hospitality Properties" means hotels, motels, youth
hostels, bed and breakfasts and other similar real property interests
used in one or more similar businesses;

(v) "Industrial Properties" means factories, refinery plants,
breweries and other similar real property interests used in one or
more similar businesses;

(vi) "Mixed Use Properties" means real estate property used by
businesses for diverse business purposes and any similar property
interests;

(vii) "Multi-Family Properties" means multi-family dwellings such
as apartment blocks, condominiums and cooperative owned buildings;

(viii) "Retail Properties" means retail stores, restaurants,
bookstores, clothing stores and other similar real property interests
used in one or more similar businesses;

(ix) "Self-Storage Properties" means self-storage facilities and
other similar real property interests used in one or more similar
businesses;

(x) "Suburban Office Properties" means office buildings
(including medical offices), conference facilities and other similar
real property interests used in the commercial real estate business in
suburban areas;

(xi) "Urban Office Properties" means office buildings (including
medical offices), conference facilities and other similar real
property interests used in the commercial real estate business in
urban areas;

(xii) "Warehouse Properties" means warehouse facilities and other
similar real property interests;

(xiii) "Land" means undeveloped real estate intended to be
developed into single family residences or commercial, multi-family or
condominium property; and

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(xiv) "Other Properties" means any other property other than
Diversified Properties, Hospitality Properties, Industrial Properties,
Multi-Family Properties, Urban Office Properties, Suburban Office
Properties, Retail Properties, Self-Storage Properties, Healthcare
Properties, Mixed Use Properties, Warehouse Properties, Land and Condo
Conversion Properties.

"Proposal": The meaning specified in Section 7.17 hereof.

"Proposed Portfolio": The portfolio of Collateral Debt Securities and
Eligible Investments resulting from the disposition of a Collateral Debt
Security or a proposed reinvestment of Principal Proceeds in a Substitute
Collateral Debt Security, as the case may be.

"Pro Rata Special Amortization Modification": The meaning specified in
Section 12.5 hereof.

"Purchase Agreement": The purchase and placement agreement relating to
the Notes dated as of the Closing Date by and among the Issuer, the Co-Issuer
and the Dealers.

"Purchase Option Purchase Price": The meaning specified in Section
16.4 hereof.

"Purchase Price": The purchase price identified for each Collateral
Debt Security against its name in Schedule I attached hereto.

"QIB": A "qualified institutional buyer" as defined in Rule 144A.

"Qualified Letter of Credit": An unconditional, irrevocable letter of
credit issued by a domestic bank or the U.S. agency or branch of a foreign bank
with a long-term unsecured debt rating of at least "A3" by Moody's and at least
"A-" by S&P and meeting S&P's published criteria found in Section 1 of S&P's
publication entitled "U.S. CMBS Legal and Structured Finance Criteria," dated as
of May 1, 2003.

"Qualified Purchaser": A "qualified purchaser" within the meaning of
Section 2(a)(51) of the Investment Company Act.

"Qualified REIT Subsidiary": A corporation that, for U.S. federal tax
purposes, is wholly-owned by a real estate investment trust under Section
856(i)(2) of the Internal Revenue Code of 1986, as amended.

"Rake Bond": A loan-specific commercial mortgage pass-through
certificate or similar security backed by only one of the mortgage loans
included in a pooled securitization transaction, typically representing a
non-pooled component of the related mortgage loan that is subordinate to the
pooled component with respect to the right to receive distributions of
collections on such mortgage loan.

"Ramp-Up Period": The period commencing on the Closing Date and ending
on the Effective Date.

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"Rating Agency": Each of Moody's, Fitch and S&P and any successor
thereto, or, with respect to Pledged Obligations generally, if at any time
Moody's, Fitch or S&P or any such successor ceases to provide rating services
with respect to the Notes or certificates similar to the Notes, any other
nationally recognized investment rating agency selected by the Issuer and
reasonably satisfactory to each Hedge Counterparty and a Majority of the Notes
voting as a single Class.

"Rating Agency Condition": With respect to any proposed action or
matter, the receipt by the Trustee of confirmation in writing from the
applicable Rating Agencies that the then-current ratings on the Notes, as
applicable, shall not be reduced, qualified or withdrawn as a result of such
action or matter; provided, however, that, for purposes of this definition,
"Rating Agencies" shall be deemed not to include Fitch unless the proposed
action or matter relates to any amendment or modification, or any proposed
amendment or modification, to any Transaction Document, and in any such case
notification shall be made to Fitch within 30 days following such amendment or
modification.

"Rating Confirmation Failure": The meaning specified in Section
7.17(b) hereof.

"Record Date": The date on which the Holders of Notes entitled to
receive a payment in respect of principal or interest on the succeeding Payment
Date is determined, such date as to any Payment Date being the 15th day (whether
or not a Business Day) prior to the applicable Payment Date.

"Redemption Date": Any Payment Date specified for a redemption of the
Securities pursuant to Section 9.1 or 9.2 hereof.

"Redemption Date Statement": The meaning specified in Section 10.11(i)
hereof.

"Redemption Price": The Redemption Price of each Class of Notes and
the Preferred Shares will be calculated as follows:

Class A-1A Notes. The redemption price of the Class A-1A Notes will be
calculated on the related Determination Date and will be equal to the Aggregate
Outstanding Amount of the Class A-1A Notes to be redeemed, together with the
Class A-1A Interest Distribution Amount (plus any Class A-1A Defaulted Interest
Amount) due on the applicable Redemption Date;

Class A-1AR Notes. The redemption price of the Class A-1AR Notes will
be calculated on the related Determination Date and will be equal to the sum of
(i) the Aggregate Outstanding Amount of the Class A-1AR Notes to be redeemed,
together with the Class A-1AR Interest Distribution Amount (plus any Class A-1AR
Defaulted Interest Amount) due on the applicable Redemption Date, and (ii) any
accrued and unpaid Class A-1AR Commitment Fees due on the applicable Redemption
Date;

Class A-2 Notes. The redemption price of the Class A-2 Notes will be
calculated on the related Determination Date and will be equal to the Aggregate
Outstanding Amount of the Class A-2 Notes to be redeemed, together with the
Class A-2 Interest Distribution Amount (plus any Class A-2 Defaulted Interest
Amount) due on the applicable Redemption Date;

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Class B Notes. The redemption price of the Class B Notes will be
calculated on the related Determination Date and will be equal to the Aggregate
Outstanding Amount of the Class B Notes to be redeemed, together with the Class
B Interest Distribution Amount (plus any Class B Defaulted Interest Amount) due
on the applicable Redemption Date;

Class C Notes. The redemption price of the Class C Notes will be
calculated on the related Determination Date and will be equal to the Aggregate
Outstanding Amount of the Class C Notes to be redeemed, together with the Class
C Interest Distribution Amount (plus any Class C Capitalized Interest and any
Class C Defaulted Interest Amount) due on the applicable Redemption Date;

Class D Notes. The redemption price of the Class D Notes will be
calculated on the related Determination Date and will be equal to the Aggregate
Outstanding Amount of the Class D Notes to be redeemed, together with the Class
D Interest Distribution Amount (plus any Class D Capitalized Interest and any
Class D Defaulted Interest Amount) due on the applicable Redemption Date;

Class E Notes. The redemption price of the Class E Notes will be
calculated on the related Determination Date and will be equal to the Aggregate
Outstanding Amount of the Class E Notes to be redeemed, together with the Class
E Interest Distribution Amount (plus any Class E Capitalized Interest and any
Class E Defaulted Interest Amount) due on the applicable Redemption Date;

Class F Notes. The redemption price of the Class F Notes will be
calculated on the related Determination Date and will be equal to the Aggregate
Outstanding Amount of the Class F Notes to be redeemed, together with the Class
F Interest Distribution Amount (plus any Class F Capitalized Interest and any
Class F Defaulted Interest Amount) due on the applicable Redemption Date;

Class G Notes. The redemption price of the Class G Notes will be
calculated on the related Determination Date and will be equal to the Aggregate
Outstanding Amount of the Class G Notes to be redeemed, together with the Class
G Interest Distribution Amount (plus any Class G Capitalized Interest and any
Class G Defaulted Interest Amount) due on the applicable Redemption Date;

Class H Notes. The redemption price of the Class H Notes will be
calculated on the related Determination Date and will be equal to the Aggregate
Outstanding Amount of the Class H Notes to be redeemed, together with the Class
H Interest Distribution Amount (plus any Class H Capitalized Interest and any
Class H Defaulted Interest Amount) due on the applicable Redemption Date; and

Preferred Shares. The redemption price for the Preferred Shares will
be calculated on the related Determination Date and will be equal to the sum of
all net proceeds from the sale of the Collateral Debt Securities in accordance
with Article 12 hereof and Cash and proceeds from Eligible Investments (other
than the Issuer's rights, title and interest in the property described in clause
(i) of the definition of "Excepted Assets"), if any, remaining after payments of
all amounts and expenses, including payments made in respect of the Notes,

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described under clauses (1) through (23), (25), (26), (27), and (28) of Section
11.1(a)(i) and clauses (1) through (14) of Section 11.1(a)(ii); provided that,
if there are no such net proceeds, Cash or proceeds from Eligible Investments
remaining, the redemption price for the Preferred Shares shall be equal to $0.

"Reference Banks": The meaning set forth in Schedule J attached
hereto.

"Registered": With respect to any debt obligation, a debt obligation
that is issued after July 18, 1984, and that is in registered form for purposes
of the Code.

"Registered Security": The meaning specified in Section 3.3(a)(iii)
hereof.

"Regulation S": Regulation S under the Securities Act.

"Regulation S Global Security": The meaning specified in Section
2.2(b)(ii) hereof.

"Reimbursement Interest": Interest accrued on the amount of any
Interest Advance made by the Advancing Agent or the Backup Advancing Agent, for
so long as it is outstanding, at the Reimbursement Rate.

"Reimbursement Rate": A rate per annum equal to the "prime rate" as
published in the "Money Rates" section of the Wall Street Journal, as such
"prime rate" may change from time to time. If more than one "prime rate" is
published in The Wall Street Journal for a day, the average of such "prime
rates" will be used, and such average will be rounded up to the nearest one
eighth of one percent (0.125%). If the "prime rate" contained in The Wall Street
Journal is not readily ascertainable, the Collateral Manager will select an
equivalent publication that publishes such "prime rate," and if such "prime
rates" are no longer generally published or are limited, regulated or
administered by a governmental authority or quasigovernmental body, then the
Collateral Manager will select, in its reasonable discretion, a comparable
interest rate index.

"Reinvestment Criteria": The meaning specified in Section 12.2(a)
hereof.

"Reinvestment Income": Any interest or other earnings on the funds on
deposit in the Unused Proceeds Account that have not been designated as Interest
Proceeds by the Collateral Manager with respect to the Effective Date.

"Reinvestment Period": The period beginning on the Closing Date and
ending on and including the first to occur of the following events or dates: (i)
the end of the Due Period related to the Payment Date in January 2012; (ii) the
end of the Due Period related to the Payment Date immediately following the date
on which the Collateral Manager (with the written consent of Holders of the
Majority of the Preferred Shares) notifies the Trustee that, in light of the
composition of Collateral Debt Securities, general market conditions and other
factors, investments in additional Collateral Debt Securities within the
foreseeable future would be either impractical or not beneficial to the Issuer
and the Holder of the Preferred Shares; (iii) the end of the Due Period related
to the date on which all of the Securities are redeemed as described herein
under Section 9.1; and (iv) the date on which the principal of and accrued and
unpaid interest on 

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the Notes are declared immediately due and payable following the occurrence of
an Event of Default which is neither cured nor waived.

"REIT": A real estate investment trust under the Code.

"REIT Debt Securities": REIT Debt Securities--Diversified, REIT Debt
Securities--Health Care, REIT Debt Securities--Hotel, REIT Debt
Securities--Industrial, REIT Debt Securities--Mortgage, REIT Debt
Securities--Multi-Family, REIT Debt Securities--Office, REIT Debt
Securities--Retail and REIT Debt Securities--Storage.

"REIT Debt Securities--Diversified": Collateral Debt Securities issued
by a real estate investment trust (as defined in Section 856 of the Code or any
successor provision) whose assets consist (except for rights or other assets
designed to assure the servicing or timely distribution of proceeds to holders
of the Collateral Debt Securities) of mortgages on a portfolio of diverse real
property interests; provided that (a) any Collateral Debt Security falling
within this definition will be excluded from the definition of each other
Specified Type of Collateral Debt Security and (b) any Collateral Debt Security
falling within any other REIT Debt Security description set forth herein will be
excluded from this definition.

"REIT Debt Securities--Health Care": Collateral Debt Securities issued
by a real estate investment trust (as defined in Section 856 of the Code or any
successor provision) whose assets consist (except for rights or other assets
designed to assure the servicing or timely distribution of proceeds to holders
of the Collateral Debt Securities) of mortgages on hospitals, clinics, sport
clubs, spas and other health care facilities and other similar real property
interests used in one or more similar businesses; provided that any Collateral
Debt Security falling within this definition will be excluded from the
definition of each other Specified Type of Collateral Debt Security.

"REIT Debt Securities--Hotel": Collateral Debt Securities issued by a
real estate investment trust (as defined in Section 856 of the Code or any
successor provision) whose assets consist (except for rights or other assets
designed to assure the servicing or timely distribution of proceeds to holders
of the Collateral Debt Securities) of mortgages on hotels, motels, youth
hostels, bed and breakfasts and other similar real property interests used in
one or more similar businesses; provided that any Collateral Debt Security
falling within this definition will be excluded from the definition of each
other Specified Type of Collateral Debt Security.

"REIT Debt Securities--Industrial": Collateral Debt Securities issued
by a real estate investment trust (as defined in Section 856 of the Code or any
successor provision) whose assets consist (except for rights or other assets
designed to assure the servicing or timely distribution of proceeds to holders
of the Collateral Debt Securities) of mortgages on factories, refinery plants,
breweries and other similar real property interests used in one or more similar
businesses; provided that any Collateral Debt Security falling within this
definition will be excluded from the definition of each other Specified Type of
Collateral Debt Security.

"REIT Debt Securities--Mortgage": Collateral Debt Securities issued by
a real estate investment trust (as defined in Section 856 of the Code or any
successor provision) whose assets consist (except for rights or other assets
designed to assure the servicing or timely 

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distribution of proceeds to holders of the Collateral Debt Securities) of
mortgages, commercial mortgage backed securities, collateralized mortgage
obligations and other similar mortgage related securities (including Collateral
Debt Securities issued by a hybrid form of such trust that invests in both
commercial real estate and commercial mortgages); provided that any Collateral
Debt Security falling within this definition will be excluded from the
definition of each other Specified Type of Collateral Debt Security.

"REIT Debt Securities--Multi-Family": Collateral Debt Securities
issued by a real estate investment trust (as defined in Section 856 of the Code
or any successor provision) whose assets consist (except for rights or other
assets designed to assure the servicing or timely distribution of proceeds to
holders of the Collateral Debt Securities) of residential mortgages on
multi-family dwellings such as apartment blocks, condominiums and co-operative
owned buildings; provided that any Collateral Debt Security falling within this
definition will be excluded from the definition of each other Specified Type of
Collateral Debt Security.

"REIT Debt Securities--Office": Collateral Debt Securities issued by a
real estate investment trust (as defined in Section 856 of the Code or any
successor provision) whose assets consist (except for rights or other assets
designed to assure the servicing or timely distribution of proceeds to holders
of the Collateral Debt Securities) of mortgages on office buildings, conference
facilities and other similar real property interests used in the commercial real
estate business; provided that any Collateral Debt Security falling within this
definition will be excluded from the definition of each other Specified Type of
Collateral Debt Security.

"REIT Debt Securities--Retail": Collateral Debt Securities issued by a
real estate investment trust (as defined in Section 856 of the Code or any
successor provision) whose assets consist (except for rights or other assets
designed to assure the servicing or timely distribution of proceeds to holders
of the Collateral Debt Securities) of mortgages on retail stores, restaurants,
bookstores, clothing stores and other similar real property interests used in
one or more similar businesses; provided that any Collateral Debt Security
falling within this definition will be excluded from the definition of each
other Specified Type of Collateral Debt Security.

"REIT Debt Securities--Storage": Collateral Debt Securities issued by
a real estate investment trust (as defined in Section 856 of the Code or any
successor provision) whose assets consist (except for rights or other assets
designed to assure the servicing or timely distribution of proceeds to holders
of the Collateral Debt Securities) of storage facilities and other similar real
property interests used in one or more similar businesses; provided that any
Collateral Debt Security falling within this definition will be excluded from
the definition of each other Specified Type of Collateral Debt Security.

"Repurchase Price": The meaning specified in Section 16.5(c) hereof.

"Rule 144A": Rule 144A under the Securities Act.

"Rule 144A Global Security": The meaning specified in Section
2.2(b)(i) hereof.

"Rule 144A Information": The meaning specified in Section 7.13 hereof.

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"S&P": Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors in interest.

"S&P Assigned Rating": A rating determined in accordance with the
definition of "S&P Rating," other than an S&P Estimated Rating.

"S&P CDO Monitor": A dynamic, analytical computer model provided prior
to the initial Payment Date by S&P to the Collateral Manager and the Trustee,
with written instructions and assumptions to be applied when running such
computer model, for the purpose of estimating the default risk of a pool of
Collateral Debt Securities and Eligible Investments.

"S&P CDO Monitor Test": A test that will be satisfied on any
Measurement Date if, after giving effect to any purchase or sale of a Collateral
Debt Security (or both), as the case may be, (i) the Class A-1A/A-1AR Loss
Differential, the Class A-2 Loss Differential, the Class B Loss Differential,
the Class C Loss Differential, the Class D Loss Differential, the Class E Loss
Differential and the Class F Loss Differential, as the case may be, of the
Proposed Portfolio is equal to or greater than zero or (ii) the Class A-1A/A-1AR
Loss Differential, the Class A-2 Loss Differential, the Class B Loss
Differential, the Class C Loss Differential, the Class D Loss Differential, the
Class E Loss Differential and the Class F Loss Differential, as the case may be,
of the Proposed Portfolio is greater than or equal to the Class A-1A/A-1AR Loss
Differential, the Class A-2 Loss Differential, the Class B Loss Differential,
the Class C Loss Differential, the Class D Loss Differential, the Class E Loss
Differential and the Class F Loss Differential, as the case may be, of the
Current Portfolio.

"S&P Estimated Rating": The estimated rating for a Collateral Debt
Security determined by the Collateral Manager in accordance with clause (iv) of
the definition of "S&P Rating."

"S&P Fixed Rate Excess": As of any Measurement Date, a fraction
(expressed as a percentage) the numerator of which is equal to the product of
(a) the greater of zero and the excess, if any, of the Weighted Average Coupon
over the percentage set forth in the Weighted Average Coupon row in the
applicable column of the S&P Matrix (which percentage, for the avoidance of
doubt, will vary depending on the then-current levels of the other variables
included in the S&P Matrix) and (b) the Aggregate Principal Balance of all
Collateral Debt Securities that are Fixed Rate Securities (excluding all
Defaulted Securities and Written Down Securities) and the denominator of which
is the Aggregate Principal Balance of all Collateral Debt Securities that are
Floating Rate Securities (excluding all Defaulted Securities and Written Down
Securities), multiplying the resulting figure by 360 and then dividing by 365.
As used in this definition, "applicable column" means the column corresponding
to the numbered scenario in the S&P Matrix, the use of the applicable numbers or
percentages set forth in which would result in satisfaction of the related
Collateral Quality Tests.

"S&P Matrix": The matrix set forth in Schedule C attached hereto.

"S&P Minimum Weighted Average Coupon Test": A test that will be
satisfied on any Measurement Date if the Weighted Average Coupon plus the S&P
Spread Excess, if any, is greater than or equal to the number set forth in the
Weighted Average Coupon row in the 

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applicable column of the S&P Matrix (which number, for the avoidance of doubt,
will vary depending on the then-current levels of the other variables included
in the S&P Matrix). As used in this definition, "applicable column" means the
column corresponding to the numbered scenario in the S&P Matrix, the use of the
applicable numbers or percentages set forth in which would result in
satisfaction of the related Collateral Quality Tests.

"S&P Minimum Weighted Average Spread Test": A test that will be
satisfied as of any Measurement Date if the Weighted Average Spread plus the S&P
Fixed Rate Excess, if any, is greater than or equal to the number set forth in
the Weighted Average Spread row in the applicable column of the S&P Matrix
(which number, for the avoidance of doubt, will vary depending on the
then-current levels of the other variables included in the S&P Matrix). As used
in this definition, "applicable column" means the column corresponding to the
numbered scenario in the S&P Matrix, the use of the applicable numbers or
percentages set forth in which would result in satisfaction of the related
Collateral Quality Tests.

"S&P Post-Acquisition Compliance Test": With respect to any Substitute
Collateral Debt Security which did not have an S&P Assigned Rating at the time
it was acquired by the Issuer, the test that is satisfied if (a) the S&P
Assigned Rating subsequently determined for such Substitute Collateral Debt
Security is equal to or higher than its S&P Estimated Rating, (b) as of the date
such Substitute Collateral Debt Security was acquired by the Issuer, the S&P CDO
Monitor Test would have been satisfied using the S&P Assigned Rating
subsequently determined for such Substitute Collateral Debt Security, or, if
such test was not satisfied immediately prior to such acquisition, the extent of
compliance with such test would have been maintained or improved, or (c) the S&P
CDO Monitor Test is satisfied.

"S&P Post-Acquisition Failure": The meaning specified in Section
12.2(d) hereof.

"S&P Rating": Of any Collateral Debt Security will be determined as
follows:

(i) if S&P has assigned a rating to such Collateral Debt Security
either publicly or privately (in the case of a private rating, with
the appropriate consents for the use of such private rating), the S&P
Rating shall be the rating assigned thereto by S&P (or, in the case of
a REIT Debt Security, the issuer credit rating assigned by S
provided that, notwithstanding the foregoing, if any Collateral Debt
Security shall, at the time of its purchase by the Issuer, be listed
for a possible upgrade or downgrade on S&P's then-current credit
rating watch list, then the S&P Rating of such Collateral Debt
Security shall be one subcategory above or below, respectively, the
rating then assigned to such Collateral Debt Security by S&P, as
applicable; provided that, if such Collateral Debt Security is removed
from such list at any time, it shall be deemed to have its actual
rating by SP

(ii) if such Collateral Debt Security is not rated by S&P but the
Issuer (or the Collateral Manager on behalf of the Issuer) has
requested that S&P assign a rating to such Collateral Debt Security,
the S&P Rating shall be the rating so assigned by SP provided that,
pending receipt from S&P of such rating, if such 

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Collateral Debt Security is of a type listed on Schedule E attached
hereto or is not eligible for notching in accordance with Schedule D
attached hereto, such Collateral Debt Security shall have an S&P
Rating of "CCC-," otherwise such S&P Rating shall be the rating
assigned according to Annex 1 of Schedule F attached hereto until such
time as S&P shall have assigned a rating thereto;

(iii) if any Collateral Debt Security is a Collateral Debt
Security that has not been assigned a rating by S&P and is not a
Collateral Debt Security listed in Schedule E attached hereto, as
identified by the Collateral Manager, the S&P Rating shall be the
rating assigned according to Schedule F attached hereto; provided
that, if any Collateral Debt Security shall, at the time of its
purchase by the Issuer, be listed for a possible upgrade or downgrade
on either Moody's or Fitch's then-current credit rating watch list,
then the S&P Rating of such Collateral Debt Security shall be one
subcategory above or below, respectively, the rating then assigned to
such Collateral Debt Security in accordance with Schedule F attached
hereto; provided, further, that the Aggregate Principal Balance that
may be given a rating based on this paragraph (c) may not exceed 20%,
of the Aggregate Principal Balance of all Collateral Debt Securities;
or

(iv) to the extent permitted under this Indenture, with respect
to any Loan acquired during the Reinvestment Period, until a rating is
determined in accordance with clauses (i) through (iii) above, the S&P
Rating will be determined by the Collateral Manager based on its
estimate of the rating that would be assigned by S&P.

"S&P Recovery Rate": With respect to any Collateral Debt Security on
any Measurement Date, an amount equal to the percentage for such Collateral Debt
Security set forth in Schedule D (the S&P Recovery Matrix) hereto (or, in the
case of a Defaulted Security under Clause A of Schedule D (the S&P Recovery
Matrix) attached hereto, corresponding to the S&P Rating at the time of issuance
of such Collateral Debt Security) or such lower percentage as may be expressly
agreed to by S&P and the Issuer (or the Collateral Manager on behalf of the
Issuer) with respect to such Collateral Debt Security; provided that, if the
Issuer owns one or more B Notes and the related A Note also is included in the
Assets, the "S&P Recovery Rate" for such B Note(s) shall be the rate applicable
to the related A Note, but only if S&P modeled such B Note(s) as a Whole Loan
and provided to the Issuer a private rating with respect to such B Note(s) on
the basis thereof; provided, further, that if the Issuer owns one or more
subordinated B Notes and the related senior B Note also is included in the
Assets, the "S&P Recovery Rate" for such subordinated B Note(s) will be the rate
applicable to the related senior B Note, but only if S&P modeled such
subordinated B Note(s) as a senior B Note and provided to the Issuer a private
rating with respect to such subordinated B Note(s) on the basis thereof; and
provided, further, that the S&P Recovery Rate for any Collateral Debt Security
with respect to which substitute or additional collateral (in the form of Cash
or Eligible Investments) in an amount at least equal to the sum of the principal
amount of such Collateral Debt Security and the aggregate of all scheduled
remaining interest payments thereon through the earliest permissible prepayment
date has been delivered by or on behalf of the related obligor to the Trustee
and deposited into the Defeased Collateral Account (or to the Servicer in
accordance with the Servicing Agreement and deposited into an Eligible Account)
(by defeasance or otherwise) shall be 100%.

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"S&P Recovery Test": A test that will be satisfied on any Measurement
Date if the S&P Weighted Average Recovery Rate (based upon the Principal Balance
of the Collateral Debt Securities) for each Class of Notes falls within one of
the permissible scenarios (which scenarios, for the avoidance of doubt, will
vary depending on the then-current levels of the variables included in the S&P
Matrix) for each such Class; provided that, in the event Cash has been received
in respect of Principal Proceeds of any Collateral Debt Security in connection
with a prepayment or sale of such Collateral Debt Security, but such Cash has
not been reinvested in additional Collateral Debt Securities as of such
Measurement Date, such Cash will be included in calculating the S&P Weighted
Average Recovery Rate and the Principal Balance and Recovery Rate associated
with such Cash will be the Principal Balance and Recovery Rate of such
Collateral Debt Security immediately prior to prepayment or sale, as applicable;
provided, further, that, with respect to any such Collateral Debt Security that
was sold for less than its outstanding principal balance, the "Principal
Balance" associated with such Cash will equal the amount of Sale Proceeds
received by the Issuer in connection with such sale.

"S&P Special Amortization Pro Rata Condition": A condition that will
be satisfied with respect to any Payment Date if either (i)(a) the Aggregate
Principal Balance of the Collateral Debt Securities as of the related
Determination Date is greater than an amount equal to 50% of the Aggregate
Principal Balance of the Collateral Debt Securities on the Effective Date and
the S&P CDO Monitor Test is satisfied as of such Determination Date and (b) no
Par Value Test has failed to be satisfied on two or more Determination Dates,
unless, subsequent to such failure, the Par Value Ratio related to such Par
Value Test has equaled or exceeded the Par Value Ratio in existence on the
Effective Date or (ii) the Rating Agency Condition has been satisfied with
respect to S&P and, so long as MBIA is deemed to be the Controlling Class
hereunder, MBIA consents.

"S&P Spread Excess": As of any Measurement Date, a fraction (expressed
as a percentage), the numerator of which is equal to the product of (a) the
greater of zero and the excess, if any, of the Weighted Average Spread over the
percentage set forth in the Weighted Average Spread row in the applicable column
of the S&P Matrix (which percentage, for the avoidance of doubt, will vary
depending on the then-current levels of the other variables included in the S&P
Matrix) and (b) the Aggregate Principal Balance of all Collateral Debt
Securities that are Floating Rate Securities (excluding all Defaulted Securities
and Written Down Securities) and the denominator of which is the Aggregate
Principal Balance of all Collateral Debt Securities that are Fixed Rate
Securities (excluding all Defaulted Securities and Written Down Securities),
multiplying the resulting figure by 365 and then dividing by 360. As used in
this definition, "applicable column" means the column corresponding to the
numbered scenario in the S&P Matrix, the use of the applicable numbers or
percentages set forth in which would result in satisfaction of the related
Collateral Quality Tests.

"S&P Weighted Average Recovery Rate": With respect to the Collateral
Debt Securities, as of any Measurement Date, the number obtained by summing the
products obtained by multiplying the Principal Balance of each Collateral Debt
Security, other than a Defaulted Security, by its S&P Recovery Rate, and
dividing such sum by the Aggregate Principal Balance of all such Collateral Debt
Securities and rounding up to the first decimal place.

"Sale": The meaning specified in Section 5.17(a) hereof.

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"Sale Proceeds": All proceeds (including accrued interest) received
with respect to Collateral Debt Securities and Eligible Investments as a result
of sales of such Collateral Debt Securities and Eligible Investments, net of any
reasonable out-of-pocket expenses of the Collateral Manager or the Trustee in
connection with any such sale.

"Schedule of Closing Date Collateral Debt Securities": The Collateral
Debt Securities listed on Schedule I attached hereto, which Schedule shall
include the Principal Balance, interest rate (if the security bears interest at
a fixed rate) or the spread and the relevant floating reference rate (if the
security bears interest at a floating rate), the maturity date, the Moody's
Rating, S&P Rating and Fitch Rating, if any, of each such Collateral Debt
Security.

"Scheduled Distribution": With respect to any Pledged Obligation, for
each Due Date, the scheduled payment of principal, interest or fee or any
dividend or premium payment due on such Due Date or any other distribution with
respect to such Pledged Obligation, determined in accordance with the
assumptions specified in Section 1.2 hereof.

"SEC": The Securities and Exchange Commission.

"Secured Parties": Collectively, the Trustee, the Noteholders, each
Hedge Counterparty and the Collateral Manager, each as their interests appear in
applicable Transaction Documents.

"Securities": Collectively, the Notes and the Preferred Shares.

"Securities Account": The meaning specified in Section 8-501(a) of the
UCC.

"Securities Account Control Agreement": The meaning specified in
Section 3.3(a) hereof.

"Securities Act": The Securities Act of 1933, as amended.

"Securities Intermediary": The meaning specified in Section
8-102(a)(14) of the UCC.

"Security Entitlement": The meaning specified in Section 8-102(a)(17)
of the UCC.

"Seller": The meaning specified in the applicable Collateral Debt
Securities Purchase Agreement.

"Senior Collateral Management Fee": The fee payable quarterly in
arrears on each Payment Date to the Collateral Manager pursuant to this
Indenture and the Collateral Management Agreement, equal to 0.10% per annum (or,
if ARCM is replaced as Collateral Manager, such higher percentage not to exceed
0.15% per annum, as may be agreed to by the holders of a Majority of the
Controlling Class) of the sum of the Net Outstanding Portfolio Balance and the
Aggregate Class A-1AR Undrawn Amount (without duplication) for such Payment
Date, to the extent funds are available for such purpose in accordance with the
Priority of Payments.

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"Senior Tranche": (i) With respect to a Participation or B Note, any
senior interest in the same Underlying Term Loan as a Participation or any
senior debt secured by the same Underlying Mortgage Property as a B Note or
Participation and (ii) with respect to a Mezzanine Loan, any commercial mortgage
loan related to the same Underlying Mortgage Property or Properties as the
Mezzanine Loan.

"Servicer": Arbor Commercial Mortgage, LLC, each of Arbor Commercial
Mortgage, LLC's permitted successors and assigns or any successor Person that
shall have become the Servicer pursuant to the provisions of the Servicing
Agreement.

"Servicing Agreement": The Servicing Agreement, dated as of the
Closing Date, by and among the Issuer, the Trustee, the Collateral Manager and
the Servicer, as amended, supplemented or otherwise modified from time to time
in accordance with its terms.

"Servicing Fee": With respect to each Due Period, the aggregate amount
of all servicing fees payable to the Servicer under the Servicing Agreement and
any backup servicer named therein or in any backup servicing agreement to which
the Issuer is a party during such Due Period.

"Share Registrar": Maples Finance Limited, unless a successor Person
shall have become the Share Registrar pursuant to the applicable provisions of
the Preferred Shares Paying Agency Agreement, and thereafter "Share Registrar"
shall mean such successor Person.

"Similar Law": The meaning specified in Section 2.5(h)(vi) hereof.

"Single Asset Mortgage Security": A commercial mortgage pass-through
certificate or similar security backed primarily by a single mortgage loan on
one or more commercial properties included in a property-specific securitization
transaction.

"Single Borrower Mortgage Security": A commercial mortgage
pass-through certificate or similar security backed primarily by one or more
mortgage loans to the same borrower (or affiliated borrowers) on one or more
commercial properties included in a securitization.

"Special Amortization": The meaning specified in Section 9.7 hereof.

"Special Amortization Amount": The meaning specified in Section 9.7
hereof.

"Specified Person": The meaning specified in Section 2.6(a) hereof.

"Specified Type": Each of a Loan, CMBS Security, CRE CDO Security,
REIT Debt Security, and Preferred Equity Security.

"Spread Excess": The Moody's Spread Excess, the S&P Spread Excess or
the Fitch Spread Excess, as the context requires.

"Stated Maturity": The Payment Date occurring in January 2042.

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"Step-Down Bond": A security which by the terms of the related
Underlying Instruments provides for a decrease, in the case of a Fixed Rate
Security, in the per annum interest rate on such security or, in the case of a
Floating Rate Security, in the spread over the applicable index or benchmark
rate, solely as a function of the passage of time; provided that, for purposes
of measuring compliance with the Collateral Quality Tests, the interest rate or
spread, as applicable, associated with any Step-Down Bond included in the Assets
shall be the lowest possible applicable interest rate or spread, as applicable,
as set forth in the related Underlying Instruments; provided, further, that the
term Step-Down Bond shall not include any such security providing for payment of
a constant rate of interest at all times after the date of acquisition by the
Issuer or any Loan or Preferred Equity Security.

"Step-Up Security": A security with a current interest rate of zero
percent per annum at the time of purchase but which increases to predetermined
levels on specific dates; provided that the term Step-Up Security shall not
include any Loan or Preferred Equity Security.

"Subordinate Collateral Management Fee": The fee payable quarterly in
arrears on each Payment Date to the Collateral Manager pursuant to this
Indenture and the Collateral Management Agreement, in an amount equal to 0.15%
per annum of the sum of the Net Outstanding Portfolio Balance and the Aggregate
Class A-1AR Undrawn Amount (without duplication) for such Payment Date, to the
extent funds are available for such purpose in accordance with the Priority of
Payments.

"Subordinate Interests": The Class A-2 Subordinate Interests, the
Class B Subordinate Interests, the Class C Subordinate Interests, the Class D
Subordinate Interests, the Class E Subordinate Interests, the Class F
Subordinate Interests, the Class G Subordinate Interests and the Class H
Subordinate Interests, as the context may require.

"Subsequent Collateral Debt Security": Any Collateral Debt Security
that is acquired after the Closing Date.

"Substitute Collateral Debt Security": A Collateral Debt Security that
is acquired by the Issuer in substitution for Collateral Debt Securities
previously pledged to the Trustee in accordance herewith.

"Successful Auction": (i) An Auction which is conducted in accordance
with Section 9.2(b) or (ii) the purchase of Collateral Debt Securities by the
Holder of the Preferred Shares or its Affiliates for a price equal to the Total
Redemption Price pursuant to Section 12.4(c).

"Tax Event": (i) Any obligor is, or on the next scheduled payment date
under any Collateral Debt Security, will be, required to deduct or withhold from
any payment under any Collateral Debt Security to the Issuer for or on account
of any tax for whatever reason and such obligor is not required to pay to the
Issuer such additional amount as is necessary to ensure that the net amount
actually received by the Issuer (free and clear of taxes, whether assessed
against such obligor or the Issuer) will equal the full amount that the Issuer
would have received had no such deduction or withholding been required, (ii) any
jurisdiction imposes net income, profits, or similar tax on the Issuer, (iii)
the Issuer is required to deduct or withhold from any payment

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under any Hedge Agreement for or on account of any tax and the Issuer is
obligated to make a gross up payment (or otherwise pay additional amounts) to
any Hedge Counterparty, (iv) any Hedge Counterparty is required to deduct or
withhold from any payment under any Hedge Agreement for or on account of any tax
for whatever reason and such Hedge Counterparty is not required to pay to the
Issuer such additional amount as is necessary to ensure that the net amount
actually received by the Issuer (free and clear of taxes, whether assessed
against such obligor or the Issuer) will equal the full amount that the Issuer
would have received had no such deduction or withholding been required or (v)
the Issuer fails to maintain its status as a Qualified REIT Subsidiary and has
not received an Opinion of Counsel that the Issuer will be treated as a foreign
corporation that is not engaged in a trade or business in the United States for
U.S. federal income tax purposes.

"Tax Materiality Condition": The condition that will be satisfied if
either (i) as a result of the occurrence of a Tax Event, a tax or taxes are
imposed on the Issuer or withheld from payments to the Issuer and with respect
to which the Issuer receives less than the full amount that the Issuer would
have received had no such deduction occurred and such amount exceeds, in the
aggregate, U.S. $1 million during any 12-month period or (ii) the Issuer fails
to maintain its status as a Qualified REIT Subsidiary and has not received an
Opinion of Counsel that the Issuer will be treated as a foreign corporation that
is not engaged in a trade or business in the United States for U.S. federal
income tax purposes.

"Tax Redemption": The meaning specified in Section 9.1(b) hereof.

"Total Redemption Price": The amount equal to funds sufficient to pay
all amounts and expenses described under clauses (1) through (5), (25), (26),
(27) and (28) of Section 11.1(a)(i) and to redeem all Notes at their applicable
Redemption Prices.

"Total Unfunded Delayed Funding Amount": For all Delayed Draw Term
Loans, the aggregate amount of the Unfunded Delayed Funding Amounts.

"Transaction Documents": This Indenture, the Collateral Management
Agreement, the Collateral Debt Securities Purchase Agreements, the Class A-1AR
Note Purchase Agreement, the Company Administration Agreement, the Preferred
Shares Paying Agency Agreement, the Servicing Agreement and each Hedge
Agreement.

"Transfer Agent": The Person or Persons, which may be the Issuer,
authorized by the Issuer to exchange or register the transfer of Notes.

"Treasury Regulations": Temporary or final regulations promulgated
under the Code by the United States Treasury Department.

"Trust Officer": When used with respect to the Trustee, any officer
within the CDO Trust Services Group of the Corporate Trust Office (or any
successor group of the Trustee) including any vice president, assistant vice
president or officer of the Trustee customarily performing functions similar to
those performed by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred at the CDO Trust
Services Group of the Corporate Trust Office because of his knowledge of and
familiarity with the particular subject and who is directly responsible for the
administration of this Indenture.

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"Trustee": Wells Fargo Bank, National Association, a national banking
association, solely in its capacity as trustee hereunder, unless a successor
Person shall have become the Trustee pursuant to the applicable provisions of
this Indenture, and thereafter "Trustee" shall mean such successor Person.

"UCC": The applicable Uniform Commercial Code.

"UCC Account": "Account," as such term is defined in Section
9-102(a)(2) of the UCC.

"Uncertificated Security": The meaning specified in Section 3.3(a)(ii)
hereof.

"Underlying Instruments": The indenture, loan agreement, note,
mortgage, intercreditor agreement, pooling and servicing agreement,
participation agreement or other agreement pursuant to which a Collateral Debt
Security or Eligible Investment has been issued or created and each other
agreement that governs the terms of or secures the obligations represented by
such Collateral Debt Security or Eligible Investment or of which holders of such
Collateral Debt Security or Eligible Investment are the beneficiaries.

"Underlying Mortgage Property": With respect to (i) a Loan (other than
a Participation or Mezzanine Loan), the commercial mortgage property or
properties securing the Loan, (ii) a Participation, the commercial mortgage
property or properties securing the Underlying Term Loan, or (iii) a Mezzanine
Loan or a Preferred Equity Security, the commercial mortgage property or
properties related to the Mezzanine Loan or Preferred Equity Security, as the
case may be.

"Underlying Term Loan": With respect to (i) a Loan (other than a
Participation or a Mezzanine Loan), such Loan or (ii) a Participation, the
underlying commercial mortgage loan.

"Unfunded Delayed Funding Amount": With respect to any Delayed Draw
Term Loan and any Determination Date, any Delayed Funding Amount not yet funded
(by the Issuer or any other entity) pursuant to the terms of such Delayed Draw
Term Loan.

"Unfunded Other Loan": The meaning specified in the definition of
Future Advance Loan.

"United States" and "U.S.": The United States of America, including
any state and any territory or possession administered thereby.

"Unregistered Securities": The meaning specified in Section 5.17(c)
hereof.

"Unscheduled Principal Payments": Any proceeds received by the Issuer
from an unscheduled prepayment or redemption (in whole but not in part) by the
obligor of a Collateral Debt Security prior to the stated maturity date of such
Collateral Debt Security.

"Unused Proceeds Account": The trust account established pursuant to
Section 10.4(a) hereof.

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"U.S. Person": The meaning specified in Regulation S.

"Warehouse Facility": A repurchase agreement or other warehouse
facility with an Approved Lender.

"Weighted Average Coupon": As of any Measurement Date, the number
obtained (rounded up to the next 0.001%) by (i) summing the products obtained by
multiplying (x) the current interest rate (net of any servicing fees and
expenses) on each Collateral Debt Security that is a Fixed Rate Security (other
than a Defaulted Security or Written Down Security) by (y) the Principal Balance
of each such Collateral Debt Security and (ii) dividing such sum by the
aggregate Principal Balance of all Collateral Debt Securities that are Fixed
Rate Securities (excluding all Defaulted Securities and Written Down
Securities). For the avoidance of doubt, any capitalized or deferred interest in
respect of any Partially Deferred Loan will be disregarded for purposes of
calculating the Weighted Average Coupon.

"Weighted Average Drawn Class A-1AR Note Portion": With respect to any
Payment Date or Class A-1AR Prepayment Date, the weighted average Aggregate
Outstanding Amount of the Class A-1AR Notes during the related Interest Accrual
Period (adjusted as necessary if multiple Class A-1AR Draws occur within such
Interest Accrual Period).

"Weighted Average Life": As of any Measurement Date with respect to
the Collateral Debt Securities (other than Defaulted Securities), the number
obtained by (i) summing the products obtained by multiplying (a) the Average
Life at such time of each Collateral Debt Security (other than Defaulted
Securities) by (b) the outstanding Principal Balance of such Collateral Debt
Security and (ii) dividing such sum by the Aggregate Principal Balance at such
time of all Collateral Debt Securities (other than Defaulted Securities).

"Weighted Average Life Test": With respect to any Collateral Debt
Securities, a test that will be satisfied as of any Measurement Date if the
Weighted Average Life of such Collateral Debt Securities as of such Measurement
Date is less than or equal to eight years.

"Weighted Average Moody's Rating Factor": The amount determined by
summing the products obtained by multiplying the Principal Balance of each
Collateral Debt Security (excluding Defaulted Securities) and Eligible
Investment by its Moody's Rating Factor, dividing such sum by the Aggregate
Principal Balance of all such obligations and rounding the result up to the
nearest whole number.

"Weighted Average Spread": As of any Measurement Date, the number
obtained (rounded up to the next 0.001%), by (i) summing the products obtained
by multiplying (x) the current stated spread above LIBOR (net of any servicing
fees and expenses) at which interest accrues on each Collateral Debt Security
that is a Floating Rate Security (other than a Defaulted Security or Written
Down Security) (or, in the case of any Floating Rate Security (other than a
Defaulted Security or Written Down Security) which provides for a minimum
interest rate (net of any servicing fees and expenses) payable thereunder, the
excess, if any, of the minimum interest rate applicable to such Collateral Debt
Security over LIBOR, if such result is greater than the related stated spread
above LIBOR) as of such date by (y) the Principal Balance of such Collateral
Debt Security as of such date, and (ii) dividing such sum by the aggregate
Principal

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Balance of all Collateral Debt Securities that are Floating Rate Securities
(excluding all Defaulted Securities and Written Down Securities). For purposes
of this definition, a Fixed Rate Security that is a Covered Fixed Rate Security
will be deemed to be a Floating Rate Security and the floating rate applicable
thereto shall be the rate payable taking into account the related Asset Specific
Hedge. For the avoidance of doubt, any capitalized or deferred interest in
respect of any Partially Deferred Loan will be disregarded for purposes of
calculating the Weighted Average Spread.

"Whole Loan": A whole loan (including, without limitation, an A Note)
secured by a mortgage on a multi-family property or a senior interest therein or
commercial real estate property or a senior interest therein (in either case,
including senior and pari passu participations).

"Written Down Security": As of any date of determination, any
Collateral Debt Security as to which the aggregate par amount of the entire
issue of such Collateral Debt Security and all other securities secured by the
same pool of collateral and that rank senior in priority of payment to such
issue exceeds the aggregate par amount of all collateral (giving effect to any
appraisal reductions) securing such issue (excluding defaulted collateral).

Section 1.2 Assumptions as to Pledged Obligations.

(a) In connection with all calculations required to be made pursuant
to this Indenture with respect to Scheduled Distributions on any Pledged
Obligation, or any payments on any other assets included in the Assets, and with
respect to the income that can be earned on Scheduled Distributions on such
Pledged Obligations and on any other amounts that may be received for deposit in
the applicable Collection Account, the provisions set forth in this Section 1.2
shall be applied.

(b) All calculations with respect to Scheduled Distributions on the
Pledged Obligations securing the Notes shall be made on the basis of information
as to the terms of each such Pledged Obligation and upon report of payments, if
any, received on such Pledged Obligation that are furnished by or on behalf of
the issuer of such Pledged Obligation and, to the extent they are not manifestly
in error, such information or report may be conclusively relied upon in making
such calculations.

(c) For each Due Period, the Scheduled Distribution on any Pledged
Obligation (other than a Defaulted Security, which, except as otherwise provided
herein, shall be assumed to have a Scheduled Distribution of zero) shall be the
sum of (i) the total amount of payments and collections in respect of such
Pledged Obligation (including all Sales Proceeds received during the Due Period
and not reinvested in Substitute Collateral Debt Securities or retained in the
Principal Collection Account for subsequent reinvestment) that, if paid as
scheduled, will be available in the Collection Accounts at the end of such Due
Period for payment on the Notes and of expenses of the Issuer and the Co-Issuer
pursuant to the Priority of Payments and (ii) any such amounts received in prior
Due Periods that were not disbursed on a previous Payment Date and do not
constitute amounts which have been used as reimbursement with respect to a prior
Interest Advance pursuant to the terms of this Indenture.

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(d) With respect to any Collateral Debt Security as to which any
interest or other payment thereon is subject to withholding tax of any relevant
jurisdiction, each Scheduled Distribution thereon shall, for purposes of the
Coverage Tests and the Collateral Quality Tests, be deemed to be payable net of
such withholding tax unless the issuer thereof or obligor thereon is required to
make additional payments to fully compensate the Issuer for such withholding
taxes (including in respect of any such additional payments). On any date of
determination, the amount of any Scheduled Distribution due on any future date
shall be assumed to be made net of any such uncompensated withholding tax based
upon withholding tax rates in effect on such date of determination.

(e) For purposes of calculating any Interest Coverage Ratio, the
expected interest income on floating rate Collateral Debt Securities and
Eligible Investments and under each Hedge Agreement and the expected interest
payable on the Notes shall be calculated using (i) the interest rates applicable
thereto on the applicable Measurement Date and (ii) accrued original issue
discount on Eligible Investments shall be deemed to be Scheduled Distributions
of interest due on the date such original issue discount is scheduled to be
paid. Notwithstanding the foregoing, for the purposes of calculating any
Interest Coverage Ratio, there shall be excluded all scheduled or deferred
payments of interest on or principal of Collateral Debt Securities and any
payment, including any amount payable to the Issuer by each Hedge Counterparty,
which the Collateral Manager has determined in its reasonable judgment shall not
be made in Cash or received when due.

(f) Each Scheduled Distribution receivable with respect to a Pledged
Obligation shall be assumed to be received on the applicable Due Date, and each
such Scheduled Distribution shall be assumed to be immediately deposited in the
applicable Collection Account except to the extent the Collateral Manager has a
reasonable expectation that such Scheduled Distribution will not be received on
the applicable Due Date. All such funds shall be assumed to continue to earn
interest until the date on which they are required to be available in the
applicable Collection Account for transfer to the Payment Account for
application, in accordance with the terms hereof, to payments of principal of or
interest on the Notes and, in the case of the Class A-1AR Notes, the Class A-1AR
Commitment Fee or other amounts payable pursuant to this Indenture.

(g) All calculations required to be made and all reports which are to
be prepared pursuant to this Indenture with respect to the Pledged Obligations,
shall be made on the basis of the date on which the Issuer makes a binding
commitment to purchase or sell an asset (the "trade date"), not the settlement
date.

(h) For purposes of calculating the Par Value Ratio, an appraisal
reduction of a Collateral Debt Security will be assumed to result in an implied
reduction of Principal Balance for such Collateral Debt Security only if such
appraisal reduction is intended to reduce the interest payable on such
Collateral Debt Security and only in proportion to such interest reduction. For
purposes of the Par Value Ratio, any Collateral Debt Security that has sustained
an implied reduction of Principal Balance due to an appraisal reduction will not
be considered a Defaulted Security solely due to such implied reduction. The
Collateral Manager will notify the Trustee of any appraisal reductions of
Collateral Debt Securities if the Collateral Manager has actual knowledge
thereof.

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Section 1.3 Interest Calculation Convention.

All calculations of interest hereunder that are made with respect to
the Notes shall be made on the basis of the actual number of days during the
related Interest Accrual Period divided by 360. 

Section 1.4 Rounding Convention.

Unless otherwise specified herein, test calculations that evaluate to
a percentage will be rounded to the nearest ten thousandth of a percentage point
and test calculations that evaluate to a number or decimal will be rounded to
the nearest one hundredth of a percentage point.

ARTICLE 2

THE NOTES

Section 2.1 Forms Generally.

The Notes and the Trustee's or Authenticating Agent's certificate of
authentication thereon (the "Certificate of Authentication") shall be in
substantially the forms required by this Article 2, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon, as may be
consistent herewith, determined by the Authorized Officers of the Issuer and the
Co-Issuer, executing such Notes as evidenced by their execution of such Notes.
Any portion of the text of any Note may be set forth on the reverse thereof,
with an appropriate reference thereto on the face of the Note. 

Section 2.2 Forms of Notes and Certificate of Authentication.

(a) Form. The form of each Class of Notes including the Certificate of
Authentication, shall be substantially as set forth in Exhibits A-1, A-2, A-3,
B, C, D, E, F, G and H hereto.

(b) Global Securities and Definitive Notes.

(i) The Notes (other than the Class A-1AR Notes) initially offered and
sold in the United States to (or to U.S. Persons who are) QIBs shall be
represented by one or more permanent global notes in definitive, fully
registered form without interest coupons with the applicable legend set
forth in Exhibits A-1, A-2, B, C, D, E, F, G and H hereto added to the form
of such Notes (each, a "Rule 144A Global Security"), which shall be
registered in the name of the nominee of the Depository and deposited with
the Trustee, at its Corporate Trust Office, as custodian for the
Depository, duly executed by the Issuer and the Co-Issuer and authenticated
by the Trustee as hereinafter provided. The aggregate principal amount of
the Rule 144A Global Securities may from time to time be

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increased or decreased by adjustments made on the records of the Trustee or
the Depository or its nominee, as the case may be, as hereinafter provided.

(ii) The Notes (other than the Class A-1AR Notes) initially sold in
offshore transactions in reliance on Regulation S shall be represented by
one or more permanent global notes in definitive, fully registered form
without interest coupons with the applicable legend set forth in Exhibits
A-1, A-2, B, C, D, E, F, G and H, hereto added to the form of such Notes
(each, a "Regulation S Global Security"), which shall be deposited on
behalf of the subscribers for such Notes represented thereby with the
Trustee as custodian for the Depository and registered in the name of a
nominee of the Depository for the respective accounts of Euroclear and
Clearstream, Luxembourg or their respective depositories, duly executed by
the Issuer and the Co-Issuer and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Regulation S
Global Securities may from time to time be increased or decreased by
adjustments made on the records of the Trustee or the Depository or its
nominee, as the case may be, as hereinafter provided.

(iii) Definitive Class A-1AR Notes. The Class A-1AR Notes initially
offered and sold (A) in the United States to (or to U.S. Persons who are)
QIBs and (B) in offshore transactions in reliance on Regulation S shall be
issued only in definitive, fully registered, certificated form without
interest coupons with the applicable legend set forth in Exhibit A-3 hereto
added to the form of such Notes (each, a "Definitive Class A-1AR Note")
registered in the name of the beneficial owner thereof unless otherwise
authorized by the Issuer on the date of issuance. The Class A-1AR Notes
will not be eligible for clearance and settlement through the facilities of
the Depository, Euroclear or Clearstream, Luxembourg.

(c) Book-Entry Provisions. This Section 2.2(c) shall apply only to
Global Securities deposited with or on behalf of the Depository.

Each of the Issuer and Co-Issuer shall execute and the Trustee shall,
in accordance with this Section 2.2(c), authenticate and deliver initially one
or more Global Securities that shall be (i) registered in the name of the
nominee of the Depository for such Global Security or Global Securities and (ii)
delivered by the Trustee to such Depository or pursuant to such Depository's
instructions or held by the Trustee's agent as custodian for the Depository.

Agent Members shall have no rights under this Indenture with respect
to any Global Security held on their behalf by the Trustee, as custodian for the
Depository or under the Global Security, and the Depository may be treated by
the Issuer, the Co-Issuer, the Trustee, and any agent of the Issuer, the
Co-Issuer or the Trustee as the absolute owner of such Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Issuer, the Co-Issuer, the Trustee, or any agent of the Issuer, the
Co-Issuer or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by the Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Global Security.

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(d) Delivery of Certificated Notes in Lieu of Global Securities.
Except as provided in Section 2.10 hereof, owners of beneficial interests in a
Class of Global Securities shall not be entitled to receive physical delivery of
a Certificated Note. 

Section 2.3 Authorized Amount; Stated Maturity; and Denominations.

(a) The aggregate principal amount of Notes that may be authenticated
and delivered under this Indenture is limited to $547,500,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 2.5, 2.6 or 8.5 hereof.

Such Notes shall be divided into ten Classes having designations and
original principal amounts as follows:

ORIGINAL
PRINCIPAL
DESIGNATION                                 AMOUNT
-----------                              ------------

Class A-1A Senior Secured Floating Rate Term Notes Due 2042......   $230,000,000
Class A-1AR Revolving Senior Secured Floating Rate Term Notes
Due 2042......................................................   $100,000,000
Class A-2 Second Priority Senior Secured Floating Rate Term
Notes Due 2042................................................   $ 72,900,000
Class B Third Priority Senior Secured Floating Rate Term Notes
Due 2042......................................................   $ 41,100,000
Class C Fourth Priority Floating Rate Capitalized Interest Term
Notes Due 2042................................................   $ 31,200,000
Class D Fifth Priority Floating Rate Capitalized Interest Term
Notes Due 2042................................................   $ 13,350,000
Class E Sixth Priority Floating Rate Capitalized Interest Term
Notes Due 2042................................................   $ 14,250,000
Class F Seventh Priority Floating Rate Capitalized Interest
Term Notes Due 2042...........................................   $ 13,650,000
Class G Eighth Priority Floating Rate Capitalized Interest Term
Notes Due 2042................................................   $ 16,950,000
Class H Ninth Priority Floating Rate Capitalized Interest Term
Notes Due 2042................................................   $ 14,100,000

(b) The Notes shall be issuable in minimum denominations of $500,000
and integral multiples of $500 in excess thereof (plus any residual amount).

Section 2.4 Execution, Authentication, Delivery and Dating.

The Notes shall be executed on behalf of the Issuer and the Co-Issuer
by an Authorized Officer of the Issuer and the Co-Issuer, respectively. The
signature of such Authorized Officers on the Notes may be manual or facsimile.

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Notes bearing the manual or facsimile signatures of individuals who
were at any time the Authorized Officers of the Issuer or the Co-Issuer shall
bind the Issuer or the Co-Issuer, as the case may be, notwithstanding the fact
that such individuals or any of them have ceased to hold such offices prior to
the authentication and delivery of such Notes or did not hold such offices at
the date of issuance of such Notes.

At any time and from time to time after the execution and delivery of
this Indenture, the Issuer and the Co-Issuer may deliver Notes executed by the
Issuer and the Co-Issuer to the Trustee or the Authenticating Agent for
authentication and the Trustee or the Authenticating Agent, upon Issuer Order,
shall authenticate and deliver such Notes as provided in this Indenture and not
otherwise.

Each Note authenticated and delivered by the Trustee or the
Authenticating Agent upon Issuer Order on the Closing Date shall be dated as of
the Closing Date. All other Notes that are authenticated after the Closing Date
for any other purpose under this Indenture shall be dated the date of their
authentication.

Notes issued upon transfer, exchange or replacement of other Notes
shall be issued in authorized denominations reflecting the original aggregate
principal amount of the Notes so transferred, exchanged or replaced, but shall
represent only the current outstanding principal amount of the Notes so
transferred, exchanged or replaced. In the event that any Note is divided into
more than one Note in accordance with this Article 2, the original principal
amount of such Note shall be proportionately divided among the Notes delivered
in exchange therefor and shall be deemed to be the original aggregate principal
amount of such subsequently issued Notes.

No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
Certificate of Authentication, substantially in the form provided for herein,
executed by the Trustee or by the Authenticating Agent by the manual signature
of one of their Authorized Officers, and such certificate upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder.

Section 2.5 Registration, Registration of Transfer and Exchange.

(a) The Issuer and the Co-Issuer shall cause to be kept a register
(the "Notes Register") in which, subject to such reasonable regulations as it
may prescribe, the Issuer and the Co-Issuer shall provide for the registration
of Notes and the registration of transfers and exchanges of Notes. The Trustee
is hereby initially appointed "Notes Registrar" for the purpose of registering
Notes and transfers and exchanges of such Notes with respect to the Notes
Register kept in the United States as herein provided. Upon any resignation or
removal of the Notes Registrar, the Issuer and the Co-Issuer shall promptly
appoint a successor or, in the absence of such appointment, assume the duties of
Notes Registrar.

If a Person other than the Trustee is appointed by the Issuer and the
Co-Issuer as Notes Registrar, the Issuer and the Co-Issuer shall give the
Trustee prompt written notice of the appointment of a successor Notes Registrar
and of the location, and any change in the location,

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of the Notes Register, and the Trustee shall have the right to inspect the Notes
Register at all reasonable times and to obtain copies thereof and the Trustee
shall have the right to rely upon a certificate executed on behalf of the Notes
Registrar by an Officer thereof as to the names and addresses of the Holders of
the Notes and the principal amounts and numbers of such Notes.

Subject to this Section 2.5, upon surrender for registration of
transfer of any Notes at the office or agency of the Issuer to be maintained as
provided in Section 7.2, the Issuer and the Co-Issuer shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Notes of any authorized denomination and of a
like aggregate principal amount.

At the option of the Holder, Notes may be exchanged for Notes of like
terms, in any authorized denominations and of like aggregate principal amount,
upon surrender of the Notes to be exchanged at the office or agency of the
Issuer to be maintained as provided in Section 7.2. Whenever any Note is
surrendered for exchange, the Issuer and the Co-Issuer shall execute, and the
Trustee shall authenticate and deliver, the Notes that the Noteholder making the
exchange is entitled to receive.

All Notes issued and authenticated upon any registration of transfer
or exchange of Notes shall be the valid obligations of the Issuer and the
Co-Issuer, evidencing the same debt, and entitled to the same benefits under
this Indenture, as the Notes surrendered upon such registration of transfer or
exchange.

Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Issuer and the Notes Registrar duly
executed by the Holder thereof or his attorney duly authorized in writing.

No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.

None of the Notes Registrar, the Issuer or the Co-Issuer shall be
required (i) to issue, register the transfer of or exchange any Note during a
period beginning at the opening of business 15 days before any selection of
Notes to be redeemed and ending at the close of business on the day of the
mailing of the relevant notice of redemption, or (ii) to register the transfer
of or exchange any Note so selected for redemption.

(b) No Note may be sold or transferred (including, without limitation,
by pledge or hypothecation) unless such sale or transfer is exempt from the
registration requirements of the Securities Act and is exempt from the
registration requirements under applicable state securities laws.

(c) No Note may be offered, sold, resold or delivered, within the
United States or to, or for the benefit of, U.S. Persons except in accordance
with Section 2.5(e) below and in accordance with Rule 144A to QIBs who are
Qualified Purchasers purchasing for their own account or for the accounts of one
or more QIBs who are Qualified Purchasers, for which the purchaser is acting as
fiduciary or agent. The Notes may be offered, sold, resold or

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delivered, as the case may be, in offshore transactions to non-U.S. Persons in
reliance on Regulation S. None of the Issuer, the Co-Issuer, the Trustee or any
other Person may register the Notes under the Securities Act or any state
securities laws.

(d) Upon final payment due on the Stated Maturity of a Note, the
Holder thereof shall present and surrender such Note at the Corporate Trust
Office of the Trustee or at the office of the Paying Agent (outside the United
States if then required by applicable law in the case of a Note in definitive
form issued in exchange for a beneficial interest in a Regulation S Global
Security pursuant to Section 2.10).

(e) Transfers of Global Securities. Notwithstanding any provision to
the contrary herein, so long as a Global Security remains outstanding and is
held by or on behalf of the Depository, transfers of a Global Security, in whole
or in part, shall be made only in accordance with Section 2.2(c) and this
Section 2.5(e).

(i) Subject to clauses (ii) through (iv) of this Section 2.5(e),
transfers of a Global Security shall be limited to transfers of such Global
Security in whole, but not in part, to nominees of the Depository or to a
successor of the Depository or such successor's nominee.

(ii) Regulation S Global Security to Rule 144A Global Security. If a
holder of a beneficial interest in a Regulation S Global Security wishes to
transfer all or a part of its interest in such Regulation S Global Security
to a Person who wishes to take delivery thereof in the form of a Rule 144A
Global Security, such holder may, subject to the terms hereof and the rules
and procedures of Euroclear, Clearstream, Luxembourg or the Depository, as
the case may be, exchange or cause the exchange of such interest for an
equivalent beneficial interest in a Rule 144A Global Security of the same
Class. Upon receipt by the Trustee, as Notes Registrar, of (A) instructions
from Euroclear, Clearstream, Luxembourg or the Depository, as the case may
be, directing the Trustee, as Notes Registrar, to cause such Rule 144A
Global Security to be increased by an amount equal to such beneficial
interest in such Regulation S Global Security but not less than the minimum
denomination applicable to the related Class of Notes, and (B) a
certificate substantially in the form of Exhibit J hereto given by the
prospective transferee of such beneficial interest and stating, among other
things, that such transferee acquiring such interest in a Rule 144A Global
Security is a QIB and a Qualified Purchaser, is obtaining such beneficial
interest in a transaction pursuant to Rule 144A and in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction, then Euroclear, Clearstream, Luxembourg or the
Trustee, as Notes Registrar, as the case may be, shall approve the
instruction at the Depository to reduce such Regulation S Global Security
by the aggregate principal amount of the interest in such Regulation S
Global Security to be transferred and increase the Rule 144A Global
Security specified in such instructions by an Aggregate Outstanding Amount
equal to such reduction in such principal amount of the Regulation S Global
Security.

(iii) Rule 144A Global Security to Regulation S Global Security. If a
holder of a beneficial interest in a Rule 144A Global Security wishes to
transfer all or a part of its interest in such Rule 144A Global Security to
a Person who wishes to take delivery

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thereof in the form of a Regulation S Global Security, such holder may,
subject to the terms hereof and the rules and procedures of Euroclear,
Clearstream, Luxembourg or the Depository, as the case may be, exchange or
cause the exchange of such interest for an equivalent beneficial interest
in a Regulation S Global Security of the same Class. Upon receipt by the
Trustee, as Notes Registrar, of (A) instructions from Euroclear,
Clearstream, Luxembourg or the Depository, as the case may be, directing
the Trustee, as Notes Registrar, to cause such Regulation S Global Security
to be increased by an amount equal to the beneficial interest in such Rule
144A Global Security but not less than the minimum denomination applicable
to the related Class of Notes to be exchanged, and (B) a certificate
substantially in the form of Exhibit I hereto given by the prospective
transferee of such beneficial interest and stating, among other things,
that such transferee acquiring such interest in a Regulation S Global
Security is a not a U.S. Person and that such transfer is being made
pursuant to Rule 903 or 904 under Regulation S, then Euroclear,
Clearstream, Luxembourg or the Trustee, as Notes Registrar, as the case may
be, shall approve the instruction at the Depository to reduce such Rule
144A Global Security by the aggregate principal amount of the interest in
such Rule 144A Global Security to be transferred and increase the
Regulation S Global Security specified in such instructions by an Aggregate
Outstanding Amount equal to such reduction in the principal amount of the
Rule 144A Global Security.

(iv) Other Exchanges. In the event that, pursuant to Section 2.10
hereof, a Global Security is exchanged for Certificated Notes, such Notes
may be exchanged for one another only in accordance with such procedures as
are substantially consistent with the provisions above (including
certification requirements intended to ensure that such transfers are to a
QIB who is also a Qualified Purchaser or are to a non-U.S. Person, or
otherwise comply with Rule 144A or Regulation S, as the case may be) and as
may be from time to time adopted by the Issuer, the Co-Issuer and the
Trustee.

(f) Transfers of Definitive Class A-1AR Notes. Each Person who becomes
an owner of the Definitive Class A-1AR Notes will be required to make the
representations set forth in Section 2.5(h)(ii) through (xx) and to further
represent and agree as follows:

(i) the owner is one of the following:

(1) (A) a Qualified Purchaser, (B) a QIB, (C) is aware that the
sale of the Definitive Class A-1AR Notes to it is being made in
reliance on the exemption from registration provided by Rule 144A, (D)
is acquiring the Definitive Class A-1AR Notes for its own account or
for one or more accounts, each of which is a QIB who is a Qualified
Purchaser, and as to each of which the owner exercises sole investment
discretion, and (E) is acquiring the Definitive Class A-1AR Notes in a
minimum principal amount of not less than $500,000 for each such
account; or

(2) (A) is not a U.S. Person, (B) is aware that the sale of the
Definitive Class A-1AR Notes to it is being made in reliance on the
exemption from registration provided by Regulation S and (C)
understands that the Definitive

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Class A-1AR Notes offered in reliance on Regulation S will bear the
legend set forth in Exhibit A-3; 

and in each case the owner has such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of its investment in the Definitive Class A-1AR Notes
and the owner and any accounts for which it is acting are each able to
bear the economic risk of the investment; and

(ii) before any interest in a Definitive Class A-1AR Note may be
offered, resold, pledged or otherwise transferred, the transferee and
transferor shall be required to provide the Trustee, with a written
certification substantially in the forms of Exhibit K and L hereto as to
compliance with the transfer restrictions and the owner must inform a
prospective transferee of the transfer restrictions.

(g) Removal of Legend. If Notes are issued upon the transfer, exchange
or replacement of Notes bearing the applicable legends set forth in Exhibits
A-1, A-2, A-3, B, C, D, E, F, G and H hereto, and if a request is made to remove
such applicable legend on such Notes, the Notes so issued shall bear such
applicable legend, or such applicable legend shall not be removed, as the case
may be, unless there is delivered to the Issuer and the Co-Issuer such
satisfactory evidence, which may include an Opinion of Counsel of an attorney at
law licensed to practice law in the State of New York (and addressed to the
Issuer and the Trustee), as may be reasonably required by the Issuer and the
Co-Issuer, if applicable, to the effect that neither such applicable legend nor
the restrictions on transfer set forth therein are required to ensure that
transfers thereof comply with the provisions of Rule 144A or Regulation S, as
applicable, the Investment Company Act or ERISA. So long as the Issuer or the
Co-Issuer is relying on an exemption under or promulgated pursuant to the
Investment Company Act, the Issuer or the Co-Issuer shall not remove that
portion of the legend required to maintain an exemption under or promulgated
pursuant to the Investment Company Act. Upon provision of such satisfactory
evidence, as confirmed in writing by the Issuer and the Co-Issuer, if
applicable, to the Trustee, the Trustee, at the direction of the Issuer and the
Co-Issuer, if applicable, shall authenticate and deliver Notes that do not bear
such applicable legend.

(h) Each beneficial owner of Rule 144A Global Securities shall be
deemed to represent and agree as follows (terms used in this paragraph that are
defined in Rule 144A are used herein as defined therein):

(i) In the case of a Rule 144A Global Security, the owner is (A) a QIB
and a Qualified Purchaser, (B) is aware that the sale of the Notes to it
(other than the initial sale by the Issuer and the Co-Issuer, as
applicable,) is being made in reliance on the exemption from registration
provided by Rule 144A, (C) is acquiring the Notes for its own account or
for one or more accounts, each of which is a QIB and a Qualified Purchaser,
and as to each of which the owner exercises sole investment discretion, and
(D) is acquiring the Notes in a principal amount of not less than $100,000,
for each such account.

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(ii) The owner understands that the Notes are being offered only in a
transaction not involving any public offering in the United States within
the meaning of the Securities Act, the Notes have not been and shall not be
registered under the Securities Act, and, if in the future the owner
decides to offer, resell, pledge or otherwise transfer the Notes, such
Notes may only be offered, resold, pledged or otherwise transferred only in
accordance with this Indenture and the applicable legend on such Notes set
forth in Exhibits A-1, A-2, A-3, B, C, D, E, F, G and H. The owner
acknowledges that no representation is made by the Issuer, the Co-Issuer or
the Dealers, as the case may be, as to the availability of any exemption
under the Securities Act or any state securities laws for resale of the
Notes.

(iii) The owner is not purchasing the Notes with a view to the resale,
distribution or other disposition thereof in violation of the Securities
Act. The owner understands that an investment in the Notes involves certain
risks, including the risk of loss of all or a substantial part of its
investment under certain circumstances. The owner has had access to such
financial and other information concerning the Issuer, the Co-Issuer and
the Notes as it deemed necessary or appropriate in order to make an
informed investment decision with respect to its purchase of the Notes,
including, without limitation, an opportunity to ask questions of and
request information from the Collateral Manager, the Initial Purchaser, the
Issuer and the Co-Issuer and access to such legal and tax representation or
counsel as the owner deemed necessary or appropriate.

(iv) In connection with the purchase of the Notes (A) none of the
Issuer, the Co-Issuer, the Dealers, the Collateral Manager or the Trustee
is acting as a fiduciary or financial or investment adviser for the owner;
(B) the owner is not relying (for purposes of making any investment
decision or otherwise) upon any advice, counsel or representations (whether
written or oral) of the Issuer, the Co-Issuer, the Dealers, the Collateral
Manager or the Trustee other than in a current final offering memorandum
for such Notes and any representations expressly set forth in a written
agreement with such party; (C) none of the Issuer, the Co-Issuer, the
Dealers, the Collateral Manager or the Trustee has given to the owner
(directly or indirectly through any other person) any assurance, guarantee,
or representation whatsoever as to the expected or projected success,
profitability, return, performance, result, effect, consequence, or benefit
(including legal, regulatory, tax, financial, accounting, or otherwise) of
its purchase; (D) the owner has consulted with its own legal, regulatory,
tax, business, investment, financial, and accounting advisers to the extent
it has deemed necessary, and it has made its own investment decisions
(including decisions regarding the suitability of any transaction pursuant
to this Indenture) based upon its own judgment and upon any advice from
such advisers as it has deemed necessary and not upon any view expressed by
the Issuer, the Co-Issuer, the Dealers, the Collateral Manager or the
Trustee; and (E) the owner is purchasing the Notes with a full
understanding of all of the terms, conditions and risks thereof (economic
and otherwise), and is capable of assuming and willing to assume
(financially and otherwise) these risks.

(v) The owner understands that the Notes shall bear the applicable
legend set forth in Exhibits A-1, A-2, A-3, B, C, D, E, F, G and H. The
Rule 144A Global Securities may not at any time be held by or on behalf of
any U.S. Person that is not a

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QIB who is a Qualified Purchaser. The owner must inform a prospective
transferee of the transfer restrictions.

(vi) The Notes will bear the applicable legend set forth in Exhibits
A-1, A-2, A-3, B, C, D, E, F, G and H unless the Issuer and the Co-Issuer
determine otherwise in compliance with applicable law.

(vii) Unless a prospective Holder of a Note otherwise provides another
representation acceptable to the Trustee, the Collateral Manager, the
Issuer and the Co-Issuer, each Holder of a Global Security, by its
acquisition thereof, shall be deemed to have represented to the Issuer, the
Co-Issuer, the Collateral Manager and the Trustee that either (A) no part
of the funds being used to pay the purchase price for such Notes
constitutes an asset of any "employee benefit plan" (as defined in Section
3(3) of ERISA) or "plan" (as defined in Section 4975(e)(1) of the Code)
that is subject to Title I of ERISA or Section 4975 of the Code or any
other employee benefit plan or plan which is subject to any federal, state
or local law ("Similar Law") that is substantially similar to Section 406
of ERISA or Section 4975 of the Code (each a "Benefit Plan", or an entity
whose underlying assets include plan assets of any such Benefit Plan, or
(B) if the funds being used to pay the purchase price for such Notes
include plan assets of any Benefit Plan, its purchase and holding will not
constitute or result in a non-exempt prohibited transaction under Section
406 of ERISA or Section 4975 of the Code, or in the case of any Benefit
Plan subject to Similar Law, do not result in a non-exempt violation of
Similar Law.

(viii) The owner shall not, at any time, offer to buy or offer to sell
the Notes by any form of general solicitation or advertising, including,
but not limited to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar medium or
broadcast over television or radio or at a seminar or meeting whose
attendees have been invited by general solicitations or advertising.

(ix) The owner is not a member of the public in the Cayman Islands,
within the meaning of Section 194 of the Cayman Islands Companies Law (2004
Revision).

(x) The owner understands that the Issuer, the Co-Issuer, the Trustee
or the Paying Agent shall require certification acceptable to it (A) as a
condition to the payment of principal of and interest on (and commitment
fees in respect of) any Notes without, or at a reduced rate of, U.S.
withholding or backup withholding tax, and (B) to enable the Issuer, the
Co-Issuer, the Trustee and the Paying Agent to determine their duties and
liabilities with respect to any taxes or other charges that they may be
required to pay, deduct or withhold from payments in respect of such Notes
or the Holder of such Notes under any present or future law or regulation
of the Cayman Islands or the United States or any present or future law or
regulation of any political subdivision thereof or taxing authority therein
or to comply with any reporting or other requirements under any such law or
regulation. Such certification may include U.S. federal income tax forms
(such as IRS Form W-8BEN (Certification of Foreign Status of Beneficial
Owner), IRS Form W-8IMY (Certification of Foreign Intermediary Status), IRS
Form W-9 (Request for Taxpayer Identification Number and Certification), or
IRS Form W-8ECI (Certification

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of Foreign Person's Claim for Exemption from Withholding on Income
Effectively Connected with Conduct of a U.S. Trade or Business) or any
successors to such IRS forms). In addition, the Issuer, the Co-Issuer, the
Trustee or the Paying Agent may require certification acceptable to it to
enable the Issuer to qualify for a reduced rate of withholding in any
jurisdiction from or through which the Issuer receives payments on its
assets. Each owner agrees to provide any certification requested pursuant
to this paragraph and to update or replace such form or certification in
accordance with its terms or its subsequent amendments.

(xi) The owner hereby acknowledges that it is its intent and that it
understands it is the intent of the Issuer that, for purposes of U.S.
federal, state and local income and franchise tax and any other income
taxes, for so long as a direct or indirect wholly-owned subsidiary of the
Arbor Parent owns 100% of the Preferred Shares and the ordinary shares of
the Issuer, the Issuer will be treated as a Qualified REIT Subsidiary and
the Notes will be treated as indebtedness solely of the Arbor Parent, and
(B) the Preferred Shares will be treated as equity; the owner agrees to
such treatment and agrees to take no action inconsistent with such
treatment.

(xii) The owner, if not a "United States person" (as defined in
Section 7701(a)(30) of the Code), either: (A) is not a bank (within the
meaning of Section 881(c)(3)(A) of the Code) (and see (C) below); (B) is a
bank that has provided an IRS Form W-8ECI representing that all payments
received or to be received by it from the Issuer are effectively connected
with the conduct of a trade or business in the United States; or (C) is a
bank and is, or is not a bank (within the meaning of Section 881(c)(3)(A)
of the Code) but with respect to commitment fees is, eligible for benefits
under an income tax treaty with the United States that eliminates U.S.
federal income taxation of U.S. source interest and commitment fees not
attributable to a permanent establishment in the United States and the
Issuer is treated as a fiscally transparent entity (as defined in Treasury
Regulations section 1.894-1(d)(3)(iii)) under the laws of owner's
jurisdiction with respect to payments made on the Collateral Debt
Securities held by the Issuer. 

(xiii) The owner understands that the Notes have not been approved or
disapproved by the SEC or any other governmental authority or agency or any
jurisdiction and that neither the SEC nor any other governmental authority
or agency has passed upon the accuracy of the final offering memorandum
relating to the Notes. The owner further understands that any
representation to the contrary is a criminal offense.

(xiv) The owner will, prior to any sale, pledge or other transfer by
such owner of any Note (or interest therein), obtain from the prospective
transferee, and deliver to the Trustee, a duly executed transferee
certificate addressed to each of the Trustee, the Issuer, the Co-Issuer and
the Collateral Manager in the form of the relevant exhibit attached hereto,
and such other certificates and other information as the Issuer, the
Co-Issuer, the Collateral Manager or the Trustee may reasonably require to
confirm that the proposed transfer complies with the transfer restrictions
contained herein.

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(xv) The owner agrees that no Note may be purchased, sold, pledged or
otherwise transferred in an amount less than the minimum denomination set
forth in this Indenture. In addition, the owner understands that the Notes
will be transferable only upon registration of the transferee in the Note
Register of the Issuer following delivery to the Note Registrar of a duly
executed transfer certificate (and with respect to the Class A-1AR Notes,
the Definitive Class A-1AR Notes to be transferred), and any other
certificates and other information required by this Indenture.

(xvi) The owner is aware and agrees that no Note (or beneficial
interest therein) may be offered or sold, pledged or otherwise transferred
(i) to a transferee taking delivery of such Note represented by a Rule 144A
Global Security except (A) to a transferee that the owner reasonably
believes is a QIB, purchasing for its account, to which notice is given
that the resale, pledge or other transfer is being made in reliance on the
exemption from the registration requirements of the Securities Act provided
by Rule 144A or another Person the sale to which is exempt under the
Securities Act, (B) to a transferee that is a Qualified Purchaser, and (C)
if such transfer is made in accordance with any applicable securities laws
of any state of the United States and any other relevant jurisdiction, (ii)
to a transferee taking delivery of such Note represented by a Regulation S
Global Security except (A) to a transferee that is acquiring such interest
in an offshore transaction in accordance with Rule 904 of Regulation S, (B)
to a transferee that is not a U.S. resident (within the meaning of the
Investment Company Act) unless such transferee is a Qualified Purchaser,
(C) such transfer is made in compliance with the other requirements set
forth in this Indenture and (D) if such transfer is made in accordance with
any applicable securities laws of any state of the United States and any
other jurisdiction or (iii) if such transfer would have the effect of
requiring the Issuer or the Collateral to register as an "investment
company" under the Investment Company Act.

(xvii) The owner understands that there is no market for the Notes and
that no assurances can be given as to the liquidity of any trading market
for the Notes and that it is unlikely that a trading market for the Notes
will develop. The owner further understands that, although the Dealers may
from time to time make a market in the Notes, the Dealers are not under any
obligation to do so and, following the commencement of any market-making,
may discontinue the same at any time. Accordingly, the owner must be
prepared to hold the Notes until the Stated Maturity.

(xviii) The owner agrees that (i) any sale, pledge or other transfer
of a Note (or any beneficial interest therein) made in violation of the
transfer restrictions contained in this Indenture, or made based upon any
false or inaccurate representation made by the owner or a transferee to the
Issuer, the Trustee or the Note Registrar, will be void and of no force or
effect and (ii) none of the Issuer, the Trustee and the Note Registrar has
any obligation to recognize any sale, pledge or other transfer of a Note
(or any beneficial interest therein) made in violation of any such transfer
restriction or made based upon any such false or inaccurate representation.

(xix) The owner approves and consents to any direct trades between the
Issuer and the Collateral Manager and/or its affiliates that is permitted
under the terms of this Indenture and the Collateral Management Agreement.

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(xx) The owner acknowledges that the Issuer, the Co-Issuer, the
Trustee, the Note Registrar, the Collateral Manager, the Dealers and others
will rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and agrees that, if any of the
acknowledgments, representations or warranties made or deemed to have been
made by it in connection with its purchase of the Notes are no longer
accurate, the owner will promptly notify the Issuer, the Co-Issuer, the
Trustee, Note Registrar, the Collateral Manager and the Dealers.

(i) Each beneficial owner of Regulation S Global Securities shall be
deemed to have made the representations set forth in clauses (ii) through (iv)
and (vi) through (xx) of Section 2.5(h) and shall be deemed to have further
represented and agreed as follows:

The owner is aware that the sale of such Notes to it is being made in
reliance on the exemption from registration provided by Regulation S and
understands that the Notes offered in reliance on Regulation S will bear the
appropriate legend set forth in Exhibits A-1, A-2, B, C, D, E, F, G and H
hereto, and be represented by one or more Regulation S Global Securities. The
Notes so represented may not at any time be held by or on behalf of U.S.
Persons. Each of the owner and the related Holder is not, and shall not be, a
U.S. Person. Before any interest in a Regulation S Global Security may be
offered, resold, pledged or otherwise transferred to a person who takes delivery
in the form of a Rule 144A Global Security, the transferee shall be required to
provide the Trustee with a written certification substantially in the form of
Exhibits K and L (as applicable) hereto as to compliance with the transfer
restrictions. The owner must inform a prospective transferee of the transfer
restrictions.

(j) Any purported transfer of a Note not in accordance with this
Section 2.5 shall be null and void and shall not be given effect for any purpose
hereunder.

(k) Notwithstanding anything contained in this Indenture to the
contrary, neither the Trustee nor the Notes Registrar (nor any other Transfer
Agent) shall be responsible or liable for compliance with applicable federal or
state securities laws (including, without limitation, the Securities Act or Rule
144A or Regulation S promulgated thereunder), the Investment Company Act, ERISA
or the Code (or any applicable regulations thereunder); provided, however, that
if a specified transfer certificate or Opinion of Counsel is required by the
express terms of this Section 2.5 to be delivered to the Trustee or Notes
Registrar prior to registration of transfer of a Note, the Trustee and/or Notes
Registrar, as applicable, is required to request, as a condition for registering
the transfer of the Note, such certificate or Opinion of Counsel and to examine
the same to determine whether it conforms on its face to the requirements hereof
(and the Trustee or Notes Registrar, as the case may be, shall promptly notify
the party delivering the same if it determines that such certificate or Opinion
of Counsel does not so conform).

(l) If the Trustee determines or is notified by the Issuer, the
Co-Issuer or the Collateral Manager that (i) a transfer or attempted or
purported transfer of any interest in any Note was consummated in compliance
with the provisions of this Section 2.5 on the basis of a materially incorrect
certification from the transferee or purported transferee, (ii) a transferee
failed to deliver to the Trustee any certification required to be delivered
hereunder or (iii) the holder of any interest in a Note is in breach of any
representation or agreement set forth in any

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certification or any deemed representation or agreement of such holder, the
Trustee shall not register such attempted or purported transfer and if a
transfer has been registered, such transfer shall be absolutely null and void ab
initio and shall vest no rights in the purported transferee (such purported
transferee, a "Disqualified Transferee") and the last preceding holder of such
interest in such Note that was not a Disqualified Transferee shall be restored
to all rights as a Holder thereof retroactively to the date of transfer of such
Note by such Holder.

In addition, the Trustee may require that the interest in the Note
referred to in (i), (ii) or (iii) in the preceding paragraph be transferred to
any person designated by the Issuer or the Collateral Manager at a price
determined by the Issuer or the Collateral Manager, as applicable, based upon
its estimation of the prevailing price of such interest and each Holder, by
acceptance of an interest in a Note, authorizes the Trustee to take such action.
In any case, the Trustee shall not be held responsible for any losses that may
be incurred as a result of any required transfer under this Section 2.5(l).

(m) Each Holder of Notes approves and consents to (i) the initial
purchase of the Collateral Debt Securities by the Issuer from Affiliates of the
Collateral Manager on or prior to the Closing Date and (ii) any other
transaction between the Issuer and the Collateral Manager or its Affiliates that
are permitted under the terms of this Indenture or the Collateral Management
Agreement.

Section 2.6 Mutilated, Defaced, Destroyed, Lost or Stolen Note.

If (a) any mutilated or defaced Note is surrendered to a Transfer
Agent, or if there shall be delivered to the Issuer, the Co-Issuer, the Trustee
and the relevant Transfer Agent (each a "Specified Person") evidence to their
reasonable satisfaction of the destruction, loss or theft of any Note, and (b)
there is delivered to the Specified Person such security or indemnity as may be
required by each Specified Person to save each of them and any agent of any of
them harmless (an unsecured indemnity agreement delivered to the Trustee by an
institutional investor with a net worth of at least $200,000,000 being deemed
sufficient to satisfy such security or indemnity requirement), then, in the
absence of notice to the Specified Persons that such Note has been acquired by a
bona fide purchaser, the Issuer and the Co-Issuer shall execute and, upon Issuer
Request, the Trustee shall authenticate and deliver, in lieu of any such
mutilated, defaced, destroyed, lost or stolen Note, a new Note, of like tenor
(including the same date of issuance) and equal principal amount, registered in
the same manner, dated the date of its authentication, bearing interest from the
date to which interest has been paid on the mutilated, defaced, destroyed, lost
or stolen Note and bearing a number not contemporaneously outstanding.

If, after delivery of such new Note, a bona fide purchaser of the
predecessor Note presents for payment, transfer or exchange such predecessor
Note, any Specified Person shall be entitled to recover such new Note from the
Person to whom it was delivered or any Person taking therefrom, and each
Specified Person shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
such Specified Person in connection therewith.

In case any such mutilated, defaced, destroyed, lost or stolen Note
has become due and payable, the Issuer and the Co-Issuer, if applicable, in
their discretion may, instead of

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issuing a new Note, pay such Note without requiring surrender thereof except
that any mutilated or defaced Note shall be surrendered.

Upon the issuance of any new Note under this Section 2.6, the Issuer
and the Co-Issuer, if applicable, may require the payment by the registered
Holder thereof of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses (including the
fees and expenses of the Trustee) connected therewith.

Every new Note issued pursuant to this Section 2.6 in lieu of any
mutilated, defaced, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer and the Co-Issuer, if
applicable, and such new Note shall be entitled, subject to the second paragraph
of this Section 2.6, to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.

The provisions of this Section 2.6 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, defaced, destroyed, lost or stolen Notes.

Section 2.7 Payment of Principal and Interest and Class A-1AR
Commitment Fee and Other Amounts; Principal and Interest Rights Preserved.

(a) The Class A-1A Notes shall accrue interest during each Interest
Accrual Period at the Class A-1A Rate. Interest on each Class A-1A Note shall be
due and payable on each Payment Date immediately following the related Interest
Accrual Period in the proportion that the outstanding principal amount of such
Class A-1A Note bears to the Aggregate Outstanding Amount of all Class A-1A
Notes; provided, however, that the payment of interest on the Class A-1A Notes
is subordinated to the payment on each Payment Date of certain amounts in
accordance with the Priority of Payments.

(b) The Class A-1AR Notes shall accrue interest during each Interest
Accrual Period at the Class A-1AR Rate. In addition, the Class A-1AR Notes shall
accrue the Class A-1AR Commitment Fee in accordance with the definition of such
term. Except as described in Section 18.2 of this Indenture, interest on each
Class A-1AR Note shall be due and payable on each Payment Date immediately
following the related Interest Accrual Period in the proportion determined in
accordance with the Class A-1AR Interest Allocation Percentage; provided that
accrued interest in respect of amounts borrowed under the Class A-1AR Notes
during the period following the Determination Date through the related Payment
Date will be payable without additional interest thereon on the next succeeding
Payment Date; and provided, further, however, that the payment of interest on
the Class A-1AR Notes is subordinated to the payment on each Payment Date of
certain amounts in accordance with the Priority of Payments.

(c) The Class A-2 Notes shall accrue interest during each Interest
Accrual Period at the Class A-2 Rate. Interest on each Class A-2 Note shall be
due and payable on each Payment Date immediately following the related Interest
Accrual Period in the proportion that the outstanding principal amount of such
Class A-2 Note bears to the Aggregate Outstanding Amount of all Class A-2 Notes;
provided, however, that the payment of interest on the Class A-2 Notes is
subordinated to the payment on each Payment Date of the interest due and payable
on

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the Class A-1 Notes (including any Class A-1 Defaulted Interest Amount) and the
Class A-1AR Commitment Fee and certain other amounts in accordance with the
Priority of Payments.

(d) The Class B Notes shall accrue interest during each Interest
Accrual Period at the Class B Rate. Interest on each Class B Note shall be due
and payable on each Payment Date immediately following the related Interest
Accrual Period in the proportion that the outstanding principal amount of such
Class B Note bears to the Aggregate Outstanding Amount of all Class B Notes;
provided, however, that the payment of interest on the Class B Notes is
subordinated to the payment on each Payment Date of the interest due and payable
on the Class A Notes (including any Class A Defaulted Interest Amount) and the
Class A-1AR Commitment Fee and certain other amounts in accordance with the
Priority of Payments.

(e) The Class C Notes shall accrue interest during each Interest
Accrual Period at the Class C Rate. Interest on each Class C Note shall be due
and payable on each Payment Date immediately following the related Interest
Accrual Period in the proportion that the outstanding principal amount of such
Class C Note bears to the Aggregate Outstanding Amount of all Class C Notes;
provided, however, that the payment of interest on the Class C Notes is
subordinated to the payment on each Payment Date of the interest due and payable
on the Class A Notes and the Class B Notes (including any Class A Defaulted
Interest Amount and Class B Defaulted Interest Amount) and the Class A-1AR
Commitment Fee and certain other amounts in accordance with the Priority of
Payments.

For so long as any Class B Notes are Outstanding, any payment of
interest due on the Class C Notes which is not available to be paid (the "Class
C Capitalized Interest") in accordance with the Priority of Payments on any
Payment Date shall not be considered "due and payable" for the purpose of
Section 5.1(a) hereof (and the failure to pay such Class C Capitalized Interest
shall not be an Event of Default) until the Payment Date on which funds are
available to pay all or any portion of such Class C Capitalized Interest in
accordance with the Priority of Payments. On or after such Payment Date, only
such portion of any payment of Class C Capitalized Interest for which funds are
available in accordance with the Priority of Payments shall be considered "due
and payable" and the failure to pay such portion of Class C Capitalized Interest
shall be an Event of Default. Class C Capitalized Interest shall be added to the
principal amount of the Class C Notes, shall bear interest thereafter at the
Class C Rate (to the extent lawful) and shall be payable on the first Payment
Date on which funds are permitted to be used for such purpose in accordance with
the Priority of Payments. On or after the Payment Date on which the Class B
Notes are no longer Outstanding, to the extent interest is due (excluding any
previously deferred Class C Capitalized Interest) but not paid on the Class C
Notes, the failure to pay such interest shall constitute an Event of Default
hereunder.

(f) The Class D Notes shall accrue interest during each Interest
Accrual Period at the Class D Rate. Interest on each Class D Note shall be due
and payable on each Payment Date immediately following the related Interest
Accrual Period in the proportion that the outstanding principal amount of such
Class D Note bears to the Aggregate Outstanding Amount of all Class D Notes;
provided, however, that, except to the extent set forth in the Priority of
Payments, the payment of interest on the Class D Notes is subordinated to the
payment on each Payment Date of the interest due and payable on the Class A
Notes, the Class B Notes and the Class C Notes (including any Class A Defaulted
Interest Amount, Class B

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Defaulted Interest Amount, Class C Defaulted Interest Amount and Class C
Capitalized Interest) and the Class A-1AR Commitment Fee and certain other
amounts in accordance with the Priority of Payments.

For so long as any Class C Notes are Outstanding, any payment of
interest due on the Class D Notes which is not available to be paid ("Class D
Capitalized Interest") in accordance with the Priority of Payments on any
Payment Date shall not be considered "due and payable" for the purpose of
Section 5.1(a) hereof (and the failure to pay such Class D Capitalized Interest
shall not be an Event of Default) until the Payment Date on which funds are
available to pay all or any portion of such Class D Capitalized Interest in
accordance with the Priority of Payments. On or after such Payment Date, only
such portion of any payment of Class D Capitalized Interest for which funds are
available in accordance with the Priority of Payments shall be considered "due
and payable" and the failure to pay such portion of Class D Capitalized Interest
shall be an Event of Default. Class D Capitalized Interest shall be added to the
principal amount of the Class D Notes, shall bear interest thereafter at the
Class D Rate (to the extent lawful) and shall be payable on the first Payment
Date on which funds are permitted to be used for such purpose in accordance with
the Priority of Payments. On or after the Payment Date on which the Class C
Notes are no longer Outstanding, to the extent interest is due (excluding any
previously deferred Class D Capitalized Interest) but not paid on the Class D
Notes, the failure to pay such interest shall constitute an Event of Default
hereunder.

(g) The Class E Notes shall accrue interest during each Interest
Accrual Period at the Class E Rate. Interest on each Class E Note shall be due
and payable on each Payment Date immediately following the related Interest
Accrual Period in the proportion that the outstanding principal amount of such
Class E Note bears to the Aggregate Outstanding Amount of all Class E Notes;
provided, however, that, except to the extent set forth in the Priority of
Payments, the payment of interest on the Class E Notes is subordinated to the
payment on each Payment Date of the interest due and payable on the Class A
Notes, the Class B Notes, the Class C Notes and the Class D Notes (including any
Class A Defaulted Interest Amount, Class B Defaulted Interest Amount, Class C
Defaulted Interest Amount, Class C Capitalized Interest, Class D Defaulted
Interest Amount and Class D Capitalized Interest) and the Class A-1AR Commitment
Fee and certain other amounts in accordance with the Priority of Payments.

For so long as any Class D Notes are Outstanding, any payment of
interest due on the Class E Notes which is not available to be paid (the "Class
E Capitalized Interest") in accordance with the Priority of Payments on any
Payment Date shall not be considered "due and payable" for the purpose of
Section 5.1(a) hereof (and the failure to pay such Class E Capitalized Interest
shall not be an Event of Default) until the Payment Date on which funds are
available to pay all or any portion of such Class E Capitalized Interest in
accordance with the Priority of Payments. On or after such Payment Date, only
such portion of any payment of Class E Capitalized Interest for which funds are
available in accordance with the Priority of Payments shall be considered "due
and payable" and the failure to pay such portion of Class E Capitalized Interest
shall be an Event of Default. Class E Capitalized Interest shall be added to the
principal amount of the Class E Notes, shall bear interest thereafter at the
Class E Rate (to the extent lawful) and shall be payable on the first Payment
Date on which funds are permitted to be used for such purpose in accordance with
the Priority of Payments. On or after the Payment Date on

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which the Class D Notes are no longer Outstanding, to the extent interest is due
(excluding any previously deferred Class E Capitalized Interest) but not paid on
the Class E Notes, the failure to pay such interest shall constitute an Event of
Default hereunder.

(h) The Class F Notes shall accrue interest during each Interest
Accrual Period at the Class F Rate. Interest on each Class F Note shall be due
and payable on each Payment Date immediately following the related Interest
Accrual Period in the proportion that the outstanding principal amount of such
Class F Note bears to the Aggregate Outstanding Amount of all Class F Notes;
provided, however, that, except to the extent set forth in the Priority of
Payments, the payment of interest on the Class F Notes is subordinated to the
payment on each Payment Date of the interest due and payable on the Class A
Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E
Notes (including any Class A Defaulted Interest Amount, Class B Defaulted
Interest Amount, Class C Defaulted Interest Amount, Class C Capitalized
Interest, Class D Defaulted Interest Amount, Class D Capitalized Interest, Class
E Defaulted Interest Amount and Class E Capitalized Interest) and the Class
A-1AR Commitment Fee and certain other amounts in accordance with the Priority
of Payments.

For so long as any Class E Notes are Outstanding, any payment of
interest due on the Class F Notes which is not available to be paid ("Class F
Capitalized Interest") in accordance with the Priority of Payments on any
Payment Date shall not be considered "due and payable" for the purpose of
Section 5.1(a) hereof (and the failure to pay such Class F Capitalized Interest
shall not be an Event of Default) until the Payment Date on which funds are
available to pay all or any portion of such Class F Capitalized Interest in
accordance with the Priority of Payments. On or after such Payment Date, only
such portion of any payment of Class F Capitalized Interest for which funds are
available in accordance with the Priority of Payments shall be considered "due
and payable" and the failure to pay such portion of Class F Capitalized Interest
shall be an Event of Default. Class F Capitalized Interest shall be added to the
principal amount of the Class F Notes, shall bear interest thereafter at the
Class F Rate (to the extent lawful) and shall be payable on the first Payment
Date on which funds are permitted to be used for such purpose in accordance with
the Priority of Payments. On or after the Payment Date on which the Class E
Notes are no longer Outstanding, to the extent interest is due (excluding any
previously deferred Class F Capitalized Interest) but not paid on the Class F
Notes, the failure to pay such interest shall constitute an Event of Default
hereunder.

(i) The Class G Notes shall accrue interest during each Interest
Accrual Period at the Class G Rate. Interest on each Class G Note shall be due
and payable on each Payment Date immediately following the related Interest
Accrual Period in the proportion that the outstanding principal amount of such
Class G Note bears to the Aggregate Outstanding Amount of all Class G Notes;
provided, however, that, except to the extent set forth in the Priority of
Payments, the payment of interest on the Class G Notes is subordinated to the
payment on each Payment Date of the interest due and payable on the Class A
Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E
Notes and the Class F Notes (including any Class A Defaulted Interest Amount,
Class B Defaulted Interest Amount, Class C Defaulted Interest Amount, Class C
Capitalized Interest, Class D Defaulted Interest Amount, Class D Capitalized
Interest, Class E Defaulted Interest Amount, Class E Capitalized Interest, Class
F

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Defaulted Interest Amount and Class F Capitalized Interest) and the Class A-1AR
Commitment Fee and certain other amounts in accordance with the Priority of
Payments.

For so long as any Class F Notes are Outstanding, any payment of
interest due on the Class G Notes which is not available to be paid (the "Class
G Capitalized Interest") in accordance with the Priority of Payments on any
Payment Date shall not be considered "due and payable" for the purpose of
Section 5.1(a) hereof (and the failure to pay such Class G Capitalized Interest
shall not be an Event of Default) until the Payment Date on which funds are
available to pay all or any portion of such Class G Capitalized Interest in
accordance with the Priority of Payments. On or after such Payment Date, only
such portion of any payment of Class G Capitalized Interest for which funds are
available in accordance with the Priority of Payments shall be considered "due
and payable" and the failure to pay such portion of Class G Capitalized Interest
shall be an Event of Default. Class G Capitalized Interest shall be added to the
principal amount of the Class G Notes, shall bear interest thereafter at the
Class G Rate (to the extent lawful) and shall be payable on the first Payment
Date on which funds are permitted to be used for such purpose in accordance with
the Priority of Payments. On or after the Payment Date on which the Class F
Notes are no longer Outstanding, to the extent interest is due (excluding any
previously deferred Class G Capitalized Interest) but not paid on the Class G
Notes, the failure to pay such interest shall constitute an Event of Default
hereunder.

(j) The Class H Notes shall accrue interest during each Interest
Accrual Period at the Class H Rate. Interest on each Class H Note shall be due
and payable on each Payment Date immediately following the related Interest
Accrual Period in the proportion that the outstanding principal amount of such
Class H Note bears to the Aggregate Outstanding Amount of all Class H Notes;
provided, however, that, except to the extent set forth in the Priority of
Payments, the payment of interest on the Class H Notes is subordinated to the
payment on each Payment Date of the interest due and payable on the Class A
Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E
Notes, the Class F Notes and the Class G Notes (including any Class A Defaulted
Interest Amount, Class B Defaulted Interest Amount, Class C Defaulted Interest
Amount, Class C Capitalized Interest, Class D Defaulted Interest Amount, Class D
Capitalized Interest, Class E Defaulted Interest Amount, Class E Capitalized
Interest, Class F Defaulted Interest Amount, Class F Capitalized Interest, Class
G Defaulted Interest Amount and Class G Capitalized Interest) and the Class
A-1AR Commitment Fee and certain other amounts in accordance with the Priority
of Payments.

For so long as any Class G Notes are Outstanding, any payment of
interest due on the Class H Notes which is not available to be paid ("Class H
Capitalized Interest") in accordance with the Priority of Payments on any
Payment Date shall not be considered "due and payable" for the purpose of
Section 5.1(a) hereof (and the failure to pay such Class H Capitalized Interest
shall not be an Event of Default) until the Payment Date on which funds are
available to pay all or any portion of such Class H Capitalized Interest in
accordance with the Priority of Payments. On or after such Payment Date, only
such portion of any payment of Class H Capitalized Interest for which funds are
available in accordance with the Priority of Payments shall be considered "due
and payable" and the failure to pay such portion of Class H Capitalized Interest
shall be an Event of Default. Class H Capitalized Interest shall be added to the
principal amount of the Class H Notes, shall bear interest thereafter at the
Class H Rate (to the extent lawful) and shall be payable on the first Payment
Date on which funds are permitted to be used

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for such purpose in accordance with the Priority of Payments. On or after the
Payment Date on which the Class G Notes are no longer Outstanding, to the extent
interest is due (excluding any previously deferred Class H Capitalized Interest)
but not paid on the Class H Notes, the failure to pay such interest shall
constitute an Event of Default hereunder.

(k) Upon any Optional Redemption, Tax Redemption, Auction Call
Redemption or Clean-up Call, all net proceeds remaining after the sale of the
Collateral Debt Securities in accordance with Article 12 hereof and Cash and
proceeds from Eligible Investments (other than the Issuer's right, title and
interest in the property described in clause (i) of the definition of "Excepted
Assets"), after the payment of the amounts referred to in clauses (1) through
(23), (25), (26), (27) and (28) of Section 11.1(a)(i) and clauses (1) through
(14) of Section 11.1(a)(ii) will be distributed by the Trustee to the Preferred
Shares Paying Agent for distribution to the Holders of the Preferred Shares in
accordance with the Preferred Shares Paying Agency Agreement, whereupon the
Preferred Shares will be cancelled and deemed paid in full for all purposes.

(l) Interest shall cease to accrue on each Class of Notes, or in the
case of a partial repayment, on such part, from the date of repayment or Stated
Maturity unless payment of principal is improperly withheld or unless a Default
has occurred with respect to such payments of principal.

(m) The principal of each Class of Notes matures at par and is due and
payable on the Stated Maturity, unless the unpaid principal of such Class of
Notes becomes due and payable at an earlier date by declaration of acceleration,
call for redemption or otherwise; provided, however, that the payment of
principal of the Class A-2 Notes (other than payment of principal pursuant to
Section 9.6 or Section 9.7) may only occur after the principal of the Class A-1A
Notes and the Class A-1AR Notes have been paid in full and the Class A-1AR
Commitments have been terminated and is subordinated to the payment on each
Payment Date of the principal and interest due and payable on the Class A-1A
Notes and the Class A-1AR Notes, and payment of the Class A-1AR Commitment Fee,
and other amounts in accordance with the Priority of Payments and any payment of
principal of the Class A-2 Notes which is not paid, in accordance with the
Priority of Payments, on any Payment Date, shall not be considered "due and
payable" solely for purposes of Section 5.1(b) until the Payment Date on which
such principal may be paid in accordance with the Priority of Payments or all of
the Class A-1A Notes and the Class A-1AR Notes have been paid in full and the
Class A-1AR Commitments have been terminated; provided, further, that the
payment of principal of the Class B Notes (other than payment of principal
pursuant to Section 9.6 or Section 9.7) may only occur after the principal of
the Class A Notes has been paid in full and the Class A-1AR Commitments have
been terminated and is subordinated to the payment on each Payment Date of the
principal and interest due and payable on the Class A Notes, and in the case of
the Class A-1AR Notes, payment of the Class A-1AR Commitment Fee, and other
amounts in accordance with the Priority of Payments and any payment of principal
of the Class B Notes which is not paid, in accordance with the Priority of
Payments, on any Payment Date, shall not be considered "due and payable" solely
for purposes of Section 5.1(b) until the Payment Date on which such principal
may be paid in accordance with the Priority of Payments or all of the Class A
Notes have been paid in full and the Class A-1AR Commitments have been
terminated; provided, further, that the payment of principal of the Class C
Notes (other than payment of the amounts constituting Class C

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Capitalized Interest, notwithstanding that such Class C Capitalized Interest may
be deemed to constitute additions to principal, and other than the payment of
principal pursuant to Section 9.6 or Section 9.7) may only occur after the
principal of the Class A Notes and the Class B Notes has been paid in full and
the Class A-1AR Commitments have been terminated and is subordinated to the
payment on each Payment Date of the principal and interest due and payable on
the Class A Notes, and in the case of the Class A-1AR Notes, payment of the
Class A-1AR Commitment Fee, the Class B Notes and other amounts in accordance
with the Priority of Payments and any payment of principal of the Class C Notes
which is not paid, in accordance with the Priority of Payments, on any Payment
Date, shall not be considered "due and payable" solely for purposes of Section
5.1(b) until the Payment Date on which such principal may be paid in accordance
with the Priority of Payments or all of the Class A Notes and the Class B Notes
have been paid in full and the Class A-1AR Commitments have been terminated;
provided, further, that the payment of principal of the Class D Notes (other
than payment of the amounts constituting Class D Capitalized Interest,
notwithstanding that such Class D Capitalized Interest may be deemed to
constitute additions to principal, and other than the payment of principal
pursuant to Section 9.6 or Section 9.7) may only occur after the principal of
the Class A Notes, the Class B Notes and the Class C Notes has been paid in full
and the Class A-1AR Commitments have been terminated and is subordinated to the
payment on each Payment Date of the principal and interest due and payable on
the Class A Notes, and in the case of the Class A-1AR Notes, payment of the
Class A-1AR Commitment Fee, the Class B Notes, the Class C Notes and other
amounts in accordance with the Priority of Payments and any payment of principal
of the Class D Notes which is not paid, in accordance with the Priority of
Payments, on any Payment Date, shall not be considered "due and payable" solely
for purposes of Section 5.1(b) until the Payment Date on which such principal
may be paid in accordance with the Priority of Payments or all of the Class A
Notes, the Class B Notes and the Class C Notes have been paid in full and the
Class A-1AR Commitments have been terminated; provided, further, that the
payment of principal of the Class E Notes (other than payment of the amounts
constituting Class E Capitalized Interest, notwithstanding that such Class E
Capitalized Interest may be deemed to constitute additions to principal, and
other than the payment of principal pursuant to Section 9.6 or Section 9.7) may
only occur after the principal of the Class A Notes, the Class B Notes, the
Class C Notes and the Class D Notes has been paid in full and the Class A-1AR
Commitments have been terminated and is subordinated to the payment on each
Payment Date of the principal and interest due and payable on the Class A Notes,
and in the case of the Class A-1AR Notes, the Class A-1AR Commitment Fee, the
Class B Notes, the Class C Notes, the Class D Notes and other amounts in
accordance with the Priority of Payments and any payment of principal of the
Class E Notes which is not paid, in accordance with the Priority of Payments, on
any Payment Date, shall not be considered "due and payable" solely for purposes
of Section 5.1(b) until the Payment Date on which such principal may be paid in
accordance with the Priority of Payments or all of the Class A Notes, the Class
B Notes, the Class C Notes and the Class D Notes have been paid in full and the
Class A-1AR Commitments have been terminated; provided, further, that the
payment of principal of the Class F Notes (other than payment of the amounts
constituting Class F Capitalized Interest, notwithstanding that such Class F
Capitalized Interest may be deemed to constitute additions to principal, and
other than the payment of principal pursuant to Section 9.6 or Section 9.7) may
only occur after the principal of the Class A Notes, the Class B Notes, the
Class C Notes, the Class D Notes and the Class E Notes has been paid in full and
the Class A-1AR Commitments have been terminated and is subordinated to the
payment on each

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Payment Date of the principal and interest due and payable on the Class A Notes,
and in the case of the Class A-1AR Notes, the Class A-1AR Commitment Fee, the
Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and other
amounts in accordance with the Priority of Payments and any payment of principal
of the Class F Notes which is not paid, in accordance with the Priority of
Payments, on any Payment Date, shall not be considered "due and payable" solely
for purposes of Section 5.1(b) until the Payment Date on which such principal
may be paid in accordance with the Priority of Payments or all of the Class A
Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E
Notes have been paid in full and the Class A-1AR Commitments have been
terminated; provided, further, that the payment of principal of the Class G
Notes (other than payment of the amounts constituting Class G Capitalized
Interest, notwithstanding that such Class G Capitalized Interest may be deemed
to constitute additions to principal, and other than the payment of principal
pursuant to Section 9.6 or Section 9.7) may only occur after the principal of
the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the
Class E Notes and the Class F Notes has been paid in full and the Class A-1AR
Commitments have been terminated and is subordinated to the payment on each
Payment Date of the principal and interest due and payable on the Class A Notes,
and in the case of the Class A-1AR Notes, the Class A-1AR Commitment Fee the
Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes, the
Class F Notes and other amounts in accordance with the Priority of Payments and
any payment of principal of the Class G Notes which is not paid, in accordance
with the Priority of Payments, on any Payment Date, shall not be considered "due
and payable" solely for purposes of Section 5.1(b) until the Payment Date on
which such principal may be paid in accordance with the Priority of Payments or
all of the Class A Notes, the Class B Notes, the Class C Notes, the Class D
Notes, the Class E Notes and the Class F Notes have been paid in full and the
Class A-1AR Commitments have been terminated; provided, further, that the
payment of principal of the Class H Notes (other than payment of the amounts
constituting Class H Capitalized Interest, notwithstanding that such Class H
Capitalized Interest may be deemed to constitute additions to principal, and
other than the payment of principal pursuant to Section 9.6 or Section 9.7) may
only occur after the principal of the Class A Notes, the Class B Notes, the
Class C Notes, the Class D Notes, the Class E Notes, the Class F Notes and the
Class G Notes has been paid in full and the Class A-1AR Commitments have been
terminated and is subordinated to the payment on each Payment Date of the
principal and interest due and payable on the Class A Notes, and in the case of
the Class A-1AR Notes, the Class A-1AR Commitment Fee, the Class B Notes, the
Class C Notes, the Class D Notes, the Class E Notes, the Class F Notes, the
Class G Notes and other amounts in accordance with the Priority of Payments and
any payment of principal of the Class H Notes which is not paid, in accordance
with the Priority of Payments, on any Payment Date, shall not be considered "due
and payable" solely for purposes of Section 5.1(b) until the Payment Date on
which such principal may be paid in accordance with the Priority of Payments or
all of the Class A Notes, the Class B Notes, the Class C Notes, the Class D
Notes, the Class E Notes, the Class F Notes and the Class G Notes have been paid
in full and the Class A-1AR Commitments have been terminated.

(n) As a condition to the payment of principal of and interest on any
Note without the imposition of U.S. withholding tax, the Issuer shall require
certification acceptable to it to enable the Issuer, the Co-Issuer, the Trustee,
the Preferred Shares Paying Agent and the Paying Agent to determine their duties
and liabilities with respect to any taxes or other charges that they may be
required to deduct or withhold from payments in respect of such Security under

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any present or future law or regulation of the United States or any present or
future law or regulation of any political subdivision thereof or taxing
authority therein or to comply with any reporting or other requirements under
any such law or regulation. Such certification may include U.S. federal income
tax forms (such as IRS Form W-8BEN (Certification of Foreign Status of
Beneficial Owner), Form W-8IMY (Certification of Foreign Intermediary Status),
IRS Form W-9 (Request for Taxpayer Identification Number and Certification), or
IRS Form W-8ECI (Certification of Foreign Person's Claim for Exemption from
Withholding on Income Effectively Connected with Conduct of a U.S. Trade or
Business) or any successors to such IRS forms). In addition, each of the Issuer,
Co-Issuer, the Trustee, Preferred Shares Paying Agent or any Paying Agent may
require certification acceptable to it to enable the Issuer to qualify for a
reduced rate of withholding in any jurisdiction from or through which the Issuer
receives payments on its assets. Each Holder and each beneficial owner of Notes
agree to provide any certification requested pursuant to Section 2.7(n) and to
update or replace such form or certification in accordance with its terms or its
subsequent amendments.

(o) Payments in respect of interest on and principal of the Notes
shall be payable by wire transfer in immediately available funds to a Dollar
account maintained by the Holder or its nominee; provided that the Holder has
provided wiring instructions to the Trustee on or before the related Record Date
or, if wire transfer cannot be effected, by a Dollar check drawn on a bank in
the United States, or by a Dollar check mailed to the Holder at its address in
the Notes Register. The Issuer expects that the Depository or its nominee, upon
receipt of any payment of principal or interest in respect of a Global Security
held by the Depository or its nominee, shall immediately credit the applicable
Agent Members' accounts with payments in amounts proportionate to the respective
beneficial interests in such Global Security as shown on the records of the
Depository or its nominee. The Issuer also expects that payments by Agent
Members to owners of beneficial interests in such Global Security held through
Agent Members will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of the Agent Members. Upon final payment due on the Maturity of a
Note, the Holder thereof shall present and surrender such Note at the Corporate
Trust Office of the Trustee or at the office of the Paying Agent (outside of the
United States if then required by applicable law in the case of a Certificated
Note issued in exchange for a beneficial interest in the Regulation S Global
Security) on or prior to such Maturity. None of the Issuer, the Co-Issuer, the
Trustee or the Paying Agent will have any responsibility or liability with
respect to any records maintained by the Holder of any Note with respect to the
beneficial holders thereof or payments made thereby on account of beneficial
interests held therein. In the case where any final payment of principal and
interest is to be made on any Note (other than on the Stated Maturity thereof)
the Issuer or, upon Issuer Request, the Trustee, in the name and at the expense
of the Issuer, shall not more than 30 nor fewer than five Business Days prior to
the date on which such payment is to be made, mail to the Persons entitled
thereto at their addresses appearing on the Notes Register, a notice which shall
state the date on which such payment will be made and the amount of such payment
per $500,000 initial principal amount of Notes and shall specify the place where
such Notes may be presented and surrendered for such payment.

(p) Subject to the provisions of Sections 2.7(a) through (m) and
Section 2.7(u) hereof, Holders of Notes as of the Record Date in respect of a
Payment Date shall be entitled to

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the interest accrued and payable in accordance with the Priority of Payments and
principal payable in accordance with the Priority of Payments on such Payment
Date. All such payments that are mailed or wired and returned to the Paying
Agent shall be held for payment as herein provided at the office or agency of
the Issuer and the Co-Issuer to be maintained as provided in Section 7.2 (or
returned to the Trustee).

(q) Interest on any Note which is payable, and is punctually paid or
duly provided for, on any Payment Date shall be paid to the Person in whose name
that Note (or one or more predecessor Notes) is registered at the close of
business on the Record Date for such interest.

(r) Payments of principal to Holders of the Notes of each Class shall
be made in the proportion that the Aggregate Outstanding Amount of the Notes of
such Class registered in the name of each such Holder on such Record Date bears
to the Aggregate Outstanding Amount of all Notes of such Class on such Record
Date.

(s) Interest accrued with respect to the Notes shall be calculated as
described in the applicable form of Note attached hereto.

(t) All reductions in the principal amount of a Note (or one or more
predecessor Notes) effected by payments of installments of principal made on any
Payment Date, Redemption Date or upon Maturity shall be binding upon all future
Holders of such Note and of any Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof, whether or not such payment
is noted on such Note.

(u) Notwithstanding anything contained in this Indenture to the
contrary, the obligations of the Issuer and the Co-Issuer under the Notes, this
Indenture and the other Transaction Documents are non-recourse obligations of
the Issuer and the Co-Issuer payable solely from the Assets and following
realization of the Assets, all obligations of the Co-Issuers and any claims of
the Noteholders, the Trustee or any other parties to any Transaction Documents
shall be extinguished and shall not thereafter revive. No recourse shall be had
for the payment of any amount owing in respect of the Notes against any Officer,
director, employee, shareholder, limited partner or incorporator of the Issuer,
the Co-Issuer or any of their respective successors or assigns for any amounts
payable under the Notes or this Indenture. It is understood that the foregoing
provisions of this paragraph shall not (i) prevent recourse to the Assets for
the sums due or to become due under any security, instrument or agreement which
is part of the Assets or (ii) constitute a waiver, release or discharge of any
indebtedness or obligation evidenced by the Notes or secured by this Indenture
(to the extent it relates to the obligation to make payments on the Notes) until
such Assets have been realized, whereupon any outstanding indebtedness or
obligation in respect of the Notes, this Indenture and the other Transaction
Documents shall be extinguished and shall not thereafter revive. It is further
understood that the foregoing provisions of this paragraph shall not limit the
right of any Person to name the Issuer or the Co-Issuer as a party defendant in
any Proceeding or in the exercise of any other remedy under the Notes or this
Indenture, so long as no judgment in the nature of a deficiency judgment or
seeking personal liability shall be asked for or (if obtained) enforced against
any such Person or entity.

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(v) Subject to the foregoing provisions of this Section 2.7, each Note
delivered under this Indenture and upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights of unpaid
interest and principal that were carried by such other Note.

(w) Notwithstanding any of the foregoing provisions with respect to
payments of principal of and interest on the Notes (but subject to Sections
2.7(m) and (u)), if the Notes have become or been declared due and payable
following an Event of Default and such acceleration of Maturity and its
consequences have not been rescinded and annulled and the provisions of Section
5.5 are not applicable, then payments of principal of and interest on such Notes
shall be made in accordance with Section 5.7 hereof.

(x) Payments in respect of the Preferred Shares as contemplated by
Sections 11.1(a)(i)(29) and 11.1(a)(ii)(15) shall be made by the Trustee to the
Preferred Shares Paying Agent.

Section 2.8 Persons Deemed Owners.

The Issuer, the Co-Issuer, the Trustee, and any agent of the Issuer,
the Co-Issuer or the Trustee may treat as the owner of a Note the Person in
whose name such Note is registered on the Notes Register on the applicable
Record Date for the purpose of receiving payments of principal of and interest
and other amounts on such Note and on any other date for all other purposes
whatsoever (whether or not such Note is overdue), and none of the Issuer, the
Co-Issuer or the Trustee nor any agent of the Issuer, the Co-Issuer or the
Trustee shall be affected by notice to the contrary; provided, however, that the
Depository, or its nominee, shall be deemed the owner of the Global Securities,
and owners of beneficial interests in Global Securities will not be considered
the owners of any Notes for the purpose of receiving notices. With respect to
the Preferred Shares, on any Payment Date, the Trustee shall deliver to the
Preferred Shares Paying Agent the distributions thereon for distribution to the
Preferred Shareholders.

Section 2.9 Cancellation.

All Notes surrendered for payment, registration of transfer, exchange
or redemption, or deemed lost or stolen, shall, if surrendered to any Person
other than the Trustee, be delivered to the Trustee, and shall be promptly
canceled by the Trustee and may not be reissued or resold. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided in
this Section 2.9, except as expressly permitted by this Indenture. All canceled
Notes held by the Trustee shall be destroyed or held by the Trustee in
accordance with its standard retention policy unless the Issuer and the
Co-Issuer shall direct by an Issuer Order that they be returned to them.

Section 2.10 Global Securities; Temporary Notes.

(a) In the event that the Depository notifies the Issuer and the
Co-Issuer that it is unwilling or unable to continue as Depository for a Global
Security or if at any time such Depository ceases to be a "Clearing Agency"
registered under the Exchange Act and a successor depository is not appointed by
the Issuer within 90 days of such notice, the Global Securities

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deposited with the Depository pursuant to Section 2.2 hereof shall be
transferred to the beneficial owners thereof subject to the procedures and
conditions set forth in this Section 2.10.

(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to Section 2.10(a) above shall be surrendered by the Depository
to the Trustee's Corporate Trust Office together with necessary instruction for
the registration and delivery of Class A-1A Notes, the Class A-2 Notes, Class B
Notes, Class C Notes, Class D Notes, Class E Notes, Class F Notes, Class G Notes
and Class H Notes in definitive registered form without interest coupons (each,
a "Certificated Note") to the beneficial owners (or such owner's nominee)
holding the ownership interests in such Global Security. Any such transfer shall
be made, without charge, and the Trustee shall authenticate and deliver, upon
such transfer of each portion of such Global Security, an equal aggregate
principal amount of Certificated Notes of the same Class and authorized
denominations. Any Certificated Notes delivered in exchange for an interest in a
Global Security shall, except as otherwise provided by Section 2.5(g), bear the
applicable legend set forth in Exhibits A-1, A-2, B, C, D, E, F, G and H, and
shall be subject to the transfer restrictions referred to in such applicable
legend. The Holder of each such registered individual Global Security may
transfer such Global Security by surrendering it at the Corporate Trust Office
of the Trustee, or at the office of the Paying Agent or Irish Paying Agent.

(c) Subject to the provisions of Section 2.10(b) above, the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Notes.

(d) In the event of the occurrence of either of the events specified
in Section 2.10(a) above, the Issuer and the Co-Issuer shall promptly make
available to the Trustee a reasonable supply of Certificated Notes.

Pending the preparation of Certificated Notes pursuant to this Section
2.10, the Issuer and the Co-Issuer may execute and, upon Issuer Order, the
Trustee shall authenticate and deliver, temporary Class A-1A Notes, Class A-2
Notes, Class B Notes, Class C Notes, Class D Notes, Class E Notes, Class F
Notes, Class G Notes or Class H Notes that are printed, lithographed,
typewritten, mimeographed or otherwise reproduced, in any authorized
denomination, substantially of the tenor of the Certificated Notes in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the Officers executing such Certificated
Notes may determine, as conclusively evidenced by their execution of such
Certificated Notes.

If temporary Certificated Notes are issued, the Issuer and the
Co-Issuer shall cause permanent Certificated Notes to be prepared without
unreasonable delay. The Certificated Notes shall be printed, lithographed,
typewritten or otherwise reproduced, or provided by any combination thereof, or
in any other manner permitted by the rules and regulations of any applicable
notes exchange, all as determined by the Officers executing such Certificated
Notes. After the preparation of Certificated Notes, the temporary Notes shall be
exchangeable for Certificated Notes upon surrender of the applicable temporary
Class A-1 Notes, Class A-2 Notes, Class B Notes, Class C Notes, Class D Notes,
Class E Notes, Class F Notes, Class G Notes or Class H Notes at the office or
agency maintained by the Issuer and the Co-Issuer for such

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purpose, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Class A-1A Notes, Class A-2 Notes, Class B Notes, Class C
Notes, Class D Notes, Class E Notes, Class F Notes, Class G Notes or Class H
Notes, the Issuer and the Co-Issuer shall execute, and the Trustee shall
authenticate and deliver, in exchange therefor the same aggregate principal
amount of Certificated Notes of authorized denominations. Until so exchanged,
the temporary Class A-1A Notes, Class A-2 Notes, Class B Notes, Class C Notes,
Class D Notes, Class E Notes, Class F Notes, Class G Notes or Class H Notes
shall in all respects be entitled to the same benefits under this Indenture as
Certificated Notes.

Section 2.11 U.S. Tax Treatment of Notes and the Issuer.

(a) Each of the Issuer and the Co-Issuer intends that, for U.S.
federal income tax purposes, the Notes be treated as debt and that the Issuer be
treated as a Qualified REIT Subsidiary. Each prospective purchaser and any
subsequent transferee of a Note or any interest therein shall, by virtue of its
purchase or other acquisition of such Note or interest therein, be deemed to
have agreed to treat such Note in a manner consistent with the preceding
sentence for U.S. federal income tax purposes.

(b) The Issuer and the Co-Issuer shall account for the Notes and
prepare any reports to Noteholders and tax authorities consistent with the
intentions expressed in Section 2.11(a) above.

(c) Each Holder of Notes shall timely furnish to the Issuer, the
Co-Issuer or its agents any U.S. federal income tax form or certification (such
as IRS Form W-8BEN (Certification of Foreign Status of Beneficial Owner) (with
Part III marked), IRS Form W-8IMY (Certification of Foreign Intermediary
Status), IRS Form W-9 (Request for Taxpayer Identification Number and
Certification), or IRS Form W-8ECI (Certification of Foreign Person's Claim for
Exemption from Withholding on Income Effectively Connected with Conduct of a
U.S. Trade or Business) or any successors to such IRS forms that the Issuer, the
Co-Issuer or its agents may reasonably request and shall update or replace such
forms or certification in accordance with its terms or its subsequent
amendments.

Section 2.12 Authenticating Agents.

Upon the request of the Issuer and the Co-Issuer, the Trustee shall,
and if the Trustee so chooses the Trustee may, pursuant to this Indenture,
appoint one or more Authenticating Agents with power to act on its behalf and
subject to its direction in the authentication of Notes in connection with
issuance, transfers and exchanges under Sections 2.4, 2.5, 2.6 and 8.5 hereof,
as fully to all intents and purposes as though each such Authenticating Agent
had been expressly authorized by such Sections to authenticate such Notes. For
all purposes of this Indenture, the authentication of Notes by an Authenticating
Agent pursuant to this Section 2.12 shall be deemed to be the authentication of
Notes by the Trustee.

Any corporation or banking association into which any Authenticating
Agent may be merged or converted or with which it may be consolidated, or any
corporation or banking association resulting from any merger, consolidation or
conversion to which any Authenticating Agent shall be a party, or any
corporation succeeding to the corporate trust business of any

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Authenticating Agent, shall be the successor of such Authenticating Agent
hereunder, without the execution or filing of any further act on the part of the
parties hereto or such Authenticating Agent or such successor corporation. Any
Authenticating Agent may at any time resign by giving written notice of
resignation to the Trustee, the Issuer and the Co-Issuer. The Trustee may at any
time terminate the agency of any Authenticating Agent by giving written notice
of termination to such Authenticating Agent, the Issuer and the Co-Issuer. Upon
receiving such notice of resignation or upon such a termination, the Trustee
shall promptly appoint a successor Authenticating Agent and shall give written
notice of such appointment to the Issuer.

The Trustee agrees to pay to each Authenticating Agent appointed by it
from time to time reasonable compensation for its services, and reimbursement
for its reasonable expenses relating thereto and the Trustee shall be entitled
to be reimbursed for such payments, subject to Section 6.7 hereof. The
provisions of Sections 2.9, 6.4 and 6.5 hereof shall be applicable to any
Authenticating Agent.

Section 2.13 Forced Sale on Failure to Comply with Restrictions.

(a) Notwithstanding anything to the contrary elsewhere in this
Indenture, any transfer of a Note or interest therein to a U.S. Person who is
determined not to have been both a QIB and a Qualified Purchaser at the time of
acquisition of the Note or interest therein shall be null and void and any such
proposed transfer of which the Issuer, the Co-Issuer or the Trustee shall have
notice may be disregarded by the Issuer, the Co-Issuer and the Trustee for all
purposes.

(b) If the Issuer determines that any Holder of a Note has not
satisfied the applicable requirement described in Section 2.13(a) above (any
such person a "Non-Permitted Holder"), then the Issuer shall promptly after
discovery that such Person is a Non-Permitted Holder by the Issuer, the
Co-Issuer or the Trustee (and notice by the Trustee or the Co-Issuer to the
Issuer, if either of them makes the discovery), send notice (or procure that
notice is sent) to such Non-Permitted Holder demanding that such Non-Permitted
Holder transfer its interest to a Person that is not a Non-Permitted Holder
within 30 days of the date of such notice. If such Non-Permitted Holder fails to
so transfer its Note or interest therein, the Issuer shall have the right,
without further notice to the Non-Permitted Holder, to sell such Note or
interest therein to a purchaser selected by the Issuer that is not a
Non-Permitted Holder on such terms as the Issuer may choose. The Issuer, or the
Trustee acting on behalf of the Issuer, may select the purchaser by soliciting
one or more bids from one or more brokers or other market professionals that
regularly deal in securities similar to the Note, and selling such Note to the
highest such bidder. However, the Issuer or the Trustee may select a purchaser
by any other means determined by it in its sole discretion. The Holder of such
Note, the Non-Permitted Holder and each other Person in the chain of title from
the Holder to the Non-Permitted Holder, by its acceptance of an interest in the
Note, agrees to cooperate with the Issuer and the Trustee to effect such
transfers. The proceeds of such sale, net of any commissions, expenses and taxes
due in connection with such sale shall be remitted to the Non-Permitted Holder.
The terms and conditions of any sale under this Section 2.13(b) shall be
determined in the sole discretion of the Issuer, and the Issuer shall not be
liable to any Person having an interest in the Note sold as a result of any such
sale of exercise of such discretion.

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Section 2.14 No Gross Up.

The Issuer shall not be obligated to pay any additional amounts to the
Holders or beneficial owners of the Notes as a result of any withholding or
deduction for, or on account of, any present or future taxes, duties,
assessments or governmental charges.

ARTICLE 3

CONDITIONS PRECEDENT; PLEDGED OBLIGATIONS

Section 3.1 General Provisions.

The Notes to be issued on the Closing Date shall be executed by the
Issuer and the Co-Issuer upon compliance with Section 3.2 and shall be delivered
to the Trustee for authentication and thereupon the same shall be authenticated
and delivered by the Trustee upon Issuer Request and upon receipt by the Trustee
of the items described below:

(a) an Officer's Certificate of the Issuer (i) evidencing the
authorization by Board Resolution of the execution and delivery of this
Indenture, the Collateral Management Agreement, each Hedge Agreement and related
documents, the execution, authentication and delivery of the Notes and
specifying the Stated Maturity of each Class of Notes, the principal amount of
each Class of Notes and the applicable Note Interest Rate of each Class of Notes
to be authenticated and delivered, and (ii) certifying that (A) the attached
copy of the Board Resolution is a true and complete copy thereof, (B) such
resolutions have not been rescinded and are in full force and effect on and as
of the Closing Date, (C) the Directors authorized to execute and deliver such
documents hold the offices and have the signatures indicated thereon and (D) at
least $52,500,000 of proceeds on account of the sale on the Closing Date of the
Preferred Shares shall have been received;

(b) an Officer's Certificate of the Co-Issuer (i) evidencing the
authorization by Board Resolution of the execution and delivery of this
Indenture and related documents, the execution, authentication and delivery of
the Notes and specifying the Stated Maturity of each Class of Notes, the
principal amount of each Class of Notes and the applicable Note Interest Rate of
each Class of Notes to be authenticated and delivered, and (ii) certifying that
(A) the attached copy of the Board Resolution is a true and complete copy
thereof, (B) such resolutions have not been rescinded and are in full force and
effect on and as of the Closing Date and (C) the Officers authorized to execute
and deliver such documents hold the offices and have the signatures indicated
thereon;

(c) (i) either (A) certificates of the Issuer or other official
document evidencing the due authorization, approval or consent of any
governmental body or bodies, at the time having jurisdiction in the premises,
together with an Opinion of Counsel of the Issuer that no other authorization,
approval or consent of any governmental body is required for the valid issuance
of such Notes, or (B) an Opinion of Counsel of the Issuer reasonably
satisfactory in form and substance to the Trustee that no such authorization,
approval or consent of any governmental body is required for the valid issuance
of such Notes except as may have been given; and

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(ii) either (A) certificates of the Co-Issuer or other official
document evidencing the due authorization, approval or consent of any
governmental body or bodies, at the time having jurisdiction in the
premises, together with an Opinion of Counsel of the Co-Issuer that no
other authorization, approval or consent of any governmental body is
required for the valid issuance of such Notes, or (B) an Opinion of Counsel
of the Co-Issuer reasonably satisfactory in form and substance to the
Trustee that no such authorization, approval or consent of any governmental
body is required for the valid issuance of such Notes except as may have
been given;

(d) opinions of Cadwalader, Wickersham & Taft LLP, special U.S.
counsel to the Issuer and the Co-Issuer (which opinions may be limited to the
laws of the State of New York and the federal law of the United States and may
assume, among other things, the correctness of the representations and
warranties made or deemed made by the owners of Notes pursuant to Section 2.5(h)
and (j)) dated the Closing Date in a form satisfactory to the Initial Purchaser
and the Trustee;

(e) an opinion of Maples and Calder, Cayman Islands counsel to the
Issuer (which opinion shall be limited to the laws of the Cayman Islands), dated
the Closing Date in a form satisfactory to the Initial Purchaser and the
Trustee;

(f) an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special
tax counsel to the Arbor Parent regarding its qualification and taxation as a
REIT in a form satisfactory to the Initial Purchaser and the Trustee;

(g) an Officer's Certificate, given on behalf of the Issuer and
without personal liability, stating that the Issuer is not in Default under this
Indenture and that the issuance of the Securities will not result in a breach of
any of the terms, conditions or provisions of, or constitute a Default under,
the Governing Documents of the Issuer, any indenture or other agreement or
instrument to which the Issuer is a party or by which it is bound, or any order
of any court or administrative agency entered in any Proceeding to which the
Issuer is a party or by which it may be bound or to which it may be subject;
that all conditions precedent provided in this Indenture relating to the
authentication and delivery of the Notes applied for and all conditions
precedent provided in the Preferred Shares Paying Agency Agreement relating to
the issuance by the Issuer of the Preferred Shares have been complied with;

(h) an Officer's Certificate stating that the Co-Issuer is not in
Default under this Indenture and that the issuance of the Notes will not result
in a breach of any of the terms, conditions or provisions of, or constitute a
Default under, the Governing Documents of the Co-Issuer, any indenture or other
agreement or instrument to which the Co-Issuer is a party or by which it is
bound, or any order of any court or administrative agency entered in any
Proceeding to which the Co-Issuer is a party or by which it may be bound or to
which it may be subject; that all conditions precedent provided in this
Indenture relating to the authentication and delivery of the Notes applied for
have been complied with; and that all expenses due or accrued with respect to
the offering or relating to actions taken on or in connection with the Closing
Date have been paid;

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(i) an executed counterpart of each initial Collateral Debt Securities
Purchase Agreement and the Collateral Management Agreement;

(j) an executed copy of each Hedge Agreement;

(k) an executed counterpart of the Preferred Shares Paying Agency
Agreement;

(l) an opinion of counsel to each Hedge Counterparty dated the Closing
Date, in a form satisfactory to the Initial Purchaser and the Trustee;

(m) (i) an opinion of Cooley Godward Kronish LLP, special counsel to
the Collateral Manager, the Arbor Parent and the Advancing Agent, dated the
Closing Date in a form satisfactory to the Initial Purchaser and the Trustee,
and (ii) an opinion of Willkie Farr & Gallagher LLP, special counsel (regarding
certain Investment Company Act issues) to the Arbor Parent, dated the Closing
Date in a form satisfactory to the Initial Purchaser and the Trustee;

(n) an opinion of counsel to the Trustee dated the Closing Date in a
form satisfactory to the Initial Purchaser and the Trustee;

(o) an opinion of counsel to each Seller dated the Closing Date in a
form satisfactory to the Initial Purchaser and the Trustee;

(p) an Accountants' Report confirming the following information as of
the Closing Date: (i) the information (other than the Principal Balance and the
Purchase Price) with respect to each Collateral Debt Security set forth on the
Schedule of Closing Date Collateral Debt Securities attached hereto as Schedule
I by reference to such sources as shall be specified therein and (ii) specifying
the procedures undertaken by the accountants to review data and computations
relating to the foregoing;

(q) an Officer's Certificate from the Collateral Manager (i)
confirming that each Collateral Debt Security set forth on the Schedule I
attached hereto meets the Eligibility Criteria and that Schedule I correctly
lists the Collateral Debt Securities to be Granted to the Trustee on the Closing
Date, and (ii) stating the Aggregate Principal Amount of the Collateral Debt
Securities;

(r) evidence of preparation for filing at the appropriate filing
office in the District of Columbia of a financing statement, on behalf of the
Issuer, relating to the perfection of the lien of this Indenture;

(s) an Issuer Order executed by the Issuer and the Co-Issuer directing
the Trustee to (i) authenticate the Notes specified therein, in the amounts set
forth therein and registered in the name(s) set forth therein and (ii) deliver
the authenticated Notes as directed by the Issuer and the Co-Issuer; and

(t) such other documents as the Trustee may reasonably require.

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Section 3.2 Security for Notes.

Prior to the issuance of the Notes on the Closing Date, the Issuer
shall cause the following conditions to be satisfied:

(a) Grant of Security Interest; Delivery of Collateral Debt
Securities. The Grant pursuant to the Granting Clauses of this Indenture of all
of the Issuer's right, title and interest in and to the Assets and the transfer
of all Collateral Debt Securities acquired in connection therewith purchased by
the Issuer on the Closing Date (as set forth in the Schedule of Closing Date
Collateral Debt Securities) to the Trustee, without recourse (except as
expressly provided in each applicable Collateral Debt Security Purchase
Agreement), in the manner provided in Section 3.3(a) and the crediting to the
Custodial Account by the Custodial Securities Intermediary of such Collateral
Debt Securities shall have occurred;

(b) Certificate of the Issuer. A certificate of an Authorized Officer
of the Issuer given on behalf of the Issuer and without personal liability,
dated as of the Closing Date, delivered to the Trustee, to the effect that, in
the case of each Collateral Debt Security pledged to the Trustee for inclusion
in the Assets on the Closing Date and immediately prior to the delivery thereof
on the Closing Date:

(i) the Issuer is the owner of such Collateral Debt Security free and
clear of any liens, claims or encumbrances of any nature whatsoever except
for those which are being released on the Closing Date;

(ii) the Issuer has acquired its ownership in such Collateral Debt
Security in good faith without notice of any adverse claim, except as
described in paragraph (i) above;

(iii) the Issuer has not assigned, pledged or otherwise encumbered any
interest in such Collateral Debt Security (or, if any such interest has
been assigned, pledged or otherwise encumbered, it has been released) other
than interests Granted pursuant to this Indenture;

(iv) the Underlying Instrument with respect to such Collateral Debt
Security does not prohibit the Issuer from Granting a security interest in
and assigning and pledging such Collateral Debt Security to the Trustee;

(v) the information set forth with respect to such Collateral Debt
Security in the Schedule of Closing Date Collateral Debt Securities is
correct;

(vi) the Collateral Debt Securities included in the Assets satisfy the
requirements of the definition of Eligibility Criteria and the requirements
of Section 3.2(a); and

(vii) the Grant pursuant to the Granting Clauses of this Indenture
shall result in a first priority security interest in favor of the Trustee
for the benefit of the Secured Parties in all of the Issuer's right, title
and interest in and to the Collateral Debt Securities pledged to the
Trustee for inclusion in the Assets on the Closing Date.

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(c) Rating Letters. The Trustee's receipt of a letter signed by each
Rating Agency and confirming that (i) the Class A-1A Notes have been rated "Aaa"
by Moody's and "AAA" by S&P and Fitch, (ii) the Class A-1AR Notes have been
rated "Aaa" by Moody's and "AAA" by S&P and Fitch, (iii) the Class A-2 Notes
have been rated "Aaa" by Moody's and "AAA" by S&P and Fitch, (iv) the Class B
Notes have been rated at least "Aa2" by Moody's and "AA" by S&P and Fitch, (v)
the Class C Notes have been rated at least "A1" by Moody's and "A+" by S&P and
Fitch, (vi) the Class D Notes have been rated at least "A2" by Moody's and "A"
by S&P and Fitch, (vii) the Class E Notes have been rated at least "A3" by
Moody's and "A-" by S&P and Fitch, (viii) the Class F Notes have been rated at
least "Baa1" by Moody's and "BBB+" by S&P and Fitch, (ix) the Class G Notes have
been rated at least "Baa2" by Moody's and "BBB" by Fitch and (x) the Class H
Notes have been rated at least "Baa3" by Moody's and "BBB-" by Fitch and that
such ratings are in full force and effect on the Closing Date.

(d) Accounts. Evidence of the establishment of the Payment Account,
the Collection Account, the Unused Proceeds Account, the Interest Reserve
Account, the Delayed Funding Obligations Account, the Expense Account, each
Defeased Collateral Account, each Hedge Collateral Account, each Hedge
Termination Account, the Preferred Shares Distribution Account and the Custodial
Account.

(e) Deposit to Expense Account. On the Closing Date, the Issuer shall
deposit into the Expense Account from the gross proceeds of the offering of the
Securities, $976,869.50.

(f) Deposit to Delayed Funding Obligations Account. On the Closing
Date, the Issuer or the applicable Sellers shall deposit into the Delayed
Funding Obligations Account $19,236,184.85.

(g) Deposit to Unused Proceeds Account. On the Closing Date, the
Issuer shall deposit into the Unused Proceeds Account, $123,316,156.50.

(h) Issuance of Preferred Shares. The Issuer shall have delivered to
the Trustee evidence that the Preferred Shares have been, or contemporaneously
with the issuance of the Notes will be, (i) issued by the Issuer and (ii)
acquired in their entirety by ARMS Equity.

Section 3.3 Transfer of Pledged Obligations.

(a) Wells Fargo Bank, National Association is hereby appointed as
Securities Intermediary (in such capacity, the "Custodial Securities
Intermediary") to hold all Pledged Obligations delivered to it in physical form
at its office in Minneapolis, Minnesota. Any successor to such Securities
Intermediary shall be a U.S. state or national bank or trust company that is not
an Affiliate of the Issuer or the Co-Issuer and has capital and surplus of at
least $100,000,000. Subject to the limited right to relocate Pledged Obligations
set forth in Section 7.5(b), the Custodial Securities Intermediary, as a
Securities Intermediary, shall hold all Collateral Debt Securities in the
Custodial Account, all Eligible Investments and other investments purchased in
accordance with this Indenture in the respective Accounts in which the funds
used to purchase such investments are held in accordance with Article 10 and, in
respect of each Account (other than the Payment Account and the Preferred Shares
Distribution Account), the Trustee shall have entered into an agreement with the
Issuer and the Custodial Securities

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Intermediary (the "Securities Account Control Agreement") providing, inter alia,
that the establishment and maintenance of such Account will be governed by a law
satisfactory to the Issuer, the Trustee and the Custodial Securities
Intermediary. To the maximum extent feasible, Pledged Obligations shall be
transferred to the Trustee as Security Entitlements in the manner set forth in
clause (i) below. In the event that the measures set forth in clause (i) below
cannot be taken as to any Pledged Obligations, such Pledged Obligation may be
transferred to the Trustee in the manner set forth in clauses (ii) through (vii)
below, as appropriate. The security interest of the Trustee in Pledged
Obligations shall be perfected and otherwise evidenced as follows:

(i) in the case of such Pledged Obligations consisting of Security
Entitlements, by the Issuer (A) causing the Custodial Securities
Intermediary, in accordance with the Securities Account Control Agreement,
to indicate by book entry that a Financial Asset has been credited to the
Custodial Account and (B) causing the Custodial Securities Intermediary to
agree pursuant to the Securities Account Control Agreement that it will
comply with Entitlement Orders originated by the Trustee with respect to
each such Security Entitlement without further consent by the Issuer;

(ii) in the case of Pledged Obligations that are "uncertificated
securities" (as such term is defined in the UCC), to the extent that any
such uncertificated securities do not constitute Financial Assets forming
the basis of Security Entitlements by the Trustee pursuant to clause (i)
(the "Uncertificated Securities"), by the Issuer (A) causing the issuer(s)
of such Uncertificated Securities to register on their respective books the
Trustee as the registered owner thereof upon original issue or transfer
thereof or (B) causing another Person, other than a Securities
Intermediary, either to become the registered owner of such Uncertificated
Securities on behalf of the Trustee, or such Person having previously
become the registered owner, to acknowledge that it holds such
Uncertificated Securities for the Trustee;

(iii) in the case of Pledged Obligations consisting of Certificated
Securities in registered form to the extent that any such Certificated
Securities do not constitute Financial Assets forming the basis of Security
Entitlements acquired by the Trustee pursuant to clause (i) (the
"Registered Securities"), by the Issuer (A) causing (1) the Trustee to
obtain possession of such Registered Securities in the State of Minnesota
or (2) another Person, other than a Securities Intermediary, either to
acquire possession of such Registered Securities on behalf of the Trustee,
or having previously acquired such Registered Securities, in either case,
in the State of Minnesota, to acknowledge that it holds such Registered
Securities for the Trustee and (B) causing (1) the endorsement of such
Registered Securities to the Trustee by an effective endorsement or (2) the
registration of such Registered Securities in the name of the Trustee by
the issuer thereof upon its original issue or registration of transfer;

(iv) in the case of Pledged Obligations consisting of Certificated
Securities in bearer form, to the extent that any such Certificated
Securities do not constitute Financial Assets forming the basis of Security
Entitlements acquired by the Trustee pursuant to clause (i) (the "Bearer
Securities"), by the Issuer causing (A) the Trustee to obtain possession of
such Bearer Securities in the State of Minnesota or (B) another Person,
other than a Securities Intermediary, either to acquire possession of such
Bearer

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Securities on behalf of the Trustee or, having previously acquired
possession of such Bearer Securities, in either case, in the State of
Minnesota, to acknowledge that it holds such Bearer Securities for the
Trustee;

(v) in the case of Pledged Obligations that consist of Money or
Instruments (the "Minnesota Collateral"), to the extent that any such
Minnesota Collateral does not constitute a Financial Asset forming the
basis of a Security Entitlement acquired by the Trustee pursuant to clause
(i), by the Issuer causing (A) the Trustee to acquire possession of such
Minnesota Collateral in the State of Minnesota or (B) another Person (other
than the Issuer or a Person controlling, controlled by, or under common
control with, the Issuer) (1) to (x) take possession of such Minnesota
Collateral in the State of Minnesota and (y) authenticate a record
acknowledging that it holds such possession for the benefit of the Trustee
or (2) to (x) authenticate a record acknowledging that it will hold
possession of such Minnesota Collateral for the benefit of the Trustee and
(y) take possession of such Minnesota Collateral in the State of Minnesota;

(vi) in the case of Pledged Obligations that consist of UCC Accounts
or General Intangibles ("Accounts Receivable"), by the Issuer (A)
notifying, or causing the notification of, the account debtors (as such
term is defined in Section 9-102(a) of the UCC) for such Accounts
Receivable of the security interest of the Trustee in such Accounts
Receivable and causing the Securities Intermediary to credit such Accounts
Receivable to the Custodial Account and to treat such Accounts Receivable
as Financial Assets within the meaning of Article 8 of the UCC and (B) to
the extent that doing so would be effective to perfect a security interest
in such Accounts Receivable under the UCC as in effect at the time of
transfer of such Accounts Receivable to the Trustee hereunder, filing or
causing the filing of a UCC financing statement that encompasses such
Accounts Receivable with the Recorder of Deeds of the District of Columbia
and such other offices as applicable; and

(vii) to the maximum extent reasonably possible, in the case of any
Loans, Preferred Equity Securities or Participations that are not evidenced
by Instruments, Certificated Securities or Uncertificated Securities, by
the Issuer (A) taking all steps necessary (including obtaining any
necessary consents to the transfer of such Loan, Participation or Preferred
Equity Security, as applicable) to make the Custodial Securities
Intermediary the registered owner thereof, (B) causing the Custodial
Securities Intermediary to credit such Loans, Participations or Preferred
Equity Securities, as applicable, to the Custodial Account and to treat
such Loans, Participations or Preferred Equity Securities, as applicable,
as Financial Assets within the meaning of Article 8 of the UCC and (C) to
the extent that doing so would be effective to perfect a security interest
in such Loans, Participations or Preferred Equity Securities, as
applicable, under the UCC as in effect at the time of transfer of such
Loans, Participations or Preferred Equity Securities to the Trustee
hereunder, filing or causing the filing of a UCC financing statement that
encompasses such Loans, Participations or Preferred Equity Securities, as
applicable, with the Recorder of Deeds of the District of Columbia and such
other offices as applicable.

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(b) The Issuer hereby authorizes the filing of UCC financing
statements describing as the collateral covered thereby "all of the debtor's
personal property and assets," or words to that effect, notwithstanding that
such wording may be broader in scope than the Assets described in this
Indenture.

(c) Without limiting the foregoing, the Issuer and the Trustee on
behalf of the Bank agree, and the Bank shall cause the Custodial Securities
Intermediary, to take such different or additional action as the Trustee may
reasonably request in order to maintain the perfection and priority of the
security interest of the Trustee in the event of any change in applicable law or
regulation, including Articles 8 and 9 of the UCC and Treasury Regulations
governing transfers of interests in Government Items (it being understood that
the Trustee shall be entitled to rely upon an Opinion of Counsel, including an
Opinion of Counsel delivered in accordance with Section 3.1(d), as to the need
to file any financing statements or continuation statements, the dates by which
such filings are required to be made and the jurisdictions in which such filings
are required to be made).

(d) Without limiting any of the foregoing,

(i) in connection with each Grant of a Collateral Debt Security
hereunder, the Issuer shall deliver (or cause to be delivered by the
applicable Seller) to the Custodial Securities Intermediary (A) the
original of any note (or a copy of such note together with a lost note
affidavit and indemnity), certificate or other instrument constituting or
evidencing such Collateral Debt Security and any other Underlying
Instrument related to such Collateral Debt Security, the delivery of which
is necessary in order to perfect the security interest of the Trustee in
such Collateral Debt Security granted pursuant to this Indenture, (B)
copies of the other Underlying Instruments then in possession of the Issuer
and (C) any other agreements, documents, certificates or instruments not
specifically covered in the foregoing subclauses (A) and (B) of this clause
(i) to the extent such other agreements, documents, certificates or
instruments are required to be delivered to the Issuer pursuant to the
related Collateral Debt Securities Purchase Agreement;

(ii) from time to time upon the request of the Trustee, Collateral
Manager or Servicer, the Issuer shall deliver (or cause to be delivered) to
the Custodial Securities Intermediary any Underlying Instrument in the
possession of the Issuer and not previously delivered hereunder (including
originals of Underlying Instruments not previously required to be delivered
as originals) and as to which the Trustee, Collateral Manager or Servicer,
as applicable, shall have reasonably determined to be necessary or
appropriate for the administration of such Collateral Debt Security
hereunder or under the Collateral Management Agreement or under the
Servicing Agreement or for the protection of the security interest of the
Trustee under this Indenture;

(iii) in connection with any delivery of documents to the Custodial
Securities Intermediary pursuant to clauses (i) and (ii) above, the Trustee
shall deliver to the Collateral Manager and the Servicer, on behalf of the
Issuer, a Trust Receipt in the form of Exhibit M acknowledging the receipt
of such documents by the Custodial Securities Intermediary and that it is
holding such documents subject to the terms of this Indenture;

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(iv) from time to time upon request of the Collateral Manager or the
Servicer, the Custodial Securities Intermediary shall, upon delivery by the
Collateral Manager or the Servicer of a duly completed Request for Release
in the form of Exhibit N hereto, release to the Collateral Manager or the
Servicer such of the Underlying Instruments then in its custody as the
Collateral Manager or the Servicer reasonably so requests. By submission of
any such Request for Release, the Collateral Manager or the Servicer, as
applicable, shall be deemed to have represented and warranted that it has
determined in accordance with the Collateral Manager Servicing Standard or
the Servicing Standard set forth in the Servicing Agreement, as the case
may be, that the requested release is necessary for the administration of
such Collateral Debt Security hereunder or under the Collateral Management
Agreement or under the Servicing Agreement or for the protection of the
security interest of the Trustee under this Indenture. The Collateral
Manager or the Servicer shall return to the Custodial Securities
Intermediary each Underlying Instrument released from custody pursuant to
this clause (iv) within 20 Business Days of receipt thereof (except such
Underlying Instruments as are released in connection with a sale, exchange
or other disposition, in each case only as permitted under this Indenture,
of the related Collateral Debt Security that is consummated within such
20-day period). Notwithstanding the foregoing provisions of this clause
(iv), (A) any note, certificate or other instrument evidencing a Pledged
Collateral Debt Security shall be released only for the purpose of (1) a
sale, exchange or other disposition of such Pledged Collateral Debt
Security that is permitted in accordance with the terms of this Indenture,
(2) presentation, collection, renewal or registration of transfer of such
Collateral Debt Security or (3) in the case of any note, in connection with
a payment in full of all amounts owing under such note, and (B) the
Custodial Securities Intermediary may refuse to honor any Request for
Release following the occurrence of an Event of Default under this
Indenture; and

(v) to the extent the Collateral Manager deems necessary or advisable
in accordance with the Collateral Manager Servicing Standard, the Issuer
may, at the direction of the Collateral Manager (but only upon disclosure
to, and with the prior consent of, the Advisory Committee), assign its
right to purchase under a "buy/sell" arrangement in respect of a Collateral
Debt Security to the Holder of the Preferred Shares or any Affiliate
thereof.

(e) As of the Closing Date (with respect to the Assets owned or
existing as of the Closing Date) and each date on which an Asset is acquired
(only with respect to each Asset so acquired or arising after the Closing Date),
the Issuer represents and warrants as follows:

(i) this Indenture creates a valid and continuing security interest
(as defined in the UCC) in the Assets in favor of the Trustee for the
benefit of the Secured Parties, which security interest is prior to all
other liens, and is enforceable as such against creditors of and purchasers
from the Issuer;

(ii) the Issuer owns and has good and marketable title to such Assets
free and clear of any lien, claim or encumbrance of any Person;

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(iii) in the case of each Asset, the Issuer has acquired its ownership
in such Asset in good faith without notice of any adverse claim as defined
in Section 8-102(a)(1) of the UCC as in effect on the date hereof;

(iv) other than the security interest granted to the Trustee for the
benefit of the Secured Parties pursuant to this Indenture, the Issuer has
not pledged, assigned, sold, granted a security interest in, or otherwise
conveyed any of the Assets;

(v) the Issuer has not authorized the filing of, and is not aware of,
any financing statements against the Issuer that include a description of
collateral covering the Assets other than any financing statement (x)
relating to the security interest granted to the Trustee for the benefit of
the Secured Parties hereunder or (y) that has been terminated; the Issuer
is not aware of any judgment lien, Pension Benefit Guarantee Corporation
lien or tax lien filings against the Issuer;

(vi) the Issuer has received all consents and approvals required by
the terms of each Asset and the Underlying Instruments to grant to the
Trustee its interest and rights in such Asset hereunder;

(vii) the Issuer has caused or will have caused, within ten days, the
filing of all appropriate financing statements in the proper filing office
in the appropriate jurisdictions under applicable law in order to perfect
the security interest in the Assets granted to the Trustee for the benefit
of the Secured Parties hereunder;

(viii) each Asset is an Instrument, a General Intangible, a
Certificated Security or an Uncertificated Security, or has been or will
have been credited to a Securities Account;

(ix) the Custodial Securities Intermediary has agreed to treat all
assets credited to the Securities Account as Financial Assets;

(x) the Issuer has delivered a fully executed Securities Account
Control Agreement pursuant to which the Custodial Securities Intermediary
has agreed to comply with all instructions originated by the Trustee
relating to the Custodial Account without further consent of the Issuer;
the Custodial Account is not in the name of any person other than the
Issuer or the Trustee; the Issuer has not consented to the Securities
Intermediary of the Custodial Account to comply with Entitlement Orders of
any person other than the Trustee;

(xi) (A) all original executed copies of each promissory note or other
writings that constitute or evidence any pledged obligation that
constitutes an Instrument have been delivered to the Custodial Securities
Intermediary for the benefit of the Trustee, (B) the Issuer has received a
written acknowledgement from the Custodial Securities Intermediary that the
Custodial Securities Intermediary is acting solely as agent of the Trustee
and (C) none of the promissory notes or other writings that constitute or
evidence such collateral has any marks or notations indicating that they
have been pledged, assigned or otherwise conveyed by the Issuer to any
Person other than the Trustee;

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(xii) (A) the Collection Accounts, the Unused Proceeds Account, the
Interest Reserve Account, the Delayed Funding Obligations Account, each
Defeased Collateral Account, each Hedge Termination Account, each Hedge
Collateral Account, the Expense Account and the Payment Account
(collectively, the "Deposit Accounts") constitute "deposit accounts" within
the meaning of the UCC, (B) the Issuer has taken all steps necessary to
cause the Trustee to become the customer and account holder of the Deposit
Accounts, (C) other than the security interest granted to the Trustee
pursuant to this Indenture, the Issuer has not pledged, assigned, sold,
granted a security interest in, or otherwise conveyed any of the Deposit
Accounts, and (D) the Deposit Accounts are not in the name of any person
other than the Issuer or the Trustee. The Issuer has not consented to the
bank maintaining the Deposit Accounts to comply with the instructions of
any person other than the Trustee; and

(xiii) the Issuer has established procedures such that any Eligible
Investments purchased with funds withdrawn from the Deposit Accounts will
be (i) credited to a Securities Account over which the Trustee will have a
first priority perfected security interest, (ii) purchased in the name of
the Trustee, or (iii) held in another manner sufficient to establish the
Trustee's first priority perfected security interest over such Eligible
Investments.

(f) The Trustee shall only invest in Eligible Investments which the
applicable Custodial Securities Intermediary agrees to credit to the applicable
account. To the extent any Eligible Investment shall not be delivered to the
Trustee by causing the Custodial Securities Intermediary to create a Security
Entitlement in the Securities Account in favor of the Trustee, the Issuer shall
deliver an Opinion of Counsel to the Trustee to the effect that any other
delivery will effect a first priority security interest in favor of the Trustee
in such Eligible Instrument.

ARTICLE 4

SATISFACTION AND DISCHARGE

Section 4.1 Satisfaction and Discharge of Indenture.

This Indenture shall be discharged and shall cease to be of further
effect with respect to the Assets securing the Notes and the Issuer's
obligations under each Hedge Agreement except as to (i) the rights of
registration of transfer and exchange, (ii) the substitution of mutilated,
defaced, destroyed, lost or stolen Notes, (iii) the rights of Noteholders to
receive payments of principal thereof and interest thereon, and in the case of
the Class A-1AR Commitments, the Class A-1AR Commitment Fee thereon, as provided
herein, (iv) the rights, obligations and immunities of the Trustee on behalf of
the Noteholders hereunder and (v) the rights of Noteholders as beneficiaries
hereof with respect to the property deposited with the Trustee on their behalf
and payable to all or any of them, and the Trustee, on demand of and at the
expense of the Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when:

(a) either:

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(i) all Notes theretofore authenticated and delivered (other than (A)
Notes which have been mutilated, defaced, destroyed, lost or stolen and
which have been replaced or paid as provided in Section 2.6 and (B) Notes
for which payment Money has theretofore irrevocably been deposited in trust
and thereafter repaid to the Issuer or discharged from such trust, as
provided in Section 7.3) have been delivered to the Trustee for
cancellation; or

(ii) all Notes not theretofore delivered to the Trustee for
cancellation (A) have become due and payable, or (B) will become due and
payable at their Stated Maturity within one year, or (C) are to be called
for redemption pursuant to Section 9.1 or Section 9.2 under an arrangement
satisfactory to the Trustee for the giving of notice of redemption by the
Issuer and the Co-Issuer pursuant to Section 9.4 and the Issuer or the
Co-Issuer, in the case of clauses (A), (B) or (C) of this Section
4.1(a)(ii), has irrevocably deposited or caused to be deposited with the
Trustee, in trust for such purpose, Cash or non-callable direct obligations
of the United States of America; provided that the obligations are entitled
to the full faith and credit of the United States of America or are debt
obligations which are rated "Aaa" by Moody's, "AAA" by Fitch and "AAA" by
S&P in an amount sufficient, as verified by a firm of certified public
accountants which are nationally recognized, to pay and discharge the
entire indebtedness (including, in the case of a redemption pursuant to
Section 9.1 or Section 9.2, the Redemption Price) on such Notes not
theretofore delivered to the Trustee for cancellation, for principal and
interest to the date of such deposit (in the case of Notes which have
become due and payable), or to the Stated Maturity or the Redemption Date,
as the case may be (and in each case in respect of the Notes, subject to
the Priority of Payments); provided, further, that any such deposit of
funds with the Trustee in satisfaction of this Indenture shall be subject
to the Rating Agency Condition and, so long as MBIA is deemed to be the
Controlling Class hereunder, the consent of MBIA; provided, however, this
Section 4.1(a)(ii) shall not apply if an election to act in accordance with
the provisions of Section 5.5(a) shall have been made and is not rescinded;

(b) (i) the Issuer has paid or caused to be paid or provided for (to
the satisfaction of the Person entitled thereto) all other sums payable
hereunder and under the Collateral Management Agreement, the Servicing
Agreement, the Preferred Shares Paying Agency Agreement and the Company
Administration Agreement, and (ii) all Hedge Agreements then in effect have been
terminated and Issuer has paid all amounts, including payments due and payable
in connection with such termination and has paid all other outstanding amounts,
including any outstanding payments due and payable for any previously terminated
Hedge Agreement.

(c) Each of the Issuer and the Co-Issuer has delivered to the Trustee
an Officer's Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture, the
rights and obligations of the Issuer, the Co-Issuer, the Trustee, and, if
applicable, the Noteholders, as the case may be, under Sections 2.7, 4.2,
5.4(d), 5.9, 5.18, 6.7, 7.3 and 14.12 hereof shall survive.

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Section 4.2 Application of Trust Money.

All Monies deposited with the Trustee pursuant to Section 4.1 shall be
held in trust and applied by it in accordance with the provisions of the Notes
and this Indenture to the payment of the principal and interest, either directly
or through the Paying Agent, as the Trustee may determine, and in the case of
the Class A-1AR Notes, to the payment of the Class A-1AR Commitment Fee to the
Person entitled thereto for whose payment such Money has been deposited with the
Trustee; but such Money need not be segregated from other funds except to the
extent required herein or when commingling of funds is prohibited by law.

Section 4.3 Repayment of Monies Held by Paying Agent.

In connection with the satisfaction and discharge of this Indenture
with respect to the Notes, all Monies then held by the Paying Agent other than
the Trustee under the provisions of this Indenture shall, upon demand of the
Issuer and the Co-Issuer, be paid to the Trustee to be held and applied pursuant
to Section 7.3 hereof and, in the case of Monies payable on the Notes, in
accordance with the Priority of Payments and thereupon such Paying Agent shall
be released from all further liability with respect to such Monies.

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ARTICLE 5

REMEDIES

Section 5.1 Events of Default.

"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):

(a) (1) a default in the payment of any interest on any Note when the
same becomes due and payable (provided that (a) if any Class A Notes or Class B
Notes are Outstanding, solely for the purposes of this Section 5.1(a), no
interest shall be "due and payable" on any Class C Notes, Class D Notes, Class E
Notes, Class F Notes, Class G Notes or Class H Notes, (b) if any Class C Notes
are Outstanding, solely for the purposes of this Section 5.1(a), no interest
shall be "due and payable" on any Class D Notes, Class E Notes, Class F Notes,
Class G Notes or Class H Notes, (c) if any Class D Notes are Outstanding, solely
for the purposes of this Section 5.1(a), no interest shall be "due and payable"
on any Class E Notes, Class F Notes, Class G Notes or Class H Notes, (d) if any
Class E Notes are Outstanding, solely for the purposes of this Section 5.1(a),
no interest shall be "due and payable" on any Class F Notes, Class G Notes or
Class H Notes, (e) if any Class F Notes are Outstanding, solely for the purposes
of this Section 5.1(a), no interest shall be "due and payable" on any Class G
Notes or Class H Notes and (f) if any Class G Notes are Outstanding, solely for
the purposes of this Section 5.1(a), no interest shall be "due and payable" on
any Class H Notes), or (2) a default in a payment of the Class A-1AR Commitment
Fee, in each case, which default continues for a period of three Business Days
or, in the case of a default in payment due to an administrative error or
omission by the Trustee or Paying Agent, which default continues for seven (7)
Business Days;

(b) a default in the payment of principal (or the related Redemption
Price, if applicable) of any Class A-1 Note when the same becomes due and
payable, at its Stated Maturity or any Redemption Date, or if there are no Class
A-1 Notes Outstanding, a default in the payment of principal (or the related
Redemption Price, if applicable) of any Class A-2 Note when the same becomes due
and payable, at its Stated Maturity or any Redemption Date, or if there are no
Class A-2 Notes Outstanding, a default in the payment of principal (or the
related Redemption Price, if applicable) of any Class B Note when the same
becomes due and payable at its Stated Maturity or any Redemption Date, or if
there are no Class B Notes Outstanding, a default in the payment of principal
(or the related Redemption Price, if applicable) of any Class C Note (plus any
Class C Capitalized Interest) when the same becomes due and payable at its
Stated Maturity or any Redemption Date, or if there are no Class C Notes
Outstanding, a default in the payment of principal (or the related Redemption
Price, if applicable) of any Class D Note (plus any Class D Capitalized
Interest) when the same becomes due and payable at its Stated Maturity or any
Redemption Date, or if there are no Class D Notes Outstanding, a default in the
payment of principal (or the related Redemption Price, if applicable) of any
Class E Note (plus any Class E Capitalized Interest) when the same becomes due
and payable at its Stated Maturity or any Redemption Date, or if there are no
Class E Notes Outstanding, a default in the payment

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of principal (or the related Redemption Price, if applicable) of any Class F
Note (plus any Class F Capitalized Interest) when the same becomes due and
payable at its Stated Maturity or any Redemption Date, or if there are no Class
F Notes Outstanding, a default in the payment of principal (or the related
Redemption Price, if applicable) of any Class G Note (plus any Class G
Capitalized Interest) when the same becomes due and payable at its Stated
Maturity or any Redemption Date, or if there are no Class G Notes Outstanding, a
default in the payment of principal (or the related Redemption Price, if
applicable) of any Class H Note (plus any Class H Capitalized Interest) when the
same becomes due and payable at its Stated Maturity or any Redemption Date;
provided that in the case of any default in payment described in this Section
5.1(b) that is due to any administrative error or omission by the Trustee or the
Paying Agent, such default shall be an Event of Default only if such default
continues for seven (7) Business Days;

(c) the failure on any Payment Date to disburse amounts available in
the Payment Account in accordance with the Priority of Payments set forth under
Section 11.1(a) (other than (i) a default in payment described in clause (a) or
(b) above and (ii) unless the holders of the Preferred Shares object, a failure
to disburse any amounts to the Preferred Shares Paying Agent for distribution to
the holders of the Preferred Shares), which failure continues for a period of
three Business Days or, in the case of a failure to disburse such amounts due to
an administrative error or omission by the Trustee or Paying Agent, which
failure continues for seven (7) Business Days;

(d) either the Issuer, the Co-Issuer or the pool of Assets becomes an
investment company required to be registered under the Investment Company Act;

(e) a default in the performance, or breach, of any other covenant or
other agreement (other than the covenant to meet or improve the Collateral
Quality Tests or the Coverage Tests) of the Issuer or the Co-Issuer hereunder or
any representation or warranty of the Issuer or the Co-Issuer hereunder or in
any certificate or other writing delivered pursuant hereto or in connection
herewith proves to be incorrect in any material respect when made, and the
continuation of such default or breach for a period of 30 days (or, if such
default, breach or failure has an adverse effect on the validity, perfection or
priority of the security interest granted hereunder, 15 days) after either the
Issuer, the Co-Issuer or the Collateral Manager has actual knowledge thereof or
after notice thereof to the Issuer, the Co-Issuer and the Collateral Manager by
the Trustee or to the Issuer, the Co-Issuer, the Collateral Manager and the
Trustee by Holders of at least 25% of the Aggregate Outstanding Amount of the
Controlling Class (which shall be deemed to be MBIA so long as it is the
Controlling Class hereunder); provided that a default in the performance by the
Issuer of the obligations imposed on it by this Indenture in connection with the
entry into a replacement Hedge Agreement upon the early termination of a Hedge
Agreement shall not be an Event of Default if the Rating Agency Condition has
been satisfied;

(f) the entry of a decree or order by a court having competent
jurisdiction adjudging the Issuer or the Co-Issuer as bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Issuer or the Co-Issuer under
the Bankruptcy Code, or any bankruptcy, insolvency, reorganization or similar
law enacted under the laws of the Cayman Islands or any other applicable law, or
appointing a receiver, liquidator, assignee, or sequestrator (or other similar

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official) of the Issuer or the Co-Issuer or of any substantial part of its
property, respectively, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in effect
for a period of 60 consecutive days;

(g) the institution by the Issuer or the Co-Issuer of proceedings to
be adjudicated as bankrupt or insolvent, or the consent by it to the institution
of bankruptcy or insolvency proceedings against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief under the
Bankruptcy Code, or any bankruptcy, insolvency, reorganization or similar law
enacted under the laws of the Cayman Islands or any other similar applicable
law, or the consent by it to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee or sequestrator (or
other similar official) of the Issuer or the Co-Issuer or of any substantial
part of its property, respectively, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of any action by the
Issuer in furtherance of any such action;

(h) one or more final judgments being rendered against the Issuer or
the Co-Issuer which exceed, in the aggregate, $1,000,000 (or such lesser amount
as any Rating Agency may specify) and which remain unstayed, undischarged and
unsatisfied for 30 days after such judgment(s) becomes nonappealable, unless
adequate funds have been reserved or set aside for the payment thereof, and
unless (except as otherwise specified in writing by each Rating Agency) the
Rating Agency Condition shall have been satisfied and, so long as MBIA is deemed
to be the Controlling Class hereunder, MBIA consents;

(i) the Issuer loses its status as a Qualified REIT Subsidiary, unless
(A) within 90 days, the Issuer either (1) delivers an opinion of tax counsel of
nationally recognized standing in the United States experienced in such matters
to the effect that, notwithstanding the Issuer's loss of Qualified REIT
Subsidiary status, the Issuer is not, and has not been, an association (or
publicly traded partnership) taxable as a corporation, or is not, and has not
been, otherwise subject to U.S. federal income tax on a net basis and the
Noteholders are not otherwise materially adversely affected by the loss of
Qualified REIT Subsidiary status or (2) receives an amount from the Preferred
Shareholders sufficient to discharge in full the amounts then due and unpaid on
the Notes and amounts and expenses described in clauses (1) through (5), (25),
(26), (27) and (28) under Section 11.1(a)(i) in accordance with the Priority of
Payments or (B) all Classes of the Notes are subject to a Tax Redemption
announced by the Issuer in compliance with this Indenture, and such redemption
has not been rescinded; or

(j) so long as MBIA is deemed to be the Controlling Class hereunder,
the Class A/B Par Value Ratio is less than 100% on any Measurement Date.

Upon becoming aware of the occurrence of an Event of Default, the
Issuer, shall promptly notify (or shall procure the prompt notification of) the
Trustee, the Collateral Manager, the Class A-1AR Note Agent, the Noteholders,
the Preferred Shares Paying Agent, the Preferred Shareholders, each Rating
Agency, each Hedge Counterparty, so long as MBIA is deemed to be the Controlling
Class hereunder, MBIA and, for so long as any Notes are listed on the Irish
Stock Exchange, the Irish Paying Agent in writing. If the Collateral Manager has
actual knowledge of the occurrence of an Event of Default, the Collateral
Manager shall promptly notify, in writing,

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the Trustee, the Class A-1AR Note Agent, the Noteholders, each Rating Agency and
each Hedge Counterparty of the occurrence of such Event of Default.

Section 5.2 Acceleration of Maturity; Rescission and Annulment.

(a) If an Event of Default shall occur and be continuing (other than
the Events of Default specified in Section 5.1(f) or 5.1(g)), the Trustee may
(and shall at the direction of (x) in the case of an Event of Default specified
in Section 5.1(a), 5.1(b) or 5.1(j), so long as MBIA is deemed to be the
Controlling Class hereunder, MBIA or (y) in any other case, a Majority, by
outstanding principal amount, of each Class of Notes voting as a separate Class
(excluding any Notes owned by the Collateral Manager or any of its Affiliates or
by any accounts managed by them), declare the principal of and accrued and
unpaid interest on all the Notes to be immediately due and payable (and any such
acceleration shall automatically terminate the Reinvestment Period). If an Event
of Default described in Section 5.1(f) or 5.1(g) above occurs, such an
acceleration shall occur automatically and without any further action and any
such acceleration shall automatically terminate the Reinvestment Period. If the
Notes are accelerated, payments shall be made in the order and priority set
forth in Section 11.1(a) hereof. If an Event of Default shall occur and be
continuing, no Class A-1AR Draw may be made except with respect to Class A-1AR
Draws to be applied to fund Delayed Funding Amounts related to Delayed Draw Term
Loans; provided, however, that if an Event of Default specified in Section
5.1(f) or 5.1(g) occurs, the undrawn Class A-1AR Commitments shall terminate
automatically without need for further action. The Trustee will provide notice
of any such default to the Class A-1AR Note Agent. If the Notes are accelerated
(whether such acceleration is automatic or otherwise), the Issuer (or the
Collateral Manager on its behalf) shall take the actions described in Section
18.1(c) herein. Immediately following such draw, the Class A-1AR Commitments
shall terminate.

(b) At any time after such a declaration of acceleration of Maturity
of the Notes has been made, and before a judgment or decree for payment of the
Money due has been obtained by the Trustee as hereinafter provided in this
Article 5, a Majority of each Class of Notes (voting as a separate Class), other
than with respect to an Event of Default specified in Section 5.1(d), 5.1(e),
5.1(h), 5.1(i) or 5.1(j), which may be rescinded only by MBIA so long as MBIA is
deemed to be the Controlling Class hereunder, by written notice to the Issuer,
the Co-Issuer, the Trustee and each Hedge Counterparty, may rescind and annul
such declaration and its consequences if:

(i) the Issuer or the Co-Issuer has paid or deposited with the Trustee
a sum sufficient to pay:

(A) all unpaid installments of interest on and principal of
the Notes, and in the case of the Class A-1AR Notes, the Class
A-1AR Commitment Fee, that would be due and payable hereunder if
the Event of Default giving rise to such acceleration had not
occurred;

(B) to the extent that payment of such interest is lawful,
interest on the Class C Capitalized Interest at the Class C Rate,
interest on the Class D Capitalized Interest at the Class D Rate,
interest on the Class E

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Capitalized Interest at the Class E Rate, interest on the Class F
Capitalized Interest at the Class F Rate, interest on the Class G
Capitalized Interest at the Class G Rate and interest on the
Class H Capitalized Interest at the Class H Rate;

(C) all unpaid taxes of the Issuer and the Co-Issuer,
Company Administrative Expenses and other sums paid or advanced
by or otherwise due and payable to the Trustee hereunder;

(D) with respect to each Hedge Agreement, any amount then
due and payable thereunder;

(E) with respect to the Advancing Agent and the Backup
Advancing Agent, any amount due and payable for unreimbursed
Interest Advances and Reimbursement Interest;

(F) with respect to the Collateral Manager, any amount due
and payable for unreimbursed Cure Advances; and

(G) with respect to the Collateral Management Agreement, any
Senior Collateral Management Fee then due and any Company
Administrative Expense due and payable to the Collateral Manager
thereunder;

(ii) the Hedge Agreements in effect immediately prior to the
declaration of such acceleration shall remain in effect or, if such Hedge
Agreements shall have become subject to early termination after the
declaration of such acceleration, the Issuer shall have entered into a
replacement Hedge Agreement for the terminated Hedge Agreement in
accordance with Section 16.1; and

(iii) the Trustee has determined that all Events of Default of which
it has actual knowledge, other than the non-payment of the interest and
principal on the Notes that have become due solely by such acceleration,
have been cured and a Majority of the Controlling Class, by written notice
to the Trustee and each Hedge Counterparty has agreed with such
determination (which agreement shall not be unreasonably withheld or
delayed) or waived as provided in Section 5.14.

At any such time that the Trustee, subject to Section 5.2(b), shall
rescind and annul such declaration and its consequences as permitted
hereinabove, the Trustee shall preserve the Assets in accordance with the
provisions of Section 5.5 with respect to the Event of Default that gave rise to
such declaration; provided, however, that if such preservation of the Assets is
rescinded pursuant to Section 5.5, the Notes may be accelerated pursuant to the
first paragraph of this Section 5.2, notwithstanding any previous rescission and
annulment of a declaration of acceleration pursuant to this paragraph.

No such rescission shall affect any subsequent Default or impair any
right consequent thereon. In addition, no such rescission shall affect any Hedge
Agreement if it has been terminated in accordance with its terms.

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(c) Subject to Sections 5.4 and 5.5, a Majority of the Controlling
Class shall have the right to direct the Trustee in the conduct of any
Proceedings for any remedy available to the Trustee or in the sale of any or all
of the Assets; provided that (i) such direction will not conflict with any rule
of law or this Indenture; (ii) the Trustee may take any other action not
inconsistent with such direction; (iii) the Trustee determines that such action
will not involve it in liability (unless the Trustee has received satisfactory
indemnity or reasonable security against any such liability); and (iv) any
direction to undertake a sale of the Assets may be made only as described in
Section 5.17. Notwithstanding the foregoing, so long as MBIA is deemed to be the
Controlling Class hereunder, MBIA in all cases shall have the right to direct
the Trustee in the conduct of any proceedings or in the sale of any or all of
the Assets following an Event of Default specified in Section 5.1(j) or a
default with respect to the payment of principal of or interest on the Class A
Notes, which default also constitutes an Event of Default specified in Section
5.1(a) or 5.1(b), and a subsequent acceleration of the Notes but only if (i)
such direction will not conflict with any rule of law or this Indenture
(including the limitations described in Section 5.5 but excluding any
requirement requiring sufficient proceeds to pay in full the amounts then due
and unpaid on any of the Notes) and (ii) the Trustee determines that such action
will not involve it in liability (unless the Trustee has received satisfactory
indemnity or reasonable security against any such liability or expense). The
Trustee shall provide written notice of the receipt of such direction to each
Hedge Counterparty promptly after receipt thereof.

(d) As security for the payment by the Issuer of the compensation and
expenses of the Trustee and any sums the Trustee may be entitled to receive as
indemnification by the Issuer, the Issuer hereby grants the Trustee a lien on
the Assets, which lien is senior to the lien of the Noteholders. The Trustee's
lien shall be subject to the Priority of Payments and exercisable by the Trustee
only if the Notes have been declared due and payable following an Event of
Default and such acceleration has not been rescinded or annulled.

(e) A Majority of the Controlling Class, may, prior to the time a
judgment or decree for the payment of money due has been obtained by the
Trustee, waive any past Default on behalf of the holders of all the Notes and
its consequences in accordance with Section 5.14.

(f) In determining whether the holders of the requisite percentage of
Notes have given any direction, notice or consent hereunder, (i) Notes owned by
the Issuer, the Co-Issuer or any Affiliate thereof shall be disregarded and
deemed not to be Outstanding and (ii) in relation to (x) any amendment or other
modification of, or assignment or termination of, any of the express rights or
obligations of the Collateral Manager under the Collateral Management Agreement
or this Indenture (including the exercise of any rights to remove the Collateral
Manager or terminate the Collateral Management Agreement or approve or object to
a replacement for the Collateral Manager except as specifically provided in the
Collateral Management Agreement with respect to the termination of the
Collateral Manager without cause and with respect to the replacement of the
Collateral Manager in instances where the Collateral Manager has not been
terminated for cause or where such replacement is not an Affiliate of the
Collateral Manager) and (y) the exercise by the Noteholders of their right, in
connection with certain Events of Default, to accelerate amounts due under the
Notes, Notes owned by the Collateral Manager or any of its Affiliates, or by any
accounts managed by them, shall be disregarded and deemed not to be Outstanding.
The Collateral Manager and its Affiliates shall

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be entitled to vote Notes held by them, and by accounts managed by them, with
respect to all other matters other than those described in clause (ii).

Section 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee.

The Issuer covenants that if a Default shall occur in respect of the payment of
any interest on any Class A Note, or in the case of the Class A-1AR Notes, any
Class A-1AR Commitment Fee, the payment of principal on any Class A Note (but
only after interest with respect to the Class A Notes and any amounts payable
pursuant to Section 11.1(a) having a higher priority have been paid in full),
the payment of interest on any Class B Note (but only after interest with
respect to the Class A Notes and the Class A-1AR Commitment Fee and any amounts
payable pursuant to Section 11.1(a) having a higher priority have been paid in
full), the payment of principal on any Class B Note (but only after interest and
principal with respect to the Class A Notes, the Class A-1AR Commitment Fee and
interest with respect to the Class B Notes and any amounts payable pursuant to
Section 11.1(a) having a higher priority have been paid in full), the payment of
interest on any Class C Note (but only after interest with respect to the Class
A Notes, the Class A-1AR Commitment Fee and the Class B Notes and any amounts
payable pursuant to Section 11.1(a) having a higher priority have been paid in
full), the payment of principal on any Class C Note (but only after interest and
principal with respect to the Class A Notes, the Class A-1AR Commitment Fee and
the Class B Notes and interest with respect to the Class C Notes and any amounts
payable pursuant to Section 11.1(a) having a higher priority have been paid in
full), the payment of interest on any Class D Note (but only after interest with
respect to the Class A Notes, the Class A-1AR Commitment Fee, the Class B Notes
and the Class C Notes and any amounts payable pursuant to Section 11.1(a) having
a higher priority have been paid in full), the payment of principal on any Class
D Note (but only after interest and principal with respect to the Class A Notes,
the Class A-1AR Commitment Fee, the Class B Notes and the Class C Notes and
interest with respect to the Class D Notes and any amounts payable pursuant to
Section 11.1(a) having a higher priority have been paid in full), the payment of
interest on any Class E Note (but only after interest with respect to the Class
A Notes, the Class A-1AR Commitment Fee, the Class B Notes, the Class C Notes
and the Class D Notes and any amounts payable pursuant to Section 11.1(a) having
a higher priority have been paid in full), the payment of principal on any Class
E Note (but only after interest and principal with respect to the Class A Notes,
the Class A-1AR Commitment Fee, the Class B Notes, the Class C Notes and the
Class D Notes and interest with respect to the Class E Notes and any amounts
payable pursuant to Section 11.1(a) having a higher priority have been paid in
full), the payment of interest on any Class F Note (but only after interest with
respect to the Class A Notes, the Class A-1AR Commitment Fee, the Class B Notes,
the Class C Notes, the Class D Notes and the Class E Notes and any amounts
payable pursuant to Section 11.1(a) having a higher priority have been paid in
full), the payment of principal on any Class F Note (but only after interest and
principal with respect to the Class A Notes, the Class A-1AR Commitment Fee, the
Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes and
interest with respect to the Class F Notes and any amounts payable pursuant to
Section 11.1(a) having a higher priority have been paid in full), the payment of
interest on any Class G Note (but only after interest with respect to the Class
A Notes, the Class A-1AR Commitment Fee, the Class B Notes, the Class C Notes,
the Class D Notes, the Class E Notes and the Class F Notes and any amounts
payable pursuant to Section 11.1(a) having a higher priority have been paid in
full), the payment of principal on any Class G Note (but only after interest and
principal with respect to the Class A

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Notes, the Class A-1AR Commitment Fee, the Class B Notes, the Class C Notes, the
Class D Notes, the Class E Notes and the Class F Notes and interest with respect
to the Class G Notes and any amounts payable pursuant to Section 11.1(a) having
a higher priority have been paid in full), the payment of interest on any Class
H Note (but only after interest with respect to the Class A Notes, the Class
A-1AR Commitment Fee, the Class B Notes, the Class C Notes, the Class D Notes,
the Class E Notes, the Class F Notes and the Class G Notes and any amounts
payable pursuant to Section 11.1(a) having a higher priority have been paid in
full) or the payment of principal on any Class H Note (but only after interest
and principal with respect to the Class A Notes, the Class A-1AR Commitment Fee,
the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes, the
Class F Notes and the Class G Notes and interest with respect to the Class H
Notes and any amounts payable pursuant to Section 11.1(a) having a higher
priority have been paid in full), the Issuer and Co-Issuer shall, upon demand of
the Trustee or any affected Noteholder, pay to the Trustee, for the benefit of
the Holder of such Note, the whole amount, if any, then due and payable on such
Note for principal and interest or other payment with interest on the overdue
principal and, to the extent that payments of such interest shall be legally
enforceable, upon overdue installments of interest, at the applicable interest
rate and, in addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee and such
Noteholder and their respective agents and counsel.

If the Issuer or the Co-Issuer fails to pay such amounts forthwith
upon such demand, the Trustee, in its own name and as Trustee of an express
trust, may institute a Proceeding for the collection of the sums so due and
unpaid, and may prosecute such Proceeding to judgment or final decree, and may
enforce the same against the Issuer and the Co-Issuer or any other obligor upon
the Notes and collect the Monies adjudged or decreed to be payable in the manner
provided by law out of the Assets.

If an Event of Default occurs and is continuing, the Trustee shall
proceed to protect and enforce its rights and the rights of the Noteholders by
such Proceedings (x) as directed by a Majority of the Controlling Class or (y)
in the absence of direction by a Majority of the Controlling Class, as deemed
most effectual by the Trustee. Such Proceedings shall be used for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy or
legal or equitable right vested in the Trustee by this Indenture or by law.

In the case where (x) there shall be pending Proceedings relative to
the Issuer or the Co-Issuer under the Bankruptcy Code, any bankruptcy,
insolvency, reorganization or similar law enacted under the laws of the Cayman
Islands, or any other applicable bankruptcy, insolvency or other similar law,
(y) a receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Issuer or the Co-Issuer, or their respective property, or (z)
there shall be any other comparable Proceedings relative to the Issuer or the
Co-Issuer, or the creditors or property of the Issuer or the Co-Issuer,
regardless of whether the principal of any Notes shall then be due and payable
as therein expressed or by declaration, or otherwise and regardless of whether
the Trustee shall have made any demand pursuant to the provisions of this
Section 5.3, the Trustee shall be entitled and empowered, by intervention in
such Proceedings or otherwise:

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(a) to file and prove a claim or claims for the whole amount of
principal and interest and the Class A-1AR Commitment Fee owing and unpaid in
respect of the Notes and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee (including any
claim for reasonable compensation to the Trustee and each predecessor Trustee,
and their respective agents, attorneys and counsel, and for reimbursement of all
expenses and liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee, except as a result of negligence or bad faith) and of
the Noteholders allowed in any Proceedings relative to the Issuer, the Co-Issuer
or other obligor upon the Notes or to the creditors or property of the Issuer,
the Co-Issuer or such other obligor;

(b) unless prohibited by applicable law and regulations, to vote on
behalf of the Noteholders in any election of a trustee or a standby trustee in
arrangement, reorganization, liquidation or other bankruptcy or insolvency
proceedings or of a Person performing similar functions in comparable
Proceedings; and

(c) to collect and receive any Monies or other property payable to or
deliverable on any such claims, and to distribute all amounts received with
respect to the claims of the Noteholders and of the Trustee on their behalf; and
any trustee, receiver or liquidator, custodian or other similar official is
hereby authorized by each of the Noteholders to make payments to the Trustee,
and, in the event that the Trustee shall consent to the making of payments
directly to the Noteholders, to pay to the Trustee such amounts as shall be
sufficient to cover reasonable compensation to the Trustee, each predecessor
Trustee and their respective agents, attorneys and counsel, and all other
reasonable expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of its own negligence,
willful misconduct or bad faith.

Nothing herein contained shall be deemed to authorize the Trustee to
authorize, consent to, vote for, accept or adopt, on behalf of any Noteholder,
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Noteholder in any such Proceeding except, as
aforesaid, to vote for the election of a trustee in bankruptcy or similar
Person.

All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Trustee without the possession of
any of the Notes or the production thereof in any trial or other Proceedings
relative thereto, and any action or Proceedings instituted by the Trustee shall
be brought in its own name as trustee of an express trust, and any recovery of
judgment, shall be applied as set forth in Section 5.7.

In any Proceedings brought by the Trustee on behalf of the
Noteholders, the Trustee shall be held to represent all the Holders of the
Notes.

Notwithstanding anything in this Section 5.3 to the contrary, the
Trustee may not sell or liquidate the Assets or institute Proceedings in
furtherance thereof pursuant to this Section 5.3 unless the conditions specified
in Section 5.5(a) are met.

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Section 5.4 Remedies.

(a) If an Event of Default has occurred and is continuing, and the
Notes have been declared due and payable and such declaration and its
consequences have not been rescinded and annulled, the Issuer and the Co-Issuer
agree that the Trustee may, after notice to the Noteholders and each Hedge
Counterparty, and shall, upon direction by a Majority of the Controlling Class,
to the extent permitted by applicable law, exercise one or more of the following
rights, privileges and remedies:

(i) institute Proceedings for the collection of all amounts then
payable on the Notes or otherwise payable under this Indenture (whether by
declaration or otherwise), enforce any judgment obtained and collect from
the Assets any Monies adjudged due;

(ii) sell all or a portion of the Assets or rights of interest
therein, at one or more public or private sales called and conducted in any
manner permitted by law and in accordance with Section 5.17 hereof;

(iii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Assets;

(iv) exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the rights and remedies
of the Secured Parties hereunder; and

(v) exercise any other rights and remedies that may be available at
law or in equity;

provided, however, that the Trustee may not sell or liquidate the Assets or
institute Proceedings in furtherance thereof pursuant to this Section 5.4 unless
either of the conditions specified in Section 5.5(a) is met.

The Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking firm of national reputation with demonstrated
capabilities in structuring and distributing notes or certificates similar to
the Notes as to the feasibility of any action proposed to be taken in accordance
with this Section 5.4 and as to the sufficiency of the proceeds and other
amounts receivable with respect to the Assets to make the required payments of
principal of and interest on the Notes and other amounts payable hereunder,
which opinion shall be conclusive evidence as to such feasibility or
sufficiency.

(b) If an Event of Default as described in Section 5.1(e) hereof shall
have occurred and be continuing, the Trustee may, and at the request of the
Holders of not less than 25% of the Aggregate Outstanding Amount of the
Controlling Class (which shall be deemed to be MBIA so long as it is the
Controlling Class hereunder) shall, institute a Proceeding solely to compel
performance of the covenant or agreement or to cure the representation or
warranty, the breach of which gave rise to the Event of Default under such
Section, and enforce any equitable decree or order arising from such Proceeding.

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(c) Upon any Sale, whether made under the power of sale hereby given
or by virtue of judicial proceedings, any Noteholder, Preferred Shareholder or
the Collateral Manager or any of its Affiliates may bid for and purchase the
Assets or any part thereof and, upon compliance with the terms of Sale, may
hold, retain, possess or dispose of such property in its or their own absolute
right without accountability; and any purchaser at any such Sale may, in paying
the purchase Money, turn in any of the Notes in lieu of Cash equal to the amount
which shall, upon distribution of the net proceeds of such sale, be payable on
the Notes so turned in by such Holder (taking into account the Class of such
Notes). Such Notes, in case the amounts so payable thereon shall be less than
the amount due thereon, shall be returned to the Holders thereof after proper
notation has been made thereon to show partial payment.

Upon any Sale, whether made under the power of sale hereby given or by
virtue of judicial proceedings, the receipt of the Trustee or of the Officer
making a sale under judicial proceedings shall be a sufficient discharge to the
purchaser or purchasers at any sale for its or their purchase Money and such
purchaser or purchasers shall not be obliged to see to the application thereof.

Any such Sale, whether under any power of sale hereby given or by
virtue of judicial proceedings, shall (x) bind the Issuer, the Co-Issuer, the
Trustee, the Noteholders and the Preferred Shareholders, shall operate to divest
all right, title and interest whatsoever, either at law or in equity, of each of
them in and to the property sold and (y) be a perpetual bar, both at law and in
equity, against each of them and their successors and assigns, and against any
and all Persons claiming through or under them.

(d) Notwithstanding any other provision of this Indenture or any other
Transaction Document, none of the Advancing Agent, the Trustee or any other
Secured Party, any other party to any Transaction Document or third party
beneficiary of this Indenture may, prior to the date which is one year and one
day, or, if longer, the applicable preference period then in effect (including
any period established pursuant to the laws of the Cayman Islands) after the
payment in full of all Notes, institute against, or join any other Person in
instituting against, the Issuer or the Co-Issuer any bankruptcy, reorganization,
arrangement, insolvency, moratorium or liquidation proceedings, or other
proceedings under federal or State bankruptcy or similar laws of any
jurisdiction. Nothing in this Section 5.4 shall preclude, or be deemed to stop,
the Advancing Agent, the Trustee or any other Secured Party or any other party
to any Transaction Document (i) from taking any action prior to the expiration
of the aforementioned one year and one day period, or, if longer, the applicable
preference period then in effect (including any period established pursuant to
the laws of the Cayman Islands) period in (A) any case or proceeding voluntarily
filed or commenced by the Issuer or the Co-Issuer or (B) any involuntary
insolvency proceeding filed or commenced by a Person other than the Trustee or
any other Secured Party or any other party to any Transaction Document, or (ii)
from commencing against the Issuer or the Co-Issuer or any of their respective
properties any legal action which is not a bankruptcy, reorganization,
arrangement, insolvency, moratorium or liquidation proceeding.

Section 5.5 Preservation of Assets.

(a) Notwithstanding anything to the contrary herein, if an Event of
Default shall have occurred and be continuing when any of the Notes are
Outstanding, the Trustee shall

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retain the Assets securing the Notes, collect and cause the collection of the
proceeds thereof and make and apply all payments and deposits and maintain all
accounts in respect of the Assets and the Notes in accordance with the Priority
of Payments and the provisions of Articles 10, 12 and 13 unless either:

(i) in the case of an Event of Default specified in Section 5.1(j) or
a default with respect to the payment of principal of or interest on the
Class A Notes, which default also constitutes an Event of Default specified
in Section 5.1(a) or 5.1(b), so long as MBIA is the Controlling Class under
this Indenture, MBIA directs the Trustee to sell or otherwise liquidate the
Assets;

(ii) the Trustee, pursuant to Section 5.5(c), determines that the
anticipated proceeds of a sale or liquidation of the Assets (after
deducting the reasonable expenses of such sale or liquidation) would be
sufficient to discharge in full the amounts then due and unpaid on the
Notes (including the Class A-1AR Commitment Fee), Company Administrative
Expenses due and payable pursuant to clauses (3) and (26) of Section
11.1(a)(i) and clauses (1) and (10) of Section 11.1(a)(ii), the Senior
Collateral Management Fees due and payable pursuant to clause (4) of
Section 11.1(a)(i), the Subordinate Collateral Management Fees due and
payable pursuant to clause (27) of Section 11.1(a)(i), any amounts due and
unpaid to each Hedge Counterparty, including without limitation, any
payments (however described) due and payable by the Issuer under each Hedge
Agreement upon a termination of such Hedge Agreement (including any
interest that may accrue thereon) and amounts due and payable to the
Advancing Agent and the Backup Advancing Agent, in respect of unreimbursed
Interest Advances and Reimbursement Interest, and the holders of a Majority
of the Controlling Class (which shall be deemed to be MBIA so long as it is
the Controlling Class hereunder) agrees with such determination; or

(iii) the Holders of at least 66- 2/3% of the Aggregate Outstanding
Amount of each Class of Notes (each voting as a separate Class) (and each
Hedge Counterparty, unless each shall be paid in full the amounts due and
unpaid, including, without limitation, any payments (however described) due
and payable by the Issuer under each Hedge Agreement upon a termination of
such Hedge Agreement (including any interest that may accrue thereon)),
direct, subject to the provisions of this Indenture, the sale and
liquidation of the Assets.

The Trustee shall give written notice of the retention of the Assets
to the Issuer, the Co-Issuer, the Collateral Manager, each Hedge Counterparty
and the Rating Agencies. So long as such Event of Default is continuing, any
such retention pursuant to this Section 5.5(a) may be rescinded at any time when
the conditions specified in clause (i) or (ii) above exist.

(b) Nothing contained in Section 5.5(a) shall be construed to require
the Trustee to sell the Assets securing the Notes if the conditions set forth in
Section 5.5(a) are not satisfied. Nothing contained in Section 5.5(a) shall be
construed to require the Trustee to preserve the Assets securing the Notes if
prohibited by applicable law.

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(c) To assist the Trustee in determining whether the condition
specified in Section 5.5(a)(i) exists, the Collateral Manager shall obtain bid
prices with respect to each Pledged Collateral Debt Security from two dealers
(Independent of the Collateral Manager and any of its Affiliates) at the time
making a market in such Pledged Collateral Debt Securities (or, if there is only
one market maker, then the Collateral Manager shall obtain a bid price from that
market maker or, if no market maker, from a pricing service). The Collateral
Manager shall compute the anticipated proceeds of sale or liquidation on the
basis of the lowest of such bid prices for each such Pledged Collateral Debt
Security and provide the Trustee with the results thereof. For the purposes of
determining issues relating to the Market Value of any Pledged Collateral Debt
Security and the execution of a sale or other liquidation thereof, the Trustee
may, but need not, retain at the expense of the Issuer and rely on an opinion of
an Independent investment banking firm of national reputation in connection with
a determination (notwithstanding that such opinion will not be the basis for
such determination) as to whether the condition specified in Section 5.5(a)(i)
exists.

The Trustee shall promptly deliver to the Noteholders and each Hedge
Counterparty a report stating the results of any determination required to be
made pursuant to Section 5.5(a)(i). If requested by a Majority of the
Controlling Class, the Trustee shall make the determinations required by Section
5.5(a)(i) within 30 days of such request.

Section 5.6 Trustee May Enforce Claims Without Possession of Notes.

All rights of action and claims under this Indenture or under any of
the Notes may be prosecuted and enforced by the Trustee without the possession
of any of the Notes or the production thereof in any trial or other Proceeding
relating thereto, and any such action or Proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust. Any recovery of
judgment in respect of the Notes shall be applied as set forth in Section 5.7
hereof.

In any Proceedings brought by the Trustee (and in any Proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) in respect of the Notes, the Trustee shall be held to
represent all the Holders of the Notes. 

Section 5.7 Application of Money Collected.

Any Money collected by the Trustee with respect to the Notes pursuant
to this Article 5 and any Money that may then be held or thereafter received by
the Trustee with respect to the Notes hereunder shall be applied subject to
Section 13.1 hereof and in accordance with the Priority of Payments set forth in
Section 11.1 hereof, at the date or dates fixed by the Trustee.

Section 5.8 Limitation on Suits.

No Holder of any Notes shall have any right to institute any
Proceedings, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:

(a) such Holder has previously given to the Trustee written notice of
an Event of Default;

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(b) except as otherwise provided in Section 5.9 hereof, the Holders of
at least 25% of the then Aggregate Outstanding Amount of the Controlling Class
shall have made written request to the Trustee to institute Proceedings in
respect of such Event of Default in its own name as Trustee hereunder and such
Holders have offered to the Trustee reasonable indemnity against the costs,
expenses and liabilities to be incurred in compliance with such request;

(c) the Trustee for 30 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such Proceeding; and

(d) no direction inconsistent with such written request has been given
to the Trustee during such 30-day period by a Majority of the Controlling Class;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatsoever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes of the same Class or to obtain or to seek to obtain
priority or preference over any other Holders of the Notes of the same Class or
to enforce any right under this Indenture, except in the manner herein provided
and for the equal and ratable benefit of all the Holders of Notes of the same
Class subject to and in accordance with Section 13.1 hereof and the Priority of
Payments.

In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Holders of the Controlling
Class, each representing less than a Majority of the Controlling Class, the
Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture.

Section 5.9 Unconditional Rights of Noteholders to Receive Principal,
Interest and the Class A-1AR Commitment Fee.

Notwithstanding any other provision in this Indenture (except for
Section 2.7(l) and 2.7(u)), the Holder of any Class of Note shall have the
right, which is absolute and unconditional, to receive payment of the principal
of and interest (and the Class A-1AR Commitment Fee, as applicable) on such
Class of Note as such principal, interest (and the Class A-1AR Commitment Fee,
as applicable) and other amounts become due and payable in accordance with the
Priority of Payments and Section 13.1, and, subject to the provisions of
Sections 5.4 and 5.8 to institute Proceedings for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder; provided, however, that the right of such Holder to institute
proceedings for the enforcement of any such payment shall not be subject to the
25% threshold requirement set forth in Section 5.8(b). 

Section 5.10 Restoration of Rights and Remedies.

If the Trustee or any Noteholder has instituted any Proceeding to
enforce any right or remedy under this Indenture and such Proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then (and in every such case) the Issuer, the
Co-Issuer, the Trustee, and the Noteholder shall, subject to any determination
in such Proceeding, be restored severally and respectively to their former
positions 

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hereunder, and thereafter all rights and remedies of the Trustee and the
Noteholders shall continue as though no such Proceeding had been instituted.

Section 5.11 Rights and Remedies Cumulative.

No right or remedy herein conferred upon or reserved to the Trustee or
to the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.

Section 5.12 Delay or Omission Not Waiver.

No delay or omission of the Trustee or of any Noteholder to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein or a waiver of a subsequent Event of Default. Every right
and remedy given by this Article 5 or by law to the Trustee, or to the
Noteholders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee, or by the Noteholders, as the case may be.

Section 5.13 Control by the Controlling Class.

Notwithstanding any other provision of this Indenture, if an Event of
Default shall have occurred and be continuing when any of the Notes are
Outstanding, a Majority of the Controlling Class (which shall be deemed to be
MBIA so long as it is the Controlling Class hereunder) shall have the right to
cause the institution of and direct the time, method and place of conducting any
Proceeding for any remedy available to the Trustee for exercising any trust,
right, remedy or power conferred on the Trustee in respect of the Notes;
provided that:

(a) such direction shall not conflict with any rule of law or with
this Indenture;

(b) the Trustee may take any other action deemed proper by the Trustee
that is not inconsistent with such direction; provided, however, that, subject
to Section 6.1, the Trustee need not take any action that it determines might
involve it in liability (unless the Trustee has received satisfactory indemnity
against such liability as set forth below);

(c) the Trustee shall have been provided with indemnity satisfactory
to it; and

(d) any direction to the Trustee to undertake a Sale of the Assets
shall be by the Holders of Notes secured thereby representing at least 66 2/3%
of the Aggregate Outstanding Amount of each Class of Notes or to the extent
required pursuant to Section 5.5, MBIA, so long as it is deemed to be the
Controlling Class hereunder.

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Section 5.14 Waiver of Past Defaults.

Prior to the time a judgment or decree for payment of the Money due
has been obtained by the Trustee, as provided in this Article 5, so long as MBIA
is deemed to be the Controlling Class hereunder, MBIA may (with the consent of
the Hedge Counterparty if such Hedge Counterparty is materially and adversely
affected by the default with respect to the Notes), waive any Event of Default
specified in Section 5.1(d), 5.1(e), 5.1(h), 5.1(i), or 5.1(j) with respect to
the Notes and its consequences; thereafter, a Majority of each and every Class
of Notes (voting as a separate Class) may, on behalf of the Holders of all the
Notes, waive any past Default in respect of the Notes and its consequences,
except a Default:

(a) in the payment of principal of any Note;

(b) in the payment of interest in respect of the Controlling Class;

(c) in the payment of the Class A-1AR Commitment Fee in respect of the
Class A-1AR Notes;

(d) in respect of a covenant or provision hereof that, under Section
8.2, cannot be modified or amended without the waiver or consent of the Holder
of each Outstanding Note and each Hedge Counterparty adversely affected thereby;

(e) in respect of any covenant or provision hereof for the individual
protection or benefit of the Trustee, without the Trustee's express written
consent thereto; or

(f) a default that also materially adversely affects a Hedge
Counterparty unless such Hedge Counterparty also agrees to such default.

In the case of any such waiver, the Issuer, the Co-Issuer, the
Trustee, and the Holders of the Notes shall be restored to their respective
former positions and rights hereunder, but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereto. The Trustee
shall promptly give written notice of any such waiver to the Collateral Manager,
each Noteholder and each Hedge Counterparty.

Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture, but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereto. 

Section 5.15 Undertaking for Costs.

All parties to this Indenture agree, and each Holder of any Note by
its acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party 

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litigant; but the provisions of this Section 5.15 shall not apply to any suit
instituted by (x) the Trustee, (y) any Noteholder, or group of Noteholders,
holding in the aggregate more than 10% of the Aggregate Outstanding Amount of
the Controlling Class or (z) any Noteholder for the enforcement of the payment
of the principal of or interest, or the Class A-1AR Commitment Fee, as
applicable, on any Note or any other amount payable hereunder on or after the
Stated Maturity (or, in the case of redemption, on or after the applicable
Redemption Date). 

Section 5.16 Waiver of Stay or Extension Laws.

Each of the Issuer and the Co-Issuer covenants (to the extent that it
may lawfully do so) that it will not at any time insist upon, plead or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force (including
but not limited to filing a voluntary petition under Chapter 11 of the
Bankruptcy Code and by the voluntary commencement of a proceeding or the filing
of a petition seeking winding up, liquidation, reorganization or other relief
under any bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship or other similar laws now or hereafter in effect), which may
affect the covenants, the performance of or any remedies under this Indenture;
and each of the Issuer and the Co-Issuer (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.

Section 5.17 Sale of Assets.

(a) The power to effect any sale (a "Sale") of any portion of the
Assets pursuant to Sections 5.4 and 5.5 hereof shall not be exhausted by any one
or more Sales as to any portion of such Assets remaining unsold, but shall
continue unimpaired until all amounts secured by the Assets shall have been paid
or if there are insufficient proceeds to pay such amount until the entire Assets
shall have been sold. The Trustee may, upon notice to the Securityholders and
each Hedge Counterparty, and shall, upon direction of a Majority of the
Controlling Class, from time to time postpone any Sale by public announcement
made at the time and place of such Sale; provided, however, that if the Sale is
rescheduled for a date more than three Business Days after the date of the
determination by the Trustee pursuant to Section 5.5(a)(i) hereof, such Sale
shall not occur unless and until the Trustee has again made the determination
required by Section 5.5(a)(i) hereof. The Trustee hereby expressly waives its
rights to any amount fixed by law as compensation for any Sale; provided that
the Trustee shall be authorized to deduct the reasonable costs, charges and
expenses incurred by it in connection with such Sale from the proceeds thereof
notwithstanding the provisions of Section 6.7 hereof.

(b) The Trustee may bid for and acquire any portion of the Assets in
connection with a public Sale thereof, and may pay all or part of the purchase
price by crediting against amounts owing on the Notes or other amounts secured
by the Assets, all or part of the net proceeds of such Sale after deducting the
reasonable costs, charges and expenses incurred by the Trustee in connection
with such Sale notwithstanding the provisions of Section 6.7 hereof. The Notes
need not be produced in order to complete any such Sale, or in order for the net
proceeds of such Sale to be credited against amounts owing on the Notes. The
Trustee may hold, lease, 

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operate, manage or otherwise deal with any property so acquired in any manner
permitted by law in accordance with this Indenture.

(c) If any portion of the Assets consists of securities issued without
registration under the Securities Act ("Unregistered Securities"), the Trustee
may seek an Opinion of Counsel, or, if no such Opinion of Counsel can be
obtained and with the consent of a Majority of the Controlling Class, seek a no
action position from the SEC or any other relevant federal or State regulatory
authorities, regarding the legality of a public or private Sale of such
Unregistered Securities. In no event shall the Trustee be required to register
Unregistered Securities under the Securities Act.

(d) The Trustee shall execute and deliver an appropriate instrument of
conveyance transferring its interest in any portion of the Assets in connection
with a Sale thereof. In addition, the Trustee is hereby irrevocably appointed
the agent and attorney in fact of the Issuer to transfer and convey its interest
in any portion of the Assets in connection with a Sale thereof, and to take all
action necessary to effect such Sale. No purchaser or transferee at such a Sale
shall be bound to ascertain the Trustee's authority, to inquire into the
satisfaction of any conditions precedent or to see to the application of any
Monies.

(e) In the event of any Sale of the Assets pursuant to Section 5.4 or
Section 5.5, payments shall be made in the order and priority set forth in
Section 11.1(a) in the same manner as if the Notes had been accelerated. 

Section 5.18 Action on the Notes.

The Trustee's right to seek and recover judgment on the Notes or under
this Indenture shall not be affected by the application for or obtaining of any
other relief under or with respect to this Indenture. Neither the lien of this
Indenture nor any rights or remedies of the Trustee or the Noteholders shall be
impaired by the recovery of any judgment by the Trustee against the Issuer or
the Co-Issuer or by the levy of any execution under such judgment upon any
portion of the Assets or upon any of the assets of the Issuer or the Co-Issuer.

ARTICLE 6

THE TRUSTEE

Section 6.1 Certain Duties and Responsibilities.

(a) Except during the continuance of an Event of Default:

(i) the Trustee undertakes to perform such duties and only such duties
as are set forth in this Indenture, and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and

(ii) in the absence of manifest error, or bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming 

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to the requirements of this Indenture; provided, however, that in the case
of any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they
substantially conform to the requirements of this Indenture and shall
promptly, but in any event within three Business Days in the case of an
Officer's Certificate furnished by the Collateral Manager, notify the party
delivering the same if such certificate or opinion does not conform. If a
corrected form shall not have been delivered to the Trustee within 15 days
after such notice from the Trustee, the Trustee shall so notify the
Noteholders.

(b) In case an Event of Default known to the Trustee has occurred and
is continuing, the Trustee shall, prior to the receipt of directions, if any,
from a Majority of the Controlling Class (or other Noteholders to the extent
provided in Article 5 hereof)), exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in its exercise
as a prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs.

(c) If, in performing its duties under this Indenture, the Trustee is
required to decide between alternative courses of action, the Trustee may
request written instructions from the Collateral Manager as to courses of action
desired by it. If the Trustee does not receive such instructions within two
Business Days after it has requested them, it may, but shall be under no duty
to, take or refrain from taking such action. The Trustee shall act in accordance
with instructions received after such two-Business Day period except to the
extent it has already taken, or committed itself to take, action inconsistent
with such instructions. The Trustee shall be entitled to rely on the advice of
legal counsel and Independent accountants in performing its duties hereunder and
be deemed to have acted in good faith if it acts in accordance with such advice.

(d) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:

(i) this subsection shall not be construed to limit the effect of
Section 6.1(a);

(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it shall be proven that the Trustee
was negligent in ascertaining the pertinent facts;

(iii) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Issuer in accordance with this Indenture and/or the Controlling
Class relating to the time, method and place of conducting any Proceeding
for any remedy available to the Trustee in respect of any Note or
exercising any trust or power conferred upon the Trustee under this
Indenture;

(iv) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers contemplated hereunder, 

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if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it (if the amount of such funds or risk or liability
does not exceed the amount payable to the Trustee pursuant to Section
11.1(a)(i)(3) and Section 11.1(a)(ii)(1) net of the amounts specified in
Section 6.7(a)(i), the Trustee shall be deemed to be reasonably assured of
such repayment) unless such risk or liability relates to its ordinary
services under this Indenture, except where this Indenture provides
otherwise; and

(v) the Trustee shall not be liable to the Noteholders for any action
taken or omitted by it at the direction of the Issuer, the Co-Issuer, the
Collateral Manager, the Controlling Class and/or a Noteholder under
circumstances in which such direction is required or permitted by the terms
of this Indenture.

(e) For all purposes under this Indenture, the Trustee shall not be
deemed to have notice or knowledge of any Event of Default described in Section
5.1(d), 5.1(f), 5.1(g), 5.1(h) or 5.1(i) or any Default described in Section
5.1(e) unless a Trust Officer assigned to and working in the Corporate Trust
Office has actual knowledge thereof or unless written notice of any event which
is in fact such an Event of Default or Default is received by the Trustee at the
Corporate Trust Office, and such notice references, as applicable, the Notes
generally, the Issuer, the Assets or this Indenture. For purposes of determining
the Trustee's responsibility and liability hereunder, whenever reference is made
in this Indenture to such an Event of Default or a Default, such reference shall
be construed to refer only to such an Event of Default or Default of which the
Trustee is deemed to have notice as described in this Section 6.1.

(f) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
Sections 6.1(a), (b), (c), (d) and (e).

(g) The Trustee shall, upon reasonable prior written notice to the
Trustee, permit the Issuer, the Co-Issuer, the Collateral Manager or the Rating
Agencies, during the Trustee's normal business hours, to examine all books of
account, records, reports and other papers of the Trustee relating to the Notes,
to make copies and extracts therefrom (the reasonable out-of-pocket expenses
incurred in making any such copies or extracts to be reimbursed to the Trustee
by such Person) and to discuss the Trustee's actions, as such actions relate to
the Trustee's duties with respect to the Notes, with the Trustee's officers and
employees responsible for carrying out the Trustee's duties with respect to the
Notes.

Section 6.2 Notice of Default.

Promptly (and in no event later than three Business Days) after the
occurrence of any Default known to the Trustee or after any declaration of
acceleration has been made or delivered to the Trustee pursuant to Section 5.2,
the Trustee shall transmit by mail to the Collateral Manager, the Class A-1AR
Note Agent, the Irish Paying Agent (for so long as any Notes are listed on the
Irish Stock Exchange), each Hedge Counterparty, each Rating Agency (for so long
as any Class of Notes is Outstanding and rated by such Rating Agency), so long
as MBIA is deemed to be the Controlling Class hereunder, MBIA, and to all
Holders of Notes as 

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their names and addresses appear on the Notes Register, notice of all Defaults
hereunder known to the Trustee, unless such Default shall have been cured or
waived.

Section 6.3 Certain Rights of Trustee.

Except as otherwise provided in Section 6.1:

(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, note or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties;

(b) any request or direction of the Issuer or the Co-Issuer mentioned
herein shall be sufficiently evidenced by an Issuer Request or Issuer Order, as
the case may be;

(c) whenever in the administration of this Indenture the Trustee shall
(i) deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate or (ii) be required to determine the value of
any Assets or funds hereunder or the cash flows projected to be received
therefrom, the Trustee may, in the absence of bad faith on its part, rely on
reports of nationally recognized accountants, investment bankers or other
persons qualified to provide the information required to make such
determination, including nationally recognized dealers in securities of the type
being valued and securities quotation services;

(d) as a condition to the taking or omitting of any action by it
hereunder, the Trustee may consult with counsel and the advice of such counsel
or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or omitted by it hereunder in good
faith and in reliance thereon;

(e) the Trustee shall be under no obligation to exercise or to honor
any of the rights or powers vested in it by this Indenture at the request or
direction of any of the Noteholders pursuant to this Indenture, unless such
Noteholders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might reasonably be incurred
by it in compliance with such request or direction;

(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, note or other paper
documents, but the Trustee, in its discretion, may and, upon the written
direction of a Majority of the Controlling Class or of a Rating Agency, shall
make such further inquiry or investigation into such facts or matters as it may
see fit or as it shall be directed and shall have received indemnification
reasonably acceptable to the Trustee, and, the Trustee shall be entitled, on
reasonable prior notice to the Issuer, the Co-Issuer, the Collateral Manager and
the Servicer, to examine the books and records relating to the Notes and the
Assets, as applicable, at the premises of the Issuer, the Co-Issuer and the
Collateral Manager, personally or by agent or attorney during the Issuer's, the
Co-Issuer's or the Collateral Manager's normal business hours upon not less than
three Business Days' prior written notice; provided that the Trustee shall, and
shall cause its agents to, hold in 

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confidence all such information, except (i) to the extent disclosure may be
required by law by any regulatory authority and (ii) to the extent that the
Trustee, in its sole judgment, may determine that such disclosure is consistent
with its obligations hereunder;

(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder (except with respect to its duty to make any
Interest Advance under the circumstances specified in Section 10.9) either
directly or by or through agents or attorneys; provided that the Trustee shall
not be responsible for any willful misconduct or negligence on the part of any
agent appointed and supervised, or attorney appointed, with due care by it
hereunder;

(h) the Trustee shall not be liable for any action it takes or omits
to take in good faith that it reasonably and prudently believes to be authorized
or within its rights or powers hereunder;

(i) the Trustee shall not be responsible for the accuracy of the books
or records of, or for any acts or omissions of, the Depository, any Transfer
Agent (other than the Trustee itself acting in that capacity), Clearstream,
Luxembourg, Euroclear, any Calculation Agent (other than the Trustee itself
acting in that capacity) or any Paying Agent (other than the Trustee itself
acting in that capacity);

(j) the Trustee shall not be liable for the actions or omissions of
the Collateral Manager; and without limiting the foregoing, the Trustee shall
not (except to the extent, if at all, otherwise expressly stated in this
Indenture) be under any obligation to monitor, evaluate or verify compliance by
the Collateral Manager with the terms hereof or the Collateral Management
Agreement, or to verify or independently determine the accuracy of information
received by it from the Collateral Manager (or from any selling institution,
agent bank, trustee or similar source) with respect to the Collateral Debt
Securities; and

(k) to the extent any defined term hereunder, or any calculation
required to be made or determined by the Trustee hereunder, is dependent upon or
defined by reference to generally accepted accounting principles in the United
States in effect from time to time ("GAAP"), the Trustee shall be entitled to
request and receive (and rely upon) instruction from the Issuer or the
accountants appointed pursuant to Section 10.12 as to the application of GAAP in
such connection, in any instance.

Section 6.4 Not Responsible for Recitals or Issuance of Notes.

The recitals contained herein and in the Notes, other than the
Certificate of Authentication thereon, shall be taken as the statements of the
Issuer and the Co-Issuer, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representation as to the validity or
sufficiency of this Indenture (except as may be made with respect to the
validity of the Trustee's obligations hereunder), the Assets or the Notes. The
Trustee shall not be accountable for the use or application by the Issuer or the
Co-Issuer of the Notes or the proceeds thereof or any Money paid to the Issuer
or the Co-Issuer pursuant to the provisions hereof.

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Section 6.5 May Hold Notes.

The Trustee, the Paying Agent, the Notes Registrar or any other agent
of the Issuer or the Co-Issuer, in its individual or any other capacity, may
become the owner or pledgee of Notes and may otherwise deal with the Issuer and
the Co-Issuer with the same rights it would have if it were not Trustee, Paying
Agent, Notes Registrar or such other agent.

Section 6.6 Money Held in Trust.

Money held by the Trustee hereunder shall be held in trust to the
extent required herein. The Trustee shall be under no liability for interest on
any Money received by it hereunder except as otherwise agreed upon with the
Issuer and except to the extent of income or other gain on investments which are
deposits in or certificates of deposit of the Trustee in its commercial capacity
and income or other gain actually received by the Trustee on Eligible
Investments.

Section 6.7 Compensation and Reimbursement.

(a) The Issuer agrees:

(i) to pay the Trustee on each Payment Date in accordance with the
Priority of Payments reasonable compensation for all services rendered by
it hereunder (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust);

(ii) except as otherwise expressly provided herein, to reimburse the
Trustee (subject to any written agreement between the Issuer and the
Trustee) in a timely manner upon its request for all reasonable expenses,
disbursements and advances (except as otherwise provided herein with
respect to Interest Advances) incurred or made by the Trustee in accordance
with any provision of this Indenture (including securities transaction
charges to the extent not waived due to the Trustee's receipt of payments
from a financial institution with respect to certain Eligible Investments,
as specified by the Collateral Manager and the reasonable compensation and
expenses and disbursements of its agents and legal counsel and of any
accounting firm or investment banking firm employed by the Trustee pursuant
to Section 5.4, 5.5, 10.11 or 10.13 hereof, except any such expense,
disbursement or advance as may be attributable to its negligence, willful
misconduct or bad faith);

(iii) to indemnify the Trustee and its Officers, directors, employees
and agents for, and to hold them harmless against, any loss, liability or
expense incurred without negligence, willful misconduct or bad faith on
their part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
themselves against any claim or liability in connection with the exercise
or performance of any of their powers or duties hereunder; and

(iv) to pay the Trustee reasonable additional compensation together
with its expenses (including reasonable counsel fees) for any collection
action taken pursuant to Section 6.13 hereof.

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(b) The Issuer may remit payment for such fees and expenses to the
Trustee or, in the absence thereof, the Trustee may from time to time deduct
payment of its fees and expenses hereunder from Monies on deposit in the Payment
Account in accordance with the Priority of Payments.

(c) The Trustee, in its capacity as Trustee, Paying Agent, Calculation
Agent, Transfer Agent, Custodial Securities Intermediary, Backup Advancing Agent
and Notes Registrar, hereby agrees not to cause the filing of a petition in
bankruptcy against the Issuer or the Co-Issuer until at least one year and one
day (or, if longer, the applicable preference period then in effect) after the
payment in full of all Notes issued under this Indenture. This provision shall
survive termination of this Indenture.

(d) The Trustee agrees that the payment of all amounts to which it is
entitled pursuant to Sections 6.7(a)(i), (a)(ii), (a)(iii) and (a)(iv) shall be
subject to the Priority of Payments, shall be payable only to the extent funds
are available in accordance with such Priority of Payments, shall be payable
solely from the Assets and following realization of the Assets, any such claims
of the Trustee against the Issuer, and all obligations of the Issuer, shall be
extinguished. The Trustee will have a lien upon the Assets to secure the payment
of such payments to it in accordance with the Priority of Payments; provided
that the Trustee shall not institute any proceeding for enforcement of such lien
except in connection with an action taken pursuant to Section 5.3 hereof for
enforcement of the lien of this Indenture for the benefit of the Noteholders.

Fees shall be accrued on the actual number of days in the related
Interest Accrual Period. The Trustee shall receive amounts pursuant to this
Section 6.7 and Section 11.1(a) only to the extent that such payment is made in
accordance with the Priority of Payments and the failure to pay such amounts to
the Trustee will not, by itself, constitute an Event of Default. Subject to
Section 6.9, the Trustee shall continue to serve as Trustee under this Indenture
notwithstanding the fact that the Trustee shall not have received amounts due to
it hereunder. No direction by a Majority of the Controlling Class shall affect
the right of the Trustee to collect amounts owed to it under this Indenture.

If on any Payment Date when any amount shall be payable to the Trustee
pursuant to this Indenture is not paid because there are insufficient funds
available for the payment thereof, all or any portion of such amount not so paid
shall be deferred and payable on any later Payment Date on which a fee shall be
payable and sufficient funds are available therefor in accordance with the
Priority of Payments.

Section 6.8 Corporate Trustee Required; Eligibility.

There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any State thereof, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
$200,000,000, subject to supervision or examination by federal or State
authority, having a rating of at least "A2" by Moody's, a rating of at least
"BBB" by Fitch and a long-term senior unsecured debt rating of at least "A+" and
a short-term debt rating of at least "A-1" by S&P and having an office within
the United States. If such corporation publishes 

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reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section 6.8, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 6.8, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article 6.

Section 6.9 Resignation and Removal; Appointment of Successor.

(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article 6 shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.10.

(b) The Trustee may resign at any time by giving written notice
thereof to the Issuer, the Co-Issuer, the Collateral Manager, the Class A-1AR
Note Agent, each Hedge Counterparty, the Noteholders, each Rating Agency and so
long as MBIA is deemed to be the Controlling Class hereunder, MBIA. Upon
receiving such notice of resignation, the Issuer and the Co-Issuer shall
promptly appoint a successor trustee or trustees by written instrument, in
duplicate, executed by an Authorized Officer of the Issuer and an Authorized
Officer of the Co-Issuer, one copy of which shall be delivered to the Trustee so
resigning and one copy to the successor Trustee or Trustees, together with a
copy to each Noteholder, the Class A-1AR Note Agent, each Hedge Counterparty and
the Collateral Manager; provided that such successor Trustee shall be appointed
only upon the written consent of a Majority of the Notes (or if there are no
Notes Outstanding, a Majority of the Preferred Shares) or, at any time when an
Event of Default shall have occurred and be continuing or when a successor
Trustee has been appointed pursuant to Section 6.10, by Act of a Majority of the
Controlling Class. If no successor Trustee shall have been appointed and an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee, the Controlling Class of Notes or any Holder of a Note, on
behalf of himself and all others similarly situated, may petition any court of
competent jurisdiction for the appointment of a successor Trustee.

(c) The Trustee may be removed (i) at any time by Act of at least
66-2/3% of the Notes (or if there are no Notes Outstanding, a Majority of the
Preferred Shares); provided that, so long as MBIA is deemed to be the
Controlling Class hereunder, MBIA consents to such removal or (ii) at any time
when an Event of Default shall have occurred and be continuing or when a
successor Trustee has been appointed pursuant to Section 6.10, by Act of a
Majority of the Controlling Class, in each case, upon written notice delivered
to the Trustee and to the Issuer and the Co-Issuer.

(d) If at any time:

(i) the Trustee shall cease to be eligible under Section 6.8 and shall
fail to resign after written request therefor by the Issuer, the Co-Issuer,
or by any Holder; or

(ii) the Trustee shall become incapable of acting or there shall be
instituted any proceeding pursuant to which it could be adjudged as
bankrupt or insolvent or a 

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receiver or liquidator of the Trustee or of its property shall be appointed
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation;

then, in any such case (subject to Section 6.9(a)), (a) the Issuer or the
Co-Issuer, by Issuer Order, subject to the written consent of each Hedge
Counterparty, may remove the Trustee or (b) subject to Section 5.15, a Majority
of the Controlling Class or any Holder may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.

(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any reason,
the Issuer and the Co-Issuer, by Issuer Order, subject to the written consent of
each Hedge Counterparty and the Collateral Manager, shall promptly appoint a
successor Trustee. If the Issuer and the Co-Issuer shall fail to appoint a
successor Trustee within 60 days after such resignation, removal or incapability
or the occurrence of such vacancy, a successor Trustee may be appointed by Act
of a Majority of the Controlling Class delivered to the Issuer, the Co-Issuer,
the Collateral Manager and the retiring Trustee. The successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede any successor Trustee proposed by the Issuer and
the Co-Issuer. If no successor Trustee shall have been so appointed by the
Issuer and the Co-Issuer or a Majority of the Controlling Class and shall have
accepted appointment in the manner hereinafter provided, subject to Section
5.15, each Hedge Counterparty, the Controlling Class or any Holder may, on
behalf of itself or himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor Trustee.

(f) The Issuer and the Co-Issuer shall give prompt notice of each
resignation and each removal of the Trustee and each appointment of a successor
Trustee by mailing written notice of such event by first class mail, postage
prepaid, to each Rating Agency, each Hedge Counterparty, the Preferred Shares
Paying Agent, the Collateral Manager and to the Holders of the Notes as their
names and addresses appear in the Notes Register. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office. If
the Issuer or the Co-Issuer fail to mail such notice within ten days after
acceptance of appointment by the successor Trustee, the successor Trustee shall
cause such notice to be given at the expense of the Issuer or the Co-Issuer, as
the case may be.

Section 6.10 Acceptance of Appointment by Successor.

Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Issuer, the Co-Issuer, the Class A-1AR Note Agent, each Hedge
Counterparty, the Collateral Manager, the Servicer, so long as MBIA is deemed to
be the Controlling Class hereunder, MBIA, and the retiring Trustee an instrument
accepting such appointment. Upon delivery of the required instruments, the
resignation or removal of the retiring Trustee shall become effective and such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts, duties and obligations of the
retiring Trustee; but, on request of the Issuer and the Co-Issuer or a Majority
of the Controlling Class or the Collateral Manager or the successor Trustee,
such retiring Trustee shall, upon payment of its charges then unpaid, execute
and deliver an instrument transferring to such successor Trustee all 

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the rights, powers and trusts of the retiring Trustee, and shall duly assign,
transfer and deliver to such successor Trustee all property and Money held by
such retiring Trustee hereunder, subject nevertheless to its lien, if any,
provided for in Section 6.7(d). Upon request of any such successor Trustee, the
Issuer and the Co-Issuer shall execute any and all instruments for more fully
and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.

No successor Trustee shall accept its appointment unless (a) at the
time of such acceptance such successor shall be qualified and eligible under
this Article 6, (b) such successor shall have long term debt rated within the
four highest rating categories by each Rating Agency, and (c) the Rating Agency
Condition is satisfied and, so long as MBIA is deemed to be the Controlling
Class hereunder, MBIA consents with respect thereto. 

Section 6.11 Merger, Conversion, Consolidation or Succession to
Business of Trustee.

Any corporation or banking association into which the Trustee may be
merged or converted or with which it may be consolidated, or any corporation or
banking association resulting from any merger, conversion or consolidation to
which the Trustee shall be a party, or any corporation succeeding to all or
substantially all of the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder; provided such corporation shall be otherwise
qualified and eligible under this Article 6, without the execution or filing of
any paper or any further act on the part of any of the parties hereto. In case
any of the Notes have been authenticated, but not delivered, by the Trustee then
in office, any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver the Notes so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Notes.

Section 6.12 Co-Trustees and Separate Trustee.

At any time or times, including for the purpose of meeting the legal
requirements of any jurisdiction in which any part of the Assets may at the time
be located, the Issuer, the Co-Issuer and the Trustee shall have power to
appoint, one or more Persons to act as co-trustee jointly with the Trustee of
all or any part of the Assets, with the power to file such proofs of claim and
take such other actions pursuant to Section 5.6 herein and to make such claims
and enforce such rights of action on behalf of the Holders of the Notes as such
Holders themselves may have the right to do, subject to the other provisions of
this Section 6.12.

Each of the Issuer and the Co-Issuer shall join with the Trustee in
the execution, delivery and performance of all instruments and agreements
necessary or proper to appoint a co-trustee. If the Issuer and the Co-Issuer do
not both join in such appointment within 15 days after the receipt by them of a
request to do so, the Trustee shall have power to make such appointment.

Should any written instrument from the Issuer or the Co-Issuer be
required by any co-trustee, so appointed, more fully confirming to such
co-trustee such property, title, right or power, any and all such instruments
shall, on request, be executed, acknowledged and delivered 

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by the Issuer or the Co-Issuer, as the case may be. The Issuer agrees to pay
(but only from and to the extent of the Assets) to the extent funds are
available therefor under clauses (3) and (26) of Section 11.1(a)(i), for any
reasonable fees and expenses in connection with such appointment.

Every co-trustee, shall, to the extent permitted by law, but to such
extent only, be appointed subject to the following terms:

(a) the Notes shall be authenticated and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities, Cash and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be exercised solely by
the Trustee;

(b) the rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by the appointment
of a co-trustee shall be conferred or imposed upon and exercised or performed by
the Trustee or by the Trustee and such co-trustee jointly in the case of the
appointment of a co-trustee as shall be provided in the instrument appointing
such co-trustee, except to the extent that under any law of any jurisdiction in
which any particular act is to be performed, the Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties and
obligations shall be exercised and performed by a co-trustee;

(c) the Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Issuer and the Co-Issuer evidenced by an Issuer
Order, may accept the resignation of, or remove, any co-trustee appointed under
this Section 6.12, and in case an Event of Default has occurred and is
continuing, the Trustee shall have the power to accept the resignation of, or
remove, any such co-trustee without the concurrence of the Issuer or the
Co-Issuer. A successor to any co-trustee so resigned or removed may be appointed
in the manner provided in this Section 6.12;

(d) no co-trustee hereunder shall be personally liable by reason of
any act or omission of the Trustee hereunder;

(e) the Trustee shall not be liable by reason of any act or omission
of a co-trustee; and

(f) any Act of Securityholders delivered to the Trustee shall be
deemed to have been delivered to each co-trustee.

Section 6.13 Certain Duties of Trustee Related to Delayed Payment of
Proceeds.

In the event that in any month the Trustee shall not have received a
Scheduled Distribution, (a) the Trustee shall promptly notify the Issuer and the
Collateral Manager in writing and (b) unless within three Business Days (or the
end of the applicable grace period for such payment, if longer) after such
notice such payment shall have been received by the Trustee, or the Issuer, in
its absolute discretion (but only to the extent permitted by Section 10.2(a)),
shall have made provision for such payment satisfactory to the Trustee in
accordance with Section 10.2(a), the Trustee shall request the obligor of such
Pledged Obligation, the trustee under the related Underlying Instrument or
paying agent designated by either of them, as the case may be, 

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to make such payment as soon as practicable after such request but in no event
later than three Business Days after the date of such request. In the event that
such payment is not made within such time period, the Trustee, subject to the
provisions of Section 6.1(d)(iv), shall take such action as the Collateral
Manager reasonably shall direct in writing. Any such action shall be without
prejudice to any right to claim a Default or Event of Default under this
Indenture. In the event that the Issuer or the Collateral Manager requests a
release of a Pledged Obligation in connection with any such action under the
Collateral Management Agreement, such release shall be subject to Section 10.12
and Article 12 of this Indenture, as the case may be. Notwithstanding any other
provision hereof, the Trustee shall deliver to the Issuer or its designee any
payment with respect to any Pledged Obligation received after the Due Date
thereof to the extent the Issuer previously made provisions for such payment
satisfactory to the Trustee in accordance with this Section 6.13 and such
payment shall not be deemed part of the Assets.

Section 6.14 Representations and Warranties of the Trustee.

The Trustee represents and warrants that:

(a) the Trustee is a national banking association with trust powers,
duly and validly existing under the laws of the United States of America, with
corporate power and authority to execute, deliver and perform its obligations
under this Indenture, and is duly eligible and qualified to act as trustee under
this Indenture;

(b) this Indenture has been duly authorized, executed and delivered by
the Trustee and constitutes the valid and binding obligation of the Trustee,
enforceable against it in accordance with its terms except (i) as limited by
bankruptcy, fraudulent conveyance, fraudulent transfer, insolvency,
reorganization, liquidation, receivership, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and by general
equitable principles, regardless of whether considered in a proceeding in equity
or at law, and (ii) that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought;

(c) neither the execution or delivery by the Trustee of this Indenture
nor the performance by the Trustee of its obligations under this Indenture
requires the consent or approval of, the giving of notice to or the registration
or filing with, any governmental authority or agency under any existing law of
the United States of America governing the banking or trust powers of the
Trustee;

(d) neither the execution, delivery and performance of this Indenture,
nor the consummation of the transactions contemplated by this Indenture, (i) is
prohibited by, or requires the Trustee to obtain any consent, authorization,
approval or registration under, any law, statute, rule, regulation, or any
judgment, order, writ, injunction or decree that is binding upon the Trustee or
any of its properties or assets, (ii) will violate the provisions of the
Governing Documents of the Trustee or (iii) will violate any provision of,
result in any default or acceleration of any obligations under, result in the
creation or imposition of any lien pursuant to, or require any consent under,
any material agreement to which the Trustee is a party or by which 

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it or any of its property is bound, the violation of which would have a material
adverse effect on the Trustee or its property; and

(e) there are no proceedings pending or, to the best knowledge of the
Trustee, threatened against the Trustee before any Federal, state or other
governmental agency, authority, administrator or regulatory body, arbitrator,
court or other tribunal, foreign or domestic, which could have a material
adverse effect on the Pledged Obligations or the performance by the Trustee of
its obligations under this Indenture.

Section 6.15 Requests for Consents.

In the event that the Trustee receives written notice of any proposed
amendment, consent or waiver under the Underlying Instruments of any Collateral
Debt Security (before or after any default) or in the event any action is
required to be taken in respect to an Underlying Instrument, the Trustee shall
promptly contact the Issuer and the Collateral Manager. The Collateral Manager
may, on behalf of the Issuer, instruct the Trustee pursuant to an Issuer Order
to, and the Trustee shall, with respect to which a Collateral Debt Security as
to which a consent or waiver under the Underlying Instruments of such Collateral
Debt Security (before or after any default) has been proposed or with respect to
action required to be taken in respect of an Underlying Instrument, give
consent, grant a waiver, vote or exercise any or all other rights or remedies
with respect to any such Collateral Debt Security in accordance with such Issuer
Order. In the absence of any instruction from the Collateral Manager, the
Trustee shall not engage in any vote or take any action with respect to such a
Collateral Debt Security.

Section 6.16 Withholding.

If any amount is required to be deducted or withheld from any payment
to any Noteholder, such amount shall reduce the amount otherwise distributable
to such Noteholder. The Trustee is hereby authorized to withhold or deduct from
amounts otherwise distributable to any Noteholder sufficient funds for the
payment of any tax that is legally required to be withheld or deducted (but such
authorization shall not prevent the Trustee from contesting any such tax in
appropriate proceedings and legally withholding payment of such tax, pending the
outcome of such proceedings). The amount of any withholding tax imposed with
respect to any Noteholder shall be treated as Cash distributed to such
Noteholder at the time it is deducted or withheld by the Issuer or the Trustee,
as applicable, and remitted to the appropriate taxing authority. If there is a
possibility that withholding tax is payable with respect to a distribution, the
Trustee may in its sole discretion withhold such amounts in accordance with this
Section 6.16. If any Noteholder wishes to apply for a refund of any such
withholding tax, the Trustee shall reasonably cooperate with such Noteholder in
making such claim so long as such Noteholder agrees to reimburse the Trustee for
any out-of-pocket expenses incurred. Nothing herein shall impose an obligation
on the part of the Trustee to determine the amount of any tax or withholding
obligation on the part of the Issuer or in respect of the Notes.

ARTICLE 7

COVENANTS

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Section 7.1 Payment of Principal and Interest and Class A-1AR
Commitment Fee.

The Issuer and the Co-Issuer shall duly and punctually pay the
principal of and interest on each Class of Notes, and in the case of the Class
A-1AR Notes, the Class A-1AR Commitment Fee and any Class A-1AR Breakage Costs,
in accordance with the terms of such Notes and this Indenture. Amounts properly
withheld under the Code or other applicable law by any Person from a payment to
any Noteholder of interest and/or principal shall be considered as having been
paid by the Issuer and the Co-Issuer, and, with respect to the Preferred Shares,
by the Issuer, to such Preferred Shareholder for all purposes of this Indenture.

The Trustee shall, unless prevented from doing so for reasons beyond
its reasonable control, give notice to each Securityholder of any such
withholding requirement no later than ten days prior to the related Payment Date
from which amounts are required (as directed by the Issuer (or the Collateral
Manager on behalf of the Issuer)) to be withheld, provided that, despite the
failure of the Trustee to give such notice, amounts withheld pursuant to
applicable tax laws shall be considered as having been paid by the Issuer and
the Co-Issuer, as provided above.

Section 7.2 Maintenance of Office or Agency.

The Issuer and the Co-Issuer hereby appoint the Trustee as a Paying
Agent for the payment of principal of and interest on the Notes and where Notes
may be surrendered for registration of transfer or exchange and the Issuer and
the Co-Issuer hereby appoint CT Corporation System, 111 Eighth Avenue, 13th
Floor, New York, New York 10011, as their agent where notices and demands to or
upon the Co-Issuer in respect of the Notes or this Indenture, or the Issuer in
respect of the Notes or this Indenture, may be served.

The Issuer and the Co-Issuer hereby appoint the Irish Paying Agent as
a Paying Agent for the payment of principal of and interest on the Notes and to
act as their agent where notices and demands to or upon the Issuer or the
Co-Issuer in respect of the Notes or this Indenture may be served and where
Notes may be surrendered for registration of transfer or exchange.

The Issuer or the Co-Issuer may at any time and from time to time vary
or terminate the appointment of any such agent or appoint any additional agents
for any or all of such purposes; provided, however, that the Issuer and the
Co-Issuer, if applicable, will maintain in the Borough of Manhattan, The City of
New York, an office or agency where notices and demands to or upon the Issuer
and the Co-Issuer in respect of the Notes and this Indenture may be served, and,
subject to any laws or regulations applicable thereto, an office or agency
outside of the United States where Notes may be presented and surrendered for
payment; provided, further, that no paying agent shall be appointed in a
jurisdiction which subjects payments on the Notes to withholding tax. The Issuer
or the Co-Issuer, as the case may be, shall give prompt written notice to the
Trustee, the Class A-1AR Note Agent, each Rating Agency and the Noteholders of
the appointment or termination of any such agent and of the location and any
change in the location of any such office or agency.

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If at any time the Issuer and the Co-Issuer, if applicable, shall fail
to maintain any such required office or agency in the Borough of Manhattan, The
City of New York, or outside the United States, or shall fail to furnish the
Trustee with the address thereof, presentations and surrenders may be made
(subject to the limitations described in the preceding paragraph) at and notices
and demands may be served on the Issuer and the Co-Issuer, and Notes may be
presented and surrendered for payment to the appropriate Paying Agent at its
main office and the Issuer and the Co-Issuer hereby appoint the same as their
agent to receive such respective presentations, surrenders, notices and demands.

Section 7.3 Money for Note Payments to be Held in Trust.

All payments of amounts due and payable with respect to any Notes that
are to be made from amounts withdrawn from the Payment Account shall be made on
behalf of the Issuer and the Co-Issuer by the Trustee or a Paying Agent (in each
case, from and to the extent of available funds in the Payment Account and
subject to the Priority of Payments) with respect to payments on the Notes.

When the Paying Agent is not also the Notes Registrar, the Issuer and
the Co-Issuer shall furnish, or cause the Notes Registrar to furnish, no later
than the fifth calendar day after each Record Date a list, if necessary, in such
form as such Paying Agent may reasonably request, of the names and addresses of
the Holders of Notes and of the certificate numbers of individual Notes held by
each such Holder.

Whenever the Paying Agent is not also the Trustee, the Issuer, the
Co-Issuer, and such Paying Agent shall, on or before the Business Day next
preceding each Payment Date or Redemption Date, as the case may be, direct the
Trustee to deposit on such Payment Date with such Paying Agent, if necessary, an
aggregate sum sufficient to pay the amounts then becoming due pursuant to the
terms of this Indenture (to the extent funds are then available for such purpose
in the Payment Account, and subject to the Priority of Payments), such sum to be
held for the benefit of the Persons entitled thereto and (unless such Paying
Agent is the Trustee) the Issuer and the Co-Issuer shall promptly notify the
Trustee of its action or failure so to act. Any Monies deposited with a Paying
Agent (other than the Trustee) in excess of an amount sufficient to pay the
amounts then becoming due on the Notes with respect to which such deposit was
made shall be paid over by such Paying Agent to the Trustee for application in
accordance with Article 11. Any such Paying Agent shall be deemed to agree by
assuming such role not to cause the filing of a petition in bankruptcy against
the Issuer or the Co-Issuer for the non-payment to the Paying Agent of any
amounts payable thereto until at least one year and one day (or, if longer, the
applicable preference period then in effect) after the payment in full of all
Notes issued under this Indenture.

The initial Paying Agent shall be as set forth in Section 7.2. Any
additional or successor Paying Agents shall be appointed by Issuer Order of the
Issuer and Issuer Order of the Co-Issuer with written notice thereof to the
Trustee; provided, however, that so long as any Class of the Notes are rated by
a Rating Agency and with respect to any additional or successor Paying Agent for
the Notes, either (i) such Paying Agent has a long-term debt rating of "Aa3" or
higher by Moody's, "AA-"or higher by Fitch and "AA-" or higher by S&P or a
short-term debt rating of "P-1" by Moody's, "F1+" by Fitch and "A-1+" by S&P or
(ii) each Rating Agency confirms that

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employing such Paying Agent shall not adversely affect the then-current ratings
of the Notes. In the event that such successor Paying Agent ceases to have a
long-term debt rating of "Aa3" or higher by Moody's, "AA-"or higher by Fitch or
"AA-" or higher by S&P or a short-term debt rating of at least "P-1" by Moody's,
"F1+" by Fitch and "A-1+" by S&P, the Issuer and the Co-Issuer shall promptly
remove such Paying Agent and appoint a successor Paying Agent. The Issuer and
the Co-Issuer shall not appoint any Paying Agent that is not, at the time of
such appointment, a depository institution or trust company subject to
supervision and examination by federal and/or state and/or national banking
authorities. The Issuer and the Co-Issuer shall cause the Paying Agent other
than the Trustee to execute and deliver to the Trustee an instrument in which
such Paying Agent shall agree with the Trustee (and if the Trustee acts as
Paying Agent, it hereby so agrees), subject to the provisions of this Section
7.3, that such Paying Agent will:

(a) allocate all sums received for payment to the Holders of Notes for
which it acts as Paying Agent on each Payment Date and Redemption Date among
such Holders in the proportion specified in the applicable report or Redemption
Date Statement, as the case may be, in each case to the extent permitted by
applicable law;

(b) hold all sums held by it for the payment of amounts due with
respect to the Notes for the benefit of the Persons entitled thereto until such
sums shall be paid to such Persons or otherwise disposed of as herein provided
and pay such sums to such Persons as herein provided;

(c) if such Paying Agent is not the Trustee, immediately resign as a
Paying Agent and forthwith pay to the Trustee all sums held by it for the
payment of Notes if at any time it ceases to meet the standards set forth above
required to be met by a Paying Agent at the time of its appointment;

(d) if such Paying Agent is not the Trustee, immediately give the
Trustee notice of any Default by the Issuer or the Co-Issuer (or any other
obligor upon the Notes) in the making of any payment required to be made; and

(e) if such Paying Agent is not the Trustee at any time during the
continuance of any such Default, upon the written request of the Trustee,
forthwith pay to the Trustee all sums so held by such Paying Agent.

The Issuer or the Co-Issuer may at any time, for the purpose of
obtaining the satisfaction and discharge of this Indenture or for any other
purpose, pay, or by Issuer Order direct the Paying Agent to pay, to the Trustee
all sums held by the Issuer or the Co-Issuer or held by the Paying Agent for
payment of the Notes, such sums to be held by the Trustee in trust for the same
Noteholders as those upon which such sums were held by the Issuer, the Co-Issuer
or the Paying Agent; and, upon such payment by the Paying Agent to the Trustee,
the Paying Agent shall be released from all further liability with respect to
such Money.

Except as otherwise required by applicable law, any Money deposited
with the Trustee in trust or deposited with the Paying Agent for the payment of
the principal of or interest on any Note and remaining unclaimed for two years
after such principal or interest has become due and payable shall be paid to the
Issuer; and the Holder of such Note shall thereafter, as an

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unsecured general creditor, look only to the Issuer for payment of such amounts
and all liability of the Trustee or the Paying Agent with respect to such Money
(but only to the extent of the amounts so paid to the Issuer or the Co-Issuer,
as applicable) shall thereupon cease; provided, however, that the Irish Paying
Agent, before being required to make any such payment, shall at the expense of
the Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in Dublin, Ireland, notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining shall be
repaid to the Issuer. The Trustee or the Paying Agent, before being required to
make any such release of payment, may, but shall not be required to, adopt and
employ, at the expense of the Issuer or the Co-Issuer, as the case may be, any
reasonable means of notification of such release of payment, including, but not
limited to, mailing notice of such release to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in Monies due and payable but not claimed is determinable from the
records of the Paying Agent, at the last address of record of each such Holder.

Section 7.4 Existence of the Issuer and Co-Issuer.

(a) So long as any Note is Outstanding, the Issuer shall, to the
maximum extent permitted by applicable law, maintain in full force and effect
its existence and rights as an exempted company incorporated with limited
liability under the laws of the Cayman Islands and shall obtain and preserve its
qualification to do business as a foreign limited liability company in each
jurisdiction in which such qualifications are or shall be necessary to protect
the validity and enforceability of this Indenture, the Notes or any of the
Assets; provided that the Issuer shall be entitled to change its jurisdiction of
registration from the Cayman Islands to any other jurisdiction reasonably
selected by the Issuer so long as (i) such change is not disadvantageous in any
material respect to the Holders of the Notes or the Preferred Shares or any
Hedge Counterparty, (ii) written notice of such change shall have been given by
the Trustee to the Holders of the Notes or Preferred Shares, the Preferred
Shares Paying Agent, each Hedge Counterparty and each Rating Agency 15 Business
Days prior to such change and (iii) on or prior to the 15th Business Day
following such notice the Trustee shall not have received written notice from a
Majority of the Controlling Class or a Majority of the Preferred Shares or any
Hedge Counterparty objecting to such change. So long as any Note is Outstanding,
the Issuer will maintain at all times at least one director who is Independent
of the Collateral Manager and its Affiliates.

(b) So long as any Note is Outstanding, the Co-Issuer shall maintain
in full force and effect its existence and rights as a limited liability company
organized under the laws of Delaware and shall obtain and preserve its
qualification to do business as a foreign limited liability company in each
jurisdiction in which such qualifications are or shall be necessary to protect
the validity and enforceability of this Indenture or the Notes; provided,
however, that the Co-Issuer shall be entitled to change its jurisdiction of
formation from Delaware to any other jurisdiction reasonably selected by the
Co-Issuer so long as (i) such change is not disadvantageous in any material
respect to the Holders of the Notes or any Hedge Counterparty, (ii) written
notice of such change shall have been given by the Trustee to the Holders of the
Notes, each Hedge Counterparty and each Rating Agency 15 Business Days prior to
such change and (iii) on or prior to the 15th Business Day following such notice
the Trustee shall not have

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received written notice from a Majority of the Controlling Class or any Hedge
Counterparty objecting to such change. So long as any Note is Outstanding, the
Co-Issuer shall maintain at all times at least one manager who is Independent of
the Collateral Manager and its Affiliates.

(c) So long as any Note is Outstanding, the Issuer shall ensure that
all corporate or other formalities regarding its existence are followed
(including correcting any known misunderstanding regarding its separate
existence). So long as any Note is Outstanding, the Issuer shall not take any
action or conduct its affairs in a manner that is likely to result in its
separate existence being ignored or its assets and liabilities being
substantively consolidated with any other Person in a bankruptcy, reorganization
or other insolvency proceeding. So long as any Note is Outstanding, the Issuer
shall maintain and implement administrative and operating procedures reasonably
necessary in the performance of the Issuer's obligations hereunder, and the
Issuer shall at all times keep and maintain, or cause to be kept and maintained,
separate books, records, accounts and other information customarily maintained
for the performance of the Issuer's obligations hereunder. Without limiting the
foregoing, so long as any Note is Outstanding, (i) the Issuer shall (A) pay its
own liabilities only out of its own funds and (B) use separate stationery,
invoices and checks, (C) hold itself out and identify itself as a separate and
distinct entity under its own name and (ii) the Issuer shall not (A) have any
subsidiaries, (B) have any employees (other than its directors), (C) engage in
any transaction with any shareholder that is not permitted under the terms of
the Collateral Management Agreement, (D) pay dividends other than in accordance
with the terms of this Indenture, its governing documents and the Preferred
Shares Paying Agency Agreement, (E) conduct business under an assumed name
(i.e., no "DBAs"), (F) commingle its funds or assets with those of any other
Person, or (G) enter into any contract or agreement with any of its Affiliates,
except upon terms and conditions that are commercially reasonable and
substantially similar to those available in arm's-length transactions with an
unrelated party.; provided that the foregoing shall not prohibit the Issuer from
entering into the transactions contemplated by the Administration Agreement with
the Company Administrator, the Preferred Shares Paying Agency Agreement with the
Share Registrar and any other agreement contemplated or permitted by the
Collateral Management Agreement or this Indenture.

(d) So long as any Note is Outstanding, the Co-Issuer shall ensure
that all limited liability company or other formalities regarding its existence
are followed, as well as correcting any known misunderstanding regarding its
separate existence. The Co-Issuer shall not take any action or conduct its
affairs in a manner, that is likely to result in its separate existence being
ignored or its assets and liabilities being substantively consolidated with any
other Person in a bankruptcy, reorganization or other insolvency proceeding. The
Co-Issuer shall maintain and implement administrative and operating procedures
reasonably necessary in the performance of the Co-Issuer's obligations
hereunder, and the Co-Issuer shall at all times keep and maintain, or cause to
be kept and maintained, books, records, accounts and other information
customarily maintained for the performance of the Co- Issuer's obligations
hereunder. Without limiting the foregoing, the Co-Issuer shall not (A) have any
subsidiaries, (B) have any employees (other than its managers), (C) join in any
transaction with any member that is not permitted under the terms of the
Collateral Management Agreement, (D) pay dividends other than in accordance with
the terms of this Indenture, (E) commingle its funds or assets with those of any
other Person, or (F) enter into any contract or agreement with any of its
Affiliates, except upon terms and conditions

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that are commercially reasonable and substantially similar to those available in
arm's-length transactions with an unrelated party.

Section 7.5 Protection of Assets.

(a) The Trustee, on behalf of the Issuer, pursuant to any Opinion of
Counsel received pursuant to Section 7.5(d) shall execute and deliver all such
Financing Statements, continuation statements, instruments of further assurance
and other instruments, and shall take such other action as may be necessary or
advisable or desirable to secure the rights and remedies of the Holders and each
Hedge Counterparty hereunder and to:

(i) Grant more effectively all or any portion of the Assets;

(ii) maintain or preserve the lien (and the priority thereof) of this
Indenture or to carry out more effectively the purposes hereof;

(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture (including, without limitation, any
and all actions necessary or desirable as a result of changes in law or
regulations);

(iv) enforce any of the Pledged Obligations or other instruments or
property included in the Assets;

(v) preserve and defend title to the Assets and the rights of the
Trustee, the Holders of the Notes and each Hedge Counterparty in the Assets
against the claims of all persons and parties; and

(vi) pursuant to Sections 11.1(a)(i)(1) and 11.1(a)(ii)(1), pay or
cause to be paid any and all taxes levied or assessed upon all or any part
of the Assets.

The Issuer hereby designates the Trustee as its agent and
attorney-in-fact to execute any Financing Statement, continuation statement or
other instrument required pursuant to this Section 7.5. The Trustee agrees that
it will from time to time execute and cause to be filed Financing Statements and
continuation statements (it being understood that the Trustee shall be entitled
to rely upon an Opinion of Counsel described in Section 7.5(d), at the expense
of the Issuer, as to the need to file such Financing Statements and continuation
statements, the dates by which such filings are required to be made and the
jurisdictions in which such filings are required to be made).

(b) The Trustee shall not (except in accordance with Section 10.12(a),
(b) or (c) and except for payments, deliveries and distributions otherwise
expressly permitted under this Indenture) (i) remove any portion of the Assets
that consists of Cash or is evidenced by an instrument, certificate or other
writing (A) from the jurisdiction in which it was held at the date as described
in the Opinion of Counsel delivered at the Closing Date pursuant to Section
3.1(d) or (B) from the possession of the Person who held it on such date or (ii)
cause or permit the Custodial Account or the Custodial Securities Intermediary
to be located in a different jurisdiction from the jurisdiction in which such
securities accounts and Custodial Securities Intermediary were located on the
Closing Date, unless the Trustee shall have first received an

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Opinion of Counsel to the effect that the lien and security interest created by
this Indenture with respect to such property will continue to be maintained
after giving effect to such action or actions.

(c) The Issuer shall (i) pay or cause to be paid taxes, if any, levied
on account of the beneficial ownership by the Issuer of any Pledged Obligations
that secure the Notes and timely file all tax returns and information statements
as required, and (ii) if required to prevent the withholding or imposition of
United States income tax, deliver or cause to be delivered a United States
Internal Revenue Service Form W-9 or successor applicable form, to each issuer,
counterparty or paying agent with respect to (as applicable) an item included in
the Assets at the time such item is purchased or entered into and thereafter
prior to the expiration or obsolescence of such form.

(d) For so long as the Notes are Outstanding, (i) on December 31, 2011
and (ii) every 60 months after such date, the Issuer (or the Collateral Manager
on behalf of the Issuer) shall deliver to the Trustee for the benefit of the
Trustee, the Collateral Manager, each Hedge Counterparty and each Rating Agency,
at the expense of the Issuer, an Opinion of Counsel stating what is required, in
the opinion of such counsel, as of the date of such opinion, to maintain the
lien and security interest created by this Indenture with respect to the Assets,
and confirming the matters set forth in the Opinion of Counsel, furnished
pursuant to Section 3.1(d), with regard to the perfection and priority of such
security interest (and such Opinion may likewise be subject to qualifications
and assumptions similar to those set forth in the Opinion delivered pursuant to
Section 3.1(d)).

Section 7.6 Notice of Any Amendments.

Each of the Issuer and the Co-Issuer shall give notice to the Rating
Agencies of, and satisfy the Rating Agency Condition and, so long as MBIA is
deemed to be the Controlling Class hereunder, obtain the consent of MBIA with
respect to, any amendments to its Governing Documents.

Section 7.7 Performance of Obligations.

(a) Each of the Issuer and the Co-Issuer shall not take any action,
and will use commercially reasonable efforts not to permit any action to be
taken by others, that would release any Person from any of such Person's
covenants or obligations under any instrument included in the Assets, except in
the case of enforcement action taken with respect to any Defaulted Security in
accordance with the provisions hereof and as otherwise required hereby.

(b) The Issuer or the Co-Issuer may, with the prior written consent of
the Majority of the Notes (or if there are no Notes Outstanding, a Majority of
the Preferred Shares), contract with other Persons, including the Collateral
Manager, the Class A-1AR Note Agent or the Trustee, for the performance of
actions and obligations to be performed by the Issuer or the Co-Issuer, as the
case may be, hereunder by such Persons and the performance of the actions and
other obligations with respect to the Assets of the nature set forth in the
Collateral Management Agreement by the Collateral Manager. Notwithstanding any
such arrangement, the Issuer or the Co-Issuer, as the case may be, shall remain
primarily liable with respect thereto. In the event of

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such contract, the performance of such actions and obligations by such Persons
shall be deemed to be performance of such actions and obligations by the Issuer
or the Co-Issuer; and the Issuer or the Co-Issuer shall punctually perform, and
use commercially reasonable efforts to cause the Collateral Manager or such
other Person to perform, all of their obligations and agreements contained in
the Collateral Management Agreement or such other agreement.

(c) Unless the Rating Agency Condition with respect to S&P and Moody's
is satisfied with respect thereto, the Issuer shall maintain the Servicing
Agreement in full force and effect so long as any Notes remain Outstanding and
shall not terminate the Servicing Agreement with respect to any Collateral Debt
Security except upon the sale or other liquidation of such Collateral Debt
Security in accordance with the terms and conditions of this Indenture.

Section 7.8 Negative Covenants.

(a) The Issuer and the Co-Issuer shall not:

(i) sell, assign, participate, transfer, exchange or otherwise dispose
of, or pledge, mortgage, hypothecate or otherwise encumber (or permit such
to occur or suffer such to exist), any part of the Assets, except as
otherwise expressly permitted by this Indenture or the Collateral
Management Agreement;

(ii) claim any credit on, make any deduction from, or dispute the
enforceability of, the payment of the principal or interest payable in
respect of the Notes (other than amounts required to be paid, deducted or
withheld in accordance with any applicable law or regulation of any
governmental authority) or, in the case of the Class A-1AR Notes, the Class
A-1AR Commitment Fee or Class A-1AR Breakage Costs, or assert any claim
against any present or future Noteholder by reason of the payment of any
taxes levied or assessed upon any part of the Assets;

(iii) (A) incur or assume or guarantee any indebtedness, other than
the Notes and this Indenture and the transactions contemplated hereby; (B)
issue any additional class of securities, other than the Notes, the
Preferred Shares, the ordinary shares of the Issuer and the limited
liability company membership interests of the Co-Issuer; or (C) issue any
additional shares of stock, other than the ordinary shares of the Issuer
and the Preferred Shares;

(iv) (A) permit the validity or effectiveness of this Indenture or any
Grant hereunder to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or permit
any Person to be released from any covenants or obligations with respect to
this Indenture or the Notes, except as may be expressly permitted hereby;
(B) permit any lien, charge, adverse claim, security interest, mortgage or
other encumbrance (other than the lien of this Indenture) to be created on
or extend to or otherwise arise upon or burden the Assets or any part
thereof, any interest therein or the proceeds thereof, except as may be
expressly permitted hereby; or (C) take any action that would permit the
lien of this Indenture not to constitute a valid first priority security
interest in the Assets, except as may be expressly permitted hereby;

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(v) amend the Collateral Management Agreement, except pursuant to the
terms thereof;

(vi) amend the Preferred Shares Paying Agency Agreement, except
pursuant to the terms thereof;

(vii) to the maximum extent permitted by applicable law, dissolve or
liquidate in whole or in part, except as permitted hereunder;

(viii) make or incur any capital expenditures, except as reasonably
required to perform its functions in accordance with the terms of this
Indenture and, in the case of the Issuer, the Preferred Shares Paying
Agency Agreement;

(ix) become liable in any way, whether directly or by assignment or as
a guarantor or other surety, for the obligations of the lessee under any
lease, hire any employees or pay any dividends to its shareholders, except
with respect to the Preferred Shares in accordance with the Priority of
Payments;

(x) maintain any bank accounts other than the Accounts and the bank
account in the Cayman Islands in which (inter alia) the proceeds of the
Issuer's issued share capital and the transaction fees paid to the Issuer
for agreeing to issue the Securities will be kept;

(xi) conduct business under an assumed name, or change its name
without first delivering at least 30 days' prior written notice to the
Trustee, the Class A-1AR Note Agent, the Noteholders and the Rating
Agencies, each Hedge Counterparty and an Opinion of Counsel to the effect
that such name change will not adversely affect the security interest
hereunder of the Trustee or the Secured Parties;

(xii) take any action that would result in it failing to qualify as a
Qualified REIT Subsidiary of the Arbor Parent for federal income tax
purposes (including, but not limited to, an election to treat the Issuer as
a "taxable REIT subsidiary," as defined in Section 856(l) of the Code),
unless (A) based on an Opinion of Counsel, the Issuer will be treated as a
Qualified REIT Subsidiary of a REIT other than Arbor Parent, or (B) based
on an Opinion of Counsel, the Issuer will be treated as a foreign
corporation that is not engaged in a trade or business in the United States
for U.S. federal income tax purposes;

(xiii) except for any agreements involving the purchase and sale of
Collateral Debt Securities having customary purchase or sale terms and
documented with customary loan trading documentation, enter into any
agreements unless such agreements contain "non-petition" and "limited
recourse" provisions; or

(xiv) amend their respective organizational documents without
satisfaction of the Rating Agency Condition with respect to S&P and Moody's
in connection therewith.

(b) Neither the Issuer nor the Trustee shall sell, transfer, exchange
or otherwise dispose of Assets, or enter into or engage in any business with
respect to any part of

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the Assets, except as expressly permitted or required by this Indenture or the
Collateral Management Agreement.

(c) The Co-Issuer shall not invest any of its assets in "securities"
(as such term is defined in the Investment Company Act) and shall keep all of
the Co-Issuer's assets in Cash.

(d) For so long as any of the Notes are Outstanding, the Co-Issuer
shall not issue any limited liability company membership interests of the
Co-Issuer to any Person other than the Arbor Parent or a wholly-owned subsidiary
of the Arbor Parent.

(e) The Issuer shall not enter into any material new agreements (other
than any Hedge Agreement, Hedge Counterparty Credit Support, Collateral Debt
Security, Collateral Debt Security Purchase Agreement or other agreement
(including, without limitation, in connection with the sale of Assets by the
Issuer) contemplated by this Indenture) without the prior written consent of the
Holders of a Majority of the Notes (or if there are no Notes Outstanding, a
Majority of the Preferred Shares) and shall provide notice of all new agreements
(other than any Hedge Agreement, Collateral Debt Security or other agreement
specifically contemplated by this Indenture) to the Holders of the Notes and
each Hedge Counterparty. The foregoing notwithstanding, the Issuer may agree to
any material new agreements; provided that (i) the Issuer (or the Collateral
Manager on behalf of the Issuer) determines that such new agreements would not,
upon or after becoming effective, adversely affect the rights or interests of
any Class or Classes of Noteholders and (ii) subject to satisfaction of the
Rating Agency Condition and, so long as MBIA is the Controlling Class hereunder,
the consent of MBIA.

(f) As long as any Note is Outstanding, ARMS Equity may not transfer
the Preferred Shares or ordinary shares of the Issuer to any other Person.

Section 7.9 Statement as to Compliance.

(a) On or before January 31, in each calendar year, commencing in 2008
or immediately if there has been a Default in the fulfillment of an obligation
under this Indenture, the Issuer shall deliver to the Trustee (which will
deliver a copy to each Hedge Counterparty and each Rating Agency) an Officer's
Certificate given on behalf of the Issuer and without personal liability
stating, as to each signer thereof, that, since the date of the last certificate
or, in the case of the first certificate, the Closing Date, to the best of the
knowledge, information and belief of such Officer, the Issuer has fulfilled all
of its obligations under this Indenture or, if there has been a Default in the
fulfillment of any such obligation, specifying each such Default known to them
and the nature and status thereof.

Section 7.10 Issuer and Co-Issuer May Consolidate or Merge Only on
Certain Terms.

(a) The Issuer shall not consolidate or merge with or into any other
Person or transfer or convey all or substantially all of its assets to any
Person, unless permitted by the Governing Documents and Cayman Islands law and
unless:

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(i) the Issuer shall be the surviving entity, or the Person (if other
than the Issuer) formed by such consolidation or into which the Issuer is
merged or to which all or substantially all of the assets of the Issuer are
transferred shall be an entity organized and existing under the laws of the
Cayman Islands or such other jurisdiction approved by a Majority of each
and every Class of the Notes (each voting as a separate Class), a Majority
of the Preferred Shares and each Hedge Counterparty; provided that no such
approval shall be required in connection with any such transaction
undertaken solely to effect a change in the jurisdiction of registration
pursuant to Section 7.4 hereof; and provided, further, that the surviving
entity shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, each Noteholder and each Hedge
Counterparty, the due and punctual payment of the principal of and interest
on all Notes and in the case of the Class A-1AR Notes, the Class A-1AR
Commitment Fee, and other amounts payable hereunder and under each Hedge
Agreement and the Collateral Management Agreement and the performance and
observance of every covenant of this Indenture and under each Hedge
Agreement and the Collateral Management Agreement on the part of the Issuer
to be performed or observed, all as provided herein;

(ii) (A) each Rating Agency shall have been notified in writing of
each proposed consolidation or merger of the Issuer and the Trustee shall
have received written confirmation from each Rating Agency that the ratings
issued with respect to each Class of Notes shall not be reduced or
withdrawn as a result of the consummation of such transaction and (B) so
long as MBIA is deemed to be the Controlling Class hereunder, MBIA has
consented to the consummation of such transaction;

(iii) if the Issuer is not the surviving entity, the Person formed by
such consolidation or into which the Issuer is merged or to which all or
substantially all of the assets of the Issuer are transferred shall have
agreed with the Trustee (A) to observe the same legal requirements for the
recognition of such formed or surviving entity as a legal entity separate
and apart from any of its Affiliates as are applicable to the Issuer with
respect to its Affiliates and (B) not to consolidate or merge with or into
any other Person or transfer or convey all or substantially all of the
Assets or all or substantially all of its assets to any other Person except
in accordance with the provisions of this Section 7.10, unless in
connection with a sale of the Assets pursuant to Article 5, Article 9 or
Article 12;

(iv) if the Issuer is not the surviving entity, the Person formed by
such consolidation or into which the Issuer is merged or to which all or
substantially all of the assets of the Issuer are transferred shall have
delivered to the Trustee, each Hedge Counterparty, the Collateral Manager
and each Rating Agency an Officer's Certificate and an Opinion of Counsel
each stating that such Person is duly organized, validly existing and in
good standing in the jurisdiction in which such Person is organized+; that
such Person has sufficient power and authority to assume the obligations
set forth in Section 7.10(a)(i) above and to execute and deliver an
indenture supplemental hereto for the purpose of assuming such obligations;
that such Person has duly authorized the execution, delivery and
performance of an indenture supplemental hereto for the purpose of assuming
such obligations and that such supplemental indenture is a valid, legal and
binding obligation of such Person, enforceable in accordance with its
terms, subject only

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to bankruptcy, reorganization, insolvency, moratorium and other laws
affecting the enforcement of creditors' rights generally and to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law); that, immediately
following the event which causes such Person to become the successor to the
Issuer, (A) such Person has good and marketable title, free and clear of
any lien, security interest or charge, other than the lien and security
interest of this Indenture, to the Assets securing, in the case of a
consolidation or merger of the Issuer, all of the Notes or, in the case of
any transfer or conveyance of the Assets securing any of the Notes, such
Notes, (B) the Trustee continues to have a valid perfected first priority
security interest in the Assets securing, in the case of a consolidation or
merger of the Issuer, all of the Notes, or, in the case of any transfer or
conveyance of the Assets securing any of the Notes, such Notes and (C) such
other matters as the Trustee, each Hedge Counterparty, the Collateral
Manager or any Noteholder may reasonably require;

(v) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;

(vi) the Issuer shall have delivered to the Trustee, the Preferred
Shares Paying Agent, each Hedge Counterparty, the Collateral Manager and
each Noteholder, an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation, merger, transfer or conveyance and such
supplemental indenture comply with this Article 7 and that all conditions
precedent in this Article 7 provided for relating to such transaction have
been complied with;

(vii) the Issuer has received advice from Cadwalader, Wickersham &
Taft LLP or an opinion of other nationally recognized U.S. tax counsel
experienced in such matters that the Issuer or the Person referred to in
clause (a) either will (a) be treated as a Qualified REIT Subsidiary or (b)
not be treated as a foreign corporation engaged in a U.S. trade or business
or otherwise subject to U.S. federal income tax on a net income tax basis;

(viii) the Issuer has received advice from Cadwalader, Wickersham &
Taft LLP or an opinion of other nationally recognized U.S. tax counsel
experienced in such matters that such action will not adversely affect the
tax treatment of the Noteholders as described in the Offering Memorandum
under the heading "Certain U.S. Federal Income Tax Considerations" to any
material extent; and

(ix) after giving effect to such transaction, the Issuer shall not be
required to register as an investment company under the Investment Company
Act.

(b) The Co-Issuer shall not consolidate or merge with or into any
other Person or transfer or convey all or substantially all of its assets to any
Person, unless no Notes remain Outstanding or:

(i) the Co-Issuer shall be the surviving entity, or the Person (if
other than the Co-Issuer) formed by such consolidation or into which the
Co-Issuer is merged or to which all or substantially all of the assets of
the Co-Issuer are transferred shall be a

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company organized and existing under the laws of Delaware or such other
jurisdiction approved by a Majority of the Controlling Class and each Hedge
Counterparty; provided that no such approval shall be required in
connection with any such transaction undertaken solely to effect a change
in the jurisdiction of formation pursuant to Section 7.4; and provided,
further, that the surviving entity shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee and each
Noteholder, the due and punctual payment of the principal of and interest
on all Notes and in the case of the Class A-1AR Notes, the Class A-1AR
Commitment Fee, and the performance and observance of every covenant of
this Indenture on the part of the Co-Issuer to be performed or observed,
all as provided herein;

(ii) (A) each Rating Agency shall have been notified in writing of
each proposed consolidation or merger of the Co-Issuer and the Trustee
shall have received written confirmation from each Rating Agency that the
ratings issued with respect to each Class of Notes shall not be reduced or
withdrawn as a result of the consummation of such transaction and (B) so
long as MBIA is deemed to be the Controlling Class hereunder, MBIA has
consented to the consummation of such transaction;

(iii) if the Co-Issuer is not the surviving entity, the Person formed
by such consolidation or into which the Co-Issuer is merged or to which all
or substantially all of the assets of the Co-Issuer are transferred shall
have agreed with the Trustee (A) to observe the same legal requirements for
the recognition of such formed or surviving entity as a legal entity
separate and apart from any of its Affiliates as are applicable to the
Co-Issuer with respect to its Affiliates and (B) not to consolidate or
merge with or into any other Person or transfer or convey all or
substantially all of its assets to any other Person except in accordance
with the provisions of this Section 7.10;

(iv) if the Co-Issuer is not the surviving entity, the Person formed
by such consolidation or into which the Co-Issuer is merged or to which all
or substantially all of the assets of the Co-Issuer are transferred shall
have delivered to the Trustee and each Rating Agency an Officer's
Certificate and an Opinion of Counsel each stating that such Person is duly
organized, validly existing and in good standing in the jurisdiction in
which such Person is organized; that such Person has sufficient power and
authority to assume the obligations set forth in Section 7.10(b)(i) above
and to execute and deliver an indenture supplemental hereto for the purpose
of assuming such obligations; that such Person has duly authorized the
execution, delivery and performance of an indenture supplemental hereto for
the purpose of assuming such obligations and that such supplemental
indenture is a valid, legal and binding obligation of such Person,
enforceable in accordance with its terms, subject only to bankruptcy,
reorganization, insolvency, moratorium and other laws affecting the
enforcement of creditors' rights generally and to general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law); such other matters as the Trustee or any
Noteholder may reasonably require;

(v) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;

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(vi) the Co-Issuer shall have delivered to the Trustee, the Preferred
Shares Paying Agent, each Hedge Counterparty and each Noteholder an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation, merger, transfer or conveyance and such supplemental
indenture comply with this Article 7 and that all conditions precedent in
this Article 7 provided for relating to such transaction have been complied
with and that no adverse tax consequences will result therefrom to the
Holders of the Notes, each Hedge Counterparty or the Preferred
Shareholders; and

(vii) after giving effect to such transaction, the Co-Issuer shall not
be required to register as an investment company under the Investment
Company Act.

Section 7.11 Successor Substituted.

Upon any consolidation or merger, or transfer or conveyance of all or
substantially all of the assets of the Issuer or the Co-Issuer, in accordance
with Section 7.10 hereof, the Person formed by or surviving such consolidation
or merger (if other than the Issuer or the Co-Issuer), or the Person to which
such consolidation, merger, transfer or conveyance is made, shall succeed to,
and be substituted for, and may exercise every right and power of, the Issuer or
the Co-Issuer, as the case may be, under this Indenture with the same effect as
if such Person had been named as the Issuer or the Co-Issuer, as the case may
be, herein. In the event of any such consolidation, merger, transfer or
conveyance, the Person named as the "Issuer" or the "Co-Issuer" in the first
paragraph of this Indenture or any successor which shall theretofore have become
such in the manner prescribed in this Article 7 may be dissolved, wound-up and
liquidated at any time thereafter, and such Person thereafter shall be released
from its liabilities as obligor and maker on all the Notes and from its
obligations under this Indenture.

Section 7.12 No Other Business.

The Issuer shall not engage in any business or activity other than
issuing and selling the Notes pursuant to this Indenture and any supplements
thereto, issuing its ordinary shares and issuing and selling the Preferred
Shares in accordance with its Governing Documents, entering into any Hedge
Agreement, the Collateral Management Agreement, and acquiring, owning, holding,
disposing of and pledging the Assets in connection with the Notes and such other
activities which are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith. The Co-Issuer shall
not engage in any business or activity other than issuing and selling the Notes
pursuant to this Indenture and any supplements thereto and such other activities
which are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith. 

Section 7.13 Reporting.

At any time when the Issuer and/or the Co-Issuer is not subject to
Section 13 or 15(d) of the Exchange Act and is not exempt from reporting
pursuant to Rule 12g3-2(b) under the Exchange Act, upon the request of a Holder
or beneficial owner of a Note, the Issuer and/or the Co-Issuer shall promptly
furnish or cause to be furnished "Rule 144A Information" (as defined below) to
such Holder or beneficial owner, to a prospective purchaser of such Note
designated by such Holder or

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beneficial owner or to the Trustee for delivery to such Holder or beneficial
owner or a prospective purchaser designated by such Holder or beneficial owner,
as the case may be, in order to permit compliance by such Holder or beneficial
owner with Rule 144A under the Securities Act in connection with the resale of
such Note by such Holder or beneficial owner. "Rule 144A Information" shall be
such information as is specified pursuant to Rule 144A(d)(4) under the
Securities Act (or any successor provision thereto). The Trustee shall
reasonably cooperate with the Issuer and/or the Co-Issuer in mailing or
otherwise distributing (at the Issuer's expense) to such Noteholders or
prospective purchasers, at and pursuant to the Issuer's and/or the Co-Issuer's
written direction the foregoing materials prepared by or on behalf of the Issuer
and/or the Co-Issuer; provided, however, that the Trustee shall be entitled to
prepare and affix thereto or enclose therewith reasonable disclaimers to the
effect that such Rule 144A Information was not assembled by the Trustee, that
the Trustee has not reviewed or verified the accuracy thereof, and that it makes
no representation as to such accuracy or as to the sufficiency of such
information under the requirements of Rule 144A or for any other purpose.

Section 7.14 Calculation Agent.

(a) The Issuer and the Co-Issuer hereby agree that for so long as any
Notes remain Outstanding there shall at all times be an agent appointed to
calculate LIBOR in respect of each Interest Accrual Period in accordance with
the terms of Schedule J attached hereto (the "Calculation Agent"). The Issuer
and the Co-Issuer initially have appointed the Trustee as Calculation Agent for
purposes of determining LIBOR for each Interest Accrual Period. The Calculation
Agent may be removed by the Issuer at any time. The Calculation Agent may resign
at any time by giving written notice thereof to the Issuer, the Co-Issuer, the
Collateral Manager, each Hedge Counterparty, the Class A-1AR Note Agent, the
Noteholders and each Rating Agency. If the Calculation Agent is unable or
unwilling to act as such or is removed by the Issuer in respect of any Interest
Accrual Period, the Issuer and the Co-Issuer shall, with the prior written
consent of each Hedge Counterparty and the Class A-1AR Note Agent, promptly
appoint as a replacement Calculation Agent a leading bank which is engaged in
transactions in Eurodollar deposits in the international Eurodollar market and
which does not control or is not controlled by or under common control with the
Issuer or its Affiliates. The Calculation Agent may not resign its duties
without a successor having been duly appointed, and shall promptly inform the
Hedge Counterparty and the Class A-1AR Note Agent of any such appointment. If no
successor Calculation Agent shall have been appointed within 30 days after
giving of a notice of resignation, the resigning Calculation Agent, each Hedge
Counterparty, the Class A-1AR Note Agent, a Majority of the Notes or any Holder
of a Note, on behalf of himself and all others similarly situated, may petition
a court of competent jurisdiction for the appointment of a successor Calculation
Agent.

(b) The Calculation Agent shall be required to agree that, as soon as
practicable after 11:00 a.m. (London time) on each LIBOR Determination Date (as
defined in Schedule J attached hereto), but in no event later than 11:00 a.m.
(New York time) on the London Banking Day immediately following each LIBOR
Determination Date, the Calculation Agent shall calculate (x) LIBOR for the next
Interest Accrual Period and (y) the amount of interest for such Interest Accrual
Period payable in respect of each $1,000 principal amount of each Class of Notes
(rounded to the nearest cent, with half a cent being rounded upward) on the
related Payment Date, and will communicate such rates and amounts to the Issuer,
the Co-Issuer, the Trustee, the Collateral Manager, the Paying Agent, each Hedge
Counterparty and, if any

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Note is in the form of a Regulation S Global Security, to Euroclear and
Clearstream, Luxembourg. The Calculation Agent shall also specify to the Issuer
and the Co-Issuer the quotations upon which LIBOR is based, and in any event the
Calculation Agent shall notify the Issuer and the Co-Issuer before 5:00 p.m.
(New York time) on each LIBOR Determination Date if it has not determined and is
not in the process of determining LIBOR and the Interest Distribution Amounts
for each Class of Notes, together with the reasons therefor. The determination
of the Class A-1A Rate, Class A-1AR Rate, Class A-2 Rate, Class B Rate, Class C
Rate, Class D Rate, Class E Rate, Class F Rate, Class G Rate and Class H Rate
and the related Class A-1A Interest Distribution Amount, Class A-1AR Interest
Distribution Amount, Class A-2 Interest Distribution Amount, Class B Interest
Distribution Amount, Class C Interest Distribution Amount, Class D Interest
Distribution Amount, Class E Interest Distribution Amount, Class F Interest
Distribution Amount, Class G Interest Distribution Amount and Class H Interest
Distribution Amount, respectively, by the Calculation Agent shall, absent
manifest error, be final and binding on all parties.

Section 7.15 Maintenance of Listing.

(a) For so long as any of the Notes remain Outstanding, the Issuer and
Co-Issuer shall use all reasonable efforts to arrange and maintain the listing
of the Notes (other than the Class A-1AR Notes) on the Irish Stock Exchange.

(b) If the Notes (other than the Class A-1AR Notes) are listed on the
Irish Stock Exchange, the Issuer shall:

(i) in each calendar year commencing in 2007, request from the Irish
Stock Exchange a waiver of the Irish Stock Exchange's requirement to
publish annual reports and accounts;

(ii) submit to the Irish Stock Exchange draft copies of any proposed
amendments to the Governing Documents which would affect the rights of the
Holders of the Notes listed on the Irish Stock Exchange;

(iii) pay the annual fee for listing the Notes (other than the Class
A-1AR Notes) on the Irish Stock Exchange, if any; and

(iv) inform the Irish Stock Exchange if the rating assigned to any of
the Notes is reduced or withdrawn.

(c) All notices, documents, reports and other announcements delivered
to such Company Announcements Office shall be in the English language.

(d) Notwithstanding the foregoing, if the Collateral Manager on behalf
of the Co-Issuers determines that the maintenance of the listing of any Class of
Notes on the Irish Stock Exchange (or any alternative listing on another
securities exchange) is unduly onerous or burdensome, the Co-Issuers will have
the right to cause such Class of Notes to be delisted from the Irish Stock
Exchange (or such other securities exchange). If any such delisting occurs with
respect to such Class, the Issuer shall use reasonable efforts to apply for the
alternative listing of such Class on such other securities exchange as the
Collateral Manager on behalf of the Issuer

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may choose, except to the extent that the Collateral Manager determines on
behalf of the Issuer that obtaining or maintaining such alternative listing
would itself be unduly onerous or burdensome. Without limiting the Collateral
Manager's discretion with respect to any determination that maintaining or
obtaining a listing is unduly onerous or burdensome, the Collateral Manager may
take into account various factors, including any requirement, resulting from a
listing, that either Co-Issuer prepare financial statements of any particular
kind or provide additional disclosure of any particular kind, in each case
including any such requirement arising out of disclosure or transparency
directives of the European Union or any other law or governmental rule.

Section 7.16 Purchase of Assets.

The Issuer (or the Collateral Manager on behalf of the Issuer) shall
use commercially reasonable efforts to invest Principal Proceeds, any remaining
Deposit and any Reinvestment Income during the Ramp-Up Period in Collateral Debt
Securities in accordance with the provisions hereof. Subject to the provisions
of this Section 7.17, Principal Proceeds, all or any portion of any remaining
Deposit and any Reinvestment Income thereon may be applied prior to the
Effective Date to purchase Collateral Debt Securities (which shall be, and
hereby are, Granted to the Trustee pursuant to the Granting Clause of this
Indenture) for inclusion in the Assets upon receipt by the Trustee of an Issuer
Order executed by the Issuer (or the Collateral Manager on behalf of the Issuer)
with respect thereto directing the Trustee to pay out the amount specified
therein against delivery of the Collateral Debt Security specified therein and a
certificate of an Authorized Officer of the Issuer (or the Collateral Manager),
dated as of the trade date, and delivered to the Trustee on or prior to the date
of such purchase and Grant, to the effect that the criteria set forth below in
this Section 7.17 will be satisfied (such criteria to be applied as of the trade
date) after giving effect to such purchase and Grant of the Collateral Debt
Securities:

(a) the Eligibility Criteria are met with respect to the Collateral
Debt Securities purchased;

(b) the Reinvestment Criteria are satisfied after giving effect to
such investment; and

(c) the procedures relating to the perfection of the Trustee's
security interest in the Collateral Debt Securities described in this Indenture
have been satisfied.

Section 7.17 Effective Date Actions.

(a) The Issuer (or the Collateral Manager on behalf of the Issuer)
shall cause to be delivered to the Trustee and each Rating Agency on the
Effective Date an amended Schedule of Closing Date Collateral Debt Securities
listing all Collateral Debt Securities Granted to the Trustee pursuant to
Section 7.17 on or before the Effective Date and included in the Assets on the
Effective Date, which schedule shall supersede any prior Schedule of Closing
Date Collateral Debt Securities delivered to the Trustee.

(b) Within ten Business Days after the Effective Date, the Issuer (or
the Collateral Manager on behalf of the Issuer) shall request each Rating Agency
rating a Class of

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Notes to confirm within 20 Business Days after the Effective Date, and to so
notify in writing the Trustee and any Hedge Counterparty, that it has not
reduced or withdrawn the ratings assigned by it on the Closing Date to such
Class of Notes. If, within 20 Business Days after the Effective Date, any rating
assigned as of the Closing Date to any Class of Notes has not been confirmed, or
is reduced or withdrawn, the Collateral Manager may, on behalf of the Issuer,
within ten Business Days, provide to such Rating Agency a proposal (a
"Proposal") with respect to the Collateral Debt Securities. If such Rating
Agency does not accept the Proposal, or the Collateral Manager, on behalf of the
Issuer, elects not to submit a Proposal, a "Rating Confirmation Failure" shall
have occurred. If such Rating Agency accepts the Proposal, a Rating Confirmation
Failure shall not be deemed to have occurred unless and until the Collateral
Manager fails to meet the conditions set forth in the Proposal in accordance
with the time requirements set forth in such Proposal. Within ten Business Days
after the conditions set forth in the Proposal have been satisfied, the Issuer
shall be required to request a Rating Confirmation. If the relevant Rating
Agency does not confirm its ratings, a Rating Confirmation Failure shall have
occurred. If a Rating Confirmation Failure occurs, on the first Payment Date
thereafter, (i) as provided in Section 10.4, all amounts remaining on deposit in
the Unused Proceeds Account, (ii) as provided in Section 11.1(a)(i), all
Interest Proceeds remaining after payment of the amounts referred to in clauses
(1) through (23) of Section 11.1(a)(i) and (iii) as provided in Section
11.1(a)(ii), all Principal Proceeds remaining after payment of the amounts
referred to in clauses (1) through (6) of Section 11.1(a)(ii), in each case will
be used to pay principal of each such Class of Notes, in each case sequentially
in accordance with the Priority of Payments, until each such rating is confirmed
or reinstated or such Class of Notes has been paid in full (and, in the case of
the Class A-1AR Notes, the Class A-1AR Commitments have been reduced to zero).

(c) The Collateral Manager on behalf of the Issuer shall cause to be
delivered to the Trustee, each Hedge Counterparty and each Rating Agency, within
six Business Days after the Effective Date, an Accountants' Report, dated as of
the Effective Date, confirming that the Collateral Quality Tests and the
Coverage Tests have been satisfied and that the Collateral Debt Securities
(together with the Aggregate Class A-1AR Undrawn Amount) have an aggregate par
amount (or, in the case of the Aggregate Class A-1AR Undrawn Amount, an
aggregate dollar amount) equal to at least the Minimum Ramp-Up Amount and
certifying the procedures applied and such accountants' associated findings with
respect to the Eligibility Criteria and specifying the procedures undertaken by
them to review data and computations relating to such information. The
Collateral Manager may on any date, prior to the 270th day following the Closing
Date or the purchase of Collateral Debt Securities (together with the Aggregate
Class A-1AR Undrawn Amount) having an aggregate par amount equal to the Minimum
Ramp-Up Amount, upon written notice to the Trustee, the Class A-1AR Note Agent,
the Issuer and the Co-Issuer and each Rating Agency (with a copy to each Hedge
Counterparty), declare that the Effective Date shall occur on the date specified
in such notice; provided that each of the Collateral Quality Tests and the
Coverage Tests will be satisfied as of such Effective Date, the Rating Agency
Condition has been satisfied and, so long as MBIA is deemed to be the
Controlling Class hereunder, MBIA has consented. The Issuer (or the Collateral
Manager on behalf of the Issuer) shall cause to be delivered to S&P on the
Effective Date a Microsoft Excel file that provides all of the inputs required
to determine whether the S&P CDO Monitor Test has been satisfied.

Section 7.18 REIT Status.

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The Arbor Parent shall not take any action that results in the Issuer
failing to qualify as a Qualified REIT Subsidiary of the Arbor Parent for
federal income tax purposes, unless (A) based on an Opinion of Counsel, the
Issuer will be treated as a Qualified REIT Subsidiary of a REIT other than Arbor
Parent, or (B) based on an Opinion of Counsel, the Issuer will be treated as a
foreign corporation that is not engaged in a trade or business in the United
States for U.S. federal income tax purposes.

ARTICLE 8

SUPPLEMENTAL INDENTURES

Section 8.1 Supplemental Indentures Without Consent of
Securityholders.

Without the consent of the Holders of any Notes or any Preferred
Shareholders, the Issuer, the Co-Issuer, when authorized by Board Resolutions,
and the Trustee, with the written consent of each Hedge Counterparty delivered
to the Issuer, the Co-Issuer and the Trustee, and, at any time and from time to
time subject to the requirement provided below in this Section 8.1, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:

(a) to evidence the succession of another Person to the Issuer or the
Co-Issuer and the assumption by any such successor Person of the covenants of
the Issuer or the Co-Issuer herein and in the Notes;

(b) to add to the covenants of the Issuer, the Co-Issuer or the
Trustee for the benefit of the Holders of the Notes, Preferred Shareholders,
each Hedge Counterparty or to surrender any right or power herein conferred upon
the Issuer or the Co-Issuer, as applicable;

(c) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee, or add to the conditions, limitations or restrictions on the
authorized amount, terms and purposes of the issue, authentication and delivery
of the Notes;

(d) to evidence and provide for the acceptance of appointment
hereunder of a successor Trustee and to add to or change any of the provisions
of this Indenture as shall be necessary to facilitate the administration of the
trusts hereunder by more than one Trustee, pursuant to the requirements of
Sections 6.9, 6.10 and 6.12 hereof;

(e) to correct or amplify the description of any property at any time
subject to the lien of this Indenture, or to better assure, convey and confirm
unto the Trustee any property subject or required to be subjected to the lien of
this Indenture (including, without limitation, any and all actions necessary or
desirable as a result of changes in law or regulations) or to subject to the
lien of this Indenture any additional property;

(f) to modify the restrictions on and procedures for resales and other
transfers of Notes to reflect any changes in applicable law or regulation (or
the interpretation thereof) or to

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enable the Issuer and the Co-Issuer to rely upon any exemption from registration
under the Securities Act, the Exchange Act or the Investment Company Act or to
remove restrictions on resale and transfer to the extent not required
thereunder;

(g) to accommodate the issuance, if any, of Notes in global or
book-entry form through the facilities of the Depository or otherwise;

(h) otherwise to correct any inconsistency or cure any ambiguity or
mistake;

(i) to take any action commercially reasonably necessary or advisable
to prevent the Issuer from failing to qualify as a Qualified REIT Subsidiary or
to prevent the Issuer, the Holders of the Notes, the Holders of the Preferred
Shares or the Trustee from being subject to withholding or other taxes, fees or
assessments or otherwise subject to U.S. federal, state, local or foreign income
or franchise tax on a net income tax basis; and

(j) to conform this Indenture to the provisions described in the
Offering Memorandum (or any supplement thereto).

The Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into any such supplemental indenture which affects the
Trustee's own rights, duties, liabilities or immunities under this Indenture or
otherwise, except to the extent required by law.

If any Class of Notes is Outstanding and rated by a Rating Agency, the
Trustee shall not enter into any such supplemental indenture unless the Rating
Agency Condition has been satisfied, the notice of which may be in electronic
form, and, so long as MBIA is deemed to be the Controlling Class hereunder, MBIA
consents. At the cost of the Issuer, for so long as any Class of Notes shall
remain Outstanding and is rated by a Rating Agency, the Trustee shall provide to
such Rating Agency a copy of any proposed supplemental indenture at least 15
days prior to the execution thereof by the Trustee, and, for so long as such
Notes are Outstanding and so rated, request written confirmation, which may be
in electronic form, that such Rating Agency will not, as a result of such
supplemental indenture, cause the rating of any such Class of Notes to be
reduced or withdrawn, and, as soon as practicable after the execution by the
Trustee, the Issuer and the Co-Issuer of any such supplemental indenture,
provide to such Rating Agency a copy of the executed supplemental indenture.

The Trustee shall not enter into any such supplemental indenture if
(i) as a result of such supplemental indenture, the interests of any Holder of
Securities would be materially and adversely affected thereby, unless the
Majority of each and every Class of Notes or the Preferred Shares so affected
have approved such supplemental indenture or (ii) such action would adversely
affect the tax treatment of the Holders of the Notes as described in the
Offering Memorandum under the heading "Certain U.S. Federal Income Tax
Considerations" to any material extent or otherwise cause any of the statements
described in the Offering Memorandum under the heading "Certain U.S. Federal
Income Tax Considerations" to be inaccurate or incorrect to any material extent.
The Trustee shall be entitled to rely upon (i) the receipt of notice, which may
be in electronic form, that the Rating Agency Condition has been satisfied and

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(ii) receipt of an Officer's Certificate of the Collateral Manager in
determining whether or not the Holders of Securities would be adversely affected
by such change (after giving notice of such change to the Holders of
Securities). Such determination shall be conclusive and binding on all present
and future Holders of Securities. The Trustee shall not be liable for any such
determination made in good faith and in reliance upon such Officer's
Certificate.

Furthermore, the Trustee shall not enter into any such supplemental
indenture unless the Trustee has received an Opinion of Counsel from Cadwalader,
Wickersham & Taft LLP or other nationally recognized U.S. tax counsel
experienced in such matters that the proposed supplemental indenture will not
cause the Issuer to (x) fail to be treated as a Qualified REIT Subsidiary or (y)
otherwise be treated as a foreign corporation that is engaged in a trade or
business in the United States for U.S. federal income tax purposes.

Section 8.2 Supplemental Indentures with Consent of Securityholders.

Except as set forth below, the Trustee and the Co-Issuers may enter
into one or more indentures supplemental hereto to add any provisions to, or
change in any manner or eliminate any of the provisions of, this Indenture or
modify in any manner the rights of the Holders of any Class of Notes or the
Preferred Shares under this Indenture only (x) with the written consent of (a)
the Holders of a Majority in Aggregate Outstanding Amount of the Notes of each
Class materially and adversely affected thereby (excluding any Notes owned by
the Collateral Manager or any of its Affiliates, or by any accounts managed by
them) and the Holder of Preferred Shares if materially and adversely affected
thereby, by Act of said Securityholders delivered to the Trustee and the
Co-Issuers, and (b) the consent of each Hedge Counterparty (to the extent
required by the related Hedge Agreement), and (c) the Class A-1AR Note Agent if
it is materially and adversely affected thereby, and (y) subject to satisfaction
of the Rating Agency Condition, notice of which may be in electronic form, and,
so long as MBIA is deemed to be the Controlling Class hereunder, the consent of
MBIA. Unless the Trustee is notified (after giving 15 Business Days' notice of
such change to the Holders of each Class of Notes, the Holder of the Preferred
Shares, each Hedge Counterparty and the Class A-1AR Note Agent) by Holders of a
Majority in Aggregate Outstanding Amount of the Notes of any Class (excluding
any Notes owned by the Collateral Manager or any of its Affiliates, or by any
accounts managed by them) that such Class of Notes will be materially and
adversely affected by the proposed supplemental indenture (and upon receipt of
an Officer's Certificate of the Collateral Manager), the interests of such Class
and the interests of the Preferred Shares will be deemed not to be materially
and adversely affected by such proposed supplemental indenture and the Trustee
will be permitted to enter into such supplemental indenture. Such determinations
shall be conclusive and binding on all present and future Noteholders. The
consent of the Holders of the Preferred Shares shall be binding on all present
and future Holders of the Preferred Shares. The Trustee shall not be liable for
any such determination made in good faith and in reliance upon an Officer's
Certificate of the Collateral Manager.

Without the consent of (w) each Hedge Counterparty (except to the
extent required by the related Hedge Agreement), (x) all of the Holders of each
Outstanding Class of Notes adversely affected, and in each such case subject to
satisfaction of the Rating Agency Condition, notice of which may be in
electronic form, (y) all of the Holders of the Preferred

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Shares adversely affected thereby and (z) MBIA, so long as MBIA is deemed to be
the Controlling Class hereunder, no supplemental indenture may:

(a) change the Stated Maturity of the principal of or the due date of
any installment of interest on any Note or the Class A-1AR Commitment Fee,
reduce the principal amount thereof or the Note Interest Rate thereon or the
Redemption Price with respect to any Note, change the date of any scheduled
distribution on the Preferred Shares, or the Redemption Price with respect
thereto, change the earliest date on which any Note may be redeemed at the
option of the Issuer, change the provisions of this Indenture that apply the
proceeds of any Assets to the payment of principal of or interest on Notes or of
distributions to the Preferred Shares Paying Agent for the payment of
distributions in respect of the Preferred Shares or change any place where, or
the coin or currency in which, any Note or the principal thereof or interest
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the applicable Redemption Date);

(b) reduce the percentage of the Aggregate Outstanding Amount of
Holders of Notes of each Class or the Notional Amount of Preferred Shares of the
Holders thereof whose consent is required for the authorization of any such
supplemental indenture or for any waiver of compliance with certain provisions
of this Indenture or certain Defaults hereunder or their consequences provided
for in this Indenture;

(c) impair or adversely affect the Assets except as otherwise
permitted in this Indenture;

(d) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Assets or
terminate such lien on any property at any time subject hereto or deprive the
Holder of any Note, or the Holder of any Preferred Share as an indirect
beneficiary, of the security afforded to such Holder by the lien of this
Indenture;

(e) reduce the percentage of the Aggregate Outstanding Amount of
Holders of Notes of each Class whose consent is required to request the Trustee
to preserve the Assets or rescind the Trustee's election to preserve the Assets
pursuant to Section 5.5 or to sell or liquidate the Assets pursuant to Section
5.4 or 5.5 hereof;

(f) modify any of the provisions of this Section 8.2, except to
increase any percentage of Outstanding Notes whose holders' consent is required
for any such action or to provide that other provisions of this Indenture cannot
be modified or waived without the consent of the Holder of each Outstanding Note
affected thereby;

(g) modify the definition of the term "Outstanding" or the provisions
of Section 11.1 or Section 13.1 hereof; or

(h) modify any of the provisions of this Indenture in such a manner as
to affect the calculation of the amount of any payment of interest or principal
on any Note or the payment of the Class A-1AR Commitment Fee on any Payment Date
or of distributions to the Preferred Shares Paying Agent for the payment of
distributions in respect of the Preferred Shares

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on any Payment Date (or any other date) or to affect the rights of the Holders
of Securities to the benefit of any provisions for the redemption of such
Securities contained herein;

provided, however, that no supplemental indenture may reduce the permitted
minimum denominations of the Notes or modify any provisions regarding limited
recourse or non-petition covenants with respect to the Issuer and the Co-Issuer.

If any Class of Notes is Outstanding and rated by a Rating Agency, the
Trustee shall not enter into any such supplemental indenture unless the Rating
Agency Condition is satisfied with respect thereto, the notice of which may be
in electronic form, and, so long as MBIA is deemed to be the Controlling Class
hereunder, MBIA consents. At the cost of the Issuer, for so long as any Class of
Notes shall remain Outstanding and is rated by a Rating Agency, the Trustee
shall provide to such Rating Agency a copy of any proposed supplemental
indenture at least 15 days prior to the execution thereof by the Trustee, and,
for so long as such Notes are Outstanding and so rated, request written
confirmation, which may be in electronic form, that such Rating Agency will not,
as a result of such supplemental indenture, cause the rating of any such Class
of Notes to be reduced or withdrawn.

The Trustee shall be entitled to rely upon an Opinion of Counsel
provided by and at the expense of the party requesting such supplemental
indenture in determining whether or not the Holders of Securities would be
adversely affected by such change (after giving notice of such change to the
Holders of Securities). Such determination shall be conclusive and binding on
all present and future Holders of Securities. The Trustee shall not be liable
for any such determination made in good faith and in reliance upon an Opinion of
Counsel delivered to the Trustee as described in Section 8.3 hereof.

It shall not be necessary for any Act of Securityholders under this
Section 8.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.

Promptly after the execution by the Issuer, the Co-Issuer and the
Trustee of any supplemental indenture pursuant to this Section 8.2, the Trustee,
at the expense of the Issuer, shall mail to the Securityholders, the Class A-1AR
Note Agent, each Hedge Counterparty, the Preferred Shares Paying Agent, the
Collateral Manager, and, so long as the Notes are Outstanding and so rated, each
Rating Agency a copy thereof based on an outstanding rating. Any failure of the
Trustee to publish or mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture.

Section 8.3 Execution of Supplemental Indentures.

In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article 8 or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture and that all conditions precedent thereto have been
satisfied. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise. The

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Collateral Manager will be bound to follow any amendment or supplement to this
Indenture of which it has received written notice at least ten Business Days
prior to the execution and delivery of such amendment or supplement; provided,
however, that with respect to any amendment or supplement to this Indenture
which may, in the judgment of the Collateral Manager adversely affect the
Collateral Manager, the Collateral Manager shall not be bound (and the Issuer
agrees that it will not permit any such amendment to become effective) unless
the Collateral Manager gives written consent to the Trustee and the Issuer to
such amendment. The Issuer and the Trustee shall give written notice to the
Collateral Manager of any amendment made to this Indenture pursuant to its
terms. In addition, the Collateral Manager's written consent shall be required
prior to any amendment to this Indenture by which it is adversely affected.

Section 8.4 Effect of Supplemental Indentures.

Upon the execution of any supplemental indenture under this Article 8,
this Indenture shall be modified in accordance therewith, such supplemental
indenture shall form a part of this Indenture for all purposes and every Holder
of Notes theretofore and thereafter authenticated and delivered hereunder, and
every Holder of Preferred Shares, shall be bound thereby.

Section 8.5 Reference in Notes to Supplemental Indentures.

Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article 8 may, and if required by the
Trustee shall, bear a notice in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Issuer and the Co-Issuer
shall so determine, new Notes, so modified as to conform in the opinion of the
Trustee and the Issuer and the Co-Issuer to any such supplemental indenture, may
be prepared and executed by the Issuer and the Co-Issuer and authenticated and
delivered by the Trustee in exchange for Outstanding Notes.

Section 8.6 Certain Consents Required for all Supplemental Indentures.

Notwithstanding anything in this Article 8 to the contrary, so long as
MBIA is deemed to be the Controlling Class hereunder, the Issuer, the Co-Issuer
and the Trustee shall not enter into any supplemental indenture without
obtaining the consent of MBIA (such consent not to be unreasonably withheld or
delayed); provided that, if MBIA does not object to such supplemental indenture
within 14 days after notice is given and all applicable conditions set forth in
this Section 8 are satisfied, such Holders will be deemed to have consented to
such supplemental indenture.

ARTICLE 9

REDEMPTION OF SECURITIES; REDEMPTION PROCEDURES

Section 9.1 Clean-up Call; Tax Redemption and Optional Redemption.

(a) The Notes may be redeemed by the Issuer at the option of and at
the direction of the Collateral Manager (such redemption, a "Clean-up Call"), in
whole but not in

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part, at a price equal to the applicable Redemption Prices on any Payment Date
(the "Clean-up Call Date") on or after the Payment Date on which the Aggregate
Outstanding Amount of the Notes has been reduced to 10% of the Aggregate
Outstanding Amount of the Notes on the Closing Date; provided that any payments
due and payable upon a termination of each Hedge Agreement will be made on the
Clean-up Call Date in accordance with the terms thereof and this Indenture;
provided, further, that the funds available to be used for such Clean-up Call
will be sufficient to pay the Total Redemption Price.

(b) The Notes and the Preferred Shares shall be redeemable, in whole
but not in part, by Act of a Majority of the Preferred Shares delivered to the
Trustee, on the Payment Date (the "Tax Redemption Date") following the
occurrence of a Tax Event if the Tax Materiality Condition is satisfied at a
price equal to the applicable Redemption Prices (such redemption, a "Tax
Redemption"); provided that any payments due and payable upon a termination of
each Hedge Agreement will be made in accordance with the terms thereof and this
Indenture; provided, further, that the funds available to be used for such Tax
Redemption will be sufficient to pay the Total Redemption Price. Upon the
occurrence of a Tax Event, the Issuer and the Co-Issuer, at the direction of the
Collateral Manager shall provide written notice thereof to the Trustee, the
Irish Paying Agent (for so long as any Notes (other than the Class A-1AR Notes)
are listed on the Irish Stock Exchange), each Hedge Counterparty, the Class
A-1AR Note Agent and each Rating Agency.

(c) The Notes and the Preferred Shares shall be redeemable, in whole
but not in part, at a price equal to the applicable Redemption Prices, on any
Payment Date after the end of the Non-call Period, at the direction of the
Issuer (such redemption, an "Optional Redemption") by Act of a Majority of the
Preferred Shares delivered to the Trustee; provided, however, that any payments
due and payable upon a termination of each Hedge Agreement will be made in
accordance with the terms thereof and this Indenture; provided, further, that
the funds available to be used for such Optional Redemption will be sufficient
to pay the Total Redemption Price. Notwithstanding anything herein to the
contrary, the Issuer shall not sell any Asset to the Collateral Manager or any
Affiliate of the Collateral Manager other than ARMS Equity in connection with an
Optional Redemption.

(d) The election by the Collateral Manager to redeem the Notes
pursuant to a Clean-up Call shall be evidenced by an Officer's Certificate from
the Collateral Manager directing the Trustee to make the payment to the Paying
Agent of the applicable Redemption Price of all of the Notes to be redeemed from
funds in the Payment Account in accordance with the Priority of Payments. In
connection with a Tax Redemption, the occurrence of a Tax Event and satisfaction
of the Tax Materiality Condition shall be evidenced by an Issuer Order from the
Issuer or from the Collateral Manager on behalf of the Issuer certifying that
such conditions for a Tax Redemption have occurred. The election by the
Collateral Manager to redeem the Notes pursuant to an Optional Redemption shall
be evidenced by an Officer's Certificate from the Collateral Manager on behalf
of the Issuer certifying that the conditions for an Optional Redemption have
occurred.

(e) A redemption pursuant to Section 9.1(a), 9.1(b) or 9.1(c) shall
not occur unless (i) at least six Business Days before the scheduled Redemption
Date, (A) the Collateral Manager shall have certified to the Trustee that the
Collateral Manager, on behalf of the Issuer,

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has entered into a binding agreement or agreements with (1) one or more
financial institutions whose long-term unsecured debt obligations (other than
such obligations whose rating is based on the credit of a person other than such
institution) have a credit rating from each Rating Agency at least equal to the
highest rating of any Notes then Outstanding or whose short-term unsecured debt
obligations have a credit rating of "P-1" by Moody's (as long as the term of
such agreement is 90 days or less) and "A-1" by S&P or (2) one or more
Affiliates of the Collateral Manager, to sell all or part of the Pledged
Obligations not later than the Business Day immediately preceding the scheduled
Redemption Date or (B) the Trustee shall have received written confirmation that
the method of redemption satisfies the Rating Agency Condition and so, long as
MBIA is deemed to be the Controlling Class hereunder, MBIA has consented (ii)
the related Sale Proceeds (in immediately available funds), together with all
other available funds (including proceeds from the sale of the Assets, Eligible
Investments maturing on or prior to the scheduled Redemption Date, all amounts
in the Collection Accounts and available Cash), shall be an aggregate amount
sufficient to pay all amounts, payments, fees and expenses in accordance with
the Priority of Payments due and owing on such Redemption Date.

Section 9.2 Auction Call Redemption.

(a) During the period from and including the Payment Date occurring in
January 2017 and to but not including the first Payment Date on which the
Clean-up Call may be exercised (the "Auction Call Period"), the Securities shall
be redeemed by the Issuer, in whole but not in part, at their applicable
Redemption Prices if a Successful Auction is completed (such redemption, an
"Auction Call Redemption"); provided that any payments due and payable upon a
termination of each Hedge Agreement will be made on the Auction Call Redemption
Date in accordance with the terms thereof and this Indenture; and provided,
further, that the funds available to be used for such Auction Call Redemption
will be sufficient to pay the Total Redemption Price. An Auction Call Redemption
may occur only on a Payment Date occurring in January or April during the
Auction Call Period (such Payment Date, the "Auction Call Redemption Date").

(b) The Trustee shall sell and transfer the Collateral Debt Securities
to the highest bidder for all of the Collateral Debt Securities (or to each
highest bidder for one or more (but not all) of the Collateral Debt Securities),
at the Auction, as long as:

(i) the Auction has been conducted in accordance with the Auction
Procedures, as evidenced by a certification of the Collateral Manager;

(ii) at least one bidder delivers to the Collateral Manager a bid
(which bid may be based upon a fixed spread above or below a generally
recognized price index) for (x) the purchase of all of the Collateral Debt
Securities or (y) the purchase of each Collateral Debt Security (which bid
may be for one or more (but not all) of the Collateral Debt Securities);

(iii) based on the Collateral Manager's certification to the Trustee
of the amount of the Cash purchase price of each bid, the Trustee, in
consultation with the Collateral Manager, determines that the Highest
Auction Price would result in a Cash purchase price for the Collateral Debt
Securities which, together with the balance of all

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Eligible Investments and Cash in the Collection Accounts, the Payment
Account and the Expense Account, will be at least equal to the Total
Redemption Price; and

(iv) each bidder who offered the Highest Auction Price for all of the
Collateral Debt Securities or for one or more of the Collateral Debt
Securities enters into a written agreement with the Issuer (which the
Issuer shall execute if the conditions set forth in clauses (i) through
(iii) above are satisfied) obligating the highest bidder for all of the
Collateral Debt Securities (or the highest bidder for one or more (but not
all) of the Collateral Debt Securities) to purchase all (either
individually or together with other bidders, as applicable) of the
Collateral Debt Securities with the closing of such purchase (and full
payment in Cash to the Trustee) to occur on or before the 10th Business Day
prior to the scheduled Redemption Date.

(c) If any of the foregoing conditions is not met with respect to any
Auction, or if the highest bidder or the Collateral Manager, as the case may be,
fails to pay the purchase price on or before the sixth Business Day following
the relevant Auction Date, (i) the Auction Call Redemption shall not occur on
the Payment Date following the relevant Auction Date, (ii) the Trustee shall
give notice of the withdrawal pursuant to Section 9.3, (iii) subject to
subclause (iv) below, the Trustee shall decline to consummate such sale and
shall not solicit any further bids or otherwise negotiate any further sale of
Collateral Debt Securities in relation to such Auction and (iv) unless the Notes
and the Preferred Shares are redeemed in full prior to the next succeeding
Auction Date, or the Collateral Manager notifies the Trustee that market
conditions are such that such Auction is not likely to be successful, the
Trustee shall conduct another Auction on the next succeeding Auction Date.

Section 9.3 Notice of Redemption.

(a) In connection with an Optional Redemption, a Clean-up Call or a
Tax Redemption pursuant to Section 9.1 or an Auction Call Redemption pursuant to
Section 9.2, the Trustee on behalf of the Issuer and the Co-Issuer shall (i) set
the applicable Record Date and (ii) at least 45 days prior to the proposed
Redemption Date, notify the Collateral Manager, each Hedge Counterparty, the
Class A-1AR Note Agent, the Rating Agencies and each Preferred Shareholder at
such Preferred Shareholder's address in the register maintained by the Share
Registrar, of such proposed Redemption Date, the applicable Record Date, the
principal amount of Notes to be redeemed on such Redemption Date and the
Redemption Price of such Notes in accordance with Section 9.1 or Section 9.2.
The Redemption Price shall be determined no earlier than 60 days prior to the
proposed Redemption Date.

(b) Any such notice of an Auction Call Redemption, an Optional
Redemption, a Clean-up Call or a Tax Redemption may be withdrawn by the Issuer
and the Co-Issuer at the direction of the Collateral Manager up to the fourth
Business Day prior to the scheduled Redemption Date by written notice to the
Trustee, the Class A-1AR Note Agent, the Irish Paying Agent (for so long as any
Notes (other than the Class A-1AR Notes) are listed on the Irish Stock
Exchange), the Class A-1AR Note Agent, each Hedge Counterparty, to each Holder
of Notes to be redeemed, and the Collateral Manager only if (i) in the case of
an Optional Redemption, a Clean-up Call or a Tax Redemption the Collateral
Manager is unable to deliver the sale agreement or agreements or certifications
referred to in Section 9.1(e), as the case may be or (ii)

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in the case of an Auction Call Redemption, the Auction is unable to be
consummated pursuant to the Auction Procedures.

Section 9.4 Notice of Redemption or Maturity by the Issuer.

Notice of redemption pursuant to Section 9.1, Section 9.2 or the
Maturity of any Notes shall be given by first class mail, postage prepaid,
mailed not less than ten Business Days (or four Business Days where the notice
of an Auction Call Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption is withdrawn pursuant to Section 9.3(b)) prior to the applicable
Redemption Date or Maturity, to each Holder of Notes to be redeemed, at its
address in the Notes Register.

All notices of redemption shall state:

(a) the applicable Redemption Date;

(b) the applicable Redemption Price;

(c) that all the Notes are being paid in full and all Class A-1AR
Commitments shall terminate, and that interest on the Notes shall cease to
accrue on the Redemption Date specified in the notice; and

(d) the place or places where such Notes to be redeemed in whole are
to be surrendered for payment of the Redemption Price which shall be the office
or agency of the Paying Agent as provided in Section 7.2.

Notice of redemption shall be given by the Issuer and Co-Issuer, or at
their request, by the Trustee in their names, and at the expense of the Issuer.
Failure to give notice of redemption, or any defect therein, to any Holder of
any Note shall not impair or affect the validity of the redemption of any other
Notes. In addition, so long as any Notes (other than the Class A-1AR Notes) are
listed on the Irish Stock Exchange, notice of redemption or Maturity shall be
published in the Irish Stock Exchange's Daily Official List or as otherwise
required by the rules of the Irish Stock Exchange not less than ten Business
Days prior to the applicable Redemption Date or Maturity.

Section 9.5 Notes Payable on Redemption Date.

Notice of redemption having been given as aforesaid, the Notes to be
redeemed shall, on the Redemption Date, become due and payable at the Redemption
Price therein specified and all Class A-1AR Commitments shall terminate on such
date, and from and after the Redemption Date (unless the Issuer shall Default in
the payment of the Redemption Price and accrued interest thereon) the Notes
shall cease to bear interest on the Redemption Date. Upon final payment on a
Note to be redeemed, the Holder shall present and surrender such Note at the
place specified in the notice of redemption on or prior to such Redemption Date;
provided, however, that if there is delivered to the Issuer, the Co-Issuer and
the Trustee such security or indemnity as may be required by them to hold each
of them harmless (an unsecured indemnity agreement delivered to the Issuer, the
Co-Issuer and the Trustee by an institutional investor with a net worth of at
least $200,000,000 being deemed to satisfy such security or indemnity

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requirement) and an undertaking thereafter to surrender such Note, then, in the
absence of notice to the Issuer, the Co-Issuer and the Trustee that the
applicable Note has been acquired by a bona fide purchaser, such final payment
shall be made without presentation or surrender. Payments of interest on Notes
of a Class so to be redeemed whose Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Notes, or one or more predecessor
Notes, registered as such at the close of business on the relevant Record Date
according to the terms and provisions of Section 2.7(n).

If any Note called for redemption shall not be paid upon surrender
thereof for redemption, the principal thereof shall, until paid, bear interest
from the Redemption Date at the applicable Note Interest Rate for each
successive Interest Accrual Period the Note remains Outstanding.

Section 9.6 Mandatory Redemption.

On any Payment Date on which any of the Coverage Tests applicable to
any Class of Notes is not satisfied as of the most recent Measurement Date on or
after the Effective Date, the Notes shall be redeemed (a "Mandatory
Redemption"), first from Interest Proceeds, net of amounts set forth in Section
11.1(a)(i)(1) through (5), and then from Principal Proceeds, net of amounts set
forth in clause (1) of Section 11.1(a)(ii), in an amount necessary, and only to
the extent necessary, to cause each of the Coverage Tests to be satisfied (and
the Class A-1AR Commitments will be reduced simultaneously as described in
Section 18.1(e)); provided that, to the extent that the sum of all Class A-1AR
Commitments is reduced to an amount less than the Minimum Class A-1AR
Commitment, a portion of the Interest Proceeds and/or Principal Proceeds that
are available for distribution shall be deposited into the Delayed Funding
Obligations Account until the Aggregate Class A-1AR Undrawn Amount equals the
Minimum Class A-1AR Commitment. Further, each Hedge Agreement will be terminated
in part in accordance with the terms thereof and any payments due and payable on
the Hedge Agreement in connection with the termination of the Hedge Agreement
will be made on such Payment Date in accordance with the terms thereof and this
Indenture, including satisfaction of the Rating Agency Condition and so long as
MBIA is deemed to be the Controlling Class hereunder, the consent of MBIA. Such
Principal Proceeds and Interest Proceeds shall be applied to each of the
Outstanding Classes of Notes in accordance with its relative seniority in
accordance with the Priority of Payments. On or promptly after such Mandatory
Redemption, the Issuer and the Co-Issuer shall certify or cause to be certified
to each of the Rating Agencies and the Trustee whether the Coverage Tests have
been met.

Section 9.7 Special Amortization.

The Notes may be amortized in part by the Issuer (at the election and
direction of the Collateral Manager) if, at any time during the Reinvestment
Period, the Collateral Manager has been unable to identify Collateral Debt
Securities that it determines would be appropriate and would meet the
Eligibility Criteria in sufficient amounts to permit the reinvestment of all or
a portion of the Principal Proceeds then on deposit in the Principal Collection
Account and the amounts on deposit in the Unused Proceeds Account in Substitute
Collateral Debt Securities. The Collateral Manager shall notify the Trustee, the
Issuer, the Co-Issuer, the Class A-1AR Note Agent, and each Hedge Counterparty
(if any) of such election (a "Special Amortization") and the

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amount to be amortized (such amount, the "Special Amortization Amount"). On the
first Payment Date following the date on which such notice is given (so long as
such notice is given by the related Determination Date), the Special
Amortization Amount will be applied to amortize the Notes in accordance with the
Priority of Payments (x) on a pro rata basis (based on the Aggregate Outstanding
Amount of each Class) among all Classes of Notes (without regard to any
Capitalized Interest and assuming for purposes of the Class A-1A/A-1AR Pro Rata
Allocation, the Class A-1AR Notes are fully drawn, but allocating the amounts
between the Class A-1A Notes and the Class A-1AR Notes, as described in Section
11.1(a)(iii)), if each of the S&P Special Amortization Pro Rata Condition and
the Moody's Special Amortization Pro Rata Condition is satisfied with respect to
the related Payment Date and, so long as MBIA is deemed to be the Controlling
Class hereunder, MBIA otherwise consents, the Class A/B Par Value Test has not
failed to be satisfied on any prior Determination Date or (y) sequentially among
all Classes of Notes if (A) either the S&P Special Amortization Pro Rata
Condition or the Moody's Special Amortization Pro Rata Condition is not
satisfied with respect to the related Payment Date or, (B) so long as MBIA is
deemed to be the Controlling Class hereunder and MBIA does not otherwise
consent, the Class A/B Par Value Test has failed to be satisfied on any prior
Determination Date; provided that, in the case of the foregoing clause (B), if
the Class A/B Par Value Test has failed to be satisfied on any prior
Determination Date and, so long as MBIA is deemed to be the Controlling Class
hereunder, MBIA does not otherwise consent, the Issuer shall be entitled to cure
such failure (and effect pro rata amortizations thereafter, subject to
satisfaction of any other relevant conditions) by selling one Collateral Debt
Security in accordance with the relevant provisions of this Indenture to the
extent necessary so that the Class A/B Par Value Test is satisfied after such
sale; provided, further, however, if the Class A/B Par Value Test is failed on
any Determination Date thereafter, no pro rata Special Amortizations may be
effected thereafter. Notwithstanding the foregoing, all amounts representing
recoveries in respect of Defaulted Securities will be distributed sequentially
in any event, in accordance with Section 11.1(a)(ii)(9). In connection with any
Special Amortization, the Class A-1AR Commitments will be reduced simultaneously
as described in Section 18.1(e).

ARTICLE 10

ACCOUNTS, ACCOUNTINGS AND RELEASES

Section 10.1 Collection of Money; Custodial Account.

(a) Except as otherwise expressly provided herein, the Trustee may
demand payment or delivery of, and shall receive and collect, directly and
without intervention or assistance of any fiscal agent or other intermediary,
all Money and other property payable to or receivable by the Trustee pursuant to
this Indenture, including all payments due on the Pledged Obligations in
accordance with the terms and conditions of such Pledged Obligations. The
Trustee shall segregate and hold all such Money and property received by it in
trust for the Secured Parties, and shall apply it as provided in this Indenture.

(b) The Trustee shall credit all Collateral Debt Securities and
Eligible Investments to an account designated as the "Custodial Account."

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Section 10.2 Collection Accounts.

(a) The Trustee shall, prior to the Closing Date, establish a
segregated trust account which shall be designated as the "Collection Account"
(which may be a subaccount of the Custodial Account) and shall consist of two
subaccounts, the "Interest Collection Account" and the "Principal Collection
Account" (collectively, the "Collection Accounts"), which shall be held in trust
in the name of the Trustee for the benefit of the Secured Parties, into which
Collection Accounts, as applicable, the Trustee shall from time to time deposit
(i) all amounts, if any, received by the Issuer pursuant to the Hedge Agreements
(other than amounts received by the Issuer by reason of an event of default or
termination event (each as defined in the related Hedge Agreement) or other
comparable event that are required, pursuant to Section 16.1(g) to be used for
the purchase by the Issuer of a replacement Hedge Agreement) and amounts held in
each Hedge Collateral Account pursuant to Section 16.1(e), (ii) all Sale
Proceeds (unless simultaneously reinvested in Substitute Collateral Debt
Securities, subject to the Reinvestment Criteria) and (iii) all Interest
Proceeds and all Principal Proceeds. In addition, the Issuer may, but under no
circumstances shall, be required to, deposit from time to time such Monies in
the Collection Accounts as it deems, in its sole discretion, to be advisable.
All Monies deposited from time to time in the Collection Accounts pursuant to
this Indenture shall be held by the Trustee as part of the Assets and shall be
applied to the purposes herein provided. The Collection Accounts shall remain at
all times with the Corporate Trust Office or a financial institution having a
long-term debt rating at least equal to "A-" or "A2," as applicable, or a
short-term debt rating at least equal to "A-1," "P-1" or "F1," as applicable.

(b) All distributions of principal or interest received in respect of
the Assets, and any Sale Proceeds from the sale or disposition of a Collateral
Debt Security or other Assets received by the Trustee in Dollars shall be
immediately deposited into the Interest Collection Account or the Principal
Collection Account, as Interest Proceeds or Principal Proceeds, respectively
(unless, in the case of proceeds received from the sale or disposition of any
Assets, such proceeds are simultaneously reinvested pursuant to Section 10.2(d)
in Substitute Collateral Debt Securities, subject to the Reinvestment Criteria,
or in Eligible Investments). In addition, any amounts borrowed under the Class
A-1AR Notes in connection with a Special Amortization will be remitted to the
Principal Collection Account. Subject to Sections 10.2(d), 10.2(e) and 11.2, all
such property, together with any securities in which funds included in such
property are or will be invested or reinvested during the term of this
Indenture, and any income or other gain realized from such investments, shall be
held by the Trustee in the Collection Accounts as part of the Assets subject to
disbursement and withdrawal as provided in this Section 10.2. Subject to Section
10.2(e) by Issuer Order (which may be in the form of standing instructions), the
Issuer (or the Collateral Manager on behalf of the Issuer) shall at all times
direct the Trustee to, and, upon receipt of such Issuer Order, the Trustee
shall, invest all funds received into the Collection Accounts during a Due
Period, and amounts received in prior Due Periods and retained in the Collection
Accounts, as so directed in Eligible Investments having stated maturities no
later than the Business Day immediately preceding the next Payment Date. The
Trustee, within one Business Day after receipt of any Scheduled Distribution or
other proceeds in respect of the Assets which is not Cash, shall so notify the
Issuer and the Collateral Manager and the Issuer (or the Collateral Manager on
behalf of the Issuer) shall, within five Business Days of receipt of such notice
from the Trustee, sell such Scheduled Distribution or other non-Cash proceeds
for Cash in an arm's length transaction to a Person which is not an Affiliate of
the Issuer or the

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Collateral Manager and deposit the proceeds thereof in the applicable Collection
Account for investment pursuant to this Section 10.2; provided, however, that
the Issuer (or the Collateral Manager on behalf of the Issuer) need not sell
such Scheduled Distributions or other non-Cash proceeds if it delivers an
Officer's Certificate to the Trustee certifying that such Scheduled
Distributions or other proceeds constitute Collateral Debt Securities or
Eligible Investments.

(c) If prior to the occurrence of an Event of Default, the Issuer (or
the Collateral Manager on behalf of the Issuer) shall not have given any
investment directions pursuant to Section 10.2(b), the Trustee shall seek
instructions from the Issuer (or the Collateral Manager on behalf of the Issuer)
within three Business Days after transfer of such funds to the applicable
Collection Account. If the Trustee does not thereupon receive written
instructions from the Issuer (or the Collateral Manager on behalf of the Issuer)
within five Business Days after transfer of such funds to the applicable
Collection Account, it shall invest and reinvest the funds held in the
applicable Collection Account in one or more Eligible Investments described in
clause (ii) of the definition of Eligible Investments maturing no later than the
Business Day immediately preceding the next Payment Date. If after the
occurrence of an Event of Default, the Issuer (or the Collateral Manager on
behalf of the Issuer) shall not have given investment directions to the Trustee
pursuant to Section 10.2(b) for three consecutive days, the Trustee shall invest
and reinvest such Monies as fully as practicable in Eligible Investments
described in clause (ii) of the definition of Eligible Investments maturing not
later than the earlier of (i) 30 days after the date of such investment or (ii)
the Business Day immediately preceding the next Payment Date. All interest and
other income from such investments shall be deposited in the applicable
Collection Account, any gain realized from such investments shall be credited to
the applicable Collection Account, and any loss resulting from such investments
shall be charged to the applicable Collection Account. The Trustee shall not in
any way be held liable (except as a result of negligence, willful misconduct or
bad faith) by reason of any insufficiency of such applicable Collection Account
resulting from any loss relating to any such investment, except with respect to
investments in obligations of the Trustee or any Affiliate thereof.

(d) During the Reinvestment Period (and thereafter to the extent
necessary to acquire Collateral Debt Securities pursuant to contracts entered
into during the Reinvestment Period), the Collateral Manager on behalf of the
Issuer may by Issuer Order direct the Trustee to, and upon receipt of such
Issuer Order the Trustee shall, reinvest Principal Proceeds in Collateral Debt
Securities selected by the Collateral Manager as permitted under and in
accordance with the requirements of Article 12 and such Issuer Order.

(e) The Trustee shall transfer to the Payment Account for application
pursuant to Section 11.1(a) and in accordance with the calculations and the
instructions contained in the Notes Valuation Report prepared by the Trustee on
behalf of the Issuer pursuant to Section 10.11(e), on or prior to the Business
Day prior to each Payment Date, any amounts then held in the Collection Accounts
other than (i) Interest Proceeds or Principal Proceeds received after the end of
the Due Period with respect to such Payment Date and (ii) amounts that the
Issuer is entitled to reinvest in accordance with Section 12.2 and which the
Issuer so elects to reinvest in accordance with the terms of this Indenture,
except that, to the extent that Principal Proceeds in the Principal Collection
Account as of such date are in excess of the amounts required to be applied
pursuant to the Priority of Payments up to and including the next Payment Date
as shown in the Notes Valuation Report with respect to such Payment Date, the
Issuer may

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direct the Trustee to retain such excess amounts in the Principal Collection
Account and not to transfer such excess amounts to the Payment Account and the
Trustee shall do so.

Section 10.3 Payment Account.

The Trustee shall, prior to the Closing Date, establish a single,
segregated trust account which shall be designated as the "Payment Account,"
which shall be held in trust for the benefit of the Secured Parties and over
which the Trustee shall have exclusive control and the sole right of withdrawal.
Any and all funds at any time on deposit in, or otherwise to the credit of, the
Payment Account shall be held in trust by the Trustee for the benefit of the
Secured Parties. Except as provided in Sections 11.1 and 11.2, the only
permitted withdrawal from or application of funds on deposit in, or otherwise to
the credit of, the Payment Account shall be (i) to pay the interest on and the
principal of the Notes and make other payments in respect of the Notes in
accordance with their terms and the provisions of this Indenture, (ii) to pay
the Preferred Shares Paying Agent for deposit into the Preferred Share
Distribution Account for distributions to the Preferred Shareholders in
accordance with the terms and the provisions of the Preferred Shares Paying
Agency Agreement, (iii) upon Issuer Order, to pay other amounts specified
therein, and (iv) otherwise to pay amounts payable pursuant to and in accordance
with the terms of this Indenture, each in accordance with the Priority of
Payments. The Trustee agrees to give the Issuer and the Co-Issuer immediate
notice if it becomes aware that the Payment Account or any funds on deposit
therein, or otherwise to the credit of the Payment Account, shall become subject
to any writ, order, judgment, warrant of attachment, execution or similar
process. Neither the Issuer nor the Co-Issuer shall have any legal, equitable or
beneficial interest in the Payment Account other than in accordance with the
Priority of Payments. The Payment Account shall remain at all times with the
Corporate Trust Office or a financial institution having a long-term debt rating
by each Rating Agency at least equal to "A-" or "A2," as applicable, or a
short-term debt rating by each Rating Agency at least equal to "A-1," "P-1" or
"F1," as applicable. Amounts in the Payment Account shall not be invested.

Section 10.4 Unused Proceeds Account.

(a) The Trustee shall prior to the Closing Date establish a single,
segregated trust account which shall be designated as the "Unused Proceeds
Account" which shall be held in trust in the name of the Trustee for the benefit
of the Secured Parties, into which the amount specified in Section 3.2(g) shall
be deposited. All Monies deposited from time to time in the Unused Proceeds
Account pursuant to this Indenture, including, without limitation, any amounts
transferred to the Unused Proceeds Account pursuant to Section 10.6(c), shall be
held by the Trustee as part of the Assets and shall be applied to the purposes
herein provided.

(b) The Trustee agrees to give the Issuer immediate notice if it
becomes aware that the Unused Proceeds Account or any funds on deposit therein,
or otherwise to the credit of the Unused Proceeds Account, shall become subject
to any writ, order, judgment, warrant of attachment, execution or similar
process. The Unused Proceeds Account shall remain at all times with the
Corporate Trust Office or a financial institution having a long-term debt rating
by each Rating Agency at least equal to "A-" or "A2," as applicable, or a
short-term debt rating at least equal to "A-1," "P-1" or "F1," as applicable.

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(c) During the Reinvestment Period, amounts on deposit in the Unused
Proceeds Account may or shall be designated by the Collateral Manager as Special
Amortization Amounts to be included as Principal Proceeds pursuant to Section
9.7. If the Aggregate Principal Balance (including the Aggregate Class A-1AR
Undrawn Amount) of the Collateral Debt Securities exceeds the Minimum Ramp-Up
Amount on the Effective Date, amounts remaining on deposit in the Unused
Proceeds Account at the end of the Ramp-Up Period (following receipt of Rating
Confirmation with respect to the Effective Date) not to exceed an amount equal
to 5% of the Deposit may, at the option of the Collateral Manager, be designated
as Interest Proceeds. Any such election will be made on a one-time basis and
must be made by written notice to the Trustee no later than the 20th Business
Day after the Effective Date, which notice shall set forth any such amounts in
the Unused Proceeds Account so designated (and any interest or earnings
thereon). Upon receipt of such notice, the Trustee shall transfer such amount to
the Interest Collection Account (for subsequent transfer to the Payment
Account), which will be treated as Interest Proceeds and applied in accordance
with the Priority of Payments. Any amounts remaining in the Unused Proceeds
Account on the 20th Business Day after the Effective Date, to the extent not
designated as Interest Proceeds and provided a Rating Confirmation Failure has
not occurred, shall be transferred by the Trustee to the Principal Collection
Account (for subsequent transfer to the Payment Account) and treated as
Principal Proceeds and applied in accordance with the Priority of Payments.

(d) If a Rating Confirmation Failure occurs, upon receipt of notice
from the Collateral Manager pursuant to Section 7.18, the Trustee shall transfer
amounts in the Unused Proceeds Account to the Payment Account for application on
the immediately following Payment Date to pay principal of the Notes, first, to
the payment of principal of the Class A-1 Notes as described in Section
11.1(a)(iii), second, to the payment of principal of the Class A-2 Notes, third,
to the payment of principal of the Class B Notes, fourth, to the payment of
principal of the Class C Notes, fifth, to the payment of principal of the Class
D Notes, sixth, to the payment of principal of the Class E Notes, seventh, to
the payment of principal of the Class F Notes, eighth, to the payment of
principal of the Class G Notes and ninth, to the payment of principal of the
Class H Notes, in each case until the ratings assigned on the Closing Date to
each Class of Notes have been reinstated or such Class has been paid in full.
Any excess amount shall be treated as Principal Proceeds and applied in
accordance with the Priority of Payments. If no Rating Confirmation Failure
occurs, to the extent the Collateral Manager has not identified such amounts as
Interest Proceeds pursuant to Section 10.4(c), the Trustee shall transfer the
amounts on deposit in the Unused Proceeds Account to the Principal Collection
Account, and such amounts will be treated as Principal Proceeds and applied in
accordance with the Priority of Payments.

(e) During the Ramp-Up Period, the Issuer (or the Collateral Manager
on behalf of the Issuer) may by Issuer Order direct the Trustee to, and upon
receipt of such Issuer Order the Trustee shall, apply amounts on deposit in the
Unused Proceeds Account to acquire Collateral Debt Securities selected by the
Collateral Manager as permitted under and in accordance with the requirements of
Section 7.17 and such Issuer Order.

(f) To the extent not applied pursuant to Section 7.17, the Collateral
Manager, on behalf of the Issuer, may direct the Trustee to, and upon such
direction the Trustee shall, invest all funds in the Unused Proceeds Account in
Eligible Investments designated by the

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Collateral Manager. All interest and other income from such investments shall be
deposited in the Unused Proceeds Account, any gain realized from such
investments shall be credited to the Unused Proceeds Account, and any loss
resulting from such investments shall be charged to the Unused Proceeds Account.
The Trustee shall not in any way be held liable (except as a result of
negligence, willful misconduct or bad faith) by reason of any insufficiency of
the Unused Proceeds Account resulting from any loss relating to any such
investment, except with respect to investments in obligations of the Trustee or
any Affiliate thereof. If the Trustee does not receive investment instructions
from an Authorized Officer of the Collateral Manager, the Trustee shall invest
funds received in the Unused Proceeds Account in Eligible Investments of the
type described in clause (ii) of the definition thereto.

Section 10.5 Interest Reserve Account.

The Trustee shall prior to the Closing Date establish a single,
segregated trust account which shall be designated as the "Interest Reserve
Account" which shall be held in trust in the name of the Trustee for the benefit
of the Secured Parties. On the Closing Date, the Trustee shall deposit into the
Interest Reserve Account an amount equal to $500,000 from the net proceeds
received by the Issuer on such date from the issuance of Securities. Funds on
deposit in the Interest Reserve Account will be withdrawn on any Payment Date,
provided the Trustee is given notice thereof by the related Determination Date,
for application as Interest Proceeds, in the sole discretion of the Collateral
Manager. In addition, funds in the Interest Reserve Account may be invested in
Eligible Investments as designated by the Collateral Manager. If the Trustee
does not receive investment instructions from an Authorized Officer of the
Collateral Manager, the Trustee shall invest funds received in the Interest
Reserve Account in Eligible Investments of the type described in clause (ii) of
the definition thereto.

Section 10.6 Delayed Funding Obligations Account.

(a) The Trustee shall prior to the Closing Date establish a single,
segregated trust account (the "Delayed Funding Obligations Account") which shall
be held in trust for the benefit of the Secured Parties, into which Delayed
Funding Obligations Account the Trustee shall deposit funds for any additional
funding commitments of the Issuer under any Delayed Draw Term Loans included in
the Collateral Debt Securities. All amounts in the Delayed Funding Obligations
Account shall be deposited in overnight funds in Eligible Investments and
released to fulfill such commitments. If a Delayed Draw Term Loan is sold or
otherwise disposed before the full commitment thereunder has been drawn, or if
excess funds remain following the termination of the funding obligation giving
rise to the deposit of such funds in the Delayed Funding Obligations Account,
such Eligible Investments on deposit in the Delayed Funding Obligations Account
for the purpose of fulfilling such commitment shall be transferred to the
Principal Collection Account as Principal Proceeds. The Delayed Funding
Obligations Account shall remain at all times with the Corporate Trust Office or
a financial institution having a long-term debt rating from each Rating Agency
at least equal to "A-" or "A2," as applicable, or a short-term debt rating at
least equal to "A-1," "P-1" or "F1," as applicable.

(b) Except as provided in Section 10.6(c) below, funds in the Delayed
Funding Obligations Account shall be available solely to fulfill any additional
funding commitments of the Issuer under any Delayed Draw Term Loans included in
the Collateral Debt

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Securities. Upon the purchase of any Collateral Debt Security that is a Delayed
Draw Term Loan, the Collateral Manager shall direct the Trustee to deposit
Principal Proceeds into the Delayed Funding Obligations Account in an amount
equal to the excess, if any, of the sum of (x) the aggregate amount of the
Issuer's remaining future funding obligations with respect to such Delayed Draw
Term Loan and (y) the aggregate of the Issuer's remaining future funding
obligations in respect of all other Delayed Draw Term Loans then currently owned
by the Issuer, over the Aggregate Class A-1AR Undrawn Amount. The Collateral
Manager shall not permit, at any time, all amounts then on deposit in the
Delayed Funding Obligations Account, together with the Aggregate Class A-1AR
Undrawn Amount, to be less than the aggregate amount of all future funding
obligations outstanding under the terms of all Delayed Draw Term Loans that
constitute Collateral Debt Securities.

(c) The Collateral Manager shall direct the Trustee to withdraw funds
from the Delayed Funding Obligations Account to fund amounts drawn under any
Delayed Draw Term Loan. Pursuant to an Issuer Order delivered prior to the
Mandatory Class A-1AR Draw Date, all or a portion of the funds, as specified in
such Issuer Order, on deposit in the Delayed Funding Obligations Account at any
time up to an amount equal to the lesser of (x) the amount then on deposit in
the Delayed Funding Obligations Account or (y) the amount by which (A) the sum
of the amount then on deposit in the Delayed Funding Obligations Account plus
the Aggregate Class A-1AR Undrawn Amount exceeds (B) the aggregate principal
amount of commitments which may be drawn upon under the Delayed Draw Term Loans
shall be transferred by the Trustee to the Unused Proceeds Account. Pursuant to
an Issuer Order delivered on or after the Mandatory Class A-1AR Draw Date, all
or a portion of the funds, as specified in such Issuer Order, on deposit in the
Delayed Funding Obligations Account at any time in excess of the aggregate
principal amount of commitments which may be drawn upon under the Delayed Draw
Term Loan shall be transferred by the Trustee to the Collection Account as
Principal Proceeds.

Section 10.7 Expense Account.

(a) The Trustee shall prior to the Closing Date establish a single,
segregated trust account which shall be designated as the "Expense Account"
which shall be held in trust in the name of the Trustee for the benefit of the
Secured Parties. The only permitted withdrawal from or application of funds on
deposit in, or otherwise standing to the credit of, the Expense Account shall be
to pay (on any day other than a Payment Date) (i) accrued and unpaid Company
Administrative Expenses (other than accrued and unpaid expenses and indemnities
payable to the Collateral Manager under the Collateral Management Agreement) and
(ii) amounts representing accrued interest in connection with the purchase by
the Issuer during the Ramp Up Period of Collateral Debt Securities. On the
Closing Date, the Trustee shall deposit into the Expense Account an amount equal
to $976,869.50 from the net proceeds received by the Issuer on such date from
the initial issuance of the Securities. On or after the Effective Date, any
amount remaining in the Expense Account may, at the election of the Collateral
Manager be designated as Interest Proceeds. On the date on which substantially
all of the Issuer's assets have been sold or otherwise disposed of, the Issuer
by Issuer Order executed by an Authorized Officer of the Collateral Manager
shall direct the Trustee to, and, upon receipt of such Issuer Order, the Trustee
shall, transfer all amounts on deposit in the Expense Account to the Interest
Collection Account for application pursuant to Section 11.1(a)(i) as Interest
Proceeds. Amounts credited to the

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Expense Account may be applied on or prior to the Determination Date preceding
the first Payment Date to pay amounts due in connection with the offering of the
Notes.

(b) The Trustee agrees to give the Issuer immediate notice if it
becomes aware that the Expense Account or any funds on deposit therein, or
otherwise to the credit of the Expense Account, shall become subject to any
writ, order, judgment, warrant of attachment, execution or similar process. The
Issuer shall not have any legal, equitable or beneficial interest in the Expense
Account. The Expense Account shall remain at all times with the Corporate Trust
Office or a financial institution having a long-term debt rating by each Rating
Agency at least equal to "A-" or "Baa1," as applicable.

(c) The Collateral Manager, on behalf of the Issuer, may direct the
Trustee to, and upon such direction the Trustee shall, invest all funds in the
Expense Account in Eligible Investments designated by the Collateral Manager.
All interest and other income from such investments shall be deposited in the
Expense Account, any gain realized from such investments shall be credited to
the Expense Account, and any loss resulting from such investments shall be
charged to the Expense Account. The Trustee shall not in any way be held liable
(except as a result of negligence, willful misconduct or bad faith) by reason of
any insufficiency of such Expense Account resulting from any loss relating to
any such investment, except with respect to investments in obligations of the
Trustee or any Affiliate thereof. If the Trustee does not receive investment
instructions from an Authorized Officer of the Collateral Manager, the Trustee
shall invest funds received in the Expense Account in Eligible Investments of
the type described in clause (ii) of the definition thereto.

Section 10.8 Defeased Collateral Accounts.

(a) The Trustee shall, on or after the Closing Date, at the direction
of the Issuer (or the Collateral Manager on the Issuer's behalf) establish and
maintain one or more segregated trust accounts which will be designated the
"Defeased Collateral Accounts." On each date on which the Issuer receives from
the related borrower in respect of a Loan included in the Assets substitute or
additional collateral in the form of Cash or Eligible Investments in connection
with a defeasance of such Loan, such substitute or additional collateral shall
be transferred by the Issuer (or by the Collateral Manger on behalf of the
Issuer) to the Trustee and the Trustee thereafter shall deposit such substitute
or additional collateral into a Defeased Collateral Account; provided that this
Section 10.8(a) shall not apply to any such substitute or additional collateral
received by the Issuer in connection with the release of any lien on condominium
units to the extent that such additional or substitute collateral is held by the
Servicer in an Eligible Account pending application of such collateral to pay
principal of and/or interest on the related Collateral Debt Security in
accordance with the terms of the applicable Underlying Instruments. Amounts on
deposit in each Defeased Collateral Account shall be transferred by the Trustee
for deposit into the Interest Collection Account, the Principal Collection
Account and/or the Payment Account, in each case as directed by the Issuer (or
by the Collateral Manager on behalf of the Issuer) pursuant to an Issuer Order.
All Monies deposited from time to time in the Defeased Collateral Account
pursuant to this Indenture shall be held by the Trustee as part of the Assets
and shall be applied to the purposes herein provided.

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(b) The Trustee agrees to give the Issuer immediate notice if it
becomes aware that a Defeased Collateral Account or any funds on deposit
therein, or otherwise to the credit of a Defeased Collateral Account, shall
become subject to any writ, order, judgment, warrant of attachment, execution or
similar process. The Issuer shall not have any legal, equitable or beneficial
interest in any Defeased Collateral Account. Each Defeased Collateral Account
shall remain at all times with the Corporate Trust Office or a financial
institution having a long-term debt rating from each Rating Agency at least
equal to "A-" or "A2," as applicable, or a short-term debt rating at least equal
to "A-1," "P-1" or "F1," as applicable.

(c) The Collateral Manager, on behalf of the Issuer, may direct the
Trustee to, and upon such direction the Trustee shall, invest all funds in the
Defeased Collateral Account in Eligible Investments designated by the Collateral
Manager. All interest and other income from such investments shall be deposited
in the Defeased Collateral Account, any gain realized from such investments
shall be credited to the Defeased Collateral Account, and any loss resulting
from such investments shall be charged to the Defeased Collateral Account. The
Trustee shall not in any way be held liable (except as a result of negligence,
willful misconduct or bad faith) by reason of any insufficiency of the Defeased
Collateral Account resulting from any loss relating to any such investment,
except with respect to investments in obligations of the Trustee or any
Affiliate thereof. If the Trustee does not receive investment instructions from
an Authorized Officer of the Collateral Manager, the Trustee shall invest funds
received in the Defeased Collateral Account in Eligible Investments of the type
described in clause (ii) of the definition thereto.

Section 10.9 Interest Advances.

(a) With respect to each Determination Date for which the sum of
Interest Proceeds and, if applicable, Principal Proceeds, collected during the
related Due Period that are available to pay interest on the Class A-1 Notes,
the Class A-2 Notes and the Class B Notes in accordance with the Priority of
Payments, are insufficient to remit the interest due and payable with respect to
the Class A-1 Notes, the Class A-2 Notes and the Class B Notes on the following
Payment Date to the extent such shortfall results from interest shortfalls on
the Non-Advancing Collateral Debt Securities (the amount of such insufficiency,
an "Interest Shortfall"), the Trustee shall provide the Advancing Agent with
written notice of such Interest Shortfall no later than the close of business on
the Business Day following such Determination Date. The Trustee shall provide
the Advancing Agent with notice, prior to any funding of an Interest Advance by
the Advancing Agent, of any additional interest remittances received by the
Trustee after delivery of such initial notice that reduce such Interest
Shortfall. No later than 5:00 p.m. (New York time) on the Business Day
immediately preceding the related Payment Date (but in any event no earlier than
one Business Day following the Advancing Agent's receipt of notice of such
Interest Shortfall), the Advancing Agent shall advance the difference between
such amounts (each such advance, an "Interest Advance") by deposit of an amount
equal to such Interest Advance in the Payment Account, subject to a
determination of recoverability by the Advancing Agent as described in Section
10.9(b), and subject to a maximum limit in respect of any Payment Date equal to
the lesser of (i) the aggregate of such Interest Shortfalls that would otherwise
occur on the Class A-1 Notes, the Class A-2 Notes and Class B Notes and (ii) the
aggregate of the interest payments not received in respect of Non-Advancing
Collateral Debt Securities. Notwithstanding the foregoing, in no circumstance
will the Advancing Agent be required to make an Interest

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Advance in respect of a Non-Advancing Collateral Debt Security (x) to the extent
that the aggregate outstanding amount of all unreimbursed Interest Advances
would exceed the aggregate outstanding principal amount of the Class A Notes and
the Class B Notes or (y) if the Class A/B Par Value Ratio on the relevant
Measurement Date is less than 100%. Any Interest Advance made by the Advancing
Agent with respect to a Payment Date that is in excess of the actual Interest
Shortfall for such Payment Date shall be refunded to the Advancing Agent by the
Trustee on the same Business Day that such Interest Advance was made (or, if
such Interest Advance is made prior to final determination by the Trustee of
such Interest Shortfall, on the Business Day of such final determination). The
Advancing Agent shall provide the Trustee written notice of a determination by
the Advancing Agent that a proposed Interest Advance would constitute a
Nonrecoverable Interest Advance no later than the close of business on the
Business Day immediately preceding the related Payment Date (or, in the event
that the Advancing Agent did not receive notice of the related Interest
Shortfall on the related Determination Date, no later than the close of business
on the Business Day immediately following the Advancing Agent's receipt of
notice of such Interest Shortfall). If the Advancing Agent shall fail to make
any required Interest Advance at or prior to the time at which distributions are
to be made pursuant to Section 11.1(a), the Backup Advancing Agent shall be
required to make such Interest Advance, subject to a determination of
recoverability by the Backup Advancing Agent as described in Section 10.9(b).
The Backup Advancing Agent shall be entitled to conclusively rely on any
affirmative determination by the Advancing Agent that an Interest Advance would
constitute a Nonrecoverable Interest Advance. Based upon available information
at the time, the Backup Advancing Agent, the Collateral Manager or the Advancing
Agent will provide 15 days prior notice to each Rating Agency if recovery of a
Nonrecoverable Interest Advance would result in an Interest Shortfall on the
next succeeding Payment Date. No later than the close of business on the
Determination Date related to a Payment Date on which the recovery of a
Nonrecoverable Interest Advance would result in an Interest Shortfall, the
Collateral Manager will provide each Rating Agency notice of such recovery.

(b) Notwithstanding anything herein to the contrary, neither the
Advancing Agent nor the Backup Advancing Agent, as applicable, shall be required
to make any Interest Advance unless such Person determines, in its sole
discretion, exercised in good faith that such Interest Advance, or such proposed
Interest Advance, plus interest expected to accrue thereon at the Reimbursement
Rate, will be recoverable from subsequent payments or collections with respect
to all Collateral Debt Securities and has determined in its reasonable judgment
that the recovery would not result in an Interest Shortfall. In determining
whether any proposed Interest Advance will be, or whether any Interest Advance
previously made is, a Nonrecoverable Interest Advance, the Advancing Agent or
the Backup Advancing Agent, as applicable, will take into account:

(i) amounts that may be realized on each Underlying Mortgage Property
in its "as is" or then-current condition and occupancy;

(ii) that the related Senior Tranches of any Collateral Debt Security
may be required to be fully paid and any advances (and interest thereon)
made in respect of such Senior Tranches may be required to be fully
reimbursed, prior to any amounts recovered in respect of the Underlying
Mortgage Properties are allocated or otherwise made available to the
Collateral Debt Securities;

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(iii) the possibility and effects of future adverse change with
respect to the Underlying Mortgage Properties, the potential length of time
before such Interest Advance may be reimbursed and the resulting degree of
uncertainty with respect to such reimbursement; and

(iv) the fact that Interest Advances are intended to provide liquidity
only and not credit support to the Holders of the Class A-1 Notes, the
Class A-2 Notes and the Class B Notes.

For purposes of any such determination of whether an Interest Advance
constitutes or would constitute a Nonrecoverable Interest Advance, an Interest
Advance will be deemed to be nonrecoverable if the Advancing Agent or the Backup
Advancing Agent, as applicable, determines that future Interest Proceeds and
Principal Proceeds may be ultimately insufficient to fully reimburse such
Interest Advance, plus interest thereon at the Reimbursement Rate within a
reasonable period of time. Absent bad faith, the determination by the Advancing
Agent or the Backup Advancing Agent, as applicable, as to the nonrecoverability
of any Interest Advance shall be conclusive and binding on the Holders of the
Notes.

(c) Each of the Advancing Agent and the Backup Advancing Agent will
each be entitled to recover any previously unreimbursed Interest Advance made by
it (including any Nonrecoverable Interest Advance), together with interest
thereon, first, from Interest Proceeds and second (to the extent that there are
insufficient Interest Proceeds for such reimbursement), from Principal Proceeds
to the extent that such reimbursement would not trigger an additional Interest
Shortfall; provided that if at any time an Interest Advance is determined to be
a Nonrecoverable Interest Advance, the Advancing Agent or the Backup Advancing
Agent shall be entitled to recover all outstanding Interest Advances from the
Collection Accounts on any Business Day during any Interest Accrual Period prior
to the related Determination Date (or on a Payment Date prior to any payment of
interest on or principal of the Notes in accordance with the Priority of
Payments). The Advancing Agent shall be permitted (but not obligated) to defer
or otherwise structure the timing of recoveries of Nonrecoverable Interest
Advances in such manner as the Advancing Agent determines is in the best
interest of the Class A Notes and the Class B Notes, as a collective whole,
which may include being reimbursed for Nonrecoverable Interest Advances in
installments.

(d) The Advancing Agent and the Backup Advancing Agent will each be
entitled with respect to any Interest Advance made by it (including
Nonrecoverable Interest Advances) to interest accrued on the amount of such
Interest Advance for so long as it is outstanding at the Reimbursement Rate.

(e) The obligations of the Advancing Agent and the Backup Advancing
Agent to make Interest Advances in respect of the Collateral Debt Securities
will continue through the Stated Maturity, unless the Class A Notes and the
Class B Notes are previously redeemed or repaid in full.

(f) In no event will the Advancing Agent in its capacity as such
hereunder or the Trustee, in its capacity as Backup Advancing Agent hereunder,
be required to make Interest Advances for distributions to the Holders of any
Class of Notes other than the Class A-1 Notes,

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the Class A-2 Notes and the Class B Notes or with respect to any Collateral Debt
Security other than a Non-Advancing Collateral Debt Security, and in no event
will the Advancing Agent or the Backup Advancing Agent be required to advance
any amounts in respect of payments of Principal of any Collateral Debt Security.

(g) In consideration of the performance of its obligations hereunder,
the Advancing Agent shall be entitled to receive, at the times set forth herein
and subject to the Priority of Payments, to the extent funds are available
therefor, the Advancing Agent Fee. In consideration of the Backup Advancing
Agent's obligations hereunder, the Backup Advancing Agent shall be entitled to
receive, at the times set forth herein and subject to the Priority of Payments,
to the extent funds are available therefor, the Backup Advancing Agent Fee. If
the Backup Advancing Agent makes an Interest Advance that the Advancing Agent
failed to make and did not determine to be nonrecoverable, the Backup Advancing
Agent will be entitled to receive the Advancing Agent's Fee for so long as such
Interest Advance is outstanding.

(h) The determination by the Advancing Agent or the Backup Advancing
Agent, as applicable, (i) that it has made a Nonrecoverable Interest Advance or
(ii) that any proposed Interest Advance, if made, would constitute a
Nonrecoverable Interest Advance, shall be evidenced by an Officer's Certificate
delivered promptly to the Trustee (or, if applicable, retained thereby), the
Issuer, S&P, Fitch and Moody's, setting forth the basis for such determination;
provided that failure to give such notice, or any defect therein, shall not
impair or affect the validity of, or the Advancing Agent or the Backup Advancing
Agent, entitlement to reimbursement with respect to, any Interest Advance.

(i) If a Scheduled Distribution on any Collateral Debt Security is not
paid to the Trustee on the Due Date therefor, the Trustee shall provide the
Advancing Agent with notice of such default on the Business Day immediately
following such default. In addition, upon request, the Trustee shall provide the
Advancing Agent (either electronically or in hard-copy format), with copies of
all reports received from any trustee, trust administrator, master servicer or
similar administrative entity with respect to the Collateral Debt Securities and
the Trustee shall promptly make available to the Advancing Agent any other
information reasonably available to the Trustee by reason of its acting as
Trustee hereunder to permit the Advancing Agent to make a determination of
recoverability with respect to any Interest Advance and to otherwise perform its
advancing functions under this Indenture.

Section 10.10 Reports by Parties.

(a) The Trustee shall supply, in a timely fashion, to the Issuer, the
Co-Issuer, the Preferred Shares Paying Agent and the Collateral Manager any
information regularly maintained by the Trustee that the Issuer, the Co-Issuer,
the Preferred Shares Paying Agent or the Collateral Manager may from time to
time request with respect to the Pledged Obligations or the Accounts and provide
any other information reasonably available to the Trustee by reason of its
acting as Trustee hereunder and required to be provided by Section 10.11 or to
permit the Collateral Manager to perform its obligations under the Collateral
Management Agreement. The Trustee shall forward to the Collateral Manager and
each Hedge Counterparty copies of notices and other writings received by it from
the issuer of any Collateral Debt Security or from any Clearing Agency with
respect to any Collateral Debt Security advising the holders of such

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security of any rights that the holders might have with respect thereto
(including, without limitation, notices of calls and redemptions of securities)
as well as all periodic financial reports received from such issuer and Clearing
Agencies with respect to such issuer. Each of the Issuer and Collateral Manager
shall promptly forward to the Trustee any information in their possession or
reasonably available to them concerning any of the Pledged Obligations that the
Trustee reasonably may request or that reasonably may be necessary to enable the
Trustee to prepare any report or perform any duty or function on its part to be
performed under the terms of this Indenture.

Section 10.11 Reports; Accountings.

(a) The Trustee shall monitor the Assets on an ongoing basis and
provide access to the information maintained by the Trustee to, and upon
reasonable request of the Collateral Manager, shall assist the Collateral
Manager in performing its duties under the Collateral Management Agreement, each
in accordance with this Indenture.

(b) The Trustee shall perform the following functions during the term
of this Indenture:

(i) create and maintain a database with respect to the Collateral Debt
Securities (the "Database");

(ii) permit access to the information contained in the Database by the
Collateral Manager and the Issuer;

(iii) on a monthly basis monitor and update the Database for ratings
changes;

(iv) update the Database for Collateral Debt Securities or Eligible
Investments acquired or sold or otherwise disposed of;

(v) prepare and arrange for the delivery to each Rating Agency, the
Collateral Manager, each Hedge Counterparty, the Initial Purchaser, MBIA,
for so long as it is deemed to be the Controlling Class hereunder, and upon
request therefor, any Holder of a Note shown on the Note Registrar, any
Preferred Shareholder shown on the register maintained by the Share
Registrar, and, for so long as any Notes (other than the Class A-1AR Notes)
are listed on the Irish Stock Exchange, the Irish Paying Agent of the
Monthly Reports;

(vi) prepare and arrange for the delivery to the Collateral Manager,
each Hedge Counterparty, MBIA, for so long as it is deemed to be the
Controlling Class hereunder, and upon request therefor, any Holder of a
Note shown on the Notes Register, any Preferred Shareholder shown on the
register maintained by the Share Registrar, the firm of Independent
certified public accountants appointed pursuant to Section 10.13(a) hereof,
each Rating Agency, the Depository (with instructions to forward it to each
of its participants who are holders of any Notes) and, for so long as any
Notes (other than the Class A-1AR Notes) are listed on the Irish Stock
Exchange, the Irish Paying Agent, of the Notes Valuation Report;

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(vii) assist in preparing and arrange for the delivery to the
Collateral Manager, each Hedge Counterparty and MBIA, for so long as it is
deemed to be the Controlling Class hereunder, of the Redemption Date
Statement;

(viii) arrange for the delivery to each Rating Agency of all
information or reports required under this Indenture, including, but not
limited to, providing S&P, Moody's and Fitch with (A) written notice of (1)
any breaches under any of the Transaction Documents and (2) the termination
or change of any parties to the Transaction Documents, in each case, for
which the Trustee has received prior written notice pursuant to the terms
of the Transaction Document and (B) each Monthly Report in Microsoft Excel
spreadsheet format; and

(ix) assist the Independent certified public accountants in the
preparation of those reports required under Section 10.13 hereof by
providing access to the information contained in the Database.

(c) The Trustee, on behalf of the Issuer, shall compile and provide or
make available on its website initially located at www.cdolink.com to each
Rating Agency, the Collateral Manager, each Hedge Counterparty, MBIA, for so
long as it is deemed to be the Controlling Class hereunder, the Initial
Purchaser, for so long as any Notes (other than the Class A-1AR Notes) are
listed on the Irish Stock Exchange, and upon request therefor, any Holder of a
Note shown on the Notes Register, any Preferred Shareholder shown on the
register maintained by the Share Registrar, not later than the fifth Business
Day after the first day of each month commencing in April 2007 (or solely in the
case of the first Monthly Report, the fifteenth Business Day), determined as of
the last Business Day of the preceding month, a monthly report (the "Monthly
Report"). The Monthly Report shall contain the following information and
instructions with respect to the Pledged Obligations included in the Assets
based in part on information provided by the Collateral Manager:

(i) the Aggregate Principal Balance of all Collateral Debt Securities,
together with a calculation, in reasonable detail, of the sum of (A) the
Aggregate Principal Balance of all Collateral Debt Securities (other than
Defaulted Securities and Written Down Securities) plus (B) the Principal
Balance of each Pledged Obligation which is Written Down Security and (C)
the Principal Balance of each Pledged Obligation which is a Defaulted
Security;

(ii) the balance of all Eligible Investments and Cash in each of the
Interest Collection Account, the Principal Collection Account, the Delayed
Funding Obligations Account and the Expense Account;

(iii) the nature, source and amount of any proceeds in the Collection
Accounts, including Interest Proceeds, Principal Proceeds, Unscheduled
Principal Payments and Sale Proceeds, received since the date of
determination of the last Monthly Report;

(iv) with respect to each Collateral Debt Security and each Eligible
Investment that is part of the Assets, its Principal Balance, annual
interest rate, average life, issuer, Moody's Rating, S&P Rating and Fitch
Rating;

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(v) the identity of each Collateral Debt Security that was sold or
disposed of pursuant to Section 12.1 (indicating whether such Collateral
Debt Security is a Defaulted Security, Credit Risk Security or otherwise
(in each case, as reported in writing to the Issuer by the Collateral
Manager) and whether such Collateral Debt Security was sold pursuant to
Section 12.1(a)(i) or (ii)) or Granted to the Trustee since the date of
determination of the most recent Monthly Report;

(vi) the identity of each Collateral Debt Security which became a
Defaulted Security, Credit Risk Security or a Written Down Security since
the date of determination of the last Monthly Report;

(vii) the identity of each Collateral Debt Security that has been
upgraded or downgraded by one or more Rating Agencies;

(viii) the Aggregate Principal Balance of all Fixed Rate Securities;

(ix) the Aggregate Principal Balance of all Floating Rate Securities;

(x) based on information provided by the Collateral Manager, the
Aggregate Principal Balance of all Floating Rate Securities that constitute
Covered Fixed Rate Securities;

(xi) the Aggregate Principal Balance of all Collateral Debt Securities
that are guaranteed as to ultimate or timely payment of principal or
interest;

(xii) with respect to each Specified Type of Collateral Debt Security,
the Aggregate Principal Balance of all Collateral Debt Securities
consisting of such Specified Type of Collateral Debt Securities;

(xiii) based on information provided by the Collateral Manager, the
identity of, and the Aggregate Principal Balance of all Collateral Debt
Securities whose Moody's Rating is determined as provided in each clause of
the definition of "Moody's Rating" and the identity of, and the Aggregate
Principal Balance of all Collateral Debt Securities whose S&P Rating is
determined as provided in each of the clauses of the definition of "S&P
Rating," identifying in reasonable detail the basis for such calculation
with respect to Collateral Debt Securities with an S&P Rating assigned
pursuant to Annex 1, 2 or 3 of Schedule F attached hereto, based on
information provided by the Collateral Manager;

(xiv) with respect to each Collateral Debt Security, the Aggregate
Principal Balance of all Collateral Debt Securities that are part of the
same issuance;

(xv) the Aggregate Principal Balance of all Collateral Debt Securities
that are securities that provide for periodic payments of interest less
frequently than quarterly;

(xvi) based upon the information supplied by the Collateral Manager,
the Aggregate Principal Balance of all Collateral Debt Securities issued by
any single issuer (provided that, for avoidance of doubt, with respect to
any Loan, the issuer of such Loan shall be deemed to be the borrower of
such Loan);

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(xvii) based upon the information supplied by the Collateral Manager,
the Aggregate Collateral Balance of the Collateral Debt Securities
consisting of CMBS Securities issued in any single calendar year;

(xviii) the Aggregate Principal Balance of all Collateral Debt
Securities (other than CMBS Securities, CRE CDO Securities and REIT Debt
Securities) backed by each single Property Type based on information
provided by the Collateral Manager;

(xix) the Aggregate Principal Balance of all Collateral Debt
Securities (other than CMBS Securities, CRE CDO Securities and REIT Debt
Securities) that are backed or otherwise invested in properties located in
any single U.S. state (for each such state) based on information provided
by the Collateral Manager;

(xx) the Class A/B Par Value Ratio, the Class A/B Interest Coverage
Ratio, the Class C/D/E Par Value Ratio, the Class C/D/E Interest Coverage
Ratio, the Class F/G/H Par Value Ratio and the Class F/G/H Interest
Coverage Ratio, and a statement as to whether the Interest Coverage Tests
and the Par Value Tests are satisfied;

(xxi) the Weighted Average Moody's Rating Factor and a statement as to
whether the Moody's Maximum Tranched Rating Factor Test is satisfied;

(xxii) the Herfindahl Score, the amount of Cash that has been received
in respect of Principal Proceeds of the Collateral Debt Securities since
the immediately preceding Measurement Date but has not been reinvested in
additional Collateral Debt Securities (and what the Herfindahl Score would
have been had such Cash in respect of such Principal Proceeds not existed),
a statement as to whether the Herfindahl Diversity Test was satisfied or
deemed satisfied on the immediately preceding Measurement Date and a
statement as to whether the Herfindahl Diversity Test is satisfied;

(xxiii) the Weighted Average Coupon and a statement as to whether the
Minimum Weighted Average Coupon Test is satisfied;

(xxiv) the Weighted Average Spread and a statement as to whether the
Minimum Weighted Average Spread Test is satisfied;

(xxv) the Extended Weighted Average Maturity and a statement as to
whether the Moody's Weighted Average Extended Maturity Test is satisfied;

(xxvi) based upon information supplied by the Collateral Manager, the
Average Life of each Collateral Debt Security, the Weighted Average Life
and a statement as to whether the Weighted Average Life Test is satisfied;

(xxvii) the Class A-1A/A-1AR Loss Differential, the Class A-2 Loss
Differential, the Class B Loss Differential, the Class C Loss Differential,
the Class D Loss Differential, the Class E Loss Differential and the Class
F Loss Differential of the Current Portfolio and a statement as to whether
the S&P CDO Monitor Test is satisfied;

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(xxviii) the S&P Weighted Average Recovery Rate and a statement as to
whether the S&P Recovery Test is satisfied;

(xxix) a calculation in reasonable detail necessary to determine
compliance with each of the other Collateral Quality Tests;

(xxx) the Principal Balance of each Collateral Debt Security that is
on credit watch with negative implications;

(xxxi) the Principal Balance of each Collateral Debt Security that is
on credit watch with positive implications;

(xxxii) the amount of the current portion and the unpaid portion, if
any, of the Senior Collateral Management Fee and the Subordinated
Collateral Management Fee with respect to the related Payment Date;

(xxxiii) based upon information supplied by the Collateral Manager,
the current ratings of any Hedge Counterparty and any Hedge Counterparty
Credit Support Provider;

(xxxiv) the Maximum Class A-1AR Commitment and the Aggregate Class
A-1AR Undrawn Amount;

(xxxv) in the case of each Monthly Report through and including the
first Monthly Report after the Commitment Termination Time, the amount of
all Class A-1AR Prepayments and Class A-1AR Draws since the date of
determination of the last Monthly Report;

(xxxvi) the amount of all Delayed Funding Amounts advanced by the
Issuer since the date of determination of the last Monthly Report;

(xxxvii) the Total Unfunded Delayed Funding Amount; and

(xxxviii) such other information as the Collateral Manager, the
Trustee or any Hedge Counterparty may reasonably request.

(d) The Trustee, on behalf of the Issuer, shall perform the following
functions and report to the Issuer, the Co-Issuer and the Collateral Manager on
each Measurement Date:

(i) calculate the Class A/B Par Value Ratio and the Class A/B Interest
Coverage Ratio and indicate whether the Class A/B Par Value Test and the
Class A/B Interest Coverage Test are met;

(ii) calculate the Class C/D/E Par Value Ratio and the Class C/D/E
Interest Coverage Ratio and indicate whether the Class C/D/E Par Value Test
and the Class C/D/E Interest Coverage Test are met; and

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(iii) calculate the Class F/G/H Par Value Ratio and the Class F/G/H
Interest Coverage Ratio and indicate whether the Class F/G/H Par Value Test
and the Class F/G/H Interest Coverage Test are met.

(e) The Trustee, on behalf of the Issuer, shall perform the following
functions and prepare a report thereof relating to the most recently ended Due
Period determined as of each Determination Date not later than the Payment Date
(the "Notes Valuation Report"), which shall contain the following information,
based in part on information provided by the Collateral Manager:

(i) calculate the percentage (based on the outstanding Aggregate
Principal Balances of the Pledged Collateral Debt Securities) of the
Pledged Collateral Debt Securities which have a maturity date occurring on
or prior to each Payment Date;

(ii) identify the Principal Proceeds and Interest Proceeds;

(iii) determine the Net Outstanding Portfolio Balance as of the close
of business on the last Business Day of each Due Period after giving effect
to the Principal Proceeds as of the last Business Day of such Due Period,
principal collections received from Collateral Debt Securities in the
related Due Period, the reinvestment of such proceeds in Eligible
Investments during such Due Period and the Collateral Debt Securities that
were released during such Due Period;

(iv) determine the Aggregate Outstanding Amount of the Notes of each
Class at the beginning of the Due Period and such Aggregate Outstanding
Amount as a percentage of the original Aggregate Outstanding Amount of the
Notes of such Class, the amount of principal payments to be made on the
Notes of each Class on the next Payment Date, the amount of any Class C
Capitalized Interest on the Class C Notes, the amount of any Class D
Capitalized Interest on the Class D Notes, the amount of any Class E
Capitalized Interest on the Class E Notes, the amount of any Class F
Capitalized Interest on the Class F Notes, the amount of any Class G
Capitalized Interest on the Class G Notes, the amount of any Class H
Capitalized Interest on the Class H Notes, the Aggregate Outstanding Amount
of the Notes of each Class after giving effect to the payment of principal
(and with respect to the Class C Notes, the Class D Notes, the Class E
Notes, the Class F Notes, the Class G Notes and the Class H Notes, Class C
Capitalized Interest, Class D Capitalized Interest, Class E Capitalized
Interest, Class F Capitalized Interest, Class G Capitalized Interest or
Class H Capitalized Interest, as applicable), on the related Payment Date
and such Aggregate Outstanding Amount as a percentage of the original
Aggregate Outstanding Amount of the Notes of such Class;

(v) calculate the Class A-1A Interest Distribution Amount, the Class
A-1AR Interest Distribution Amount, the Class A-2 Interest Distribution
Amount, the Class B Interest Distribution Amount, the Class C Interest
Distribution Amount, the Class D Interest Distribution Amount, the Class E
Interest Distribution Amount, the Class F Interest Distribution Amount, the
Class G Interest Distribution Amount and the Class H Interest Distribution
Amount, for the related Payment Date, the Class A-1AR

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Commitment Fee and the aggregate amount paid for all prior Payment Dates in
respect of such amounts;

(vi) with the assistance of the Collateral Manager, determine the
Company Administrative Expenses on an itemized basis, the Senior Collateral
Management Fee and the Subordinate Collateral Management Fee payable by the
Issuer on the related Payment Date;

(vii) with the assistance of the Collateral Manager as set forth in
Section 10.11(f), determine (A) the balance on deposit in the Interest
Collection Account and the Principal Collection Account at the end of the
related Due Period, (B) the amounts payable from the Collection Accounts to
the Payment Account in order to make payments pursuant to Section 11.1(a)
on the related Payment Date (the amounts payable pursuant to each such
clause to be set forth and identified separately) and (C) the balance of
Principal Proceeds and the balance of Interest Proceeds remaining in the
Collection Accounts immediately after all payments and deposits to be made
on the related Payment Date;

(viii) calculate the Class A-1A/A-1AR Pro Rata Allocation as of the
related Determination Date;

(ix) calculate the amount to be paid to each Hedge Counterparty and
the amount to be paid by each Hedge Counterparty in each case, specifying
(a) the amount to be paid under each Hedge Agreement (other than any
payments due and payable upon a termination of the related Hedge Agreement)
and (b) the amount owing as a result of a termination with respect to each
Hedge Agreement;

(x) calculate the amount to be paid to the Advancing Agent or the
Backup Advancing Agent, as applicable, as reimbursement of Interest
Advances and Reimbursement Interest and calculate the amount of the
Nonrecoverable Interest Advances to be paid to the Advancing Agent or the
Backup Advancing Agent, as applicable;

(xi) calculate the amount on deposit in the Expense Account, the
Unused Proceeds Account, the Delayed Funding Obligations Account, each
Hedge Collateral Account and each Hedge Termination Account;

(xii) the nature, source and amount of any proceeds in the Collection
Accounts, including Interest Proceeds, Principal Proceeds, Unscheduled
Principal Payments and Sale Proceeds, received since the date of
determination of the last Monthly Report;

(xiii) with respect to each Collateral Debt Security and each Eligible
Investment that is part of the Assets, its Principal Balance, annual
interest rate, average life, issuer, Moody's Rating, S&P Rating and Fitch
Rating;

(xiv) the identity of each Collateral Debt Security that was sold or
disposed of pursuant to Section 12.1 (indicating whether such Collateral
Debt Security is a Defaulted Security, Credit Risk Security or otherwise
(in each case, as reported in writing to the

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Issuer by the Collateral Manager) and whether such Collateral Debt Security
was sold pursuant to Section 12.1(a)(i) or (ii)) or Granted to the Trustee
since the date of determination of the most recent Monthly Report;

(xv) subject to the availability of such information to the Collateral
Manager and the delivery of such information by the Collateral Manager to
the Trustee, with respect to each Collateral Debt Security on a semi-annual
basis, the net cash flow on each real property underlying or related to
such Collateral Debt Security; and

(xvi) the identity of each Collateral Debt Security which became a
Defaulted Security, Credit Risk Security or a Written Down Security since
the date of determination of the last Monthly Report.

(f) Upon receipt of each Monthly Report, each Notes Valuation Report
and each Redemption Date Statement, the Collateral Manager shall compare the
information contained in its records with respect to the Pledged Obligations and
shall, within five Business Days after receipt of each such Monthly Report, such
Notes Valuation Report or such Redemption Date Statement, notify the Issuer and
the Trustee whether such information contained in the Monthly Report, the Notes
Valuation Report or the Redemption Date Statement, as the case may be, conforms
to the information maintained by the Collateral Manager with respect to the
Pledged Obligations, or detail any discrepancies. If any discrepancy exists, the
Trustee, the Issuer and the Collateral Manager shall attempt to resolve the
discrepancy. If such discrepancy cannot be promptly resolved, the Trustee shall
cause the firm of Independent certified public accountants appointed by the
Issuer pursuant to Section 10.13 hereof to review such Monthly Report, Notes
Valuation Report or Redemption Date Statement, as the case may be, and the
Collateral Manager's records and the Trustee's records to determine the cause of
such discrepancy. If such review reveals an error in the Monthly Report, Notes
Valuation Report or Redemption Date Statement, as the case may be, or the
Trustee's or the Collateral Manager's records, the Monthly Report, Notes
Valuation Report or Redemption Date Statement, as the case may be, or the
Trustee's or the Collateral Manager's records, shall be revised accordingly and,
as so revised, shall be utilized in making all calculations pursuant to this
Indenture. Each Rating Agency (in each case only so long as any Class of Notes
is rated), the Initial Purchaser, MBIA, for so long as it is deemed to be the
Controlling Class hereunder, and the Collateral Manager shall be notified in
writing of any such revisions by the Trustee, on behalf of the Issuer.

(g) The Trustee shall prepare the Notes Valuation Report and shall
deliver or make available on its website initially located at www.cdolink.com
such Notes Valuation Report to the Collateral Manager, each Hedge Counterparty,
MBIA, for so long as it is deemed to be the Controlling Class hereunder, and
upon request therefor, any Holder of a Note shown on the Notes Register, any
Holder of a Preferred Share shown on the register maintained by the Share
Registrar, the firm of Independent certified public accountants appointed
pursuant to Section 10.13(a) hereof, each Rating Agency, the Depository (with
instructions to forward it to each of its participants who are holders of any
Notes) and, for so long as any Notes (other than the Class A-1AR Notes) are
listed on the Irish Stock Exchange, the Irish Paying Agent not later than the
related Payment Date. The Notes Valuation Report shall have attached to it (with
the exception of the first Notes Valuation Report) the most recent Monthly
Report. All information made available on the Trustee's website will be
restricted and the Trustee will only provide

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access to such reports to those parties entitled thereto pursuant to this
Indenture. In connection with providing access to its website, the Trustee may
require registration and the acceptance of a disclaimer. Questions regarding the
Trustee's website can be directed to the Trustee's customer service desk at
(301) 815-6600.

The Notes Valuation Report shall also contain the following statements:

"Instruction to Participant: Please send
this to the beneficial owners of the Notes"

REMINDER TO OWNERS OF EACH CLASS OF NOTES:

Each owner or beneficial owner of Notes must be either a U.S. Person
who is a qualified institutional buyer as defined in Rule 144A under the
Securities Act of 1933 and a Qualified Purchaser as defined by the Investment
Company Act of 1940 or not a U.S. Person, and if a U.S. Person, can represent as
follows:

(i) it is not a broker-dealer which owns and invests on a
discretionary basis less than $25 million in securities of unaffiliated
issuers;

(ii) it is not a participant-directed employee plan such as a 401(k)
plan;

(iii) it is acting for its own account or for the account of another
who is a qualified institutional buyer and a qualified purchaser that is
not included in (i) or (ii) above;

(iv) it is not formed for the purpose of investing in the Notes;

(v) it, and each account for which it holds the Notes, shall hold at
least the minimum denomination therefor; and

(vi) it will provide notice of these transfer restrictions to any
transferee from it.

(h) Each Notes Valuation Report (after approval by the Collateral
Manager after giving effect to any revisions thereto in accordance with Section
10.11(f)) shall constitute instructions from the Collateral Manager, on behalf
of the Issuer, to the Trustee to transfer funds from the Collection Accounts to
the Payment Account pursuant to Section 10.2(d) and to withdraw on the related
Payment Date from the Payment Account and pay or transfer the amounts set forth
in the Notes Valuation Report, as applicable, in the manner specified, and in
accordance with the priorities established, in Section 11.1 hereof.

(i) Not more than five Business Days after receiving an Issuer Request
requesting information regarding a redemption of the Notes of a Class as of a
proposed Redemption Date set forth in such Issuer Request, the Trustee shall
compute the following information and provide such information in a statement
(the "Redemption Date Statement") delivered to the Collateral Manager (which
shall review such statement in the manner provided for in Section 10.11(f)), the
Preferred Shares Paying Agent and each Hedge Counterparty:

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(i) the Aggregate Outstanding Amount of the Notes of the Class or
Classes to be redeemed as of such Redemption Date;

(ii) the amount of accrued interest due on such Notes as of the last
day of the Interest Accrual Period immediately preceding such Redemption
Date;

(iii) the Redemption Price;

(iv) the sum of all amounts due and unpaid under Section 11.1(a)
(other than amounts payable on the Notes being redeemed or to the
Noteholders thereof);

(v) the amount due and payable to each Hedge Counterparty pursuant to
the applicable Hedge Agreement; and

(vi) the amount in the Accounts (other than the Preferred Shares
Distribution Account) available for application to the redemption of such
Notes.

(j) In the event of a sale by the Issuer of any Collateral Debt
Security that is subject to an Asset Specific Hedge, the Issuer (at the
direction Collateral Manager) shall provide written notice to each Hedge
Counterparty under such Asset Specific Hedge at least five Business Days prior
to such sale.

Section 10.12 Release of Pledged Collateral Debt Securities; Release
of Assets.

(a) If no Event of Default has occurred and is continuing and subject
to Article 12 hereof, the Issuer (or the Collateral Manager on behalf of the
Issuer) may, by Issuer Order delivered to the Trustee at least two Business Days
prior to the settlement date for any sale of a Pledged Collateral Debt Security
certifying that (i) it has sold such Pledged Collateral Debt Security pursuant
to and in compliance with Article 12 or (ii) in the case of a redemption
pursuant to Section 9.1 or Section 9.2 the proceeds from any such sale of
Pledged Collateral Debt Securities are sufficient to redeem the Notes pursuant
to Section 9.1 or Section 9.2, direct the Trustee to release such Pledged
Collateral Debt Security from the lien of this Indenture and, upon receipt of
such Issuer Order, the Trustee shall deliver any such Pledged Collateral Debt
Security, if in physical form, duly endorsed to the broker or purchaser
designated in such Issuer Order or to the Issuer if so requested in the Issuer
Order, or, if such Pledged Collateral Debt Security is represented by a Security
Entitlement, cause an appropriate transfer thereof to be made, in each case
against receipt of the sales price therefor as set forth in such Issuer Order;
provided, however, that the Trustee may deliver any such Pledged Collateral Debt
Security in physical form for examination (prior to receipt of the sales
proceeds) in accordance with street delivery custom. The Trustee shall (i)
deliver any agreements and other documents in its possession relating to such
Pledged Collateral Debt Security and (ii) if applicable, duly assign each such
agreement and other document, in each case, to the broker or purchaser
designated in such Issuer Order or to the Issuer if so requested in the Issuer
Order.

(b) The Issuer (or the Collateral Manager on behalf of the Issuer)
may, by Issuer Order, delivered to the Trustee at least three Business Days
prior to the date set for redemption or payment in full of a Pledged Collateral
Debt Security, certifying that such Pledged Collateral Debt Security is being
redeemed or paid in full, direct the Trustee, or at the Trustee's

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instructions, the Custodial Securities Intermediary, to deliver such Pledged
Collateral Debt Security, if in physical form, duly endorsed, or, if such
Pledged Collateral Debt Security is a Clearing Corporation Security, to cause it
to be presented, to the appropriate paying agent therefor on or before the date
set for redemption or payment, in each case against receipt of the applicable
redemption price or payment in full thereof.

(c) If no Event of Default has occurred and is continuing and subject
to Article 12, the Issuer (or the Collateral Manager on behalf of the Issuer)
may, by Issuer Order delivered to the Trustee at least two Business Days prior
to the date set for an exchange, tender or sale, certifying that a Collateral
Debt Security is subject to an Offer and setting forth in reasonable detail the
procedure for response to such Offer, direct the Trustee or at the Trustee's
instructions, the Custodial Securities Intermediary, to deliver such security,
if in physical form, duly endorsed, or, if such security is a Clearing
Corporation Security, to cause it to be delivered, in accordance with such
Issuer Order, in each case against receipt of payment therefor.

(d) The Trustee shall deposit any proceeds received by it from the
disposition of a Pledged Collateral Debt Security in the Principal Collection
Account unless simultaneously applied to the purchase of Substitute Collateral
Debt Securities, subject to the Reinvestment Criteria, or Eligible Investments
under and in accordance with the requirements of Article 12 and this Article 10.
Neither the Trustee nor the Custodial Securities Intermediary shall be
responsible for any loss resulting from delivery or transfer of any security
prior to receipt of payment in accordance herewith.

(e) The Trustee shall, upon receipt of an Issuer Order at such time as
there are no Notes Outstanding and all obligations of the Issuer hereunder have
been satisfied, release the Assets from the lien of this Indenture.

Section 10.13 Reports by Independent Accountants.

(a) On or about the Closing Date, the Issuer shall appoint a firm of
Independent certified public accountants of recognized national reputation for
purposes of preparing and delivering the reports or certificates of such
accountants required by this Indenture. The Collateral Manager, on behalf of the
Issuer, shall have the right to remove such firm or any successor firm. Upon any
resignation by or removal of such firm, the Collateral Manager, on behalf of the
Issuer, shall promptly appoint, by Issuer Order delivered to the Trustee, each
Hedge Counterparty and each Rating Agency, a successor thereto that shall also
be a firm of Independent certified public accountants of recognized national
reputation. If the Collateral Manager, on behalf of the Issuer, shall fail to
appoint a successor to a firm of Independent certified public accountants which
has resigned or been removed, within 30 days after such resignation or removal,
the Issuer shall promptly notify the Trustee of such failure in writing. If the
Collateral Manager, on behalf of the Issuer, shall not have appointed a
successor within ten days thereafter, the Trustee shall promptly appoint a
successor firm of Independent certified public accountants of recognized
national reputation. The fees of such Independent certified public accountants
and its successor shall be payable by the Issuer or by the Trustee as provided
in the Priority of Payments.

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(b) Within 60 days after December 31 of each year (commencing with
December 31, 2007), the Issuer shall cause to be delivered to the Trustee, the
Collateral Manager, each Hedge Counterparty, MBIA, for so long as it is deemed
to be the Controlling Class hereunder, and each Rating Agency an Accountants'
Report specifying the procedures applied and the associated findings with
respect to the Monthly Reports, the Notes Valuation Reports and any Redemption
Date Statements prepared in the year ending on such date. At least 60 days prior
to the Payment Date in April 2007 (and, if at any time a successor firm of
Independent certified public accountants is appointed, to the Payment Date
following the date of such appointment), the Issuer shall deliver to the Trustee
an Accountant's Report specifying in advance the procedures that such firm will
apply in making the aforementioned findings throughout the term of its service
as accountants to the Issuer. The Trustee shall promptly forward a copy of such
Accountant's Report to the Collateral Manager and each Holder of Notes of the
Controlling Class, at the address shown on the Note Register. The Issuer shall
not approve the institution of such procedures if a Majority of the Aggregate
Outstanding Amount of Notes of the Controlling Class, by written notice to the
Issuer and the Trustee within 30 days after the date of the related notice to
the Trustee, object thereto.

(c) If any Hedge Counterparty is required to post collateral pursuant
to the related Hedge Agreement during any Due Period, then on or prior to the
Payment Date following such Due Period and on or prior to each anniversary of
such Payment Date the Issuer shall cause a firm of Independent certified public
accountants to review and verify that the value of collateral posted is in
accordance with the applicable provisions of the related Hedge Agreement.

Section 10.14 Reports to Rating Agencies.

(a) In addition to the information and reports specifically required
to be provided to each Rating Agency pursuant to the terms of this Indenture,
the Trustee shall provide each Rating Agency and each Hedge Counterparty with
all information or reports delivered by the Trustee hereunder, and such
additional information as each Rating Agency may from time to time reasonably
request and the Trustee determines in its sole discretion may be obtained and
provided without unreasonable burden or expense. The Issuer shall promptly
notify the Trustee and the Preferred Shares Paying Agent if a Rating Agency's
rating of any Class of Notes has been, or it is known by the Issuer that such
rating will be, reduced, or qualified or withdrawn.

(b) The Issuer (or the Collateral Manager on behalf of the Issuer)
shall provide the Rating Agencies with all information and reports delivered to
the Trustee hereunder, and shall provide (x) to Fitch (i) the Operating
Statement Analysis Report for each applicable Collateral Debt Security and (ii)
on a monthly basis, the file, shown in Exhibit O attached hereto, in Microsoft
Excel format and (y) to S&P, to the best of the Collateral Manager's knowledge
based on documentation available to the Collateral Manager, notification of any
change in (i) the holder of each Unfunded Other Loan, (ii) the entity holding
legal title to the underlying loan related to any Collateral Debt Security in
the form of a participation, and (iii) the servicing of any underlying asset and
whether such underlying asset is serviced pursuant to a commercial mortgage
servicing arrangement which includes the standard servicing provisions found in
CMBS Securities transactions.

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(c) All additional reports to be sent to the Rating Agencies pursuant
to clause (a) above shall be reviewed prior to such transmission by the
Collateral Manager.

The information referenced in Section 10.14(b) should be sent to Fitch
by e-mail to cdo.surveillance@fitchratings.com and
karen.trebach@fitchratings.com or hardcopy to Fitch, Inc., One State Street
Plaza, New York, New York 10004, facsimile no.: (212) 908-0500, Attention:
Commercial Real Estate Loan CDOs, Performance Analytics, or such other address
that Fitch shall designate in the future. 

Section 10.15 Certain Procedures.

(a) For so long as the Notes may be transferred only in accordance
with Rule 144A or another exemption from registration under the Securities Act,
the Issuer (or the Collateral Manager on behalf of the Issuer) will ensure that
any Bloomberg screen containing information about the Rule 144A Global
Securities includes the following (or similar) language:

(i) the "Note Box" on the bottom of the "Security Display" page
describing the Rule 144A Global Securities will state: "Iss'd Under
144A/3c7";

(ii) the "Security Display" page will have the flashing red indicator
"See Other Available Information"; and

(iii) the indicator will link to the "Additional Security Information"
page, which will state that the Notes "are being offered in reliance on the
exemption from registration under Rule 144A of the Securities Act to
persons who are both (i) qualified institutional buyers (as defined in Rule
144A under the Securities Act) and (ii) qualified purchasers (as defined
under Section 3(c)(7) under the Investment Company Act of 1940).

(b) For so long as the Rule 144A Global Securities are registered in
the name of DTC or its nominee, the Issuer (or the Collateral Manager on behalf
of the Issuer) will instruct DTC to take these or similar steps with respect to
the Rule 144A Global Securities:

(i) the DTC 20-character security descriptor and 48-character
additional descriptor will indicate with marker "3c7" that sales are
limited to (i) QIBs and (ii) Qualified Purchasers;

(ii) where the DTC deliver order ticket sent to purchasers by DTC
after settlement is physical, it will have the 20-character security
descriptor printed on it. Where the DTC deliver order ticket is electronic,
it will have a "3c7" indicator and a related user manual for participants,
which will contain a description of the relevant restriction; and

(iii) DTC will send an "Important Notice" outlining the 3(c)(7)
restrictions applicable to the Rule 144A Global Securities to all DTC
participants in connection with the initial offering of Notes by the
issuers.

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ARTICLE 11

APPLICATION OF MONIES

Section 11.1 Disbursements of Monies from Payment Account.

(a) Notwithstanding any other provision in this Indenture, but subject
to the other subsections of this Section 11.1 and Section 13.1 hereof, on each
Payment Date or Redemption Date, the Trustee shall disburse amounts transferred
to the Payment Account from the Interest Collection Account and the Principal
Collection Account pursuant to Section 10.2 hereof in accordance with the
following priorities (the "Priority of Payments"):

(i) Interest Proceeds. On each Payment Date or Redemption Date,
(except as otherwise provided in Section 11.1(d)) Interest Proceeds with
respect to the related Due Period shall be distributed in the following
order of priority:

(1) to the payment of taxes and filing fees (including any
registered office and government fees) owed by the Issuer, if any;

(2) (a) first, to the extent not previously reimbursed, to the
Advancing Agent or the Backup Advancing Agent, the aggregate amount of
any Nonrecoverable Interest Advances due and payable to such party,
(b) second, to the extent not previously reimbursed, to the Collateral
Manager, the aggregate amount of any Nonrecoverable Cure Advance due
and payable to the Collateral Manager, (c) third, to the Advancing
Agent, the Advancing Agent Fee and any previously due but unpaid
Advancing Agent Fee (provided that the Advancing Agent has not failed
to make any Interest Advance required to be made in respect of such
Payment Date pursuant to the terms of this Indenture), (d) fourth, to
the Advancing Agent and the Backup Advancing Agent, (i) to the extent
due and payable to such party, Reimbursement Interest and (ii)
reimbursement of any outstanding Interest Advances not (in the case of
this clause (ii)) to exceed the amount that would result in an
Interest Shortfall with respect to such Payment Date and (e) fifth, to
the extent due and payable to the Collateral Manager, reimbursement of
any outstanding Cure Advance (but only to the extent that such payment
would not result in an Interest Shortfall with respect to such Payment
Date);

(3) (a) first, to the payment to the Backup Advancing Agent, the
Backup Advancing Agent Fee (or if the Advancing Agent has failed to
make any Interest Advance required to be made by the Advancing Agent
in respect of such Payment Date pursuant to the terms of this
Indenture, the Advancing Agent Fee otherwise payable to the Advancing
Agent on such Payment Date) and any previously due but unpaid Backup
Advancing Agent Fees, (b) second, to the payment to the Trustee of the
accrued and unpaid fees in respect of its services equal to the
greater of (i) 0.0145% per annum of the Aggregate Collateral Balance
and (ii) $25,000 per annum, (c) third, to the payment of other accrued
and unpaid Company Administrative Expenses of the Trustee, the Paying
Agent, the

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Preferred Shares Paying Agent and the Calculation Agent and (d)
fourth, to the payment of any other accrued and unpaid Company
Administrative Expenses, the aggregate of all such amounts in clauses
(c) and (d) above (including such amounts paid since the previous
Payment Date from the Expense Account) not to exceed 0.065% per annum
of the Aggregate Collateral Balance;

(4) to the payment of the Senior Collateral Management Fee and
any previously due but unpaid Senior Collateral Management Fees;

(5) pro rata on the basis of amounts payable under each Hedge
Agreement (if any), to the payment of any amounts (including, without
limitation, any Hedge Payment Amounts) scheduled to be paid to each
Hedge Counterparty, if any, pursuant to any Hedge Agreement, along
with any payments (however described) due and payable by the Issuer
under any Hedge Agreement in connection with a termination (in whole
or in part) of any Hedge Agreement (including any interest that may
accrue thereon), other than by reason of an Event of Default (as
defined in the related Hedge Agreement) or Termination Event (other
than Illegality or Tax Event) (each as defined in the related Hedge
Agreement) in each case, with respect to which the Hedge Counterparty
is the Defaulting Party or the sole Affected Party (as defined in the
related Hedge Agreement);

(6) to the pro rata payment of (a) the Class A-1A Interest
Distribution Amount, plus, any Class A-1A Defaulted Interest Amount
and the Class A-1AR Interest Distribution Amount, plus, any Class
A-1AR Defaulted Interest Amount and (b) the Class A-1AR Commitment
Fee;

(7) to the payment of the Class A-2 Interest Distribution Amount,
plus, any Class A-2 Defaulted Interest Amount;

(8) to the payment of the Class B Interest Distribution Amount,
plus, any Class B Defaulted Interest Amount;

(9) as long as any of the Class A Notes or the Class B Notes are
Outstanding, to the payment of the following amounts:

(a) in the event that the Class A-1 Notes become due
and payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class A-1
Notes, to the payment in full of principal of the Class A-1A
Notes and the Class A-1AR Notes, pro rata, based on the
Class A-1A/A-1AR Pro Rata Allocation;

(b) in the event that the Class A-2 Notes become due
and payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the

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Stated Maturity of the Class A-2 Notes, to the payment in
full of principal of, first, the Class A-1A Notes and the
Class A-1AR Notes, pro rata, based on the Class A-1A/A-1AR
Pro Rata Allocation, and second, the Class A-2 Notes;

(c) in the event that the Class B Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class B
Notes, to the payment in full of principal of, first, the
Class A-1A Notes and the Class A-1AR Notes, pro rata, based
on the Class A-1A/A-1AR Pro Rata Allocation, second, the
Class A-2 Notes and third, the Class B Notes; or

(d) in the event of a Mandatory Redemption of the Class
A Notes and the Class B Notes, first, to the payment of
principal of the Class A-1A Notes and the Class A-1AR Notes,
pro rata, based on the Class A-1A/A-1AR Pro Rata Allocation
and as described in Section 11.1(a)(iii), second, to the
payment of principal of the Class A-2 Notes and third, to
the payment of principal of the Class B Notes, to the extent
necessary to cause each of the Class A/B Coverage Tests to
be satisfied (after giving effect to the payment of all
amounts previously paid on such Payment Date pursuant to
this Section 11.1(a)(i);

(10) to the payment of the Class C Interest Distribution Amount,
plus, any Class C Defaulted Interest Amount;

(11) to the payment of the Class C Capitalized Interest (if any);

(12) to the payment of the Class D Interest Distribution Amount,
plus, any Class D Defaulted Interest Amount;

(13) to the payment of the Class D Capitalized Interest (if any);

(14) to the payment of the Class E Interest Distribution Amount,
plus, any Class E Defaulted Interest Amount;

(15) to the payment of the Class E Capitalized Interest (if any);

(16) as long as any of the Class C Notes, the Class D Notes or
the Class E Notes are Outstanding, to the payment of the following
amounts:

(a) in the event that the Class C Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the

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Stated Maturity of the Class C Notes, to the payment in full
of principal of first, the Class A-1A Notes and the Class
A-1AR Notes, pro rata, based on the Class A-1A/A-1AR Pro
Rata Allocation, second, the Class A-2 Notes, third, the
Class B Notes and fourth, the Class C Notes;

(b) in the event that the Class D Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class D
Notes, to the payment in full of principal of first, the
Class A-1A Notes and the Class A-1AR Notes, pro rata, based
on the Class A-1A/A-1AR Pro Rata Allocation, second, the
Class A-2 Notes, third, the Class B Notes, fourth, the Class
C Notes and fifth, the Class D Notes;

(c) in the event that the Class E Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class E
Notes, to the payment in full of principal of first, the
Class A-1A Notes and the Class A-1AR Notes, pro rata, based
on the Class A-1A/A-1AR Pro Rata Allocation, second, the
Class A-2 Notes, third, the Class B Notes, fourth, the Class
C Notes, fifth, the Class D Notes and sixth, the Class E
Notes; or

(d) in the event of a Mandatory Redemption of the Class
C Notes, the Class D Notes and the Class E Notes, first, to
the payment of principal of the Class A-1A Notes and the
Class A-1AR Notes, based on the Class A-1A/A-1AR Pro Rata
Allocation and as described in Section 11.1(a)(iii), second,
to the payment of principal of the Class A-2 Notes, third,
to the payment of principal of the Class B Notes, fourth, to
the payment of principal of the Class C Notes, fifth, to the
payment of principal of the Class D Notes and sixth, to the
payment of principal of the Class E Notes, to the extent
necessary to cause each of the Class C/D/E Coverage Tests to
be satisfied (after giving effect to the payment of all
amounts previously paid on such Payment Date pursuant to
this Section 11.1(a)(i));

(17) to the payment of the Class F Interest Distribution Amount,
plus, any Class F Defaulted Interest Amount;

(18) to the payment of the Class F Capitalized Interest (if any);

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(19) to the payment of the Class G Interest Distribution Amount,
plus, any Class G Defaulted Interest Amount;

(20) to the payment of the Class G Capitalized Interest (if any);

(21) to the payment of the Class H Interest Distribution Amount,
plus, any Class H Defaulted Interest Amount;

(22) to the payment of the Class H Capitalized Interest (if any);

(23) as long as any of the Class F Notes, Class G Notes or Class
H Notes are Outstanding, to the payment of the following amounts:

(a) in the event that the Class F Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class F
Notes, to the payment in full of principal of first, the
Class A-1A Notes and the Class A-1AR Notes, pro rata, based
on the Class A-1A/A-1AR Pro Rata Allocation, second, the
Class A-2 Notes, third, the Class B Notes, fourth, the Class
C Notes, fifth, the Class D Notes, sixth, the Class E Notes
and seventh, the Class F Notes;

(b) in the event that the Class G Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class G
Notes, to the payment in full of principal of first, the
Class A-1A Notes and the Class A-1AR Notes, pro rata, based
on the Class A-1A/A-1AR Pro Rata Allocation, second, the
Class A-2 Notes, third, the Class B Notes, fourth, the Class
C Notes, fifth, the Class D Notes, sixth, the Class E Notes,
seventh, the Class F Notes and eighth, the Class G Notes;

(c) in the event that the Class H Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class H
Notes, to the payment in full of principal of first, the
Class A-1A Notes and the Class A-1AR Notes, pro rata, based
on the Class A-1A/A-1AR Pro Rata Allocation, second, the
Class A-2 Notes, third, the Class B Notes, fourth, the Class
C Notes, fifth, the Class D Notes, sixth, the Class E Notes,
seventh, the Class F Notes, eighth, the Class G Notes and
ninth, the Class H Notes; or

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(d) in the event of a Mandatory Redemption of the Class
F Notes, the Class G Notes and the Class H Notes, first, to
the payment of principal of the Class A-1A Notes and the
Class A-1AR Notes, pro rata, based on the Class A-1A/A-1AR
Pro Rata Allocation and as described in Section
11.1(a)(iii), second, to the payment of principal of the
Class A-2 Notes, third, to the payment of principal of the
Class B Notes, fourth, to the payment of principal of the
Class C Notes, fifth, to the payment of principal of the
Class D Notes, sixth, to the payment of principal of the
Class E Notes, seventh, to the payment of principal of the
Class F Notes, eighth, to the payment of principal of the
Class G Notes and ninth, to the payment of principal of the
Class H Notes, to the extent necessary to cause the Class
F/G/H Coverage Tests to be satisfied (after giving effect to
the payment of all amounts previously paid on such Payment
Date pursuant to this Section 11.1(a)(i));

(24) on the first Payment Date following the occurrence of a
Rating Confirmation Failure, to the extent that application of any
unused proceeds remaining on deposit on the Unused Proceeds Account is
insufficient to cause the ratings assigned to each Class of Notes to
be reinstated or any affected Class to be paid in full, to the payment
of principal of each Class of Note, (i) first, to the Class A-1A Notes
and the Class A-1AR Notes, pro rata, based on the Class A-1A/A-1AR Pro
Rata Allocation and as described in Section 11.1(a)(iii), (ii) second,
to the Class A-2 Notes, (iii) third, to the Class B Notes, (iv)
fourth, to the Class C Notes, (v) fifth, to the Class D Notes, (vi)
sixth, to the Class E Notes, (vii) seventh, to the Class F Notes,
(viii) eighth, to the Class G Notes and (ix) ninth, to the Class H
Notes, in each case until the ratings assigned on the Closing Date to
each Class of Notes have been reinstated or such Class has been paid
in full;

(25) to the Holder of the Class A-1AR Notes, any accrued and
unpaid Class A-1AR Breakage Costs;

(26) to the payment of any Company Administrative Expenses not
paid pursuant to clause (3) above, in the order specified therein;

(27) to the payment of the Subordinate Collateral Management Fee
and any accrued and unpaid Subordinate Collateral Management Fee;

(28) pro rata on the basis of amounts payable under each Hedge
Agreement (if any), to the payment of (i) any amounts (including,
without limitation, any Hedge Payment Amounts) (including any interest
accrued thereon), if any, payable by the Issuer to the Hedge
Counterparty under the related Hedge Agreement following an Event of
Default or Termination Event (other than Illegality or Tax Event)
(each as defined in the related Hedge Agreement) with respect to which
the Hedge Counterparty is the Defaulting Party or the sole Affected
Party (as defined in the related Hedge Agreement) and (ii) any costs
attributable to entering into an additional or replacement Hedge
Agreement in

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accordance with Section 16.1(g) to the extent such amounts are payable
but exceed the balance on deposit in the related Hedge Termination
Account; and

(29) any remaining Interest Proceeds to be released from the lien
of this Indenture and paid (upon standing order of the Issuer) to the
Preferred Shares Paying Agent for deposit into the Preferred Shares
Distribution Account for distribution to the Holder of the Preferred
Shares as payments of the Preferred Shares Distribution Amount subject
to and in accordance with the provisions of the Preferred Shares
Paying Agency Agreement.

(ii) Principal Proceeds. On each Payment Date or Redemption Date,
Principal Proceeds with respect to the related Due Period shall be
distributed in the following order of priority:

(1) to the payment of the amounts referred to in clauses (1)
through (8) of Section 11.1(a)(i) in the same order of priority
specified therein, but only to the extent not paid in full thereunder;

(2) to the extent that the amounts paid pursuant to clause (9) of
Section 11.1(a)(i) hereof are insufficient to pay such amounts in full
thereunder and any Class A Notes or Class B Notes are Outstanding, to
the payment of the following amounts:

(a) in the event that the Class A-1 Notes become due
and payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class A-1
Notes, to the payment in full of principal of the Class A-1A
Notes and the Class A-1AR Notes, pro rata, based on the
Class A-1A/A-1AR Pro Rata Allocation;

(b) in the event that the Class A-2 Notes become due
and payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class A-2
Notes, to the payment in full of principal of, first, the
Class A-1A Notes and the Class A-1AR Notes, pro rata, based
on the Class A-1A/A-1AR Pro Rata Allocation and second, the
Class A-2 Notes;

(c) in the event that the Class B Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class B
Notes, to the payment in full of principal of, first, the
Class A-1A Notes and the Class A-1AR Notes, pro rata, based
on the Class A-1A/A-1AR Pro Rata

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Allocation, second, the Class A-2 Notes and third, the Class
B Notes; or

(d) in the event of a Mandatory Redemption of the Class
A Notes and the Class B Notes, first, to the payment of
principal of the Class A-1A Notes and the Class A-1AR Notes,
pro rata, based on the Class A-1A/A-1AR Pro Rata Allocation
and as described in Section 11.1(a)(iii), second, to the
payment of principal of the Class A-2 Notes and third, to
the payment of principal of the Class B Notes, to the extent
necessary to cause each of the Class A/B Coverage Tests to
be satisfied (after giving effect to the payment of all
amounts previously paid on such Payment Date pursuant to
Section 11.1(a)(i) and this Section 11.1(a)(ii));

(3) (a) if the Class A Notes and the Class B Notes are no longer
Outstanding, to the payment of first, the amounts referred to in
clause (10) of Section 11.1(a)(i) and second, the amounts referred to
in clause (11) of Section 11.1(a)(i), but only to the extent not paid
in full thereunder;

(b) if the Class A Notes, the Class B Notes and the
Class C Notes are no longer Outstanding, to the payment of
first, the amounts referred to in clause (12) of Section
11.1(a)(i) and second, the amounts referred to in clause
(13) of Section 11.1(a)(i) but only to the extent not paid
in full thereunder;

(c) if the Class A Notes, the Class B Notes, the Class
C Notes and the Class D Notes are no longer Outstanding, to
the payment of first, the amounts referred to in clause (14)
of Section 11.1(a)(i) and second, the amounts referred to in
clause (15) of Section 11.1(a)(i) but only to the extent not
paid in full thereunder;

(4) to the extent that the amounts paid pursuant to clause (16)
of Section 11.1(a)(i) above are insufficient to pay such amounts in
full thereunder and any Class C Notes, Class D Notes or Class E Notes
are Outstanding, to the payment of the following amounts:

(a) in the event that the Class C Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class C
Notes, to the payment in full of principal (including any
applicable Capitalized Interest) of first, the Class A-1A
Notes and the Class A-1AR Notes, pro rata, based on the
Class A-1A/A-1AR Pro Rata Allocation, second, the Class A-2
Notes, third, the Class B Notes and fourth, the Class C
Notes;

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(b) in the event that the Class D Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class D
Notes, to the payment in full of principal (including any
applicable Capitalized Interest) of first, the Class A-1A
Notes and the Class A-1AR Notes, pro rata, based on the
Class A-1A/A-1AR Pro Rata Allocation, second, the Class A-2
Notes, third, the Class B Notes, fourth, the Class C Notes
and fifth, the Class D Notes;

(c) in the event that the Class E Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class E
Notes, to the payment in full of principal (including any
applicable Capitalized Interest) of first, the Class A-1A
Notes and the Class A-1AR Notes, pro rata, based on the
Class A-1A/A-1AR Pro Rata Allocation, second, the Class A-2
Notes, third, the Class B Notes, fourth, the Class C Notes,
fifth, the Class D Notes and sixth, the Class E Notes; or

(d) in the event of a Mandatory Redemption of the Class
C Notes, the Class D Notes and the Class E Notes, first, to
the pro rata payment of principal of the Class A-1A Notes
and the Class A-1AR Notes, based on the Class A-1A/A-1AR Pro
Rata Allocation and as described in Section 11.1(a)(iii),
second, to the payment of principal of the Class A-2 Notes,
third, to the payment of principal of the Class B Notes,
fourth, to the payment of principal of the Class C Notes,
fifth, to the payment of principal of the Class D Notes and
sixth, to the payment of principal of the Class E Notes, to
the extent necessary to cause each of the Class C/D/E
Coverage Tests to be satisfied (after giving effect to the
payment of all amounts previously paid on such Payment Date
pursuant to Section 11.1(a)(i) and this Section
11.1(a)(ii));

(5) (a) if the Class A Notes, the Class B Notes, the Class C
Notes, the Class D Notes and the Class E Notes are no longer
Outstanding, to the payment of first, the amounts referred to in
clause (17) of Section 11.1(a)(i) and second, the amounts referred to
in clause (18) of Section 11.1(a)(i), but only to the extent not paid
in full thereunder;

(b) if the Class A Notes, the Class B Notes, the Class
C Notes, the Class D Notes, the Class E Notes and the Class
F Notes are no longer Outstanding, to the payment of first,
the amounts referred to in clause (19) of Section 11.1(a)(i)
and second, the

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amounts referred to in clause (20) of Section 11.1(a)(i) but
only to the extent not paid in full thereunder;

(c) if the Class A Notes, the Class B Notes, the Class
C Notes, the Class D Notes, the Class E Notes, the Class F
Notes and the Class G Notes are no longer Outstanding, to
the payment of first, the amounts referred to in clause (21)
of Section 11.1(a)(i) and second, the amounts referred to in
clause (22) of Section 11.1(a)(i), but only to the extent
not paid in full thereunder;

(6) to the extent that the amounts paid pursuant to clause (23)
of Section 11.1(a)(i) are insufficient to pay such amounts in full
thereunder and any Class F Notes, Class G Notes or Class H Notes are
Outstanding, to the payment of the following amounts:

(a) in the event that the Class F Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class F
Notes, to the payment in full of principal (including any
applicable Capitalized Interest) of first, the Class A-1A
Notes and the Class A-1AR Notes, based on the Class
A-1A/A-1AR Pro Rata Allocation, second, the Class A-2 Notes,
third, the Class B Notes, fourth, the Class C Notes, fifth,
the Class D Notes, sixth, the Class E Notes and seventh, the
Class F Notes;

(b) in the event that the Class G Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class G
Notes, to the payment in full of principal (including any
applicable Capitalized Interest) of first, the Class A-1A
Notes and the Class A-1AR Notes, pro rata, based on the
Class A-1A/A-1AR Pro Rata Allocation, second, the Class A-2
Notes, third, the Class B Notes, fourth, the Class C Notes,
fifth, the Class D Notes, sixth, the Class E Notes, seventh,
the Class F Notes and eighth, the Class G Notes;

(c) in the event that the Class H Notes become due and
payable (x) as a result of an acceleration following an
Event of Default, (y) pursuant to an Auction Call
Redemption, an Optional Redemption, a Clean up Call or a Tax
Redemption or (z) upon the Stated Maturity of the Class H
Notes, to the payment in full of principal (including any
applicable Capitalized Interest) of first, the Class A-1A
Notes and the Class A-1AR Notes, pro rata, based on the
Class A-1A/A-1AR Pro Rata Allocation, second, the

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Class A-2 Notes, third, the Class B Notes, fourth, the Class
C Notes, fifth, the Class D Notes, sixth, the Class E Notes,
seventh, the Class F Notes, eighth, the Class G Notes and
ninth, the Class H Notes; or

(d) in the event of a Mandatory Redemption of the Class
F Notes, the Class G Notes and the Class H Notes, first, to
the pro rata payment of principal of the Class A-1A Notes
and the Class A-1AR Notes, based on the Class A-1A/A-1AR Pro
Rata Allocation and as described in Section 11.1(a)(iii),
second, to the payment of principal of the Class A-2 Notes,
third, to the payment of principal of the Class B Notes,
fourth, to the payment of principal of the Class C Notes,
fifth, to the payment of principal of the Class D Notes,
sixth, to the payment of principal of the Class E Notes,
seventh, to the payment of principal of the Class F Notes,
eighth, to the payment of principal of the Class G Notes and
ninth, to the payment of principal of the Class H Notes, to
the extent necessary to cause each of the Class F/G/H
Coverage Tests to be satisfied (after giving effect to the
payment of all amounts previously paid on such Payment Date
pursuant to Section 11.1(a)(i) and Section 11.1(a)(ii));

(7) to the extent that the amounts paid pursuant to clause (24)
of Section 11.1(a)(i) are insufficient to pay such amounts in full
thereunder and any Notes are Outstanding, on the first Payment Date
following the occurrence of a Rating Confirmation Failure, to the
payment of principal of each Class of Notes, (i) first, to the Class
A-1A Notes and the Class A-1AR Notes, pro rata, based on the Class
A-1A/A-1AR Pro Rata Allocation and as described in Section
11.1(a)(iii), (ii) second, to the Class A-2 Notes, (iii) third, to the
Class B Notes, (iv) fourth, to the Class C Notes, (v) fifth, to the
Class D Notes, (vi) sixth, to the Class E Notes, (vii) seventh, to the
Class F Notes, (viii) eighth, to the Class G Notes, and (ix) ninth, to
the Class H Notes, in each case until the ratings assigned on the
Closing Date to each Class of Notes have been reinstated or such Class
has been paid in full;

(8) in such amounts pursuant to written instructions to the
Trustee from the Collateral Manager no later than the related
Determination Date, in the Collateral Manager's discretion and in the
priority directed by the Collateral Manager (a) prior to the last day
of the Reinvestment Period, to the Class A-1AR Notes, as Class A-1AR
Prepayments and (b) to the Delayed Funding Obligations Account (during
the Reinvestment Period);

(9) on or prior to the last day of the Reinvestment Period, to
the investment in Eligible Investments and reinvestment in Substitute
Collateral Debt Securities subject to the Reinvestment Criteria or, if
determined by the Collateral Manager, to pay any Special Amortization
Amount, to amortize the Class A-1 Notes as described in Section
11.1(a)(iii), the Class A-2 Notes, the Class B Notes,

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the Class C Notes, the Class D Notes, the Class E Notes, the Class F
Notes, the Class G Notes and the Class H Notes as follows: (x) if each
of the S&P Special Amortization Pro Rata Condition and the Moody's
Special Amortization Pro Rata Condition is satisfied with respect to
such Payment Date and, except as otherwise described in Section 9.7,
the Class A/B Par Value Test has not failed to be satisfied on any
prior Determination Date, on a pro rata basis (based on the Aggregate
Outstanding Amount of each Class) among all Classes of Notes, or (y)
if either the S&P Special Amortization Pro Rata Condition or the
Moody's Special Amortization Pro Rata Condition is not satisfied with
respect to such Payment Date or, except as otherwise described in
Section 9.7, the Class A/B Par Value Test has failed to be satisfied
on any prior Determination Date, sequentially among all Classes of
Notes; provided, however, that amounts representing recoveries in
respect of Defaulted Securities will be distributed sequentially in
any event;

(10) after the Reinvestment Period (x) on each Payment Date that
is not also a Redemption Date or the Stated Maturity of the Notes and
(y) in the absence of an acceleration following an Event of Default,
to the payment of principal (including any applicable Capitalized
Interest) of (i) first, to the pro rata payment of principal of the
Class A-1A Notes and the Class A-1AR Notes, based on the Class
A-1A/A-1AR Pro Rata Allocation, until the Class A-1 Notes have been
paid in full, (ii) second, the Class A-2 Notes, until the Class A-2
Notes have been paid in full, (iii) third, the Class B Notes, until
the Class B Notes have been paid in full, (iv) fourth, the Class C
Notes, until the Class C Notes have been paid in full, (v) fifth, the
Class D Notes, until the Class D Notes have been paid in full, (vi)
sixth, the Class E Notes, until the Class E Notes have been paid in
full, (vii) seventh, the Class F Notes, until the Class F Notes have
been paid in full, (viii) eighth, the Class G Notes, until the Class G
Notes have been paid in full, and (ix) ninth, the Class H Notes, until
the Class H Notes have been paid in full;

(11) to the payment of amounts referred to in clause (25) of
Section 11.1(a)(i) to the extent not paid thereunder;

(12) the payment of amounts referred to in clause (26) of Section
11.1(a)(i) to the extent not paid thereunder;

(13) the payment of amounts referred to in clause (27) of Section
11.1(a)(i) to the extent not paid thereunder;

(14) the payment of amounts referred to in clause (28) of Section
11.1(a)(i) to the extent not paid thereunder; and

(15) any remaining Principal Proceeds to be released from the
lien of this Indenture and paid (upon standing order of the Issuer) to
the Preferred Shares Paying Agent for deposit into the Preferred
Shares Distribution Account for distribution to the Holders of the
Preferred Shares as payments of the Preferred

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Shares Distribution Amount subject to and in accordance with the
provisions of the Preferred Shares Paying Agency Agreement.

(iii) Notwithstanding anything herein to the contrary, in connection
with any distributions to the Holders of the Notes prior to the Commitment
Termination Time as a result of any Mandatory Redemption, Special
Amortization or redemption in connection with a Rating Confirmation
Failure, amounts will be allocated to the Class A-1 Notes assuming that the
Class A-1AR Notes are fully drawn. In each case, the portion of such
amounts allocable to the Class A-1AR Notes will be distributed as follows:
first, pro rata to the Holders of the Class A-1AR Notes in reduction of the
Aggregate Outstanding Amount of the Class A-1AR Notes; second, for deposit
into the Delayed Funding Obligations Account until the amount on deposit
therein is equal to the Total Unfunded Delayed Funding Amount; and third,
for deposit into the Collection Account as Principal Proceeds. Immediately
following any such distribution, the Class A-1AR Commitments will be
reduced as described herein.

(b) On or before the Business Day prior to each Payment Date, the
Issuer shall, pursuant to Section 10.2(e), remit or cause to be remitted to the
Trustee for deposit in the Payment Account an amount of Cash sufficient to pay
the amounts described in Section 11.1(a) required to be paid on such Payment
Date.

(c) If on any Payment Date the amount available in the Payment Account
from amounts received in the related Due Period is insufficient to make the full
amount of the disbursements required by the statements furnished by the Trustee
pursuant to Section 10.11(e) hereof, the Trustee shall make the disbursements
called for in the order and according to the priority set forth under Section
11.1(a) above, subject to Section 13.1 hereof, to the extent funds are available
therefor.

(d) Except as otherwise expressly provided in this Section 11.1, if on
any Payment Date the amount available in the Payment Account from amounts
received in the related Due Period are insufficient to make the full amount of
the disbursements required by any lettered clause of Section 11.1(a)(i) or
Section 11.1(a)(ii), the Trustee shall make the disbursements called for by such
clause ratably in accordance with the respective amounts of such disbursements
then due and payable to the extent funds are available therefor, unless such
clause provides otherwise.

(e) [Reserved].

(f) In connection with the payment to each Hedge Counterparty pursuant
to each Hedge Agreement of any amount scheduled to be paid from time to time
between Payment Dates from amounts received with respect to the Collateral Debt
Securities or otherwise as required pursuant to the terms of the related Hedge
Agreement, such amounts shall be distributed to each Hedge Counterparty pursuant
to the related Hedge Agreement.

(g) In connection with any required payment by the Issuer to the
Servicer pursuant to the Servicing Agreement of any amount scheduled to be paid
from time to time between Payment Dates from amounts received with respect to
the Collateral Debt Securities,

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such amounts shall be distributed to the Servicer pursuant to the terms of the
Servicing Agreement.

Section 11.2 Trust Accounts.

All Monies held by, or deposited with the Trustee in the Collection
Accounts, the Defeased Collateral Accounts, the Payment Account, the Expense
Account, the Unused Proceeds Account or the Delayed Funding Obligations Account
pursuant to the provisions of this Indenture, and not invested in Eligible
Investments as herein provided, shall be deposited in one or more trust
accounts, maintained at the Corporate Trust Office or at a financial institution
whose long-term rating is at least equal to, "A2" by Moody's and "A-" by S&P and
Fitch to be held in trust for the benefit of the Noteholders. To the extent
Monies deposited in such trust account exceed amounts insured by the Bank
Insurance Fund or Savings Association Insurance Fund administered by the Federal
Deposit Insurance Corporation, or any agencies succeeding to the insurance
functions thereof, and are not fully collateralized by direct obligations of the
United States of America, such excess shall be invested in Eligible Investments
as directed by Issuer Order.

ARTICLE 12

SALE OF COLLATERAL DEBT SECURITIES

Section 12.1 Sales of Collateral Debt Securities.

(a) Except as otherwise expressly permitted or required by this
Indenture, the Issuer shall not sell or otherwise dispose of any Collateral Debt
Security; provided that, subject to satisfaction of any applicable conditions in
Section 10.12, so long as (A) no Event of Default has occurred and is continuing
and (B) on or prior to the trade date for such sale the Collateral Manager has
certified to the Trustee that each of the conditions applicable to such sale set
forth below has been satisfied, the Collateral Manager, on behalf of the Issuer,
acting pursuant to the Collateral Management Agreement may direct the Trustee in
writing to sell, and the Trustee shall sell in the manner directed by the
Collateral Manager in writing (which writing shall specify whether such security
is a Defaulted Security, Credit Risk Security or a Buy/Sell Interest, if
applicable, or whether such security is otherwise permitted to be sold pursuant
to this Section 12.1(a)):

(i) any Defaulted Security at any time; provided that, if such Sale
Proceeds are reinvested, the Collateral Manager will use commercially
reasonable efforts to purchase one or more Substitute Collateral Debt
Securities having an aggregate Principal Balance (including for this
purpose accrued interest) no less than such Sale Proceeds (excluding
accrued interest);

(ii) a Credit Risk Security, (a) during the Reinvestment Period, if
the Collateral Manager has certified to the Trustee that it shall use
commercially reasonable efforts to purchase one or more Substitute
Collateral Debt Securities having an Aggregate Principal Balance (including
for this purpose accrued interest) no less than the Sale Proceeds
(excluding accrued interest) from such sale, and after giving effect to
such sale

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and to the purchase of Substitute Collateral Debt Securities with the Sale
Proceeds thereof, in the judgment of the Collateral Manager (which shall
not be called into question solely as a result of subsequent events), the
Reinvestment Criteria shall be satisfied and (b) after the Reinvestment
Period, at any time;

(iii) if a Collateral Debt Security that is a Defaulted Security is
not sold by the Issuer (at the direction of the Collateral Manager) within
three years of such Collateral Debt Security becoming a Defaulted Security,
the Collateral Manager, on behalf of the Issuer, shall use its commercially
reasonable efforts to sell such Collateral Debt Security as soon as
commercially practicable thereafter;

(iv) any Buy/Sell Interest at any time; provided that if Sale Proceeds
in respect of any Buy/Sell Interest are reinvested, the Collateral Manager
will use commercially reasonable efforts to purchase one or more Substitute
Collateral Debt Securities having an aggregate Principal Balance (including
for this purpose accrued interest) no less than such Sale Proceeds
(excluding accrued interest); and

(v) without limiting the foregoing, any Collateral Debt Security that
is not a Defaulted Security or a Credit Risk Security may be sold during
the Reinvestment Period, if (a) the Aggregate Principal Balance of
Collateral Debt Securities sold pursuant to this paragraph for a given
calendar year does not exceed 10% of the Aggregate Collateral Balance as of
the beginning of that year, (b) the Collateral Manager believes in good
faith that proceeds from the sale of such Collateral Debt Security can be
reinvested, within five Business Days after the trade date on which such
Collateral Debt Security is sold in one or more Substitute Collateral Debt
Securities having an Aggregate Principal Balance (including for this
purpose accrued interest) of not less than 100% of the Principal Balance of
the Collateral Debt Security being sold, (c) after giving effect to such
sale and to the purchase of Substitute Collateral Debt Securities with the
Sale Proceeds thereof, the Reinvestment Criteria will be satisfied and (d)
so long as MBIA is deemed to be the Controlling Class, unless MBIA
otherwise consents, ARCM has not been removed, or voted to be removed, as
Collateral Manager under the Collateral Management Agreement. For the
avoidance of doubt, any sales of Collateral Debt Securities made pursuant
to Section 12.2(c) or (d) shall be disregarded in determining compliance
with this Section 12.1(a)(v).

(b) Notwithstanding the foregoing, the Collateral Manager (at its
option and at any time) shall be permitted to effect a sale of a Credit Risk
Security or a Defaulted Security hereunder by purchasing (or causing its
Affiliate to purchase) such Defaulted Security or Credit Risk Security from the
Issuer for a Cash purchase price that shall be equal to the sum of (i) the
Aggregate Principal Balance thereof plus (ii) all accrued and unpaid interest
(or, in the case of a Preferred Equity Security, all accrued and unpaid
dividends or other distributions not attributable to the return of capital by
the related Underlying Instruments) thereon. Notwithstanding anything to the
contrary set forth herein, no Advisory Committee consent shall be required in
connection with such Cash purchase (the "Credit Risk/Defaulted Security Cash
Purchase").

In addition and notwithstanding anything to the contrary set forth
herein (and provided no Event of Default has occurred and is continuing), the
Collateral Manager (at its

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option but only upon disclosure to, and with the prior consent of, the Advisory
Committee) shall be permitted to effect a sale of a Defaulted Security or a
Credit Risk Security hereunder by directing the Issuer to exchange such
Defaulted Security or Credit Risk Security for (i) a Substitute Collateral Debt
Security (that is not a Defaulted Security or a Credit Risk Security) owned by
an Affiliate of the Collateral Manager (such Substitute Collateral Debt
Security, the "Exchange Security") or (ii) a combination of an Exchange Security
and Cash; provided that:

(i) (A) the sum of (1) the Principal Balance of such Exchange Security
plus (2) all accrued and unpaid interest (or, in the case of a Preferred
Equity Security, all accrued and unpaid dividends or other distributions
not attributable to the return of capital by its governing documents)
thereon plus (3) the Cash amount (if any) to be paid to the Issuer in
respect of such exchange by such Affiliate of the Collateral Manager, shall
be equal to or greater than (B) the sum of (1) the Principal Balance of
such Defaulted Security or Credit Risk Security sought to be substituted
plus (2) all accrued and unpaid interest (or, in the case of a Preferred
Equity Security, all accrued and unpaid dividends or other distributions
not attributable to the return of capital by its governing documents)
thereon;

(ii) the Eligibility Criteria and the Reinvestment Criteria shall be
satisfied immediately after such exchange; and

(iii) the Aggregate Principal Balance of all such Defaulted Securities
and Credit Risk Securities so exchanged shall not exceed 10% of the
Aggregate Collateral Balance as of the Closing Date (such limitation, the
"10% Limit").

(c) After the Issuer has notified the Trustee of an Optional
Redemption, a Clean-Up Call or a Tax Redemption in accordance with Section 9.1
or an Auction Call Redemption in accordance with Section 9.2, the Collateral
Manager, on behalf of the Issuer, and acting pursuant to the Collateral
Management Agreement, may at any time direct the Trustee in writing to sell, and
the Trustee shall sell in the manner directed by the Collateral Manager in
writing, any Collateral Debt Security without regard to the foregoing
limitations in Section 12.1(a); provided that:

(i) the Sale Proceeds therefrom must be used to pay certain expenses
and redeem all of the Notes in whole but not in part pursuant to Section
9.1 and Section 9.2, and upon any such sale the Trustee shall release such
Collateral Debt Security pursuant to Section 10.12;

(ii) the Issuer may not direct the Trustee to sell (and the Trustee
shall not be required to release) a Collateral Debt Security pursuant to
this Section 12.1(c) unless:

(1) the Collateral Manager certifies to the Trustee that (x) in
the Collateral Manager's reasonable business judgment based on
calculations included in the certification (which shall include the
sales prices of the Collateral Debt Securities), the Sale Proceeds
from the sale of one or more of the Collateral Debt Securities and all
Cash and proceeds from Eligible Investments will be at least equal to
the Total Redemption Price, and (y) an Independent bond pricing

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service (which shall be one or more broker-dealers selected by the
Collateral Manager which are rated at least "P-1" by Moody's and at
least "A-1+" by S&P and which make a market in the applicable
Collateral Debt Securities) has confirmed (which confirmation may be
in the form of a firm bid) the sales prices contained in the
certification in clause (x) above (and attaching a copy of such
confirmation); and

(2) the Independent accountants appointed by the Issuer pursuant
to Section 10.13 shall confirm in writing the calculations made in
clause (1)(x) above.

(iii) in connection with an Optional Redemption, an Auction Call
Redemption, a Clean-up Call or a Tax Redemption, all the Collateral Debt
Securities to be sold pursuant to this Section 12.1(c) must be sold in
accordance with the requirements set forth in Section 9.1(e) and Section
9.2, as applicable.

(d) In the event that any Collateral Debt Security becomes the subject
of a conversion, exchange, redemption or offer, whether voluntary or
involuntary, the Issuer (or the Collateral Manager on behalf of the Issuer)
shall take no action to acquire the asset or instrument into which such
Collateral Debt Security is convertible or exchangeable unless such asset or
instrument would qualify as a Substitute Collateral Debt Security. In the event
of an involuntary exchange or conversion of a Collateral Debt Security, if the
resulting asset or instrument would not qualify as a Substitute Collateral Debt
Security, the Issuer (or the Collateral Manager on behalf of the Issuer) shall
use commercially reasonable efforts to sell such Collateral Debt Security prior
to conversion or exchange and, in any event, shall refuse to accept, and shall
not acquire or hold, the asset or instrument offered in exchange.

(e) In the event that any Notes remain Outstanding as of the Payment
Date occurring six months prior to the Stated Maturity of the Notes, the
Collateral Manager will be required to determine whether the proceeds expected
to be received on the Assets prior to the Stated Maturity of the Notes will be
sufficient to pay in full the principal amount of (and accrued interest on) the
Notes on the Stated Maturity. If the Collateral Manager determines, in its sole
discretion, that such proceeds will not be sufficient to pay the outstanding
principal amount of and accrued interest on the Notes (a "Note Liquidation
Event") on the Stated Maturity of the Notes, the Issuer will, at the direction
of the Collateral Manager, be obligated to liquidate the portion of Collateral
Debt Securities sufficient to pay the remaining principal amount of and interest
on the Notes on or before the Stated Maturity. The Collateral Debt Securities to
be liquidated by the Issuer will be selected by the Collateral Manager.

(f) Notwithstanding anything herein to the contrary, in the event that
a "buy/sell" arrangement has been initiated with respect to a Collateral Debt
Security as a dispute resolution mechanism and the Collateral Manager determines
in accordance with the Collateral Manager Servicing Standard that the sale of
such Collateral Debt Security is in the best interest of the Noteholders, the
Collateral Manager may, on behalf of the Issuer, direct the Trustee to sell such
Collateral Debt Security in accordance with the related Underlying Instruments;
provided that, in the event any such sale is to be made to an Affiliate of the
Issuer or the Collateral

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Manager, such sale may be made only upon disclosure to, and with the prior
consent of, the Advisory Committee.

(g) Notwithstanding anything contained in this Section 12.1 to the
contrary, the Issuer may sell any Collateral Debt Security in accordance with
the provisions of Sections 12.2(c), 12.2(d) and/or 12.2(f).

Section 12.2 Reinvestment Criteria and Trading Restrictions.

(a) Except as provided in Section 12.3(c), during the Reinvestment
Period, Unscheduled Principal Payments, Sale Proceeds and other Principal
Proceeds (including excess amounts on deposit in the Delayed Funding Obligations
Account and certain Class A-1AR Draws) will be reinvested in Substitute
Collateral Debt Securities (which shall be, and hereby are, Granted to the
Trustee pursuant to the Granting Clause of this Indenture) only if the
Collateral Manager has not been removed, or voted to be removed, as a Collateral
Manager under the Collateral Management Agreement or a substitute collateral
manager has been appointed and, after giving effect to such reinvestment, the
following criteria (which criteria shall also apply with respect to investments
in Collateral Debt Securities during the Ramp-Up Period) (the "Reinvestment
Criteria") are satisfied, as evidenced by an Officer's Certificate of the Issuer
or the Collateral Manager delivered to the Trustee, as of the date of the
commitment to purchase such Substitute Collateral Debt Securities:

(i) such security satisfies the Eligibility Criteria;

(ii) the Collateral Quality Tests are satisfied, or, if any Collateral
Quality Test was not satisfied immediately prior to such reinvestment, the
extent of compliance with such Collateral Quality Test will be maintained
or improved following such reinvestment, except as otherwise specified in
the Reinvestment Criteria below;

(iii) the Coverage Tests are satisfied (or, if not satisfied, are
maintained or improved); provided that, if the Class A/B
Overcollateralization Test is not satisfied, the Issuer will not effect
such reinvestment if sufficient proceeds would not remain on deposit in the
Collection Accounts following such reinvestment to cause the Class A/B
Overcollateralization Test to be satisfied following disbursements on the
following Payment Date in accordance with the Priority of Payments;

(iv) if immediately prior to such reinvestment the S&P CDO Monitor
Test or the S&P Recovery Test was not satisfied, such test result is
maintained or improved after giving effect to such reinvestment; provided,
however, that notwithstanding the foregoing, Sale Proceeds of Credit Risk
Securities may be reinvested as long as the Collateral Manager provides
written notice of each such sale and reinvestment to S&P within three
Business Days after such reinvestment; and

(v) no Event of Default has occurred and is continuing.

(b) Subject to the conditions set forth in Sections 12.2(c) and
12.2(d), during the Ramp-Up Period and the Reinvestment Period the Issuer may
acquire Loans based on an Estimated Rating; provided, however, that after the
Effective Date the Issuer may not acquire a

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Collateral Debt Security based on an Estimated Rating if (a) such acquisition
would cause the aggregate Principal Balance of all Collateral Debt Securities
owned by the Issuer which do not yet have an S&P Assigned Rating to exceed 20%
of the Aggregate Collateral Balance as of the Closing Date, (b) such acquisition
would cause the Aggregate Principal Balance of all Collateral Debt Securities
owned by the Issuer which do not yet have a Moody's Assigned Rating to exceed
20% of the Aggregate Collateral Balance as of the Closing Date, (c) solely with
respect to Collateral Debt Securities that are collateralized or backed by
interests on a Property Type other than a Non-Core Property Type related to a
single obligor, such acquisition would cause the Aggregate Principal Balance of
all such Collateral Debt Securities owned by the Issuer which do not yet have a
Moody's Assigned Rating to exceed 5% of the Aggregate Collateral Balance as of
the Closing Date, or (d) solely with respect to Collateral Debt Securities that
are collateralized or backed by interests on a Non-Core Property Type related to
a single obligor, such acquisition would cause the Aggregate Principal Balance
of all such Collateral Debt Securities owned by the Issuer which do not yet have
a Moody's Assigned Rating to exceed 3.5% of the Aggregate Collateral Balance as
of the Closing Date. In addition, no Future Advance Loan with respect to which
the related Unfunded Other Loan is a Construction Loan may be purchased by the
Issuer based on a Moody's Estimated Rating.

(c) Within ten Business Days after acquiring a Collateral Debt
Security based on a Moody's Estimated Rating, the Collateral Manager shall
deliver to Moody's a comprehensive set of asset and underwriting materials
describing such Collateral Debt Security, in form and substance acceptable to
Moody's. With respect to each Substitute Collateral Debt Security acquired based
on a Moody's Estimated Rating after the Effective Date, the Collateral Manager
shall determine compliance with the Moody's Post-Acquisition Compliance Test
when it receives notice from Moody's of the Moody's Assigned Rating for such
Substitute Collateral Debt Security. Within 45 days after finding that the
acquisition of a Substitute Collateral Debt Security after the Effective Date
resulted in a failure to satisfy the Moody's Post-Acquisition Compliance Test (a
"Moody's Post-Acquisition Failure"), the Collateral Manager shall use
commercially reasonable efforts to remedy such Moody's Post-Acquisition Failure
by either: (a) causing the Issuer and instructing the Trustee to sell to the
Collateral Manager or its Affiliates or to a third party the Substitute
Collateral Debt Security that caused the Moody's Post-Acquisition Failure, for a
cash price that is greater than or equal to the sum of (i) the then outstanding
Principal Balance of such Substitute Collateral Debt Security, discounted based
on the percentage amount of any discount that was applied when such Substitute
Collateral Debt Security was purchased by the Issuer (or, if such asset was
purchased by the Issuer at a premium, then the outstanding Principal Balance
shall be subject to a percentage premium not less than that at which the Issuer
purchased such asset), plus (ii) any accrued but unpaid interest on such
Substitute Collateral Debt Security plus (iii) any fees and expenses of the
Issuer attributable to such sale, or (b) causing the Issuer and instructing the
Trustee to sell other Collateral Debt Securities (in the case of each such
Collateral Debt Security, for a cash price that is greater than or equal to the
sum of (i) the then outstanding Principal Balance of such Collateral Debt
Security, discounted based on the percentage amount of any discount that was
applied when such Collateral Debt Security was purchased by the Issuer (or, if
such asset was purchased by the Issuer at a premium, then the outstanding
Principal Balance shall be subject to a percentage premium not less than that at
which the Issuer purchased such asset), plus (ii) any accrued but unpaid
interest on such Collateral Debt Security) and/or purchase other Collateral Debt
Securities (subject to the Reinvestment Criteria) so that either (x) the Moody's
Maximum

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Tranched Rating Factor Test is satisfied, or (y) if the Moody's Maximum Tranched
Rating Factor Test was not satisfied immediately prior to the purchase of the
Substitute Collateral Debt Security that resulted in the Moody's
Post-Acquisition Failure, the level of compliance with the Moody's Maximum
Tranched Rating Factor Test is restored to the level that would exist if that
Substitute Collateral Debt Security had not been purchased. Following a Moody's
Post-Acquisition Failure, until such time as the Moody's Post-Acquisition
Failure has been remedied as provided above, the Issuer may only purchase
Substitute Collateral Debt Securities that have a Moody's Assigned Rating;
provided, however, that if the Moody's Post-Acquisition Failure has not been
remedied within 45 days after a finding of such Moody's Post-Acquisition
Failure, then each Substitute Collateral Debt Security thereafter acquired by
the Issuer must have a Moody's Assigned Rating until such time as the Rating
Agency Condition with respect to Moody's has been satisfied and, so long as MBIA
is deemed to be the Controlling Class hereunder, MBIA has consented; provided,
further, that if the Moody's Post-Acquisition Failure has not been remedied
within 120 days after a finding of such Moody's Post-Acquisition Failure, then
the Issuer may no longer acquire Substitute Collateral Debt Securities based on
a Moody's Estimated Rating, even if such Moody's Post-Acquisition Failure is
later remedied.

(d) Within ten Business Days after acquiring a Collateral Debt
Security based on an S&P Estimated Rating, the Collateral Manager shall deliver
to S&P a comprehensive set of asset and underwriting materials describing such
Collateral Debt Security, in form and substance acceptable to S&P. With respect
to each Substitute Collateral Debt Security acquired based on an S&P Estimated
Rating after the Effective Date, the Collateral Manager shall determine
compliance with the S&P Post-Acquisition Compliance Test when it receives notice
from S&P of the S&P Assigned Rating for such Substitute Collateral Debt
Security. Within 45 days after finding that the acquisition of a Substitute
Collateral Debt Security after the Effective Date resulted in a failure to
satisfy the S&P's Post-Acquisition Compliance Test (an "S&P Post-Acquisition
Failure"), the Collateral Manager may remedy such S&P Post-Acquisition Failure
by either: (a) causing the Issuer and instructing the Trustee to sell to the
Collateral Manager or its Affiliates or to a third party the Substitute
Collateral Debt Security that caused the S&P Post-Acquisition Failure, for a
cash price that is greater than or equal to the sum of (i) the then outstanding
Principal Balance of such Substitute Collateral Debt Security, discounted based
on the percentage amount of any discount that was applied when such Substitute
Collateral Debt Security was purchased by the Issuer (or, if such asset was
purchased by the Issuer at a premium, then the outstanding Principal Balance
shall be subject to a percentage premium not less than that at which the Issuer
purchased such asset), plus (ii) any accrued but unpaid interest on such
Substitute Collateral Debt Security, plus (iii) any fees and expenses of the
Issuer attributable to such sale, or (b) causing the Issuer and instructing the
Trustee to sell other Collateral Debt Securities and/or purchase other
Substitute Collateral Debt Securities (subject to the Reinvestment Criteria) so
that either (x) the S&P CDO Monitor Test is satisfied, or (y) if the S&P CDO
Monitor Test was not satisfied immediately prior to the purchase of the
Substitute Collateral Debt Security that resulted in the S&P Post-Acquisition
Failure, the level of compliance with the S&P CDO Monitor Test is restored to
the level that would exist if that Substitute Collateral Debt Security had not
been purchased. Following an S&P Post-Acquisition Failure, until such time as
the S&P Post-Acquisition Failure has been remedied as provided above, the Issuer
may only purchase Substitute Collateral Debt Securities that have an S&P
Assigned Rating.

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(e) No Advisory Committee consent will be required in connection with
a sale or transfer of a Substitute Collateral Debt Security in connection with
any action taken by the Collateral Manager to remedy a Moody's Post-Acquisition
Failure or an S&P Post-Acquisition Failure, even if the Collateral Manager or
its Affiliate is the purchaser or assignee of such asset, so long as the
purchase price for such Collateral Debt Security is payable in cash and is
greater than or equal to the sum of (i) the then outstanding Principal Balance
of such Collateral Debt Security, discounted based on the percentage amount of
any discount that was applied when such Collateral Debt Security was purchased
by the Issuer (or, if such asset was purchased by the Issuer at a premium, then
the outstanding Principal Balance shall be subject to a percentage premium not
less than that at which the Issuer purchased such asset), plus (ii) any accrued
but unpaid interest on such Collateral Debt Security plus (iii) any fees and
expenses of the Issuer attributable to such sale.

(f) Within ten Business Days after the applicable Rating Agency
notifies the Collateral Manager of the Assigned Rating determined for a
Collateral Debt Security acquired by the Issuer based on an Estimated Rating, if
such Assigned Rating is lower than such Estimated Rating (but, for the avoidance
of doubt, such Assigned Rating is not low enough to cause a Moody's
Post-Acquisition Failure or an S&P Post-Acquisition Failure, as applicable), the
Collateral Manager shall have the option, but not the obligation, to cause the
Issuer and direct the Trustee (x) to sell such Collateral Debt Security to the
Collateral Manager or any of its Affiliates or any third party for a cash price
that is greater than or equal to the sum of (i) the then outstanding Principal
Balance of such Collateral Debt Security, discounted based on the percentage
amount of any discount that was applied when such Collateral Debt Security was
purchased by the Issuer (or, if such asset was purchased by the Issuer at a
premium, then the outstanding Principal Balance shall be subject to a percentage
premium not less than that at which the Issuer purchased such asset), plus (ii)
any accrued but unpaid interest on such Collateral Debt Security plus (iii) any
fees and expenses of the Issuer attributable to such sale. No Advisory Committee
consent will be required in connection with a trade executed in connection with
the exercise of this option even if the Collateral Manager or its Affiliate is
the purchaser or assignee.

(g) Notwithstanding the foregoing provisions, (i) Cash on deposit in
the Collection Accounts may be invested in Eligible Investments, pending
investment in Substitute Collateral Debt Securities and (ii) if an Event of
Default shall have occurred and be continuing, no Substitute Collateral Debt
Security may be acquired unless it was the subject of a commitment entered into
by the Issuer prior to the occurrence of such Event of Default.

Section 12.3 Conditions Applicable to all Transactions Involving Sale
or Grant.

(a) Any transaction effected after the Closing Date under this Article
12 or Section 10.12 shall be conducted in accordance with the requirements of
the Collateral Management Agreement; provided that (1) the Collateral Manager
shall not direct the Trustee to acquire any Substitute Collateral Debt Security
for inclusion in the Assets from the Collateral Manager or any of its Affiliates
as principal or to sell any Collateral Debt Security from the Assets to the
Collateral Manager or any of its Affiliates as principal unless the transaction
is effected in accordance with the Collateral Management Agreement and (2) the
Collateral Manager shall not direct the Trustee to acquire any Substitute
Collateral Debt Security for

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inclusion in the Assets from any account or portfolio for which the Collateral
Manager serves as investment adviser or direct the Trustee to sell any
Collateral Debt Security to any account or portfolio for which the Collateral
Manager serves as investment adviser unless such transactions comply with the
requirements of any applicable laws. The Trustee shall have no responsibility to
oversee compliance with this clause by the other parties.

(b) Upon any Grant pursuant to this Article 12, all of the Issuer's
right, title and interest to the Pledged Obligation or Securities shall be
Granted to the Trustee pursuant to this Indenture, such Pledged Obligation or
Securities shall be registered in the name of the Trustee, and, if applicable,
the Trustee shall receive such Pledged Collateral Debt Security or Securities.
The Trustee also shall receive, not later than the date of delivery of any
Collateral Debt Security delivered after the Closing Date, an Officer's
Certificate of the Collateral Manager certifying that, as of the date of such
Grant, such Grant complies with the applicable conditions of and is permitted by
this Article 12 (and setting forth, to the extent appropriate, calculations in
reasonable detail necessary to determine such compliance).

(c) Notwithstanding anything contained in this Article 12 to the
contrary, the Issuer shall, subject to this Section 12.3(c), have the right to
effect any transaction which has been consented to (i) by the Holders of Notes
evidencing 100% of the Aggregate Outstanding Amount of each and every Class of
Notes (or if there are no Notes Outstanding, 100% of the Preferred Shares) and
(ii) each Hedge Counterparty, and of which each Rating Agency has been notified.

Section 12.4 Sale of Collateral Debt Securities with respect to an
Auction Call Redemption.

(a) Pre-Auction Process.

(i) Each Auction will occur on the Business Day that is at least 13
Business Days prior to the proposed Auction Call Redemption Date (such
date, the "Auction Date").

(ii) The Collateral Manager will initiate the Auction Procedures at
least 24 Business Days before the proposed Auction Call Redemption Date by:
(a) preparing a list of Collateral Debt Securities (including CUSIP Number,
if any, par amount and issuer name for each Collateral Debt Security); (b)
deriving a list of not less than three qualified bidders (the "Listed
Bidders") and requesting from each Listed Bidder bids by the applicable
Auction Date; and (c) notifying the Trustee of the list of Listed Bidders
(the "List").

(iii) The Collateral Manager will deliver a general solicitation
package to the Listed Bidders consisting of: (a) a form of a purchase
agreement ("Auction Purchase Agreement") provided to the Trustee by the
Collateral Manager (which shall provide that (I) upon satisfaction of all
conditions precedent therein, the purchaser is irrevocably obligated to
purchase, and the Issuer is irrevocably obligated to sell, the Collateral
Debt Securities on the date and on the terms stated therein, (II) each
bidder may tender a separate bid for one or more Collateral Debt Securities
in an Auction, (III) if the

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Collateral Debt Securities are to be sold to different bidders, that the
consummation of the purchase of all Collateral Debt Securities must occur
simultaneously and that the closing of each purchase is conditional on the
closing of the other purchases, (IV) if for any reason whatsoever the
Trustee has not received, by a specified Business Day (which shall be more
than ten Business Days before the proposed Auction Call Redemption Date),
payment in full in immediately available funds of the purchase price for
all Collateral Debt Securities, the obligations of the parties shall
terminate and the Issuer shall have no obligation or liability whatsoever
and (V) any prospective purchasers will be subject to the "limited
recourse" and "non-petition" provisions set forth in this Indenture); (b)
the minimum aggregate Cash purchase price (which shall be determined by the
Collateral Manager as the Total Redemption Price less the balance of all
Eligible Investments and Cash in the Collection Accounts, the Payment
Account, the Delayed Funding Obligations Account, each Hedge Termination
Account and the Expense Account); (c) the list of Collateral Debt
Securities; (d) a formal bid sheet (which will permit a bidder to bid for
all of the Collateral Debt Securities or separately for any one or more
(but not all) Collateral Debt Securities and will include a representation
from the bidder that it is eligible to purchase all of the Collateral Debt
Securities or any one or more (but not all) Collateral Debt Securities) to
be provided to the Trustee by the Collateral Manager; (e) a detailed
timetable; and (f) copies of all transfer documents provided to the Trustee
by the Collateral Manager (including transfer certificates and subscription
agreements which a bidder must execute pursuant to the underlying
instruments and a list of the requirements which the bidder must satisfy
under the underlying instruments (i.e., QIB status, Qualified Purchaser
status, etc.)).

(iv) The Collateral Manager will send solicitation packages to all
Listed Bidders on the List at least 20 Business Days before the proposed
Auction Call Redemption Date. The Listed Bidders will be required to submit
any due diligence questions (or comments on the draft purchase agreement)
in writing to the Collateral Manager by a date specified in the
solicitation package. The Collateral Manager will be required to answer all
reasonable and relevant questions by the date specified in the solicitation
package and the Collateral Manager will distribute the questions and
answers and the revised final Auction Purchase Agreement to all Listed
Bidders (with a copy to the Issuer and the Trustee).

(b) Auction Process.

(i) Wells Fargo Bank, National Association or its Affiliates may, but
shall not be required to, bid at the Auction. The Collateral Manager and
its Affiliates may bid in the Auction if the Collateral Manager deems such
bidding to be appropriate but is not required to do so.

(ii) On the second Business Day prior to the Auction Date (the
"Auction Bid Date"), all bids will be due by facsimile at the offices of
the Trustee by 11:00 a.m. New York City time, with the winning bidder or
bidders to be notified by 2:00 p.m. New York City time. All bids from
Listed Bidders on the List will be due on the bid sheet contained in the
solicitation package. Each bid shall be for the purchase and delivery to
one

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purchaser (A) of all (but not less than all) of the Collateral Debt
Securities or (B) of one or more (but not all) of the Collateral Debt
Securities.

(iii) Unless the Trustee receives (A) at least one bid from a Listed
Bidder to purchase all of the Collateral Debt Securities or (B) receives
bids from one or more Listed Bidders (to purchase one or more (but not all)
Collateral Debt Securities) for all Collateral Debt Securities in the
aggregate, the Trustee will decline to consummate the sale.

(iv) Subject to clause (iii) above, with the advice of the Collateral
Manager, the Trustee shall select the bid or bids which result in the
Highest Auction Price from one or more Listed Bidders (in excess of the
specified minimum purchase price). "Highest Auction Price" means the higher
of (A) the highest price bid by any Listed Bidder for all of the Collateral
Debt Securities or (B) the sum of the highest prices bid by one or more
Listed Bidders (for one or more (but not all) Collateral Debt Securities)
for all Collateral Debt Securities in the aggregate. In each case, the
price bid by a Listed Bidder will be the dollar amount which the Collateral
Manager certifies to the Trustee based on the Collateral Manager's review
of the bids, which certification shall be binding and conclusive.

(v) Upon notification to the winning bidder or bidders, the winning
bidder (or, if the Highest Auction Price requires the sale of the
Collateral Debt Securities to more than one bidder, each winning bidder)
will be required to deliver to the Trustee a signed counterpart of the
Auction Purchase Agreement no later than 4:00 p.m. New York City time on
the Auction Date. The winning bidder (or, if the Highest Auction Price
requires the sale of the Collateral Debt Securities to more than one
bidder, each winning bidder) will make payment in full of the purchase
price on the Business Day (the "Auction Purchase Closing Date") specified
in the general solicitation package (which will be no later than ten
Business Days prior to the proposed Auction Call Redemption Date). If a
winning bidder so requests, the Trustee and the Issuer will enter into a
bailee letter in the form agreed upon by the Trustee and the Collateral
Manager to this Indenture (a "Bailee Letter") with each winning bidder and
its designated bank (which bank will be subject to approval by the Issuer
(or the Collateral Manager on behalf of the Issuer)); provided that such
bank enters into an account control agreement with the Trustee and the
Issuer and has a long term debt rating of at least "BBB+" by S&P's and (if
rated by Fitch) at least "BBB+" by Fitch and (if rated by Moody's) at least
"A2" by Moody's. If the above requirements are satisfied, the Trustee will
deliver the Collateral Debt Securities (to be sold to such bidder) pursuant
thereto to the bailee bank at least one Business Day prior to the closing
on the sale of the Collateral Debt Securities and accept payment of the
purchase price pursuant thereto. If payment in full of the purchase price
is not made by the Auction Purchase Closing Date for any reason whatsoever
(or, if the Collateral Debt Securities are to be sold to more than one
bidder, if any bidder fails to make payment in full of the purchase price
by the Auction Purchase Closing Date for any reason whatsoever), the Issuer
will decline to consummate the sale of all Collateral Debt Securities, the
Trustee and the Issuer will direct the bailee bank to return the Collateral
Debt Securities to the Trustee, and (if notice of redemption has been given
by the

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Trustee) the Trustee will give notice (in accordance with the terms of this
Indenture) that the Auction Call Redemption will not occur.

(vi) Notwithstanding the foregoing, but subject to the satisfaction of
the conditions set forth in Section 9.2(b), the Holder of the Preferred
Shares or any of its Affiliates, although it may not have been the highest
bidder, will have the option to purchase any one or more Collateral Debt
Securities for a purchase price equal to the highest bid therefor.

(c) Notwithstanding anything to the contrary set forth in this Section
12.4, at the election of the Holder of the Preferred Shares, in lieu of
initiating or conducting any Auction, the Holder of the Preferred Shares or any
of its Affiliates will have the option to purchase all of the Collateral Debt
Securities that would otherwise be subject to such Auction for a price equal to
the Total Redemption Price. Such purchase of Collateral Debt Securities by the
Holder of the Preferred Shares or its Affiliates pursuant to this Section
12.4(c) will be deemed to be a Successful Auction pursuant to this Indenture and
the Notes and the Preferred Shares shall be redeemed, in whole and not in part,
at their applicable Redemption Prices in accordance with the applicable
provisions of Article 9.

Section 12.5 Modifications to Collateral Quality Tests or Coverage
Tests.

In the event any of the Rating Agencies modifies the definitions or
calculations relating to (i) the method of calculating any of its respective
Collateral Quality Tests included in clauses (xx) through (xxx) of the
Collateral Quality Tests (a "Collateral Quality Test Modification"), (ii) any of
the Coverage Tests (a "Coverage Test Modification") or (iii) its requirements
for pro rata "special amortizations" (a "Pro Rata Special Amortization
Modification"), in either case in order to correspond with published changes in
the guidelines, methodology or standards established by such Rating Agency, the
Issuer may, but is under no obligation solely as a result of this Section 12.5
to, incorporate corresponding changes into this Indenture by an amendment hereto
without the consent of the Holders of the Notes (except as provided below) (but
with written notice to the Noteholders) or the Preferred Shares if (x)(1) in the
case of a Collateral Quality Test Modification, the Rating Agency Condition is
satisfied with respect to the Rating Agency that made such modification or (2)
in the case of a Coverage Test Modification or a Pro Rata Special Amortization,
the Rating Agency Condition is satisfied with respect to each Rating Agency then
rating the Notes and (y) written notice of such modification is delivered by the
Collateral Manager to the Trustee, each Hedge Counterparty and to the Holders of
the Notes and Preferred Shares (which notice may be included in the next
regularly scheduled report to Noteholders). Any such Collateral Quality Test
Modification, Coverage Test Modification or Pro Rata Special Amortization, as
the case may be, shall be effected without execution of a supplemental
indenture; provided, however, that such amendment shall be (i) evidenced by a
written instrument executed and delivered by each of the Co-Issuers and the
Collateral Manager and delivered to the Trustee and each Hedge Counterparty,
(ii) accompanied by delivery by the Issuer to the Trustee of (A) an Officer's
Certificate of the Issuer certifying that such amendment has been made pursuant
to and in compliance with this Section 12.5 and (B) if requested by the Trustee,
an Opinion of Counsel stating that such amendment is authorized or permitted by
this Section 12.5 and that all applicable conditions precedent under this
Section 12.5 have been satisfied, on which such Officer's Certificate or such
Officer's Certificate and

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Opinion of Counsel, as the case may be, the Trustee shall be entitled to rely.
Notwithstanding the foregoing, so long as MBIA is deemed to be the Controlling
Class hereunder, the Issuer will not be permitted to make any such change with
respect to Moody's or Fitch or, on or after the date that is 18 months after the
Closing Date, S&P, without obtaining the consent of MBIA (such consent not to be
unreasonably withheld); provided that, if MBIA does not object to such change
within 14 days after notice thereof is given, MBIA will be deemed to have
consented to such change. Notwithstanding the foregoing, any such amendment
reasonably determined by the Trustee to be unduly burdensome to the Trustee,
shall not take effect without the Trustee's express written consent.

ARTICLE 13

NOTEHOLDERS' RELATIONS

Section 13.1 Subordination.

(a) Anything in this Indenture or the Notes to the contrary
notwithstanding, the Issuer and the Holders of the Class A-2 Notes, the Class B
Notes, the Class C Notes, the Class D Notes, the Class E Notes, the Class F
Notes, the Class G Notes and the Class H Notes agree for the benefit of the
Holders of the Class A-1 Notes and each Hedge Counterparty that the Class A-2
Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E
Notes, the Class F Notes, the Class G Notes and the Class H Notes and the
Issuer's rights in and to the Assets (the "Class A-2 Subordinate Interests")
shall be subordinate and junior to the Class A-1 Notes to the extent and in the
manner set forth in this Indenture including as set forth in Section 11.1(a) and
hereinafter provided. If any Event of Default has not been cured or waived and
acceleration occurs in accordance with Article 5, including as a result of an
Event of Default specified in Section 5.1(f) or 5.1(g), the Class A-1 Notes
shall be paid in full before any further payment or distribution is made on
account of the Class A-2 Subordinate Interests. The Holders of the Class A-2
Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E
Notes, the Class F Notes, the Class G Notes and the Class H Notes agree for the
benefit of the Holders of the Class A-1 Notes and each Hedge Counterparty, not
to cause the filing of a petition in bankruptcy against the Issuer for failure
to pay to them amounts due under the Class A-2 Notes, the Class B Notes, the
Class C Notes, the Class D Notes, the Class E Notes, the Class F Notes, the
Class G Notes and the Class H Notes hereunder until the payment in full of the
Class A-1 Notes and not before one year and one day, or, if longer, the
applicable preference period then in effect, has elapsed since such payment.

(b) Anything in this Indenture or the Notes to the contrary
notwithstanding, the Issuer and the Holders of the Class B Notes, the Class C
Notes, the Class D Notes, the Class E Notes, the Class F Notes, the Class G
Notes and the Class H Notes agree for the benefit of the Holders of the Class A
Notes and each Hedge Counterparty that the Class B Notes, the Class C Notes, the
Class D Notes, the Class E Notes, the Class F Notes, the Class G Notes and the
Class H Notes and the Issuer's rights in and to the Assets (the "Class B
Subordinate Interests") shall be subordinate and junior to the Class A Notes to
the extent and in the manner set forth in this Indenture including as set forth
in Section 11.1(a) and hereinafter provided. If any Event of Default has not
been cured or waived and acceleration occurs in accordance with Article 5,
including as a result of an Event of Default specified in Section 5.1(f) or
5.1(g), the

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Class A Notes shall be paid in full before any further payment or distribution
is made on account of the Class B Subordinate Interests. The Holders of the
Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes, the
Class F Notes, the Class G Notes and the Class H Notes agree for the benefit of
the Holders of the Class A Notes and each Hedge Counterparty, not to cause the
filing of a petition in bankruptcy against the Issuer for failure to pay to them
amounts due under the Class B Notes, the Class C Notes, the Class D Notes, the
Class E Notes, the Class F Notes, the Class G Notes and the Class H Notes
hereunder until the payment in full of the Class A Notes and not before one year
and one day, or, if longer, the applicable preference period then in effect, has
elapsed since such payment.

(c) Anything in this Indenture or the Notes to the contrary
notwithstanding, the Issuer and the Holders of the Class C Notes, the Class D
Notes, the Class E Notes, the Class F Notes, the Class G Notes and the Class H
Notes agree for the benefit of the Holders of the Class A Notes, the Class B
Notes and each Hedge Counterparty that the Class C Notes, the Class D Notes, the
Class E Notes, the Class F Notes, the Class G Notes, the Class H Notes and the
Issuer's rights in and to the Assets (the "Class C Subordinate Interests") shall
be subordinate and junior to the Class A Notes and the Class B Notes to the
extent and in the manner set forth in this Indenture including as set forth in
Section 11.1(a) and hereinafter provided. If any Event of Default has not been
cured or waived and acceleration occurs in accordance with Article 5, including
as a result of an Event of Default specified in Section 5.1(f) or 5.1(g), the
Class A Notes and the Class B Notes shall be paid in full before any further
payment or distribution is made on account of the Class C Subordinate Interests.
The Holders of the Class C Notes, the Class D Notes, the Class E Notes, the
Class F Notes, the Class G Notes and the Class H Notes agree, for the benefit of
the Holders of the Class A Notes and the Class B Notes and each Hedge
Counterparty, not to cause the filing of a petition in bankruptcy against the
Issuer for failure to pay to them amounts due under the Class C Notes, the Class
D Notes, the Class E Notes, the Class F Notes, the Class G Notes and the Class H
Notes hereunder until the payment in full of the Class A Notes and the Class B
Notes and not before one year and one day, or, if longer, the applicable
preference period then in effect, has elapsed since such payment.

(d) Anything in this Indenture or the Notes to the contrary
notwithstanding, the Issuer and the Holders of the Class D Notes, the Class E
Notes, the Class F Notes, the Class G Notes and the Class H Notes agree for the
benefit of the Holders of the Class A Notes, the Class B Notes, the Class C
Notes and each Hedge Counterparty that the Class D Notes, the Class E Notes, the
Class F Notes, the Class G Notes, the Class H Notes and the Issuer's rights in
and to the Assets (the "Class D Subordinate Interests") shall be subordinate and
junior to the Class A Notes, the Class B Notes and the Class C Notes to the
extent and in the manner set forth in this Indenture including as set forth in
Section 11.1(a) and hereinafter provided. If any Event of Default has not been
cured or waived and acceleration occurs in accordance with Article 5, including
as a result of an Event of Default specified in Section 5.1(f) or 5.1(g), the
Class A Notes, the Class B Notes and the Class C Notes shall be paid in full
before any further payment or distribution is made on account of the Class D
Subordinate Interests. The Holders of the Class D Notes, the Class E Notes, the
Class F Notes, the Class G Notes and the Class H Notes agree, for the benefit of
the Holders of the Class A Notes, the Class B Notes, and the Class C Notes and
each Hedge Counterparty, not to cause the filing of a petition in bankruptcy
against the Issuer for failure to pay to them amounts due under the Class D
Notes, the Class E Notes, the Class F Notes, the Class G Notes and the Class H
Notes hereunder until the payment in full of the Class

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A Notes, the Class B Notes and the Class C Notes and not before one year and one
day, or, if longer, the applicable preference period then in effect, has elapsed
since such payment.

(e) Anything in this Indenture or the Notes to the contrary
notwithstanding, the Issuer and the Holders of the Class E Notes, the Class F
Notes, the Class G Notes and the Class H Notes agree for the benefit of the
Holders of the Class A Notes, the Class B Notes, the Class C Notes and the Class
D Notes and each Hedge Counterparty that the Class E Notes, the Class F Notes,
the Class G Notes and the Class H Notes and the Issuer's rights in and to the
Assets (the "Class E Subordinate Interests") shall be subordinate and junior to
the Class A Notes, the Class C Notes and the Class D Notes to the extent and in
the manner set forth in this Indenture including as set forth in Section 11.1(a)
and hereinafter provided. If any Event of Default has not been cured or waived
and acceleration occurs in accordance with Article 5, including as a result of
an Event of Default specified in Section 5.1(f) or 5.1(g), the Class A Notes,
the Class B Notes, the Class C Notes, and the Class D Notes shall be paid in
full before any further payment or distribution is made on account of the Class
E Subordinate Interests. The Holders of the Class E Notes, the Class F Notes,
the Class G Notes and the Class H Notes agree, for the benefit of the Holders of
the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes
and each Hedge Counterparty, not to cause the filing of a petition in bankruptcy
against the Issuer for failure to pay to them amounts due under the Class E
Notes, the Class F Notes, the Class G Notes and the Class H Notes hereunder
until the payment in full of the Class A Notes, the Class B Notes, the Class C
Notes and the Class D Notes and not before one year and one day, or, if longer,
the applicable preference period in effect, has elapsed since such payment.

(f) Anything in this Indenture or the Notes to the contrary
notwithstanding, the Issuer and the Holders of the Class F Notes, the Class G
Notes and the Class H Notes agree for the benefit of the Holders of the Class A
Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E
Notes and each Hedge Counterparty that the Class F Notes, the Class G Notes and
the Class H Notes and the Issuer's rights in and to the Assets (the "Class F
Subordinate Interests") shall be subordinate and junior to the Class A Notes,
the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes to
the extent and in the manner set forth in this Indenture including as set forth
in Section 11.1(a) and hereinafter provided. If any Event of Default has not
been cured or waived and acceleration occurs in accordance with Article 5,
including as a result of an Event of Default specified in Section 5.1(f) or
5.1(g), the Class A Notes, the Class B Notes, the Class C Notes, the Class D
Notes and the Class E Notes shall be paid in full before any further payment or
distribution is made on account of the Class F Subordinate Interests. The
Holders of the Class F Notes, the Class G Notes and the Class H Notes agree, for
the benefit of the Holders of the Class A Notes, the Class B Notes, the Class C
Notes, the Class D Notes, the Class E Notes and each Hedge Counterparty, not to
cause the filing of a petition in bankruptcy against the Issuer for failure to
pay to them amounts due under the Class F Notes, the Class G Notes and the Class
H Notes hereunder until the payment in full of the Class A Notes, the Class B
Notes, the Class C Notes, the Class D Notes and the Class E Notes and not before
one year and one day, or, if longer, the applicable preference period then in
effect, has elapsed since such payment.

(g) Anything in this Indenture or the Notes to the contrary
notwithstanding, the Issuer and the Holders of the Class G Notes and the Class H
Notes agree for the benefit of the

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Holders of the Class A Notes, the Class B Notes, the Class C Notes, the Class D
Notes, the Class E Notes, the Class F Notes and each Hedge Counterparty that the
Class G Notes, the Class H Notes and the Issuer's rights in and to the Assets
(the "Class G Subordinate Interests") shall be subordinate and junior to the
Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the
Class E Notes and the Class F Notes to the extent and in the manner set forth in
this Indenture including as set forth in Section 11.1(a) and hereinafter
provided. If any Event of Default has not been cured or waived and acceleration
occurs in accordance with Article 5, including as a result of an Event of
Default specified in Section 5.1(f) or 5.1(g), the Class A Notes, the Class B
Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Class F
Notes shall be paid in full before any further payment or distribution is made
on account of the Class G Subordinate Interests. The Holders of the Class G
Notes and the Class H Notes agree, for the benefit of the Holders of the Class A
Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E
Notes and the Class F Notes and each Hedge Counterparty, not to cause the filing
of a petition in bankruptcy against the Issuer for failure to pay to them
amounts due under the Class G Notes and the Class H Notes hereunder until the
payment in full of the Class A Notes, the Class B Notes, the Class C Notes, the
Class D Notes, the Class E Notes and the Class F Notes and not before one year
and one day, or, if longer, the applicable preference period then in effect, has
elapsed since such payment.

(h) Anything in this Indenture or the Notes to the contrary
notwithstanding, the Issuer and the Holders of the Class H Notes agree for the
benefit of the Holders of the Class A Notes, the Class B Notes, the Class C
Notes, the Class D Notes, the Class E Notes, the Class F Notes, the Class G
Notes and each Hedge Counterparty that the Class H Notes and the Issuer's rights
in and to the Assets (the "Class H Subordinate Interests") shall be subordinate
and junior to the Class A Notes, the Class B Notes, the Class C Notes, the Class
D Notes, the Class E Notes, the Class F Notes and the Class G Notes to the
extent and in the manner set forth in this Indenture including as set forth in
Section 11.1(a) and hereinafter provided. If any Event of Default has not been
cured or waived and acceleration occurs in accordance with Article 5, including
as a result of an Event of Default specified in Section 5.1(f) or 5.1(g), the
Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the
Class E Notes, the Class F Notes and the Class G Notes shall be paid in full
before any further payment or distribution is made on account of the Class H
Subordinate Interests. The Holders of the Class H Notes agree, for the benefit
of the Holders of the Class A Notes, the Class B Notes, the Class C Notes, the
Class D Notes, the Class E Notes, the Class F Notes and the Class G Notes and
each Hedge Counterparty, not to cause the filing of a petition in bankruptcy
against the Issuer for failure to pay to them amounts due under the Class H
Notes hereunder until the payment in full of the Class A Notes, the Class B
Notes, the Class C Notes, the Class D Notes, the Class E Notes, the Class F
Notes and the Class G Notes and not before one year and one day, or if longer,
the applicable preference period then in effect, has elapsed since such payment.

(i) In the event that notwithstanding the provisions of this
Indenture, any holder of any Subordinate Interests shall have received any
payment or distribution in respect of such Subordinate Interests contrary to the
provisions of this Indenture, then, unless and until the Class A Notes, the
Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes, the
Class F Notes, the Class G Notes and the Class H Notes, as the case may be,
shall have been paid in full in accordance with this Indenture, such payment or
distribution shall be received and held in trust for the benefit of, and shall
forthwith be paid over and delivered to, the Trustee, which

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shall pay and deliver the same to the Holders of the Class A Notes, the Class B
Notes, the Class C Notes, the Class D Notes, the Class E Notes, the Class F
Notes, the Class G Notes and the Class H Notes, as the case may be, in
accordance with this Indenture.

(j) Each Holder of Subordinate Interests agrees with all Holders of
the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the
Class E Notes, the Class F Notes, the Class G Notes, and the Class H Notes, as
the case may be, that such Holder of Subordinate Interests shall not demand,
accept, or receive any payment or distribution in respect of such Subordinate
Interests in violation of the provisions of this Indenture including this
Section 13.1; provided, however, that after the Class A Notes, the Class B
Notes, the Class C Notes, the Class D Notes, the Class E Notes, the Class F
Notes, the Class G Notes and the Class H Notes, as the case may be, have been
paid in full, the Holders of Subordinate Interests shall be fully subrogated to
the rights of the Holders of the Class A Notes, the Class B Notes, the Class C
Notes, the Class D Notes, the Class E Notes, the Class E Notes, the Class F
Notes, the Class G Notes and the Class H Notes, as the case may be. Nothing in
this Section 13.1 shall affect the obligation of the Issuer to pay Holders of
Subordinate Interests.

Section 13.2 Standard of Conduct.

In exercising any of its or their voting rights, rights to direct and
consent or any other rights as a Securityholder under this Indenture, subject to
the terms and conditions of this Indenture, including, without limitation,
Section 5.9, a Securityholder or Securityholders shall not have any obligation
or duty to any Person or to consider or take into account the interests of any
Person and shall not be liable to any Person for any action taken by it or them
or at its or their direction or any failure by it or them to act or to direct
that an action be taken, without regard to whether such action or inaction
benefits or adversely affects any Securityholder, the Issuer, or any other
Person, except for any liability to which such Securityholder may be subject to
the extent the same results from such Securityholder's taking or directing an
action, or failing to take or direct an action, in bad faith or in violation of
the express terms of this Indenture.

ARTICLE 14

MISCELLANEOUS

Section 14.1 Form of Documents Delivered to the Trustee.

In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an Authorized Officer of the Issuer or
the Co-Issuer may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such
Authorized Officer knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to the

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matters upon which his certificate or opinion is based are erroneous. Any such
certificate of an Authorized Officer of the Issuer or the Co-Issuer or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, the Issuer, the Co-Issuer, the
Collateral Manager or any other Person, stating that the information with
respect to such factual matters is in the possession of the Issuer, the
Co-Issuer, the Collateral Manager or such other Person, unless such Authorized
Officer of the Issuer or the Co-Issuer or such counsel knows that the
certificate or opinion or representations with respect to such matters are
erroneous. Any Opinion of Counsel also may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
Authorized Officer of the Issuer or the Co-Issuer, stating that the information
with respect to such matters is in the possession of the Issuer or the
Co-Issuer, unless such counsel knows that the certificate or opinion or
representations with respect to such matters are erroneous.

Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

Whenever in this Indenture it is provided that the absence of the
occurrence and continuation of a Default or Event of Default is a condition
precedent to the taking of any action by the Trustee at the request or direction
of the Issuer or the Co-Issuer, then notwithstanding that the satisfaction of
such condition is a condition precedent to the Issuer's or the Co-Issuer's
rights to make such request or direction, the Trustee shall be protected in
acting in accordance with such request or direction if it does not have
knowledge of the occurrence and continuation of such Default or Event of Default
as provided in Section 6.1(e).

Section 14.2 Acts of Securityholders.

(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by an
agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee, and, where it is hereby expressly required, to the
Issuer and/or the Co-Issuer. Such instrument or instruments (and the action or
actions embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Securityholders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and conclusive in
favor of the Trustee, the Issuer and the Co-Issuer, if made in the manner
provided in this Section 14.2.

(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner which the Trustee deems
sufficient.

(c) The principal amount and registered numbers of Notes held by any
Person, and the date of his holding the same, shall be proved by the Notes
Register. The Notional Amount and registered numbers of the Preferred Shares
held by any Person, and the date of his holding the same, shall be proved by the
register maintained with respect to the Preferred Shares.

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(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Securityholder shall bind such Securityholder (and
any transferee thereof) of such Security and of every Security issued upon the
registration thereof or in exchange therefor or in lieu thereof, in respect of
anything done, omitted or suffered to be done by the Trustee, the Preferred
Shares Paying Agent, the Share Registrar, the Issuer or the Co-Issuer in
reliance thereon, whether or not notation of such action is made upon such
Security.

Section 14.3 Notices, etc., to the Trustee, the Issuer, the Co-Issuer,
the Advancing Agent, the Collateral Manager, the Initial Purchaser, each Hedge
Counterparty, the Class A-1AR Note Agent, each Rating Agency and MBIA.

Any request, demand, authorization, direction, notice, consent, waiver
or Act of Securityholders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:

(a) the Trustee by any Securityholder or by the Issuer or the
Co-Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to and mailed, by certified mail, return receipt
requested, hand delivered, sent by overnight courier service guaranteeing next
day delivery or by facsimile in legible form, to the Trustee addressed to it at
P.O. Box 98, Columbia, Maryland 21046, Attention: CDO Trust Services Group -
Arbor Realty Mortgage Securities Series 2006-1, facsimile number: (410)
715-3748, with a copy to its Corporate Trust Office, or at any other address
previously furnished in writing to the Issuer, the Co-Issuer or Securityholders
by the Trustee;

(b) the Issuer by the Trustee or by any Securityholder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first class postage prepaid, hand delivered,
sent by overnight courier service or by facsimile in legible form, to the Issuer
addressed to it at Arbor Realty Mortgage Securities Series 2006-1, Ltd. at c/o
Maples Finance Limited, P.O. Box 1093GT, Queensgate House, South Church Street,
George Town, Grand Cayman, Cayman Islands, facsimile number: 345-945-7100,
Attention: The Directors, or at any other address previously furnished in
writing to the Trustee by the Issuer, with a copy to the Collateral Manager at
its address set forth below;

(c) the Co-Issuer by the Trustee or by any Securityholder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first class postage prepaid, hand delivered,
sent by overnight courier service or by facsimile in legible form, to the
Co-Issuer addressed to it in c/o Puglisi & Associates, 850 Library Avenue, Suite
204, Newark, Delaware 19711, Attention: Donald J. Puglisi, facsimile number:
(302) 738-7210, or at any other address previously furnished in writing to the
Trustee by the Co-Issuer, with a copy to the Collateral Manager at its address
set forth below;

(d) the Advancing Agent by the Trustee, the Issuer or the Co-Issuer
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first class postage prepaid, hand
delivered, sent by overnight courier service or by facsimile in legible form, to
the Advancing Agent addressed to it at Arbor Realty SR, Inc., 333 Earle Ovington
Boulevard, 9th Floor, Uniondale, New York 11553, Attention: Executive Vice
President - Structured Securitization, or at any other address previously
furnished in writing to

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the Trustee and the Co-Issuers, with a copy to the Collateral Manager at its
address set forth below.

(e) the Preferred Shares Paying Agent shall be sufficient for every
purpose hereunder if made, given, furnished or filed in writing to and mailed,
by certified mail, return receipt requested, hand delivered, sent by overnight
courier service guaranteeing next day delivery or by facsimile in legible form,
to the Preferred Shares Paying Agent addressed to it at P.O. Box 98, Columbia,
Maryland 21046, Attention: CDO Trust Services Group - Arbor Realty Mortgage
Securities Series 2006-1, facsimile number: (410) 715-3748 or at any other
address previously furnished in writing by the Trustee;

(f) the Collateral Manager by the Issuer, the Co-Issuer or the Trustee
shall be sufficient for every purpose hereunder if in writing and mailed, first
class postage prepaid, hand delivered, sent by overnight courier service or by
facsimile in legible form, to the Collateral Manager addressed to it at Arbor
Realty Collateral Management, LLC, 333 Earle Ovington Boulevard, 9th Floor,
Uniondale, New York 11553, Attention: Executive Vice President - Structured
Securitization, or at any other address previously furnished in writing to the
Issuer, the Co-Issuer or the Trustee;

(g) each Rating Agency, as applicable, by the Issuer, the Co-Issuer,
the Collateral Manager or the Trustee shall be sufficient for every purpose
hereunder (unless otherwise herein expressly provided) if in writing and mailed,
first class postage prepaid, hand delivered, sent by overnight courier service
or by facsimile in legible form, to each Rating Agency addressed to it at
Standard & Poor's Services, a division of The McGraw-Hill Companies, Inc., 55
Water Street, 41st Floor, New York, New York 10041-0003, telecopy no. (212)
438-2664, Attention: Structured Finance Ratings, Asset-Backed Securities CBO/CLO
Surveillance (and by electronic mail at cdosurveillance@standardandpoors.com;
provided that all reports required to be submitted to S&P pursuant to this
Indenture only shall be provided in electronic form to such e-mail address);
Moody's Investor Services, Inc., 99 Church Street, New York, New York 10007,
facsimile no.: (212) 553-4170, Attention: CMBS Surveillance (or by electronic
mail at moodys_cre_cdo_monitoring@moodys.com) and Fitch, Inc., One State Street
Plaza, New York, New York 10004, facsimile no.: (212) 908-0500, Attention:
Commercial Real Estate Loan CDOs, Performance Analytics (or by electronic mail
at cdo.surveillance@fitchratings.com and karen.trebach@fitchratings.com) or such
other address that a Rating Agency shall designate in the future;

(h) each Hedge Counterparty by the Issuer, the Co-Issuer, the
Collateral Manager or the Trustee shall be sufficient for every purpose
hereunder if in writing and mailed, first class postage prepaid, hand delivered,
sent by overnight courier service or by facsimile in legible form, to each Hedge
Counterparty addressed to it at the address specified in the related Hedge
Agreement or at any other address previously furnished in writing to the Issuer,
the Co-Issuer, the Collateral Manager and the Trustee by each Hedge
Counterparty;

(i) the Initial Purchaser by the Issuer, the Co-Issuer, the Trustee or
the Collateral Manager shall be sufficient for every purpose hereunder if in
writing and mailed, first class postage prepaid, hand delivered, sent by
overnight courier service or by facsimile in legible form to the Initial
Purchaser c/o at Wachovia Capital Markets, LLC, 375 Park Avenue, 2nd Floor

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(NY4087), New York, New York 10152, Attention: Michelle Tan, facsimile no.:
(212) 214-5962.

(j) the Class A-1AR Note Agent by the Issuer, the Co-Issuer, the
Trustee or the Collateral Manager shall be sufficient for every purpose
hereunder if in writing and mailed, first class postage prepaid, hand delivered,
sent by overnight courier service or by facsimile in legible form, to the Class
A-1AR Note Agent addressed to it at 9062 Old Annapolis Road, Columbia, Maryland
21045, Attention: CDO Trust Services Group - Arbor Realty Mortgage Securities
2006-1, facsimile no.: (410) 715-3748, or at any other address previously
furnished in writing to the Issuer, the Co-Issuer, the Collateral Manager and
the Trustee by the Class A-1AR Note Agent.

(k) MBIA by the Issuer, the Co-Issuer, the Trustee or the Collateral
Manager shall be sufficient for every purpose hereunder if in writing and
mailed, first class postage prepaid, hand delivered, sent by overnight courier
service or by facsimile in legible form, to MBIA addressed to it at c/o MBIA
Insurance Corporation, 113 King Street, Armonk, New York 10504, Attention:
Michael Murtagh/Jonathan Sloan/IPM CDO Manager, facsimile no.: (914) 765-3131
with a copy to LaCrosse Financial Products, LLC, c/o Global Securitization
Services, LLC, 445 Broad Hollow Road, Suite 239, Melville, New York 11747,
Attention: Vice President, facsimile no.: (212) 302-8767 or at any other address
previously furnished in writing to the Issuer, the Co-Issuer, the Collateral
Manager and the Trustee by MBIA.

Section 14.4 Notices to Noteholders; Waiver.

Except as otherwise expressly provided herein, where this Indenture
provides for notice to Holders of Notes of any event, 

(a) such notice shall be sufficiently given to Holders of Notes if in
writing and mailed, first class postage prepaid, to each Holder of a Note
affected by such event, at the address of such Holder as it appears in the Notes
Register, not earlier than the earliest date and not later than the latest date,
prescribed for the giving of such notice;

(b) such notice shall be in the English language;

(c) such notice shall also be provided to the Irish Paying Agent (for
so long as any Notes are listed on the Irish Stock Exchange); and

(d) all reports or notices to Preferred Shareholders shall be
sufficiently given if provided in writing and mailed, first class postage
prepaid, to the Preferred Shares Paying Agent.

Notwithstanding clause (a) above, a Holder of Notes may give the
Trustee written notice that it is requesting that notices to it be given by
facsimile transmissions and stating the facsimile number for such transmission.
Thereafter, the Trustee shall give notices to such Holder by facsimile
transmission; provided that if such notice also requests that notices be given
by mail, then such notice shall also be given by mail in accordance with clause
(a) above.

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The Trustee shall deliver to the Holders of the Notes any information
or notice requested to be so delivered by at least 25% of the Holders of any
Class of Notes.

Neither the failure to mail any notice, nor any defect in any notice
so mailed, to any particular Holder of a Note shall affect the sufficiency of
such notice with respect to other Holders of Notes. In case by reason of the
suspension of regular mail service or by reason of any other cause, it shall be
impracticable to give such notice by mail, then such notification to Holders of
Notes shall be made with the approval of the Trustee and shall constitute
sufficient notification to such Holders of Notes for every purpose hereunder.

Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Trustee but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.

In the event that, by reason of the suspension of the regular mail
service as a result of a strike, work stoppage or similar activity, it shall be
impractical to mail notice of any event to Noteholders when such notice is
required to be given pursuant to any provision of this Indenture, then any
manner of giving such notice as shall be satisfactory to the Trustee shall be
deemed to be a sufficient giving of such notice.

For so long as any Notes are listed on the Irish Stock Exchange and
the rules of such exchange so require, all notices to Noteholders of such Notes
will be published in the Daily Official List of the Irish Stock Exchange.

Section 14.5 Effect of Headings and Table of Contents.

The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.

Section 14.6 Successors and Assigns.

All covenants and agreements in this Indenture by the Issuer and the
Co-Issuer shall bind their respective successors and assigns, whether so
expressed or not.

Section 14.7 Severability.

In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality, and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

Section 14.8 Benefits of Indenture.

Nothing in this Indenture or in the Securities, expressed or implied,
shall give to any Person, other than (i) the parties hereto and their successors
hereunder and (ii) the Collateral Manager, each Hedge Counterparty, the
Preferred Shareholders, the Preferred Shares Paying Agent, the Share Registrar
and the Noteholders (each of whom, in the case of this clause (ii),

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shall be an express third party beneficiary hereunder), any benefit or any legal
or equitable right, remedy or claim under this Indenture.

Section 14.9 Governing Law.

THIS INDENTURE AND EACH NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED THEREIN WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

Section 14.10 Submission to Jurisdiction.

Each of the Issuer and the Co-Issuer hereby irrevocably submits to the
non-exclusive jurisdiction of any New York State or federal court sitting in the
Borough of Manhattan in The City of New York in any action or proceeding arising
out of or relating to the Notes or this Indenture, and each of the Issuer and
the Co-Issuer hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such New York State or
federal court. Each of the Issuer and the Co-Issuer hereby irrevocably waives,
to the fullest extent that they may legally do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding. Each of the
Issuer and the Co-Issuer irrevocably consents to the service of any and all
process in any action or proceeding by the mailing or delivery of copies of such
process to it at the office of the Issuer's and the Co-Issuer's agent set forth
in Section 7.2. Each of the Issuer and the Co-Issuer 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 other manner
provided by law.

Section 14.11 Counterparts.

This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

Section 14.12 Liability of Co-Issuers.

Notwithstanding any other terms of this Indenture, the Notes or any
other agreement entered into between, inter alios, the Issuer and the Co-Issuer
or otherwise, neither the Issuer nor the Co-Issuer shall have any liability
whatsoever to the Co-Issuer or the Issuer, respectively, under this Indenture,
the Notes, any such agreement or otherwise and, without prejudice to the
generality of the foregoing, neither the Issuer nor the Co-Issuer shall be
entitled to take any steps to enforce, or bring any action or proceeding, in
respect of this Indenture, the Notes, any such agreement or otherwise against
the other Co-Issuer or the Issuer, respectively. In particular, neither the
Issuer nor the Co-Issuer shall be entitled to petition or take any other steps
for the winding up or bankruptcy of the Co-Issuer or the Issuer, respectively or
shall have any claim in respect of any assets of the Co-Issuer or the Issuer,
respectively.

ARTICLE 15

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ASSIGNMENT OF COLLATERAL DEBT SECURITIES PURCHASE AGREEMENTS AND COLLATERAL
MANAGEMENT AGREEMENT

Section 15.1 Assignment of Collateral Debt Securities Purchase
Agreement and the Collateral Management Agreement.

(a) The Issuer, in furtherance of the covenants of this Indenture and
as security for the Notes and amounts payable to the Secured Parties hereunder
and the performance and observance of the provisions hereof, hereby collaterally
assigns, transfers, conveys and sets over to the Trustee, for the benefit of the
Noteholders and each Hedge Counterparty, all of the Issuer's estate, right,
title and interest in, to and under each Collateral Debt Securities Purchase
Agreement (now or hereafter entered into) and the Collateral Management
Agreement (each, an "Article 15 Agreement"), including, without limitation, (i)
the right to give all notices, consents and releases thereunder, (ii) the right
to give all notices of termination and to take any legal action upon the breach
of an obligation of a Seller or the Collateral Manager thereunder, including the
commencement, conduct and consummation of proceedings at law or in equity, (iii)
the right to receive all notices, accountings, consents, releases and statements
thereunder and (iv) the right to do any and all other things whatsoever that the
Issuer is or may be entitled to do thereunder; provided, however, that the
Trustee hereby grants the Issuer a license to exercise all of the Issuer's
rights pursuant to the Article 15 Agreements without notice to or the consent of
the Trustee (except as otherwise expressly required by this Indenture,
including, without limitation, as set forth in Section 15.1(f)) which license
shall be and is hereby deemed to be automatically revoked upon the occurrence of
an Event of Default hereunder until such time, if any, that such Event of
Default is cured or waived.

(b) The assignment made hereby is executed as collateral security, and
the execution and delivery hereby shall not in any way impair or diminish the
obligations of the Issuer under the provisions of each of the Article 15
Agreements, nor shall any of the obligations contained in each of the Article 15
Agreements be imposed on the Trustee.

(c) Upon the retirement of the Notes, the payment by the Issuer of all
amounts payable under each Hedge Agreement and the release of the Assets from
the lien of this Indenture, this assignment and all rights herein assigned to
the Trustee for the benefit of the Noteholders and each Hedge Counterparty shall
cease and terminate and all the estate, right, title and interest of the Trustee
in, to and under each of the Article 15 Agreements shall revert to the Issuer
and no further instrument or act shall be necessary to evidence such termination
and reversion.

(d) The Issuer represents that it has not executed any assignment of
any of the Article 15 Agreements other than this collateral assignment.

(e) The Issuer agrees that this assignment is irrevocable, and that it
shall not take any action which is inconsistent with this assignment or make any
other assignment inconsistent herewith. The Issuer shall, from time to time upon
the request of the Trustee, execute all instruments of further assurance and all
such supplemental instruments with respect to this assignment as the Trustee may
specify.

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(f) The Issuer hereby agrees, and hereby undertakes to obtain the
agreement and consent of the Sellers and the Collateral Manager, as applicable,
in the Collateral Debt Securities Purchase Agreements and the Collateral
Management Agreement, as applicable, to the following:

(i) each of the Sellers and the Collateral Manager consents to the
provisions of this collateral assignment and agrees to perform any
provisions of this Indenture made expressly applicable to each of the
Sellers and the Collateral Manager pursuant to the applicable Article 15
Agreement;

(ii) each of the Sellers and the Collateral Manager, as applicable,
acknowledges that the Issuer is collaterally assigning all of its right,
title and interest in, to and under the Collateral Debt Securities Purchase
Agreements and the Collateral Management Agreement, as applicable, to the
Trustee for the benefit of the Noteholders and each Hedge Counterparty, and
each of the Sellers and the Collateral Manager, as applicable, agrees that
all of the representations, covenants and agreements made by each of the
Sellers and the Collateral Manager, as applicable, in the applicable
Article 15 Agreement are also for the benefit of, and enforceable by, the
Trustee, the Noteholders and each Hedge Counterparty;

(iii) each of the Sellers and the Collateral Manager, as applicable,
shall deliver to the Trustee duplicate original copies of all notices,
statements, communications and instruments delivered or required to be
delivered to the Issuer pursuant to the applicable Article 15 Agreement;

(iv) none of the Issuer, the Sellers or the Collateral Manager shall
enter into any agreement amending, modifying or terminating the applicable
Article 15 Agreement, (other than in respect of an amendment or
modification to cure any inconsistency, ambiguity or manifest error) or
selecting or consenting to a successor collateral manager, as applicable,
without notifying each Rating Agency and without the prior written consent
and written confirmation of each Rating Agency that such amendment,
modification or termination will not cause its then-current ratings of the
Notes to be reduced;

(v) except as otherwise set forth herein and therein (including,
without limitation, pursuant to Sections 12 and 13 of the Collateral
Management Agreement), the Collateral Manager shall continue to serve as
Collateral Manager under the Collateral Management Agreement,
notwithstanding that the Collateral Manager shall not have received amounts
due it under the Collateral Management Agreement because sufficient funds
were not then available hereunder to pay such amounts pursuant to the
Priority of Payments. The Collateral Manager agrees not to cause the filing
of a petition in bankruptcy against the Issuer for the nonpayment of the
fees or other amounts payable to the Collateral Manager under the
Collateral Management Agreement until the payment in full of all Notes
issued under this Indenture and the expiration of a period equal to the
applicable preference period under the Bankruptcy Code plus ten days
following such payment; and

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(vi) the Collateral Manager irrevocably submits to the non-exclusive
jurisdiction of any New York State or federal court sitting in the Borough
of Manhattan in The City of New York in any action or proceeding arising
out of or relating to the Notes or this Indenture, and the Collateral
Manager irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such New York State or federal
court. The Collateral Manager irrevocably waives, to the fullest extent it
may legally do so, the defense of an inconvenient forum to the maintenance
of such action or proceeding. The Collateral Manager irrevocably consents
to the service of any and all process in any action or Proceeding by the
mailing by certified mail, return receipt requested, or delivery requiring
signature and proof of delivery of copies of such initial process to it at
Arbor Realty Trust, Inc., 333 Earle Ovington Boulevard, 9th Floor,
Uniondale, New York 11553, Attention: Executive Vice President--Structured
Securitization. The Collateral Manager agrees that a final and
non-appealable judgment by a court of competent jurisdiction in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law.

ARTICLE 16

HEDGE AGREEMENT; CURE RIGHTS; PURCHASE RIGHTS; SUBSEQUENT COLLATERAL DEBT
SECURITIES

Section 16.1 Issuer's Obligations under Hedge Agreement.

(a) On the Closing Date and thereafter, and on and after any date on
which the Issuer enters into an additional or replacement Hedge Agreement
(including any related Hedge Counterparty Credit Support), the Issuer, as
directed by the Collateral Manager, shall (i) require that each Hedge
Counterparty thereto, or any third party (including an Affiliate of such Hedge
Counterparty) that (A) has absolutely and unconditionally guaranteed, pursuant
to a guarantee that satisfies S&P's published criteria on guarantees, the
obligations of the Hedge Counterparty under the related Hedge Agreement (with
such form of guaranty as shall be satisfactory to each Rating Agency then rating
any Notes hereunder), (B) has entered into credit intermediation arrangements in
respect of the obligations of the Hedge Counterparty under the related Hedge
Agreement satisfactory to each Rating Agency then rating any Notes hereunder,
(C) is the issuing bank on one or more letters of credit supporting the
obligations of the Hedge Counterparty under the related Hedge Agreement and that
shall be reasonably acceptable to each Rating Agency then rating any Notes
hereunder or (D) has provided any other additional credit support and such
inclusion of additional credit support shall have satisfied the Rating Agency
Condition and, so long as MBIA is deemed to be the Controlling Class hereunder,
MBIA consents (any such third party, including an Affiliate of such Hedge
Counterparty, a "Hedge Counterparty Credit Support Provider") has, at the time
the Hedge Agreement is executed, with respect to itself as an issuer or with
respect to its indebtedness, credit ratings at least equal to the Hedge
Counterparty Collateral Threshold Ratings by each Rating Agency then rating any
Notes hereunder, (ii) except with respect to a Form-Approved Asset Specific
Hedge, obtain a written confirmation from each Rating Agency then rating any
Notes hereunder that any additional or replacement Hedge Agreement and the
related Hedge Counterparty would not cause such Rating

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Agency's then-current rating on any Class of Notes to be adversely qualified,
reduced, suspended or withdrawn and (iii) assign and grant a security interest
in such Hedge Agreement to the Trustee pursuant to this Indenture. Each Hedge
Agreement will provide that no amendment, modification or waiver in respect of
such Hedge Agreement, including any additional or replacement Hedge Agreement,
will be effective unless (A) evidenced by a writing executed by each party
thereto, (B) the Trustee has acknowledged its consent thereto in writing and (C)
each Rating Agency confirms that such amendment, modification or waiver will not
cause the reduction or withdrawal of its then-current rating on any Class of
Notes. For the avoidance of doubt, the Issuer may enter into any Hedge Agreement
with respect to which the Rating Agency Condition is satisfied and, so long as
MBIA is deemed to be the Controlling Class hereunder, MBIA has consented. In
addition, so long as MBIA is deemed to be the Controlling Class hereunder, the
Issuer shall provide MBIA with a copy of any Hedge Agreement.

(b) The Trustee shall, on behalf of the Issuer, pay amounts due to
each Hedge Counterparty under the related Hedge Agreements in accordance with
the Priority of Payments, Section 11.1(f) hereof and Section 16.1(g) hereof.

(c) The notional amount schedule of each Hedge Agreement providing for
floating rate payments to the Issuer will be calculated as a percentage of the
principal amount of the Notes originally anticipated to be Outstanding on each
Payment Date based on certain assumptions. In accordance with the terms of each
Hedge Agreement (other than any interest rate basis swap agreements), such
notional amount schedule will be reduced by the Issuer (or the Collateral
Manager on behalf of the Issuer) or each Hedge Counterparty on each Payment Date
to the extent that (i) the outstanding principal amount of the Notes is less
than the scheduled aggregate notional amount of the related Hedge Agreements
(other than any interest rate basis swap agreements) for such Payment Date
and/or (ii) the Net Outstanding Portfolio Balance is less than the scheduled
aggregate notional amount of the related Hedge Agreements (other than any
interest rate basis swap agreements) for such Payment Date; provided that if any
Notes are then Outstanding, the Trustee shall first have received written
evidence that the Rating Agency Condition with respect to Moody's and S&P has
been satisfied with respect to such reduction (other than as originally
scheduled pursuant to the terms of the Hedge Agreement) and the giving of notice
to Fitch and, so long as MBIA is the Controlling Class hereunder, MBIA, of such
reduction other than a scheduled reduction. Additionally, subject to
satisfaction of the Rating Agency Condition with respect to Moody's and S&P and
the notification of Fitch and, so long as MBIA is the Controlling Class
hereunder, MBIA, in respect thereof, a termination in part of a Hedge Agreement
and a corresponding reduction in the notional amount of the Hedge Agreement may
occur, in the event of a Mandatory Redemption or Special Amortization of the
Notes. The Issuer's remaining obligations in accordance with the Priority of
Payments will not be affected by any such reduction. Notwithstanding any right
of the Issuer to terminate each Hedge Agreement upon the occurrence of a
Termination Event or an Event of Default (each as defined in each Hedge
Agreement) or otherwise pursuant to a Hedge Agreement, the Issuer shall not (x)
terminate any Hedge Agreement or (y) cause the non-replacement of any terminated
Hedge Agreement, unless in each case the Issuer notifies Fitch thereof and
obtains a written confirmation from Moody's and S&P that such termination or
non-replacement, as applicable, would not cause such Rating Agency's
then-current rating on any Class of Notes, as applicable, to be adversely
qualified, reduced, suspended or withdrawn. For the avoidance of doubt, subject
to the consent of the related Hedge Counterparty if required in the Hedge
Agreement, the Issuer

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may terminate, reduce the notional amount of or otherwise modify the terms of
any Hedge Agreement if the Rating Agency Condition is satisfied in connection
therewith.

(d) Each Hedge Agreement shall provide for termination, and shall be
capable of being terminated (i) by or on behalf of the Issuer upon the failure
of the related Hedge Counterparty to, unless the Rating Agency Condition is
satisfied, post collateral under a Hedge Counterparty Credit Support within the
time period specified in the related Hedge Agreement or provide other alternate
credit enhancement in accordance with the related Hedge Agreement, or upon the
failure of the related Hedge Counterparty to make a Permitted Transfer (at the
Hedge Counterparty's sole cost and expense) of all of its rights and obligations
under the related Hedge Agreement within the time period specified in the
related Hedge Agreement, after the failure of the related Hedge Counterparty (or
any Hedge Counterparty Credit Support Provider) to have the Hedge Counterparty
Collateral Threshold Ratings; (ii) by or on behalf of the Issuer upon the
failure of the related Hedge Counterparty to make a Permitted Transfer (at the
related Hedge Counterparty's sole cost and expense) of all of its rights and
obligations under the related Hedge Agreement within the time period specified
in the related Hedge Agreement after the failure of the related Hedge
Counterparty (or any Hedge Counterparty Credit Support Provider) to have the
Hedge Counterparty Required Ratings (provided, however, that the related Hedge
Counterparty shall continue to post collateral and use its best efforts to find
a replacement pursuant to the related Hedge Agreement until the earlier to occur
of termination of the related Hedge Agreement by or on behalf of the Issuer or
consummation of a Permitted Transfer) unless the Rating Agency Condition has
been satisfied with respect to such termination, (iii) by the related Hedge
Counterparty, upon the failure of the Issuer to make, when due, any scheduled
periodic payments under the related Hedge Agreement, (iv) in whole or in part,
as provided in the related Hedge Agreement, upon the final sale of the Assets,
an Auction Call Redemption, an Optional Redemption, a Clean-up Call or a Tax
Redemption, (v) in part, as provided in the related Hedge Agreement, subject to
satisfaction of the Rating Agency Condition with respect to Moody's and S&P,
and, so long as MBIA is deemed to be the Controlling Class hereunder, the
consent of MBIA, upon a Mandatory Redemption, a Special Amortization or a Rating
Confirmation Failure, unless there will be sufficient Interest Proceeds on the
following Payment Date to pay in full any termination payment due from the
Issuer in connection therewith plus all of the amounts required to be paid by
the Issuer on such Payment Date pursuant to clauses (1) through (28) of Section
11.1(a)(i) or (vi) as otherwise expressly provided for in the related Hedge
Agreement. The Issuer shall satisfy the Rating Agency Condition with respect to
Moody's and S&P and, so long as MBIA is deemed to be the Controlling Class
hereunder, give notice to MBIA with respect to any transfer of all of the rights
and obligations of any Hedge Counterparty under any Hedge Agreement.

(e) The Trustee shall, promptly after the Closing Date, establish a
single, segregated trust account with respect to each Hedge Counterparty in the
name of the Trustee, each designated as the "Hedge Collateral Account," which
shall be held in trust for the benefit of the Noteholders and the applicable
Hedge Counterparty, over which the Trustee shall have exclusive control and the
sole right of withdrawal, and in which no Person other than the Trustee and the
Noteholders and the applicable Hedge Counterparty shall have any legal or
beneficial interest. The Trustee shall deposit all collateral received from the
related Hedge Counterparty under the related Hedge Agreement in the related
Hedge Collateral Account. Any and all funds at any time on deposit in, or
otherwise to the credit of, each Hedge Collateral Account shall be

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held in trust by the Trustee for the benefit of the Noteholders and for the
related Hedge Counterparty in accordance with the terms of the Hedge Agreement.
The only permitted withdrawal from or application of funds on deposit in, or
otherwise to the credit of, each Hedge Collateral Account shall be (i) for
application to obligations of the applicable Hedge Counterparty to the Issuer
under the related Hedge Agreement in accordance with the terms of such Hedge
Agreement or (ii) to return collateral to the applicable Hedge Counterparty when
and as required by the related Hedge Agreement, which the Trustee shall return
to the applicable Hedge Counterparty in accordance with the related Hedge
Agreement. Each Hedge Collateral Account shall remain at all times with the
Corporate Trust Office or a financial institution having a long-term debt rating
at least equal to "A-" or "A2," as applicable, or a short-term debt rating at
least equal to "A-1," "P-1" or "F1," as applicable.

(f) Upon the default by a Hedge Counterparty in the payment when due
of its obligations to the Issuer under the related Hedge Agreement (following
the expiration of any applicable grace period), the Trustee shall forthwith
provide facsimile notice thereof to the Issuer, the Collateral Manager, each of
the Rating Agencies and, if applicable, any Hedge Counterparty Credit Support
Provider. When the Trustee becomes aware of such default, the Trustee shall make
a demand on the applicable Hedge Counterparty, or any Hedge Counterparty Credit
Support Provider, if applicable, demanding payment forthwith. The Trustee shall
give notice to the Noteholders and further notice to the Collateral Manager upon
the continuing failure by such Hedge Counterparty or any Hedge Counterparty
Credit Support Provider to perform its obligations during the two Business Days
following a demand made by the Trustee on such Hedge Counterparty or any such
Hedge Counterparty Credit Support Provider.

(g) Upon the termination or partial termination of each Hedge
Agreement, the Issuer at the direction of the Collateral Manager and the Trustee
shall take such commercially reasonable actions (following the expiration of any
applicable grace period and after the expiration of the applicable time period
set forth in the related Hedge Agreement) to enforce the rights of the Issuer
and the Trustee thereunder as may be permitted by the terms of the related Hedge
Agreement and consistent with the terms hereof, and shall apply the proceeds of
any such actions (including, without limitation, the proceeds of the liquidation
of any collateral pledged by or on behalf of each Hedge Counterparty) to enter
into an additional or replacement Hedge Agreements within 30 days of the
expiration of any such grace period and such applicable time period as set forth
in the related Hedge Agreement on substantially identical terms or on such other
terms as required by the related Hedge Counterparty to any such additional or
replacement Hedge Agreement subject to the Rating Agency Condition and, so long
as MBIA is deemed to be the Controlling Class hereunder, the consent of MBIA.
The Trustee shall, promptly after the Closing Date, in respect of each Hedge
Counterparty, establish a single segregated trust account in the name of the
Trustee, each designated the "Hedge Termination Account," which shall be held in
trust for the benefit of the Noteholders and each Hedge Counterparty and over
which the Trustee will have exclusive control and the sole right of withdrawal,
and in each of which no person other than the Trustee, the Noteholders and the
Hedge Counterparty will have any legal or beneficial interest. Each Hedge
Termination Account shall remain at all times with the Corporate Trust Office or
a financial institution having a long-term debt rating at least equal to "A-" or
"A2," as applicable, or a short-term debt rating at least equal to "A-1," "P-1"
or "F1," as applicable. Notwithstanding anything contained in this Indenture to
the contrary, any payments (other than payments relating to past-due scheduled
payments on a Hedge Agreement) received

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by the Issuer or Trustee in connection with either (x) the termination (in whole
or in part) of a related Hedge Agreement or (y) the execution of an additional
or replacement Hedge Agreements shall be immediately transferred to the Trustee
for deposit into the related Hedge Termination Account. Any costs attributable
to entering into an additional or replacement Hedge Agreements (other than in
connection with a Permitted Transfer) with respect to the related Hedge
Counterparty shall be paid from the related Hedge Termination Account, and any
such amounts which are payable but exceed the balance on deposit in the related
Hedge Termination Account shall be borne solely by the Issuer and constitute
amounts payable under clause (28) of Section 11.1(a)(i) hereof. Additionally,
any amounts that are due and payable to a Hedge Counterparty upon a termination
of a Hedge Agreement shall be paid from any amounts on deposit in the related
Hedge Termination Account, and, to the extent the amounts on deposit in such
Hedge Termination Account are insufficient to pay all such amounts, then such
amounts will be payable in accordance with Section 11.1(a) hereof. Any amounts
remaining on deposit in a Hedge Termination Account related to a Hedge Agreement
following payment to the Hedge Counterparty shall be transferred to the
Principal Collection Account and shall constitute Principal Proceeds. If
determining the amount payable under the terminated Hedge Agreement, the Issuer
(or the Collateral Manager on behalf of the Issuer) shall seek quotations in
accordance with the terms of the related Hedge Agreement from reference
market-makers whose ratings are at least equal to the Hedge Counterparty
Collateral Threshold Ratings. Each Hedge Agreement may provide that the
applicable Hedge Counterparty is responsible for determining the amounts payable
in certain circumstances. In addition, the Issuer (or the Collateral Manager on
behalf of the Issuer) shall use commercially reasonable efforts to cause the
termination of the related Hedge Agreement to become effective simultaneously
with the effectiveness of a replacement thereto, described as aforesaid.

Section 16.2 Collateral Debt Securities Purchase Agreements.

Following the Closing Date, unless a Collateral Debt Securities
Purchase Agreement is necessary to comply with the provisions of this Indenture,
the Issuer may acquire Collateral Debt Securities in accordance with customary
settlement procedures in the relevant markets. In any event, the Issuer (or the
Collateral Manager on behalf of the Issuer) shall obtain from any seller of a
Loan, all Underlying Instruments with respect to each Collateral Debt Security,
and all Underlying Instruments related to any related Senior Tranche that
govern, directly or indirectly, the rights and obligations of the owner of the
Collateral Debt Security with respect to the Underlying Term Loan, the
Underlying Mortgage Property and the Collateral Debt Security and any
certificate evidencing the Collateral Debt Security.

Section 16.3 Cure Rights.

(a) If the Issuer, as holder of a Loan, has the right pursuant to the
related Underlying Instruments to cure an event of default on the Underlying
Term Loan, the Collateral Manager may, in accordance with the Collateral Manager
Servicing Standard and subject to the applicable provisions of the Servicing
Agreement, advance from its own funds with respect to the Loan as a reimbursable
Cure Advance, all such amounts as are necessary to effect the timely cure of
such event of default pursuant to the terms of the related Underlying
Instruments; provided that (i) such advances may only be made to the extent that
the Collateral Manager reasonably believes that such Cash advance can be repaid
from future payments on the related

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underlying commercial mortgage loan (subject to the Collateral Manager Servicing
Standard and to the applicable provisions of the Servicing Agreement) and (ii)
the particular advance would not, if made, constitute a Nonrecoverable Cure
Advance. The determination by the Collateral Manager that it has made a
Nonrecoverable Cure Advance or that any proposed Cure Advance, if made, would
constitute a Nonrecoverable Cure Advance shall be made by the Collateral Manager
in its reasonable, good faith judgment (subject to the Collateral Manager
Servicing Standard and to the applicable provisions of the Servicing Agreement)
and shall be evidenced by an Officer's Certificate delivered promptly to the
Trustee, setting forth the basis for such determination, accompanied by an
appraisal, if available, or an independent broker's opinion of the value of the
Underlying Mortgage Property and any information that the Collateral Manager may
have obtained and that supports such determination. The Collateral Manager will
be entitled to reimbursement from any subsequent payments or recoveries on each
Collateral Debt Security in respect of which it makes a Cure Advance in
accordance with the Priority of Payments if such reimbursement would not cause
an Interest Shortfall; provided that, if at any time the Collateral Manager
shall determine (subject to the applicable provisions of the Servicing
Agreement) that a Cure Advance previously made is a Nonrecoverable Cure Advance,
the Collateral Manager shall be entitled to reimbursements for such
Nonrecoverable Cure Advance from subsequent payments or collections with respect
to the Assets on any Business Day during any Interest Accrual Period prior to
the related Determination Date (or on a Payment Date prior to any payment of
interest on or principal of the Notes in accordance with the Priority of
Payments). Notwithstanding the foregoing, the Collateral Manager will be
permitted (but not obligated) to defer or otherwise structure the timing of
recovery of any Nonrecoverable Cure Advance in such manner as the Collateral
Manager determines is in the best interest of the Holders of the Class A Notes
and the Class B Notes, as a collective whole, which may include being reimbursed
for such Nonrecoverable Cure Advance in installments.

(b) No later than 11:00 a.m. on the Business Day preceding each
Determination Date, the Collateral Manager may request by Officer's Certificate
delivered to the Trustee, reimbursement for any (i) Cure Advance or (ii)
Nonrecoverable Cure Advance, from any amounts received with respect to the
related Collateral Debt Security or the Assets, respectively. No later than the
Payment Date related to the Determination Date for which the Collateral Manager
has delivered an Officer's Certificate requesting reimbursement of a Cure
Advance or a Nonrecoverable Cure Advance, the Trustee shall transfer to the
Collateral Manager, by wire transfer to an account identified to the Trustee in
writing, the amount of such Cure Advance or Nonrecoverable Cure Advance, as
applicable.

(c) Notwithstanding anything to the contrary set forth herein, the
Collateral Manager shall not be required to make any Cure Advance that it
determines in its reasonable, good faith judgment would constitute a
Nonrecoverable Cure Advance as determined pursuant to Section 16.3(a). 

Section 16.4 Purchase Right; Holder of a Majority of the Preferred
Shares.

If the Issuer, as holder of a Participation or B Note, has the right
pursuant to the related Underlying Instruments to purchase any related Senior
Tranche(s), the Issuer may, and shall if directed by the Holder of a Majority of
the Preferred Shares, exercise such right, if the Collateral Manager determines,
in accordance with the Collateral Manager Servicing Standard,

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that the exercise of the option would be in the best interest of the
Noteholders, but may not exercise such right if the Collateral Manager
determines otherwise. The Collateral Manager shall deliver to the Trustee an
Officer's Certificate certifying such determination, accompanied by an Act of
the Holder of a Majority of the Preferred Shares directing the Issuer to
exercise such right. In connection with the purchase of any such Senior
Tranche(s), the Issuer shall assign to the Holder of a Majority of the Preferred
Shares or its designee all of its right, title and interest in such Senior
Tranche(s) in exchange for a purchase price (such price and any other associated
expense of such exercise to be paid by the Holder of a Majority of the Preferred
Shares) of the Senior Tranche(s) (or, if the Underlying Instruments permit, the
Issuer may assign the purchase right to the Holder of a Majority of the
Preferred Shares or its designee; otherwise the Holder of a Majority of the
Preferred Shares or its designee shall fund the purchase by the Issuer, which
shall then assign the Senior Tranche(s) to the Holder of a Majority of the
Preferred Shares or its designee) (the "Purchase Option Purchase Price"), which
amount shall be delivered by such Holder or its designee from its own funds to
or upon the instruction of the Collateral Manager in accordance with terms of
the Underlying Instruments related to the acquisition of such Senior Tranche(s).
The Trustee or the Issuer shall execute and deliver at the direction of such
Holder of a Majority of the Preferred Shares such instruments of transfer or
assignment prepared by such Holder, in each case without recourse, as shall be
necessary to transfer title to such Holder of the Majority of Preferred Shares
or its designee of the Senior Tranche(s) and the Trustee shall have no
responsibility with regard to such Senior Tranche(s).

Section 16.5 Representations and Warranties Related to Subsequent
Collateral Debt Securities.

(a) If the Collateral Debt Security is a Subsequent Collateral Debt
Security, upon the acquisition of such Subsequent Collateral Debt Security by
the Issuer, the related seller has made or assigned to the Issuer the following:

(i) (A) representations and warranties in form and substance
substantially similar to the representations and warranties set forth as
Schedule L attached hereto with respect to the Underlying Term Loan and the
Underlying Mortgage Property (except with respect to Mezzanine Loans and
Preferred Equity Securities) and (B) representations and warranties
regarding good title, no liens, no modifications, no defaults and valid
assignment with respect to the Loan itself; and

(ii) in the case of a B Note, the representations and warranties in
form and substance substantially similar to the representations and
warranties set forth as Schedule M attached hereto with respect to such B
Note;

(iii) in the case of a Participation, the representations and
warranties in form and substance substantially similar to the
representations and warranties set forth as Schedule N attached hereto with
respect to such Participation;

(iv) in the case of a Mezzanine Loan, the representations and
warranties in form and substance substantially similar to the
representations and warranties set forth as Schedule O attached hereto with
respect to such Mezzanine Loan;

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(v) in the case of a Preferred Equity Security, the representations
and warranties in form and substance substantially similar to the
representations and warranties set forth as Schedule P attached hereto with
respect to such Preferred Equity Security;

(vi) in the case of a CMBS Security, the representations and
warranties in form and substance substantially similar to the
representations and warranties set forth as Schedule Q attached hereto with
respect to such CMBS Security;

(vii) in the case of a CRE CDO Security, the representations and
warranties in form and substance substantially similar to the
representations and warranties set forth as Schedule Q attached hereto with
respect to such CRE CDO Security;

(viii) in the case of a REIT Debt Security, the representations and
warranties in form and substance substantially similar to the
representations and warranties set forth as Schedule Q attached hereto with
respect to such REIT Debt Security; and

(ix) in the case of a Rake Bond, the representations and warranties in
form and substance substantially similar to the representations and
warranties set forth as Schedule Q attached hereto with respect to such
Rake Bond.

(b) The representations and warranties in Section 16.5(a) with respect
to the acquisition of a Subsequent Collateral Debt Security may be subject to
any modification, limitation or qualification that the Collateral Manager
determines to be reasonably acceptable in accordance with the Collateral Manager
Servicing Standard; provided that the Collateral Manager will provide each
Rating Agency with a report attached to each Monthly Report identifying each
such affected representation or warranty and the modification, exception,
limitation or qualification received with respect to the acquisition of any
Subsequent Collateral Debt Security during the period covered by the Monthly
Report, which report may contain explanations by the Collateral Manager as to
its determinations.

(c) The Issuer (or the Collateral Manager on behalf of the Issuer)
shall obtain a covenant from the Person making any representation or warranty to
the Issuer pursuant to Section 16.5(a) that such Person shall repurchase the
related Collateral Debt Security if any such representation or warranty is
breached (but only after the expiration of any permitted cure periods and
failure to cure such breach). The purchase price for any Collateral Debt
Security repurchased (the "Repurchase Price") shall be a price equal to the sum
of the following (in each case, without duplication) as of the date of such
repurchase: (i) the then outstanding Principal Balance of such Collateral Debt
Security, discounted based on the percentage amount of any discount that was
applied when such Collateral Debt Security was purchased by the Issuer (or, if
such asset was purchased by the Issuer at a premium, then the outstanding
Principal Balance shall be subject to a percentage premium not less than that at
which the Issuer purchased such asset), plus (iv) accrued and unpaid interest on
such Collateral Debt Security, plus (v) any unreimbursed advances, plus (vi)
accrued and unpaid interest on advances on the Collateral Debt Security, plus
(vii) any reasonable costs and expenses (including, but not limited to, the cost
of any enforcement action, incurred by the Issuer or the Trustee in connection
with any such purchase by a seller).

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Section 16.6 Operating Advisor; Additional Debt.

If the Issuer, as holder of a B Note, a Participation, Preferred
Equity Security or a Mezzanine Loan, has the right pursuant to the related
Underlying Instruments to appoint the operating advisor, directing holder or
Person serving a similar function under the Underlying Instruments, each of the
Issuer, the Trustee and the Collateral Manager shall take such actions as are
reasonably necessary to appoint the Collateral Manager to such position. If the
Issuer, as holder of a B Note, a Participation or a Mezzanine Loan, has the
right pursuant to the related Underlying Instruments to consent to the related
borrower incurring any additional debt, such consent will be subject to
satisfaction of the Rating Agency Condition.

ARTICLE 17

ADVANCING AGENT

Section 17.1 Liability of the Advancing Agent.

The Advancing Agent shall be liable in accordance herewith only to the
extent of the obligations specifically imposed upon and undertaken by the
Advancing Agent.

Section 17.2 Merger or Consolidation of the Advancing Agent.

(a) The Advancing Agent will keep in full effect its existence, rights
and franchises as a corporation under the laws of the jurisdiction in which it
was formed, and will obtain and preserve its qualification to do business as a
foreign corporation in each jurisdiction in which such qualification is or shall
be necessary to protect the validity and enforceability of this Indenture to
perform its duties under this Indenture.

(b) Any Person into which the Advancing Agent may be merged or
consolidated, or any corporation resulting from any merger or consolidation to
which the Advancing Agent shall be a party, or any Person succeeding to the
business of the Advancing Agent shall be the successor of the Advancing Agent,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding (it being understood and agreed by the parties hereto that the
consummation of any such transaction by the Advancing Agent shall have no effect
on the Trustee's obligations under Section 10.9, which obligations shall
continue pursuant to the terms of Section 10.9).

Section 17.3 Limitation on Liability of the Advancing Agent and
Others.

None of the Advancing Agent or any of its affiliates, directors,
officers, employees or agents shall be under any liability for any action taken
or for refraining from the taking of any action in good faith pursuant to this
Indenture, or for errors in judgment; provided, however, that this provision
shall not protect the Advancing Agent against liability to the Issuer or
Noteholders for any breach of warranties or representations made herein or any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties or by reason of negligent
disregard of obligations and duties

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hereunder. The Advancing Agent and any director, officer, employee or agent of
the Advancing Agent may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder. The Advancing Agent and any director, officer, employee or
agent of the Advancing Agent shall be indemnified by the Issuer pursuant to the
priorities set forth in Section 11.1(a) and held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
this Indenture or the Notes, other than any loss, liability or expense (i)
specifically required to be borne by the Advancing Agent pursuant to the terms
hereof or otherwise incidental to the performance of obligations and duties
hereunder (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Indenture); or (ii) incurred by reason of any
breach of a representation, warranty or covenant made herein, any misfeasance,
bad faith or negligence by the Advancing Agent in the performance of or
negligent disregard of, obligations or duties hereunder or any violation of any
state or federal securities law.

Section 17.4 Representations and Warranties of the Advancing Agent.

The Advancing Agent represents and warrants that:

(a) the Advancing Agent (i) has been duly organized, is validly
existing and is in good standing under the laws of the State of Maryland, (ii)
has full power and authority to own the Advancing Agent's assets and to transact
the business in which it is currently engaged, and (iii) is duly qualified and
in good standing under the laws of each jurisdiction where the Advancing Agent's
ownership or lease of property or the conduct of the Advancing Agent's business
requires, or the performance of this Indenture would require, such
qualification, except for failures to be so qualified that would not in the
aggregate have a material adverse effect on the business, operations, assets or
financial condition of the Advancing Agent or the ability of the Advancing Agent
to perform its obligations under, or on the validity or enforceability of, the
provisions of this Indenture applicable to the Advancing Agent;

(b) the Advancing Agent has full power and authority to execute,
deliver and perform this Indenture; this Indenture has been duly authorized,
executed and delivered by the Advancing Agent and constitutes a legal, valid and
binding agreement of the Advancing Agent, enforceable against it in accordance
with the terms hereof, except that the enforceability hereof may be subject to
(i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights and (ii) general principles
of equity (regardless of whether such enforcement is considered in a proceeding
in equity or at law);

(c) neither the execution and delivery of this Indenture nor the
performance by the Advancing Agent of its duties hereunder conflicts with or
will violate or result in a breach or violation of any of the terms or
provisions of, or constitutes a default under: (i) the Articles of Incorporation
and bylaws of the Advancing Agent, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement or other evidence of indebtedness
or other agreement, obligation, condition, covenant or instrument to which the
Advancing Agent is a party or is bound, (iii) any law, decree, order, rule or
regulation applicable to the Advancing Agent of any court or regulatory,
administrative or governmental agency, body or authority or arbitrator having
jurisdiction over the Advancing Agent or its properties, and which would have,
in the case of any of (i), (ii) or (iii) of this Section 17.4(c), either
individually or in the aggregate,

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a material adverse effect on the business, operations, assets or financial
condition of the Advancing Agent or the ability of the Advancing Agent to
perform its obligations under this Indenture;

(d) no litigation is pending or, to the best of the Advancing Agent's
knowledge, threatened, against the Advancing Agent that would materially and
adversely affect the execution, delivery or enforceability of this Indenture or
the ability of the Advancing Agent to perform any of its obligations under this
Indenture in accordance with the terms hereof; and

(e) no consent, approval, authorization or order of or declaration or
filing with any government, governmental instrumentality or court or other
person is required for the performance by the Advancing Agent of its duties
hereunder, except such as have been duly made or obtained.

Section 17.5 Resignation and Removal; Appointment of Successor.

(a) No resignation or removal of the Advancing Agent and no
appointment of a successor Advancing Agent pursuant to this Article 17 shall
become effective until the acceptance of appointment by the successor Advancing
Agent under Section 17.6.

(b) The Advancing Agent may resign at any time by giving written
notice thereof to the Issuer, the Co-Issuer, the Trustee, the Collateral
Manager, each Hedge Counterparty, the Noteholders and each Rating Agency.

(c) The Advancing Agent may be removed at any time by Act of at least
66-2/3% of the Preferred Shares upon written notice delivered to the Trustee and
to the Issuer and the Co-Issuer.

(d) If the Advancing Agent fails to make an Interest Advance required
by this Indenture with respect to a Payment Date, the Backup Advancing Agent
shall be required to make such Interest Advance and shall be entitled to
receive, in consideration thereof, the Advancing Agent Fee (in lieu of the
Backup Advancing Agent Fee) in accordance with the Priority of Payments. If the
Advancing Agent fails to make a required Interest Advance and it has not
determined such Interest Advance to be a Nonrecoverable Interest Advance, the
Collateral Manager may, and at the direction of the Controlling Class shall,
terminate such Advancing Agent and replace such Advancing Agent with a successor
advancing agent the appointment of which satisfies the Rating Agency Condition
and, so long as MBIA is deemed to be the Controlling Class hereunder, to which
MBIA consents. In the event that the Collateral Manager has not terminated and
replaced such Advancing Agent within 30 days of such Advancing Agent's failure
to make a required Interest Advance, the Trustee may terminate such Advancing
Agent and appoint a successor Advancing Agent.

(e) Subject to Section 17.5(d), if the Advancing Agent shall resign or
be removed, upon receiving such notice of resignation or removal, the Issuer and
the Co-Issuer shall promptly appoint a successor advancing agent by written
instrument, in duplicate, executed by an Authorized Officer of the Issuer and an
Authorized Officer of the Co-Issuer, one copy of which shall be delivered to the
Advancing Agent so resigning and one copy to the successor Advancing Agent,
together with a copy to each Noteholder, the Trustee, each Hedge

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Counterparty and the Collateral Manager; provided that such successor Advancing
Agent shall be appointed only subject to satisfaction of the Rating Agency
Condition, upon the written consent of a Majority of the Preferred Shares and,
so long as MBIA is deemed to be the Controlling Class hereunder, the consent of
MBIA. If no successor Advancing Agent shall have been appointed and an
instrument of acceptance by a successor Advancing Agent shall not have been
delivered to the Advancing Agent within 30 days after the giving of such notice
of resignation, the resigning Advancing Agent, the Trustee or any Preferred
Shareholder, on behalf of himself and all others similarly situated, may
petition any court of competent jurisdiction for the appointment of a successor
Advancing Agent.

(f) The Issuer and the Co-Issuer shall give prompt notice of each
resignation and each removal of the Advancing Agent and each appointment of a
successor Advancing Agent by mailing written notice of such event by first class
mail, postage prepaid, to each Rating Agency, each Hedge Counterparty and to the
Holders of the Notes as their names and addresses appear in the Notes Register.

Section 17.6 Acceptance of Appointment by Successor Advancing Agent.

(a) Every successor Advancing Agent appointed hereunder shall execute,
acknowledge and deliver to the Issuer, the Co-Issuer, each Hedge Counterparty,
the Collateral Manager, the Trustee and the retiring Advancing Agent an
instrument accepting such appointment. Upon delivery of the required
instruments, the resignation or removal of the retiring Advancing Agent shall
become effective and such successor Advancing Agent, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts,
duties and obligations of the retiring Advancing Agent.

(b) No appointment of a successor Advancing Agent shall become
effective unless each Rating Agency has confirmed in writing that the employment
of such successor would not adversely affect the rating on the Notes. 

ARTICLE 18

CLASS A-1AR NOTES

Section 18.1 Draws on the Class A-1AR Notes and Class A-1AR
Commitments.

(a) Pursuant to the Class A-1AR Note Purchase Agreement and subject to
compliance with the conditions set forth therein and herein, the Issuer (or the
Collateral Manager on behalf of the Issuer) may request, and the Holders of the
Class A-1AR Notes (or any Liquidity Provider with respect to such Holders) shall
be obligated to fund, one or more Class A-1AR Draws under the Class A-1AR Notes
(i) prior to the Commitment Termination Time, (x) to fund Delayed Funding
Amounts relating to Delayed Draw Term Loans included in the Collateral Debt
Securities, (y) to acquire Collateral Debt Securities and (z) in connection with
a Special Amortization and (ii) after the occurrence of an Event of Default but
prior to acceleration of the Notes, solely to fund Delayed Funding Amounts
relating to Delayed Draw Term Loans included in the Collateral Debt Securities.
Any Class A-1AR Draw will be made by the Collateral Manager on behalf of the
Issuer, pro rata, according to the unused portion of the

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Class A 1AR Commitment of each Holder of Class A-1AR Notes. After the occurrence
of an Event of Default but prior to acceleration of the Notes, Class A-1AR Draws
may not be used to acquire additional Collateral Debt Securities or in
connection with a Special Amortization. Class A-1AR Draws may be made on any
Business Day from and including the Closing Date to but excluding the Commitment
Termination Time (the date of such Class A-1AR Draw, the "Class A-1AR Draw
Date"). Promptly following any request for a Class A-1AR Draw under the Class
A-1AR Note Purchase Agreement and in no event later than 5:00 pm on the Business
Day immediately prior to such Class A-1AR Draw, the Trustee shall determine the
LIBOR rate applicable to such Class A-1AR Draw and inform the Class A-1AR Note
Agent and the Issuer of such rate.

(b) Draws may be made from time to time in accordance with the Class
A-1AR Note Purchase Agreement. The Issuer shall duly and punctually perform each
of its obligations under the Class A-1AR Note Purchase Agreement. The Issuer is
not required to borrow any amount under the Class A-1AR Notes on the Closing
Date or at any other time unless the applicable servicer or the Collateral
Manager, as applicable, has determined that a Delayed Funding Advance is
required under the related Underlying Instruments related to a Delayed Draw Term
Loan included in the Collateral Debt Securities and the amounts on deposit in
the Delayed Funding Obligations Account, if any, are insufficient to make such
Delayed Funding Advance.

(c) On the Mandatory Class A-1AR Draw Date, the Issuer (or the
Collateral Manager on its behalf) will make a Class A-1AR Draw in an amount
equal to the Aggregate Class A-1AR Undrawn Amount, the proceeds of which shall
be deposited as follows: (i) the amount necessary to make the amount on deposit
in the Delayed Funding Obligations Account equal to the Total Unfunded Delayed
Funding Amount shall be deposited in the Delayed Funding Obligations Account,
and (ii) any remainder shall be deposited in the Collection Account as Principal
Proceeds. Immediately following such draw, the Class A-1AR Commitments shall
terminate.

(d) To the extent that a Class A-1AR Draw (or a portion thereof) is
being made to fund Delayed Funding Amounts relating to Delayed Draw Term Loans,
the Trustee shall (at the direction of the Collateral Manager) upon receipt of
the proceeds of any Class A-1AR Draw, deposit such proceeds (or the applicable
portion thereof) into the Delayed Funding Obligations Account where such amounts
shall be applied in accordance with Section 10.6. To the extent that a Class
A-1AR Draw (or a portion thereof) is being made in connection with a Special
Amortization, the Trustee shall (at the direction of the Collateral Manager)
upon receipt of the proceeds of any Class A-1AR Draw, deposit such proceeds (or
the applicable portion thereof) into the Principal Collection Account where such
amounts shall be applied in accordance with Section 10.2.

(e) The total of all Class A-1AR Commitments for all Holders of Class
A-1AR Notes shall not exceed the Maximum Class A-1AR Commitment. Notwithstanding
the foregoing, to the extent the Aggregate Outstanding Amount of the Class A-1
Notes is reduced in connection with a Mandatory Redemption, a Special
Amortization or a redemption in connection with a Rating Confirmation Failure,
the Class A-1AR Commitments will be reduced so that, after giving effect to such
reduction, the ratio (expressed as a percentage) of the

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Maximum Class A-1AR Commitment to the Aggregate Outstanding Amount of the Class
A-1A Notes is equal to the Class A-1AR Proportion (and the Class A-1AR
Commitment related to each Class A-1AR Note will be reduced on a pro rata
basis). In connection with any Mandatory Redemption, to the extent that the
Class A-1AR Commitments are reduced to an amount less than the Minimum Class
A-1AR Commitment, a portion of the Interest Proceeds and/or Principal Proceeds
that are available for distribution shall be deposited into the Delayed Funding
Obligations Account until the Aggregate Class A-1AR Undrawn Amount equals the
Minimum Class A-1AR Commitment.

Section 18.2 Class A-1AR Interest and Class A-1AR Commitment Fee.

(a) With respect to any Payment Date, interest on the Class A-1AR
Notes will be payable in arrears in an amount equal to (A) the product of (i)
the Weighted Average Drawn Class A-1AR Note Portion during the related Interest
Accrual Period, (ii) the Class A-1AR Rate, and (iii) the actual number of days
elapsed in such Interest Accrual Period, divided by (B) 360; provided that
interest accrued in respect of amounts borrowed under the Class A-1AR Notes
during the period following the Determination Date through such Payment Date
will be payable (without penalty interest thereon) on the next succeeding
Payment Date. Interest on the Class A-1AR Notes will be payable from the date of
each Class A-1AR Draw under the Class A-1AR Notes, and accrued and unpaid
interest will be payable in arrears on each Payment Date. Interest will be
payable to the Holders of the Class A-1AR Notes, pro rata, based on their Class
A-1AR Interest Allocation.

(b) The Class A-1AR Commitment Fee will accrue on the daily undrawn
amount of each Class A-1AR Commitment for each Interest Accrual Period at a rate
per annum equal to 0.22% (computed on the basis of a 360-day year and the actual
number of days elapsed). Among the Class A-1 Notes, the Class A-1AR Commitment
Fee will be payable in arrears on each Payment Date and will rank pari passu
with the payment of interest on the Class A-1A Notes and the Class A-1AR Notes.
Interest at the Class A-1AR Rate will accrue on any portion of the Class A-1AR
Commitment Fee that is not paid when due.

Section 18.3 Prepayments of Class A-1AR Notes.

(a) Prior to the Commitment Termination Time, the Class A-1AR Notes
may be prepaid (in whole or in part), at the option of the Issuer (at the
direction of the Collateral Manager) in accordance with the terms of the Class
A-1AR Note Purchase Agreement, without payment of a premium, on (i) any Payment
Date and prior to any payments on any other Class of Notes, from Principal
Proceeds to the extent Principal Proceeds are available for such application
pursuant to Section 11.1(a)(ii) and/or amounts on deposit in the Delayed Funding
Obligations Account or (ii) any Business Day other than a Payment Date, from
Principal Proceeds to the extent Principal Proceeds are available for such
application and/or amounts on deposit in the Delayed Funding Obligations
Account, but subject to the payment of Class A-1AR Breakage Costs. Any Class
A-1AR Breakage Costs will be paid in accordance with the Priority of Payments on
the Payment Date following the applicable Class A-1AR Prepayment Date.

(b) The aggregate principal amount of any partial voluntary Class
A-1AR Prepayment, in respect of the Class A-1AR Notes (taken as a whole), will
be at least $500,000

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(and integral multiples of $500 in excess thereof) or, if the aggregate
outstanding amount under the Class A-1AR Notes is less than $500,000, such
lesser amount. The Issuer shall make all Class A-1AR Prepayments pro rata based
on the Aggregate Outstanding Amount of the Class A-1AR Notes at the time such
prepayment is made. Subject to compliance with certain draw conditions specified
in the Class A-1AR Note Purchase Agreement and herein, all such prepaid amounts
may be re-borrowed until the Commitment Termination Time.

(c) After the Mandatory Class A-1AR Draw Date, principal will be
payable to the Class A-1AR Notes pro rata with the Class A-1A Notes based on the
Class A-1A/A-1AR Pro Rata Allocation.

(d) Prior to the Commitment Termination Time, the Aggregate Class
A-1AR Undrawn Amount must be an amount at least equal to the Minimum Class A-1AR
Commitment.

Section 18.4 Class A-1AR Ratings Criteria.

In accordance with the applicable provisions of the Class A-1AR Note
Purchase Agreement, at the time of its purchase of a Class A-1AR Note and prior
to the Commitment Termination Time, each Holder (including any transferee) of a
Class A-1AR Note must satisfy the Class A-1AR Ratings Criteria. Except in the
case of any "Committed Liquidity Provider" (as defined in the Class A-1AR Note
Purchase Agreement) which has funded the related Holder Subaccount in an amount
equal to its unfunded Class A-1AR Commitment, if any Holder of Class A-1AR Notes
at any time prior to the Commitment Termination Time fails to satisfy the Class
A-1AR Ratings Criteria, such Holder shall within five Business Days thereafter
deposit cash in a Holder Subaccount in an amount equal to the undrawn amount of
such Holder's Class A-1AR Commitment. If such Holder fails to fund a Holder
Subaccount as described in the preceding sentence, (i) the Issuer (or the
Collateral Manager on behalf of the Issuer) shall promptly replace such Holder
(at the cost of such Holder) with another entity that meets the Class A-1AR
Ratings Criteria (by requiring the replaced Holder to transfer all of its rights
and obligations in respect of the Class A-1AR Notes to the transferee entity)
and (ii) any payments of principal of, or interest on, any Class A-1AR Note held
by such Noteholder, and any payments of a Class A-1AR Commitment Fee otherwise
payable to such Noteholder, shall be remitted to a Holder Subaccount of such
Noteholder (each, a "Holder Subaccount") and held to secure the obligation of
such Noteholder. The purchase of Class A-1AR Notes (whether in connection with
the initial placement or in a subsequent transfer) by any purchaser who does not
satisfy the Class A-1AR Ratings Criteria set forth in clause (a) of the
definition thereof at the time of such purchase but who is then entitled to the
benefits of a Liquidity Facility described in clause (c) of such definition
shall not be permitted unless the Rating Agency Condition is satisfied with
respect thereto and such Liquidity Provider enters into an assignment and
acceptance agreement agreeing to undertake and be bound by the provisions of the
Class A-1AR Note Purchase Agreement applicable thereto.

Section 18.5 Class A-1AR Holder Collateral Account.

(a) The Trustee shall, prior to the Closing Date, establish a single,
segregated trust account which shall be designated as the "Class A-1AR Holder
Collateral Account," which account, together with any and all funds at any time
on deposit therein, or otherwise credited

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thereto, shall be held in trust for the benefit of the Holders of the Class
A-1AR Notes and each Liquidity Provider (and, to the extent of amounts applied
in accordance with the Class A-1AR Note Purchase Agreement for such purpose, for
the benefit of the Holders of the Notes) and over which the Trustee shall have
exclusive control and the sole right of withdrawal. If at any time any Holder of
a Class A-1AR Note shall be required to deposit funds into the Class A-1AR
Holder Collateral Account pursuant to the terms of the Class A-1AR Note Purchase
Agreement, then (i) the Collateral Manager shall direct the Trustee to and the
Trustee shall create a Holder Subaccount and (ii) the Holder shall deposit all
required funds into such Holder Subaccount. All payments of principal of the
Class A-1AR Notes otherwise payable to such Holder shall be deposited in such
Holder Subaccount to the extent provided in the Class A-1AR Note Purchase
Agreement. The only permitted withdrawal from or application of funds credited
to a Holder Subaccount shall, notwithstanding the occurrence of any Event of
Default, be to satisfy such Holder's obligations under the Class A-1AR Note
Purchase Agreement, as specified in this Section 18.5 and to return such amounts
to such Holder in accordance with Section 18.5(d).

(b) The deposit of funds into a Holder Subaccount pursuant to Section
18.5(a) by any Holder of a Class A-1AR Note shall not constitute a Class A-1AR
Draw by the Issuer and shall not constitute a Class A-1AR Draw or a utilization
of the Class A-1AR Commitment of such Holder, and the funds so deposited shall
not constitute principal outstanding under such Class A-1AR Note. However, from
and after the establishment of a Holder Subaccount with respect to any Holder of
Class A-1AR Notes until otherwise provided below, (i) the obligation of such
Holder to advance funds under its Class A-1AR Notes as part of any Class A-1AR
Draw under this Indenture and the Class A-1AR Note Purchase Agreement shall be
satisfied by the Collateral Manager withdrawing funds from such Holder
Subaccount in the amount of such Holder's share of such Class A-1AR Draw
(determined in accordance with the Class A-1AR Note Purchase Agreement), and
(ii) all payments of principal with respect to advances made by such Holder
under its Class A-1AR Notes (whether or not originally funded from such Holder
Subaccount) (and, in the case of any defaulting Holder, all payments of interest
thereon) shall be satisfied by the Collateral Manager depositing or causing the
deposit of the related funds into such Holder Subaccount, with notice of such
deposit to the Class A-1AR Note Agent. The Collateral Manager shall have full
power and authority to withdraw funds (with prior notice of any such withdrawal
to the Class A-1AR Note Agent) from each such Holder Subaccount at the time of,
and in connection with, the making of any such Class A-1AR Draw and to deposit
funds (with notice of any such deposit to the Class A-1AR Note Agent) into each
such Holder Subaccount, all in accordance with the terms of and for the purposes
set forth in this Indenture and the Class A-1AR Note Purchase Agreement.

(c) If at any time the amount of funds on deposit in the Holder
Subaccount relating to any Holder of Class A-1AR Notes, net of any earnings in
respect of Class A-1AR Eligible Investments, exceeds the undrawn amount of the
Class A-1AR Commitment of such Holder (whether due to a reduction in the Class
A-1AR Commitment or otherwise), then the Collateral Manager on behalf of the
Issuer shall instruct the Trustee to remit to such Holder a specified portion of
such funds then held in the related Holder Subaccount in an amount equal to such
excess.

(d) If at any time a Holder of Class A-1AR Notes is no longer required
to deposit or maintain funds in the Class A-1AR Holder Collateral Account
pursuant to the terms of

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the Class A-1AR Note Purchase Agreement to which such Holder is a party, then
the Collateral Manager shall notify the Trustee of such fact and direct the
Trustee to remit all funds (including, for the avoidance of doubt, earnings in
respect of Class A-1AR Eligible Investments) then held in the relevant Holder
Subaccount (after giving effect to any Class A-1AR Draw in respect of such Class
A-1AR Notes to be made on such date) to such Holder (with notice thereof to the
Class A-1AR Note Agent), and thereafter all payments of principal and interest
with respect to advances made by such Holder shall be paid directly to such
Holder in accordance with the terms of this Indenture and the Class A-1AR Note
Purchase Agreement.

(e) The Trustee agrees to give the Issuer, the Collateral Manager and
the related Holder immediate notice if it becomes aware that the Class A-1AR
Holder Collateral Account, any Holder Subaccount or any funds on deposit
therein, or otherwise to the credit of the Class A-1AR Holder Collateral Account
or any Holder Subaccount, shall become subject to any writ, order, judgment,
warrant of attachment, execution or similar process. Except to the extent
specifically set forth herein, the Issuer shall not have any legal, equitable or
beneficial interest in the Class A-1AR Holder Collateral Account. The Class
A-1AR Holder Collateral Account shall remain at all times with the Corporate
Trust Office or a financial institution having a long term debt rating by each
Rating Agency at least equal to "A" or "A2," as applicable, and a short term
debt rating at least equal to "A-1" or "P-1," as applicable.

(f) For so long as any amounts are on deposit in a Holder Subaccount,
the Trustee shall, at the written direction of the related Class A-1AR
Noteholder (which may be in the form of standing instructions), invest and
reinvest such funds in investments which satisfy the definition of the term
"Eligible Investments" but which mature not later than the day following the
date of acquisition thereof (collectively, "Class A-1AR Eligible Investments").
Investment earnings received during each Due Period in respect of Eligible
Investments in the Holder Subaccount of a Holder of Class A-1AR Notes will (so
long as such Holder is not a defaulting Holder) be paid to such Holder on the
related Payment Date. In the absence of such instructions, such funds will
remain uninvested.

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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Indenture as of the day and year first above written.

ARBOR REALTY MORTGAGE SECURITIES SERIES
2006-1, LTD., as Issuer

By: /s/ George Bashforth
------------------------------------
Name: George Bashforth
Title: Director

ARBOR REALTY MORTGAGE SECURITIES SERIES
2006-1 LLC, as Co-Issuer

By: /s/ Guy R. Milone, Jr.
------------------------------------
Name: Guy R. Milone, Jr.
Title: Authorized Signatory

WELLS FARGO BANK, NATIONAL ASSOCIATION,
solely as Trustee, Paying Agent,
Calculation Agent, Transfer Agent,
Custodial Securities Intermediary,
Backup Advancing Agent and Notes
Registrar and not in its individual
capacity

By: /s/ Thomas J. Varcados
------------------------------------
Name: Thomas J. Varcados
Title: Vice President

ARBOR REALTY SR, INC., as Advancing
Agent

By: /s/ Guy R. Milone, Jr.
------------------------------------
Name: Guy R. Milone, Jr.
Title: Authorized Signatory

Exhibit 10.25

PURCHASE AND PLACEMENT AGREEMENT

This Purchase and Placement Agreement (this "Agreement") is made as of
the 14th day of December, 2006, by and among Arbor Realty Mortgage Securities
Series 2006-1, Ltd., a Cayman Islands exempted company with limited liability
(the "Issuer"), Arbor Realty Mortgage Securities Series 2006-1 LLC, a Delaware
limited liability company (the "Co-Issuer" and, together with the Issuer, the
"Co-Issuers"), Wachovia Capital Markets, LLC ("Wachovia Securities" or the
"Initial Purchaser") and Credit Suisse Securities (USA) LLC ("Credit Suisse"
and, together with Wachovia Securities, the "Dealers").

WITNESSETH:

WHEREAS, the Issuer and the Co-Issuer intend to co-issue (a) the U.S.
$230,000,000 Class A-1A Senior Secured Floating Rate Term Notes, Due 2042 (the
"Class A-1A Notes"), (b) the up to U.S.$100,000,000 Class A-1AR Revolving Senior
Secured Floating Rate Term Notes, Due 2042 (the "Class A-1AR Notes" and,
together with the Class A-1A Notes, the "Class A-1 Notes"), (c) the
U.S.$72,900,000 Class A-2 Second Priority Senior Secured Floating Rate Term
Notes, Due 2042 (the "Class A-2 Notes" and, together with the Class A-1 Notes,
the "Class A Notes"), (d) the U.S.$41,100,000 Class B Third Priority Floating
Rate Term Notes, Due 2042 (the "Class B Notes"), (e) the U.S.$31,200,000 Class C
Fourth Priority Floating Rate Capitalized Interest Term Notes, Due 2042 (the
"Class C Notes"), (f) the U.S.$13,350,000 Class D Fifth Priority Floating Rate
Capitalized Interest Term Notes, Due 2042 (the "Class D Notes"), (g) the
U.S.$14,250,000 Class E Sixth Priority Floating Rate Capitalized Interest Term
Notes, Due 2042 (the "Class E Notes"), (h) the U.S.$13,650,000 Class F Seventh
Priority Floating Rate Capitalized Interest Term Notes, Due 2042 (the "Class F
Notes"), (i) the U.S.$16,950,000 Class G Eighth Priority Floating Rate
Capitalized Interest Term Notes, Due 2042 (the "Class G Notes"), and (j) the
U.S.$14,100,000 Class H Ninth Priority Floating Rate Capitalized Interest Term
Notes, Due 2042 (the "Class H Notes" and, together with the Class A Notes, the
Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes, the
Class F Notes and the Class G Notes, the "Notes") pursuant to an indenture,
dated as of December 14, 2006 (the "Indenture"), by and among the Issuer, the
Co-Issuer, Wells Fargo Bank, National Association, as trustee (in such capacity,
the "Trustee"), paying agent, calculation agent, transfer agent, custodial
securities intermediary, backup advancing agent and notes registrar, and Arbor
Realty SR, Inc., as advancing agent (the "Advancing Agent");

WHEREAS, the Issuer intends to issue 52,500,000 preferred shares, with
a par value of U.S.$0.0001 per share and a notional amount of U.S.$1.00 per
share (the "Preferred Shares" and, together with the Notes, the "Securities")
pursuant to the Governing Documents (as defined in the Indenture) of the Issuer,
certain resolutions of the board of directors of the Issuer passed prior to the
issuance of the Preferred Shares and the Preferred Shares Paying Agency
Agreement, dated as of December 14, 2006 (the "Preferred Shares Paying Agency
Agreement"), among the Issuer, Wells Fargo Bank, National Association, as
preferred shares paying agent (the "Preferred Shares Paying Agent"), and Maples
Finance Limited, as share registrar;

WHEREAS, each Dealer is a securities firm engaged in the business of
selling securities directly to purchasers or through other securities dealers;

WHEREAS, each Dealer may, but is not required to, make a market in the
Notes (other than the Class A-1AR Notes);

WHEREAS, Arbor Realty Collateral Management, LLC ("ARCM") shall act as
collateral manager (the "Collateral Manager") of the Issuer's assets in
accordance with the terms of a collateral management agreement, dated as of
December 14, 2006 (the "Collateral Management Agreement"), between the
Collateral Manager and the Issuer;

WHEREAS, on the Closing Date, the Issuer will purchase or will have
committed to purchase a portion of the Collateral Debt Securities from Arbor
Realty SR, Inc., Arbor Realty Funding LLC and Arbor Realty Limited Partnership
(collectively, the "Sellers"); and

WHEREAS, each Dealer hereby acknowledges that it has received good and
valuable consideration hereunder.

NOW, THEREFORE, the parties agree as follows:

1. Defined Terms. All capitalized terms used and not otherwise defined
herein shall have the same meanings ascribed to such terms in the Indenture.

2. Sale and Purchase of the Purchased Notes; Market-Making; Placement
of the Class A-1AR Notes.

(a) Subject to the terms and conditions herein, on the Closing Date,
each of the Issuer and the Co-Issuer hereby agrees to sell all of the Class A-1A
Notes, the Class A-2 Notes, the Class B Notes, the Class C Notes, the Class D
Notes, the Class E Notes, the Class F Notes, the Class G Notes and the Class H
Notes (collectively, the "Purchased Notes") to the Initial Purchaser as provided
hereinafter, and the Initial Purchaser agrees to purchase from the Issuer and
Co-Issuer, as applicable, the Purchased Notes in the amount set forth on
Schedule A hereto at the price set forth opposite the respective Classes of
Purchased Notes.

(b) The purchase price of the Purchased Notes shall be payable by the
Initial Purchaser to the Issuer as it directs by wire transfer in United States
Dollars in immediately available funds on the Closing Date.

(c) Prior to or at the time that the Notes are first issued or
delivered, the conditions precedent in Section 7 herein shall have been
satisfied.

(d) The Dealers may, but are not required to, make a market in the
Purchased Notes and may cease any such activity at any time.

(e) Each of the Issuer and the Co-Issuer hereby agrees to make
available on the Closing Date for placement by Wachovia Securities, as placement
agent (in such capacity, the "Placement Agent"), on a reasonable best efforts
basis, the Class A-1AR Notes, as provided

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hereinafter, in the amount set forth on Schedule A hereto (the "Class A-1AR
Placement Amount") at the price set forth opposite the Class A-1AR Notes.

(f) The Placement Agent agrees to place on behalf of the Co-Issuers,
on a reasonable best efforts basis, the Class A-1AR Notes in an amount equal to
the Class A-R Placement Amount at the purchase price of the Class A-1AR Notes on
the Closing Date.

(g) Each of the Co-Issuers and the Placement Agent agree that the
Class A-1AR Notes will be issued in fully registered, certificated form without
interest coupons, registered in the name of the legal and beneficial owner
thereof, except as otherwise required by the Issuer at the time of issuance.

3. Offer and Placement of the Notes. Each of the Issuer and the
Co-Issuer understands that the Initial Purchaser intends to offer the Purchased
Notes and the Placement Agent intends place the Class A-1AR Notes as soon after
this Agreement has become effective as is advisable in the judgment of the
Initial Purchaser and the Placement Agent. The Issuer and Co-Issuer confirm that
they have authorized the Dealers, subject to the restrictions set forth below,
to distribute copies of the offering memorandum dated December 12, 2006, as
supplemented by the Supplement to Offering Memorandum, dated December 13, 2006
(together, the "Offering Memorandum") in connection with the offering of the
Notes or making a market in the Purchased Notes, as applicable.

4. Representations, Warranties and Covenants of each of the
Co-Issuers. Each of the Issuer or the Co-Issuer, as applicable, represents and
warrants (with respect to itself only) to the Dealers as of the Closing Date,
and agrees with the Dealers that:

(a) it has not, directly or indirectly, solicited any offer to buy or
offered to sell, and shall not, directly or indirectly, solicit any offer to buy
or offer to sell, in the United States or to any United States citizen or
resident, any security which is or would be integrated with the sale of the
Securities in a manner that would require the Securities to be registered under
the Securities Act of 1933, as amended (the "Securities Act");

(b) the Notes are eligible for resale pursuant to Rule 144A under the
Securities Act and shall not be, on the Closing Date, of the same class as
securities listed on a national securities exchange registered under Section 6
of the United States Securities Exchange Act, as amended (the "Exchange Act"),
or quoted in a United States automated interdealer quotation system;

(c) the Offering Memorandum, the marketing materials dated December
12, 2006 and the related asset summaries (collectively, the "Offering
Materials") have been prepared by the Issuer and the Co-Issuer, as applicable,
in connection with the offering of the Notes. The Offering Materials and any
amendments or supplements thereto did not and shall not, as of their respective
dates and, in the case of the Offering Memorandum, as of the Closing Date,
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading except that the representations and
warranties set forth in this Section 4(c) do not apply to statements or
omissions that are made in reliance upon and in conformity with information

-3-

relating to the Dealers furnished to the Issuer by the Dealers expressly for use
in the Offering Materials or any amendment or supplement thereto. It is hereby
acknowledged that (x) the statements set forth on the cover page in the first
sentence of each of the fourth and fifth paragraphs and the first sentence and
third sentence of the first paragraph, the second paragraph, the third
paragraph, the fourth paragraph and the first sentence of the fifth paragraph
under the caption "Subscription and Sale" constitute the only written
information furnished to the Issuer by Wachovia Securities expressly for use in
the Offering Memorandum (or any amendment or supplement thereto) (the "Wachovia
Securities Information") and (y) the statements set forth in the third paragraph
under the caption "Subscription and Sale" constitute the only written
information furnished to the Issuer by Credit Suisse expressly for use in the
Offering Memorandum (or any amendment or supplement thereto) (the "Credit Suisse
Information" and, together with the Wachovia Securities Information, the "Dealer
Information").

(d) since the respective dates as of which information is given in the
Offering Materials, except as contemplated or set forth in the Offering
Memorandum, it has not carried on any business other than as described in the
Offering Materials relating to the issue of the Securities;

(e) the Issuer does not have any subsidiaries and the Co-Issuer does
not have any subsidiaries;

(f) the Issuer (1) is an exempted company incorporated with limited
liability that has been duly and validly incorporated and is existing and in
good standing under the laws of the Cayman Islands; (2) is duly licensed and
duly qualified to do business as a foreign limited liability company and is in
good standing in all jurisdictions in which the ownership of its assets or in
which the conduct of its business requires or shall require such qualification;
and (3) has full power and authority to own its assets and conduct its business
as described in the Offering Materials and to enter into and perform its
obligations under this Agreement, the Securities Account Control Agreement, the
Indenture, the Preferred Shares Paying Agency Agreement, the Servicing
Agreement, each Collateral Debt Securities Purchase Agreement, each Hedge
Agreement, the Collateral Management Agreement, and any note purchase agreement
relating to the Class A-1AR Notes (the "Class A-1AR Note Purchase Agreement")
and to enter into and consummate all the transactions in connection therewith as
contemplated by such agreements and in the Offering Materials;

(g) the Co-Issuer (1) is a limited liability company that is in
good-standing under the laws of the State of Delaware and is duly licensed and
duly qualified to do business as a limited liability company and is in good
standing in all jurisdictions in which the ownership of its assets or in which
the conduct of its business requires or shall require such qualification; and
(2) has full power and authority to own its assets and conduct its business as
described in the Offering Materials and to enter into and perform its
obligations under this Agreement, the Class A-1AR Note Purchase Agreement and
the Indenture and to enter into and consummate all the transactions in
connection therewith as contemplated by such agreements and in the Offering
Materials;

(h) the Issuer has the authorized share capital as set forth in the
Offering Memorandum and all of the issued Preferred Shares of the Issuer will
have been duly and validly

-4-

authorized and issued and are fully paid and nonassessable, and all of the
issued ordinary shares of the Issuer shall be held by ARMS 2006-1 Equity
Holdings LLC ("ARMS Equity");

(i) the Co-Issuer has the authorized capitalization as set forth in
the Offering Memorandum and all of the issued membership interests of the
Co-Issuer have been duly and validly authorized and issued and all of the issued
membership interests of the Co-Issuer shall be held by Arbor Realty SR, Inc.;

(j) the Notes have been duly authorized by the Co-Issuer, and when
issued and delivered and when appropriate entries have been made in the Notes
Register pursuant to this Agreement and the Indenture against payment therefor,
shall have been duly executed, authenticated, issued and delivered and shall
constitute valid and legally binding obligations of the Co-Issuer, enforceable
against the Co-Issuer in accordance with their terms and entitled to the
benefits provided by the Indenture, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles;

(k) the Notes have been duly authorized by the Issuer and, when
issued, authenticated and delivered and when appropriate entries have been made
in the Notes Register pursuant to this Agreement and the Indenture against
payment therefor, shall have been duly executed, authenticated, issued and
delivered and shall constitute valid and legally binding obligations of the
Issuer, enforceable against the Issuer in accordance with their terms and
entitled to the benefits provided by the Indenture, subject, as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles;

(l) each of the Indenture, the Class A-1AR Note Purchase Agreement and
this Agreement has been duly authorized by the Co-Issuer and, when executed and
delivered by the parties thereto and hereto, shall constitute a valid and
legally binding instrument, enforceable in accordance with its respective terms,
under the laws of the State of New York and all other relevant laws, subject, as
to enforcement, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles;

(m) each of the Indenture, the Class A-1AR Note Purchase Agreement,
the Preferred Shares Paying Agency Agreement, the Servicing Agreement, the
Collateral Management Agreement, the Securities Account Control Agreement, this
Agreement, each Collateral Debt Securities Purchase Agreement and each Hedge
Agreement has been duly authorized by the Issuer and, when executed and
delivered by the parties thereto and hereto, shall constitute a valid and
legally binding instrument, enforceable in accordance with its terms under the
laws of the State of New York and all other relevant laws, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles;

(n) except as may be required under state securities laws, no filing
with, or authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency is
necessary or required for the performance by the Co-

-5-

Issuer of its obligations hereunder, in connection with the offering, issuance,
placement or sale of the Notes hereunder or the consummation of the transactions
contemplated by or for the due execution, delivery or performance of this
Agreement, the Indenture, the Class A-1AR Note Purchase Agreement, the Notes or
any other agreement or instrument entered into or issued or to be entered into
or issued by the Co-Issuer in connection with the consummation of the
transactions contemplated herein and in the Offering Materials (including the
issuance and sale of the Securities and the use of the proceeds from the sale of
the Securities as described in the Offering Memorandum under the caption "Use of
Proceeds");

(o) except as may be required under state securities laws, no filing
with, or authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency is
necessary or required for the performance by the Issuer of its obligations
hereunder, in connection with the offering, issuance or sale of the Notes
hereunder or the consummation of the transactions contemplated by or for the due
execution, delivery or performance of this Agreement, the Indenture, the Class
A-1AR Note Purchase Agreement, the Preferred Shares Paying Agency Agreement, the
Securities Account Control Agreement, the Securities, each Collateral Debt
Securities Purchase Agreement, the Servicing Agreement, the Collateral
Management Agreement, each Hedge Agreement or any other agreement or instrument
entered into or issued or to be entered into or issued by the Issuer in
connection with the consummation of the transactions contemplated herein and in
the Offering Materials (including the issuance and sale of the Securities and
the use of the proceeds from the sale of the Securities as described in the
Offering Memorandum under the caption "Use of Proceeds");

(p) the statements set forth in the Offering Memorandum under the
captions "Description of the Securities," "Security for the Notes," "The
Collateral Management Agreement," "Hedge Agreements," "The Issuer" and "The
Co-Issuer" insofar as they purport to constitute a description of the Issuer or
the Co-Issuer or a summary of the terms of the Securities, the Indenture, the
Class A-1AR Note Purchase Agreement, each Hedge Agreement, the Preferred Shares
Paying Agency Agreement, the Securities Account Control Agreement, the Servicing
Agreement, each Collateral Debt Securities Purchase Agreement and the Collateral
Management Agreement and under the captions "Certain U.S. Federal Income Tax
Considerations," "Cayman Islands Tax Considerations," "Certain ERISA
Considerations" and "Subscription and Sale," insofar as they purport to describe
the provisions of the laws and documents referred to therein, are correct in all
material respects;

(q) the issue and sale of the Purchased Notes and the Preferred
Shares, the issue and placement of the Class A-1AR Notes and the compliance by
the Issuer and the Co-Issuer, as applicable, with all of the provisions of the
Indenture, the Class A-1AR Note Purchase Agreement, the Preferred Shares Paying
Agency Agreement, the Securities Account Control Agreement, each Collateral Debt
Securities Purchase Agreement, the Securities, each Hedge Agreement, the
Servicing Agreement, the Collateral Management Agreement and this Agreement and
the consummation of the transactions herein and therein contemplated shall not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any other agreement or instrument
to which the Issuer or the Co-Issuer is a party or by which the Issuer or the
Co-Issuer is bound, nor shall such action result in any violation of the
provisions of the Governing Documents of each of the Issuer or the Co-Issuer or
any statute or any order, rule or regulation of any court or governmental agency
or body having jurisdiction

-6-

over the Issuer or the Co-Issuer or each of their assets; and, no consent,
approval, authorization, order, registration or qualification of or with any
court or governmental agency or body is required for the issue and sale of the
Securities or the consummation of the transactions by the Issuer and the
Co-Issuer contemplated by this Agreement, the Indenture, the Class A-1AR Note
Purchase Agreement, the Preferred Shares Paying Agency Agreement, each
Collateral Debt Securities Purchase Agreement, each Hedge Agreement or the
Collateral Management Agreement, (other than any governmental or other consents
that have already been obtained by either the Issuer or the Co-Issuer and that
were in full force and effect);

(r) the Trustee shall have a perfected security interest in the
Pledged Obligations and the Issuer's rights under the Servicing Agreement, the
Collateral Management Agreement, each Hedge Agreement, the Class A-1AR Note
Purchase Agreement and each Collateral Debt Securities Purchase Agreement for
the benefit and security of the holders of the Notes subject to the priorities
set forth in the Indenture;

(s) there are no legal or governmental proceedings, inquiries or
investigations pending to which the Issuer or the Co-Issuer is a party or of
which any property of the Issuer or Co-Issuer is the subject and no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;

(t) on the Closing Date, there shall not exist any default by any of
the Issuer or the Co-Issuer or any condition, event or act, which, with notice
or lapse of time or both, would constitute an Event of Default by the Issuer or
the Co-Issuer under the Indenture;

(u) none of the Issuer, the Co-Issuer or any persons acting on their
behalf (other than the Dealers as to whom the Co-Issuers make no representation)
has engaged or shall engage in any directed selling efforts as defined in Rule
902 of Regulation S under the Securities Act with respect to the Securities, and
none of the foregoing persons has offered, placed or sold any of the Securities,
except for the placement of the Class A-1AR Notes to the Placement Agent
pursuant to this Agreement, the sale of the Purchased Notes to the Initial
Purchaser pursuant to this Agreement and the sale of the Preferred Shares to
ARMS Equity;

(v) neither the Issuer nor the Co-Issuer has entered into contractual
arrangements with any person with respect to the distribution of (1) the
Purchased Notes, other than the Dealers pursuant to this Agreement, (2) the
Class A-1AR Notes, other than the Placement Agent pursuant to this Agreement and
the Class A-1AR Note Purchase Agreement and (3) the Preferred Shares, other than
pursuant to the Subscription Agreement dated as of the date hereof and signed by
ARMS Equity (the "Subscription Agreement");

(w) no stamp or other issuance or transfer taxes or duties and no
capital gains, income, withholding or other taxes are payable by or on behalf of
the Initial Purchaser to the government of the Cayman Islands or any political
subdivision or taxing authority thereof or therein in connection with the
issuance, sale and delivery by the Issuer and the Co-Issuer or the sale and
delivery by the Initial Purchaser outside the Cayman Islands of the Notes to the
investors thereof; provided that Cayman Islands stamp duty will be payable if
any of the Notes or Transaction Documents are executed in, or after execution,
brought into the Cayman Islands;

-7-

(x) neither the Issuer nor the Co-Issuer has offered or sold any
Securities by means of any form of general solicitation or general advertising
and none of the foregoing persons shall offer to sell, offer for sale or sell
the Securities by means of any advertisement, article, notice or other
communication published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising;

(y) assuming compliance by each Dealer with the offer and sale
restrictions set forth herein, compliance by the purchasers of the Class A-1AR
Notes with the restrictions set forth in the Class A-1AR Note Purchase Agreement
and compliance by ARMS Equity with the restrictions set forth in the Preferred
Shares Paying Agency Agreement, neither the Issuer nor the Co-Issuer is required
to be registered as an "investment company" and neither the Issuer nor the
Co-Issuer shall be required to register as an "investment company" under the
Investment Company Act as a result of the conduct of its business in the manner
contemplated by the Offering Memorandum;

(z) assuming compliance by each Dealer with the offer and sale
restrictions set forth herein, compliance by the purchasers of the Class A-1AR
Notes with the restrictions set forth in the Class A-1AR Note Purchase Agreement
and ARMS Equity with the restrictions set forth in the Preferred Shares Paying
Agency Agreement, no registration of the Securities under the Securities Act is
required for the offer, placement and sale of the Notes in the manner
contemplated by this Agreement and the Offering Memorandum, the sale of the
Class A-1AR Notes under the Class A-1AR Note Purchase Agreement or the sale of
the Preferred Shares under the Subscription Agreement and no qualification of an
indenture under the Trust Indenture Act of 1939, as amended, is required for the
offer and sale of the Securities in the manner contemplated by this Agreement,
the Class A-1AR Note Purchase Agreement, the Subscription Agreement and the
Offering Memorandum;

(aa) each of the Issuer and the Co-Issuer shall make available to each
Dealer such number of copies of the Offering Memorandum and any amendment or
supplement thereto as such Dealer shall reasonably request;

(bb) neither the Issuer nor the Co-Issuer has offered and neither the
Issuer nor the Co-Issuer shall offer (1) the Purchased Notes, except pursuant to
this Agreement, (2) the Class A-1AR Notes, except pursuant to the Class A-1AR
Note Purchase Agreement and (3) the Preferred Shares, except pursuant to the
Subscription Agreement;

(cc) the Co-Issuers shall offer and sell the Notes and the Issuer
shall offer and sell the Preferred Shares, only to persons (1) who are
"qualified purchasers" as defined in Section 2(a)(51) of the Investment Company
Act ("Qualified Purchasers") that (except with respect to the sale of the
Preferred Shares to ARMS Equity) the Co-Issuers reasonably believe are
"qualified institutional buyers" ("QIBs") as defined in Rule 144A under the
Securities Act ("Rule 144A") and whom the seller has informed that the reoffer,
resale, pledge or other transfer is being made in reliance on Rule 144A or (2)
the Co-Issuers reasonably believe are not "U.S. persons" or U.S. residents for
purposes of the Investment Company Act and that the sale, reoffer, resale,
pledge or other transfer is being made in compliance with Regulation S under the

-8-

Securities Act ("Regulation S"); terms used in this paragraph have the meanings
given to them by Regulation S or Rule 144A, as applicable;

(dd) each of the Issuer and the Co-Issuer shall immediately notify the
Dealers, and confirm such notice in writing, of (1) any filing made by the
Co-Issuers of information relating to the offering of the Securities with any
securities exchange or any other regulatory body in the United States or any
other jurisdiction, and (2) prior to the completion of the purchase of the
Purchased Notes by the Initial Purchaser and placement of the Class A-1AR Notes
by the Placement Agent, any material changes in or affecting the earnings,
business affairs or business prospects of either the Issuer or the Co-Issuer
which (i) make any statement in the Offering Materials false or misleading in
any material respect or (ii) are not disclosed in the Offering Memorandum. In
such event or if during such time any event shall occur or condition shall exist
as a result of which it is necessary, in the opinion of any of the Issuer, the
Co-Issuer, their counsel, the Dealers or their respective counsel, to amend or
supplement the Offering Materials in order that the final Offering Materials not
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances then existing, each of the Issuer and the Co-Issuer shall
forthwith amend or supplement the final Offering Materials by preparing and
furnishing to the Dealers an amendment or amendments of, or a supplement or
supplements to, the final Offering Materials (in form and in substance
satisfactory in the opinion of counsel for the Dealers) so that, as so amended
or supplemented, the final Offering Materials shall not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances existing at the
time it is delivered to an investor, not misleading;

(ee) each of the Issuer and the Co-Issuer shall advise the Dealers
promptly of any proposal to amend or supplement the Offering Materials and shall
not effect such amendment or supplement without the consent of the Dealers,
which consent shall not be unreasonably withheld or delayed. Neither the consent
of either Dealer to, nor either Dealer's delivery of, any such amendment or
supplement, shall constitute a waiver of any of the conditions set forth in
Section 7 hereof;

(ff) each of the Issuer and the Co-Issuer agrees that it shall not
make any offer or sale of Securities of any class if, as a result of the
doctrine of "integration" referred to in Rule 502 promulgated under the
Securities Act, such offer or sale would render invalid (for the purpose of (i)
the sale of the Purchased Notes to the Initial Purchaser, (ii) the placement of
the Class A-1AR Notes by the Placement Agent, (iii) the resale of the Notes by
the initial investors to others, (iv) the transfer of the Class A-1AR Notes, or
(v) the initial sale of the Preferred Shares) the exemption from the
registration requirements of the Securities Act provided by Section 4(2) thereof
or by Rule 144A or by Regulation S thereunder or otherwise;

(gg) each of the Issuer and the Co-Issuer agrees that, in order to
render the Notes eligible for resale pursuant to Rule 144A under the Securities
Act, while any of the Notes remain outstanding, they shall make available, upon
request, to any Holder of the Notes or prospective purchasers of the Notes
designated by any Holder the information specified in Rule 144A(d)(4), unless
each of the Issuer and the Co-Issuer furnishes information to the United States
Securities and Exchange Commission (the "Commission") pursuant to Section 13 or
15(d)

-9-

of the Exchange Act (such information, whether made available to Holders or
prospective purchasers or furnished to the Commission, is hereinafter referred
to as "Additional Information");

(hh) until the expiration of two years after the original issuance of
the Securities, each of the Issuer and the Co-Issuer shall not resell any
Securities which are "restricted securities" (as such term is defined under Rule
144(a)(3) under the Securities Act) that have been re-acquired by any of them
and shall immediately upon any purchase of any such Securities submit such
Securities to the Trustee or the Preferred Shares Paying Agency, as applicable,
for cancellation;

(ii) each of the Issuer and the Co-Issuer shall use the net proceeds
received by them from the sale of the Securities in the manner specified in the
Offering Memorandum under "Use of Proceeds";

(jj) during a period of 180 days from the date of the Offering
Memorandum, neither the Issuer nor the Co-Issuer shall, directly or indirectly,
issue, sell, offer to sell, grant any option for the sale of, or otherwise
dispose of, any debt securities or guarantees of debt securities of the Issuer
or the Co-Issuer, as applicable, or any securities convertible or exchangeable
into or exercisable for any debt securities or guarantees of debt securities of
the Issuer or the Co-Issuer, as applicable, or any securities convertible or
exchangeable into or exercisable for any debt security or guarantee of debt
securities of the Issuer or Co-Issuer, except as described in the Offering
Memorandum;

(kk) the Co-Issuers shall use all reasonable efforts in cooperation
with the Initial Purchaser to permit the Purchased Notes to be eligible for
clearance and settlement through DTC;

(ll) each certificate representing a Note shall bear the legend
contained in the Indenture for the time period and upon the other terms stated
in the Indenture;

(mm) each certificate representing a Preferred Share shall bear the
legend contained in the Preferred Shares Paying Agency Agreement for the time
period and upon the other terms stated in the Preferred Shares Paying Agency
Agreement;

(nn) the Co-Issuers shall have no debt other than as indicated in or
contemplated by the Offering Memorandum (including, without limitation, expenses
incurred in connection with the offering of the Notes);

(oo) the application of the proceeds of the sale of the Securities
shall not be in violation of Regulations T, U or X of the Board of Governors of
the Federal Reserve System, as amended and in effect on the Closing Date;

(pp) the Co-Issuers have taken all necessary steps to ensure that any
Bloomberg screen containing information about the Notes represented by Rule 144A
Global Securities includes the following (or similar) language:

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(i) the "Note Box" on the bottom of the "Security Display" page
describing the Rule 144A Global Securities shall state: "Iss'd Under
144A/3c7";

(ii) the "Security Display" page shall have flashing red indicator
"See Other Available Information"; and

(iii) the indicator shall link to the "Additional Security
Information" page, which shall state that the securities "are being offered
in reliance on the exemption from registration under Rule 144A of the
Securities Act to persons who are both (i) qualified institutional buyers
(as defined in Rule 144A under the Securities Act) and (ii) qualified
purchasers (as defined under Section 3(c)(7) under the 1940 Act)."

(qq) the Co-Issuers shall instruct The Depository Trust Company
("DTC") to take these or similar steps with respect to the Notes represented by
Rule 144A Global Securities:

(i) the DTC 20-character security descriptor and 48-character
additional descriptor shall indicate with marker "3c7" that sales are
limited to Qualified Institutional Buyers/Qualified Purchasers;

(ii) where the DTC deliver order ticket sent to purchasers by DTC
after settlement is physical, it shall have the 20-character security
descriptor printed on it. Where the DTC deliver order ticket is electronic,
it shall have a "3c7" indicator and a related user manual for participants,
which shall contain a description of the relevant restriction;

(iii) DTC shall send an "Important Notice" outlining the 3(c)(7)
restrictions applicable to the Rule 144A Global Notes to all DTC
participants in connection with the initial offering; and

(iv) DTC shall include the Co-Issuers in the Reference Directory which
is distributed by DTC to its participants on the list of all issuers who
have advised DTC that they are 3(c)(7) issuers; and

(rr) the Co-Issuers, have confirmed that CUSIP has established a
"fixed field" attached to the CUSIP numbers for the Notes represented by Rule
144A Global Securities containing "3c7" and "144A" indicators.

5. Representations, Warranties and Covenants of the Dealers. Each
Dealer, severally and not jointly, hereby represents and warrants to the Issuer
and the Co-Issuer as of the Closing Date, and agrees with the Issuer and the
Co-Issuer that:

(a) it is a QIB and a Qualified Purchaser, with such knowledge and
experience in financial and business matters as are necessary in order to
evaluate the merits and risks of an investment in the Notes;

(b) it understands that (i) the Notes have not been and shall not be
registered under the Securities Act, and (ii) neither the Issuer nor the
Co-Issuer are, and shall not be, registered as an "investment company" under the
Investment Company Act;

-11-

(c) it shall offer and sell the Purchased Notes (or, in the case of
the Class A-1AR Notes, the Placement Agent shall place the Class A-R Notes) only
to persons (i) (A) who are Qualified Purchasers and that such Dealer reasonably
believes are QIBs, (B) who are not broker-dealers that own and invest on a
discretionary basis less than $25,000,000 in securities of unaffiliated issuers,
(C) who are not participant-directed employee plans such as 401(k) plans, (D)
who are acting for their own account or the account of others who would
otherwise qualify under this Section 5(c), (E) who are not formed for the
purpose of investing in the Senior Notes, and (F) who will hold at least the
minimum denomination or (ii) that such Dealer reasonably believes are not U.S.
Persons or U.S. residents for purposes of the Investment Company Act and that
the sale, reoffer, resale, pledge or other transfer is being made in compliance
with Regulation S; terms used in this paragraph have the meanings given to them
by Regulation S or Rule 144A, as applicable;

(d) it has not and shall not invite the public in the Cayman Islands
to subscribe for the Notes;

(e) it acknowledges that purchases and resales of the Notes are
restricted as described under "Transfer Restrictions" in the Offering
Memorandum;

(f) each Dealer acknowledges that the information relating to it
furnished to the Issuer and the Co-Issuer specifically for use in the Offering
Memorandum has been prepared by such Dealer and accordingly, such Dealer only
assumes the responsibility for the accuracy, completeness or applicability of
the information it has furnished;

(g) (i) it has not offered or sold and will not offer, place or sell
any Notes to persons in the United Kingdom prior to the expiry of the period of
six months from the Closing Date except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their business or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 (as amended); (ii) it has only communicated or
caused to be communicated and will only communicate or cause to be communicated
any invitation or inducement to engage in investment activity (within the
meaning of Section 21 of the Financial Services and Markets Act 2000 (the
"FSMA") received by it in connection with the issue or sale of any Securities in
circumstances in which Section 21(1) of the FSMA does not apply to the Issuer;
and (iii) it has complied and will comply with all applicable provisions of the
FSMA with respect to anything done by it in relation to the Notes in, from or
otherwise involving the United Kingdom;

(h) it represents and agrees that the Purchased Notes offered and sold
and the Placed Notes offered and placed in reliance on Regulation S have been
and will be offered, placed and sold only in offshore transactions. In
connection therewith, it agrees that it has not offered, placed or sold and will
not offer, place or sell the Notes in the United States or to, or for the
benefit or account of, a U.S. Person (other than a distributor), in each case,
as defined in Rule 902 under the Securities Act (i) as part of its distribution
at any time and (ii) otherwise until 40 days after the later of the commencement
of the offering of the Notes pursuant hereto and the Closing Date, other than in
accordance with Regulation S or another exemption from the registration
requirements of the Securities Act;

-12-

(i) no form of general solicitation or general advertising has been or
will be used by it or any of its representatives in connection with the offer,
placement and sale of any of the Securities, including, but not limited to,
articles, notices or other communications published in any newspaper, magazine,
or similar medium or broadcast over television or radio, or any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising;

(j) it acknowledges that the Issuer shall require an investor letter
and a tax certification (generally, in the case of U.S. federal income tax, an
Internal Revenue Service Form W-9 (or applicable successor form) in the case of
a person that is a "United States person" within the meaning of Section
7701(a)(30) of the Code or the appropriate Internal Revenue Service Form W-8 (or
applicable successor form) in the case of a person that is not a "United States
person" within the meaning of Section 7701(a)(30) of the Code) from each Dealer,
in a form satisfactory to the Issuer, each duly executed and completed; and

(k) it acknowledges that it is its intent and that it understands it
is the intent of the Issuer that, for purposes of U.S. federal income, state and
local income and franchise tax and any other income taxes, for so long as a
direct or indirect wholly-owned subsidiary of the Arbor parent owns 100% of the
Preferred Shares and the Issuer Ordinary Shares, the Issuer will be treated as a
Qualified REIT Subsidiary and the Notes will be treated as indebtedness solely
of the Arbor Parent and the Preferred Shares will be treated as equity; each
Dealer agrees to such treatment and agrees to take no action inconsistent with
such treatment.

Terms used in this Section 5 that have meanings assigned to them in Regulation S
are used herein as so defined.

6. Fees and Expenses. The proceeds of the offering of the Securities
shall be used to pay all expenses incurred in connection with the offering of
the Securities, including the preparation and printing of the preliminary and
final offering memorandum, the preparation, issuance and delivery of the
Purchased Notes to the Initial Purchaser, the preparation, issuance and delivery
of the Class A-1AR Notes to the initial purchasers thereof, any fees charged by
the Rating Agencies in rating the Notes and the fees of counsel to the Issuer
and Co-Issuer, the Dealers, the Initial Purchaser, the Placement Agent, the
Preferred Shares Paying Agent, the fees of the Collateral Manager, the Trustee
and all reasonable out-of-pocket expenses of the Dealers.

7. Conditions Precedent to the Purchase of the Purchased Notes and
Placement of the Class A-1AR Notes. The obligations of the Dealers hereunder are
subject to the accuracy of the representations and warranties of each of the
Issuer and the Co-Issuer contained in Section 4 hereof or in certificates of any
of the respective officers of the Issuer or Co-Issuer delivered pursuant to the
provisions hereof, to the performance by the Issuer and the Co-Issuer of their
covenants and other obligations hereunder, and to the following further
conditions precedent:

(a) On the Closing Date, each Dealer shall have received the opinions,
dated as of the Closing Date of Cadwalader, Wickersham & Taft LLP, special
counsel to the Co-Issuers, Richards, Layton & Finger, P.A. counsel to the
Co-Issuer and of Maples and Calder, Cayman Islands counsel to the Issuer.

-13-

(b) On the Closing Date, (i) the Offering Materials, as amended or
supplemented, shall not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (ii) there shall not have been, since the date hereof or since
the respective dates as of which information is given in the Offering Materials,
any material adverse change or prospective material adverse change with respect
to the Issuer, the Co-Issuer or the Assets; (iii) each of the Issuer and the
Co-Issuer shall have complied with all agreements and satisfied all conditions
on their part to be performed or satisfied pursuant to this Agreement on or
prior to the Closing Date; and (iv) the representations and warranties of the
Issuer and Co-Issuer in Section 4 shall be accurate and true and correct as
though expressly made on and as of the Closing Date except as specifically set
forth therein.

(c) On the Closing Date, each Dealer shall have received a certificate
of an authorized officer of ARCM, dated as of the Closing Date, substantially in
the form attached hereto as Exhibit A.

(d) On the Closing Date, each Dealer shall have received certificates
of authorized officers of Arbor Realty SR, Inc., Arbor Realty Funding LLC and
Arbor Realty Limited Partnership, dated as of the Closing Date, substantially in
the form attached hereto as Exhibit B-1, Exhibit B-2 and Exhibit B-3,
respectively.

(e) On the Closing Date, each Dealer shall have received from Ernst &
Young LLP a letter, dated as of the Closing Date in form and substance
satisfactory to each Dealer, with respect to certain financial, statistical and
other information contained in the Offering Memorandum and the composition of
the Collateral Debt Securities on the Closing Date.

(f) The Co-Issuer shall have duly authorized, executed and delivered
the Indenture, the Class A-1AR Note Purchase Agreement and this Agreement.

(g) The Issuer shall have duly authorized, executed and delivered the
Indenture, the Class A-1AR Note Purchase Agreement, the Preferred Shares Paying
Agency Agreement, the Servicing Agreement, the Collateral Management Agreement,
each Collateral Debt Securities Purchase Agreement and each Hedge Agreement.

(h) ARCM shall have duly authorized, executed and delivered the
Collateral Management Agreement.

(i) Each Seller shall have duly authorized, executed and delivered the
applicable Collateral Debt Securities Purchase Agreement.

(j) Each Hedge Counterparty shall have duly authorized, executed and
delivered the related Hedge Agreement.

(k) Arbor Commercial Mortgage, LLC shall have duly authorized,
executed and delivered the Servicing Agreement.

-14-

(l) The Notes shall have been executed by the Issuer and Co-Issuer and
authenticated by the Trustee and the conditions precedent thereto, as set forth
in the Indenture, shall have been satisfied.

(m) The Preferred Shares shall have been issued by the Issuer and the
conditions precedent thereto, as set forth in the Preferred Shares Paying Agency
Agreement and the Governing Documents, shall have been satisfied.

(n) Prior to the purchase of the Purchased Notes hereunder and
placement of the Class A-1AR Notes hereunder, each Dealer shall have received
the opinions, dated as of the Closing Date, of the respective counsel to the
Trustee, the Preferred Shares Paying Agent, the Collateral Manager, each Hedge
Counterparty and the Advancing Agent, each in form and substance satisfactory to
each Dealer.

(o) Prior to the initial purchase of the Purchased Notes hereunder and
the placement of the Class A-1AR Notes, the Issuer and Co-Issuer, as applicable,
shall have obtained letters from Moody's Investors Service, Inc. ("Moody's"),
Fitch, Inc. ("Fitch") and Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies ("S&P" and, together with Moody's and Fitch, the "Rating
Agencies") that the Class A-1A Notes have been rated "Aaa" by Moody's and "AAA"
by S&P and Fitch, that the Class A-1AR Notes have been rated "Aaa" by Moody's
and "AAA" by S&P and Fitch, that the Class A-2 Notes have been rated "Aaa" by
Moody's and "AAA" by S&P and Fitch, that the Class B Notes have been rated at
least "Aa2" by Moody's and "AA" by S&P and Fitch, that the Class C Notes have
been rated at least "A1" by Moody's and "A+" by S&P and Fitch, that the Class D
Notes have been rated at least "A2" by Moody's and "A" by S&P and Fitch, that
the Class E Notes have been rated at least "A3" by Moody's and "A-" by S&P and
Fitch, that the Class F Notes have been rated at least "Baa1" by Moody's and
"BBB+" by S&P and Fitch, that the Class G Notes have been rated at least "Baa2"
by Moody's and "BBB" by Fitch, that the Class H Notes have been rated at least
"Baa3" by Moody's and "BBB-" by Fitch, and shall deliver copies of such letters
to each Dealer.

(p) Each Dealer shall have received such further information,
certificates, documents and opinions as it may have reasonably requested.

(q) The Co-Issuers and DTC shall have executed and delivered one or
more letters of representation with respect to the Notes each in a form
reasonably satisfactory to each Dealer.

(r) All of the Preferred Shares shall have been purchased by ARMS
Equity on the Closing Date.

8. Indemnification and Contribution.

(a) Subject to the Priority of Payments set forth in Section 11.1 of
the Indenture, the Co-Issuers shall indemnify and hold harmless each Dealer and
each of its affiliates, their respective officers, directors and each person who
controls such Dealer within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (each, a "Dealer Indemnified Person") against any
losses, claims, damages, liabilities or expenses, joint or several, as the same
are incurred, to which the Dealer Indemnified Person may become subject

-15-

insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) (1) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in the Offering Materials
or any amendment or supplement thereto or arise out of or are based upon the
omission or alleged omission to state in the Offering Materials a material fact
necessary to make the statements therein, in the light of the circumstances
under which they are made, not misleading, other than the Dealer Information
related to such Dealer or (2) are based upon a breach by either of the
Co-Issuers of any of its representations, warranties or agreements contained in
this Agreement, and shall periodically reimburse each Dealer for any and all
legal or other expenses reasonably incurred by such Dealer and each other Dealer
Indemnified Person in connection with investigating or defending, settling,
compromising or paying any such losses, claims, damages, liabilities, expenses
or actions as such expenses are incurred; provided, however, that the foregoing
indemnity with respect to any untrue statement contained in or any statement
omitted from any Offering Materials (as the same may be amended or supplemented)
shall not inure to the benefit of any Dealer (or any Person controlling such
Dealer), if (x) such loss, liability, claim, damage or expense resulted from the
fact that any Dealer sold or placed Notes to a Person to whom there was not sent
or given, at or prior to the written confirmation of such sale or placement, as
the case may be, a copy of the Offering Memorandum, as then amended or
supplemented, (y) the Issuer shall have previously and timely furnished
sufficient copies of the Offering Memorandum, as so amended or supplemented, to
the Dealer in accordance with this Agreement and (z) the Offering Memorandum, as
so amended or supplemented, would have corrected such untrue statement or
omission.

(b) Each Dealer, severally and not jointly, shall indemnify and hold
harmless the Issuer and the Co-Issuer, each of their respective affiliates,
their respective officers, directors, managers and each person controlling the
Issuer and Co-Issuer within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, against any losses, claims, damages, liabilities
or expenses, joint or several, as the same are incurred, to which the Issuer or
the Co-Issuer may become subject insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the statements set forth in the Dealer Information with respect to
such Dealer or acts or omissions thereof or arise out of or are based upon the
omission or alleged omission to state in such paragraphs a material fact
necessary with respect to such Dealer or acts or omissions thereof to make the
statements in such paragraphs, in the light of the circumstances under which
they are made, not misleading. For the avoidance of doubt, neither Dealer shall
have any obligation to verify or monitor, or have any liability for, any
statements set forth in the Dealer Information that has not been provided by
such Dealer and any liability of a Dealer arising hereunder shall not affect the
rights or obligations of the other Dealer.

(c) Promptly after receipt by an indemnified party under Section 8(a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise under such subsection except to the extent it has been materially
prejudiced by such failure. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it may elect, jointly with any other

-16-

indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval of
counsel by the indemnified party, the indemnifying party shall not be liable to
such indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with the proviso
to the immediately preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) for the indemnified party), (ii)
the indemnifying party shall not have employed counsel satisfactory to the
indemnified party at the expense of the indemnifying party to represent the
indemnified party within a reasonable time after notice of commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party; and except
that, if clause (i) or (iii) is applicable, such liability shall be only in
respect of the counsel referred to in such clause (i) or (iii).

(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages, liabilities
or expenses (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as incurred as a result of such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Co-Issuers on the
one hand and the related Dealer on the other from the offering of the Notes. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Co-Issuers on the one hand and the related Dealer on the other in
connection with the statements or omissions or breaches of representations,
warranties or agreements which resulted in such losses, claims, damages,
liabilities or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Co-Issuers on the one hand and by the related Dealer on the other shall be in
the same proportion as the total proceeds to the Co-Issuers from the sale of
Securities bears to, as applicable, the underwriting discounts and commissions
received by Wachovia Securities and Credit Suisse, respectively. The relative
fault shall be determined by reference to, among other things, whether the
indemnified party failed to give the notice required under Section 8(c) above,
including the consequences of such failure, and whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Co-Issuers on the
one hand or the related Dealer on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement, omission or breach. The Co-

-17-

Issuers and each Dealer agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or expenses (or actions in respect thereof) referred to
above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim (which shall be limited as
provided in Section 8(c) above if the indemnifying party has assumed the defense
of any such action in accordance with the provisions thereof). Notwithstanding
the provisions of this Section 8(d), no Dealer shall be required to contribute
any amount in excess of the amount by which the amount of the discounts and
commissions received by it or fees paid to it, as applicable, exceeds the amount
of any damages which such Dealer has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation shall be entitled to a
contribution from any person who was not guilty of such fraudulent
misrepresentation.

9. Duration, Termination and Assignment of this Agreement.

(a) This Agreement shall become effective as of the date first written
above and shall remain in force until terminated as provided in this Section 9.

(b) This Agreement may be terminated by the Dealers at any time
without the payment of any penalty by either Dealer, if there is a breach of any
of the representations, warranties, covenants or agreements of the Issuer or the
Co-Issuer hereunder or if any of the conditions set forth in Section 7 hereof
have not been satisfied.

(c) This Agreement shall terminate in the event that on or after the
date hereof, there shall have occurred any of the following: (i) a suspension or
material limitation in trading in securities generally on the New York Stock
Exchange or in trading of the securities of the Collateral Manager or any
affiliate of the Collateral Manager on any exchange or over-the-counter market;
(ii) a general moratorium on commercial banking activities declared by either
federal or New York State authorities; or (iii) the outbreak or escalation of
hostilities involving the United States or the declaration by the United States
of a national emergency or war, or other calamity or crisis, if the effect of
any such event specified in this clause (iii) in the judgment of either Dealer
makes it impracticable or inadvisable to proceed with the offering or delivery
of the Notes on the terms and in the manner contemplated by this Agreement and
in the Offering Memorandum.

(d) The Issuer shall pay all fees and expenses in connection with the
offering, placement and sale of the Notes from amounts standing to the credit of
the Expense Account immediately following the termination of this Agreement
pursuant to Section 9(c) hereof.

(e) This Agreement is not assignable by any party hereto; provided,
however, that either Dealer may assign this Agreement, or any of its respective
rights or obligations hereunder, in writing to any of its affiliates; provided
that the rights of the Issuer or Co-Issuer shall not be affected by such
assignment. Upon an assignment pursuant to this Section 9(e), the

-18-

related Dealer shall cause the assignee to assume in writing all of the
obligations and liabilities of such Dealer hereunder and shall notify the Issuer
and the Co-Issuer of such assignment.

10. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or faxed and confirmed to the parties as
follows:

If to Wachovia Capital Markets, LLC:

Wachovia Capital Markets, LLC
375 Park Avenue
New York, New York 10152
Attention: Michelle Tan
Telephone: (212) 909-0035
Fax: (212) 909-0047

If to Credit Suisse Securities (USA) LLC:

Credit Suisse Securities (USA) LLC
11 Madison Avenue
New York, New York 10010
Attention: Ken Rivkin
Telephone: (212) 538-8737
Fax: (212) 743-4762

If to the Issuer:

Arbor Realty Mortgage Securities Series 2006-1, Ltd.
c/o Maples Finance Limited
Queensgate House
P.O. Box 1093GT
Queensgate House, South Church Street
George Town, Grand Cayman, Cayman Islands
Attention: The Directors
Telephone: (345) 945-7099
Fax: (345) 945-7100

with a copy to the Collateral Manager:

Arbor Realty Collateral Management, LLC
333 Earle Ovington Boulevard, 9th Floor
Uniondale, New York 11553
Attention: Executive Vice President, Structured Securitization
Telephone: (212) 389-6546
Fax: (212) 389-6573

If to the Co-Issuer:

-19-

Arbor Realty Mortgage Securities Series 2006-1 LLC
c/o Puglisi & Associates
830 Library Avenue, Suite 204,
Newark, Delaware 19711
Attention: Donald J. Puglisi
Telephone: (302) 738-6680
Fax: (302) 738-7210

with a copy to the Collateral Manager (as addressed above).

Any party hereto may change the address for receipt of communications
by giving written notice to the others.

11. Consent to Jurisdiction. Each of the parties hereto (i) agrees
that any legal suit, action or proceeding brought by any party to enforce any
rights under or with respect to this Agreement or any other document or the
transactions contemplated hereby or thereby may be instituted in any federal
court in The City of New York, State of New York, U.S.A.; provided, however,
that if a federal court in the City of New York declines jurisdiction for any
reason, any legal suit, action or proceeding brought by any party to enforce any
rights under or with respect to this Agreement or any other document or the
transactions contemplated hereby or thereby may be instituted in any state court
in the City of New York, State of New York, U.S.A., (ii) irrevocably waives to
the fullest extent permitted by law any objection which it may now or hereafter
have to the laying of venue of any such suit, action or proceeding instituted in
the City of New York, State of New York, U.S.A., (iii) irrevocably waives to the
fullest extent permitted by law any claim that and agrees not to claim or plead
in any court that any such action, suit or proceeding brought in a court in the
City of New York, State of New York, U.S.A. has been brought in an inconvenient
forum and (iv) irrevocably submits to the non-exclusive jurisdiction of any such
court in any such suit, action or proceeding or for recognition and enforcement
of any judgment in respect thereof.

Each of the Issuer and the Co-Issuer hereby irrevocably and
unconditionally designates and appoints CT Corporation System, 111 8th Avenue,
13th Floor, New York, New York 10011, U.S.A. (and any successor entity), as its
authorized agent to receive and forward on its behalf service of any and all
process which may be served in any such suit, action or proceeding in any such
court and agrees that service of process upon CT Corporation shall be deemed in
every respect effective service of process upon it in any such suit, action or
proceeding and shall be taken and held to be valid personal service upon it.
Said designation and appointment shall be irrevocable. Nothing in this Section
11 shall affect the rights of the Dealers, their respective affiliates or any
indemnified party to serve process in any manner permitted by law. Each of the
Issuer and the Co-Issuer further agrees to take any and all action, including
the execution and filing of any and all such documents and instruments, as may
be necessary to continue such designation and appointment of CT Corporation in
full force and effect so long as the Notes are outstanding but in no event for a
period longer than five years from the date of this Agreement. Each of the
Issuer and the Co-Issuer hereby irrevocably and unconditionally authorizes and
directs CT Corporation to accept such service on their behalf. If for any reason
CT Corporation ceases to be available to act as such, each of the Issuer and the
Co-Issuer agrees

-20-

to designate a new agent in New York City on the terms and for the purposes of
this provision reasonably satisfactory to the Dealers.

To the extent that either the Issuer or the Co-Issuer has or hereafter
may acquire any immunity from jurisdiction of any court (including, without
limitation, any court in the United States, the State of New York, Cayman
Islands or any political subdivision thereof) or from any legal process (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property or
assets, this Agreement, or any other documents or actions to enforce judgments
in respect of any thereof, it hereby irrevocably waives such immunity, and any
defense based on such immunity, in respect of its obligations under the
above-referenced documents and the transactions contemplated thereby, to the
extent permitted by law.

12. Arms-Length Transaction. Each of the Co-Issuers acknowledges and
agrees that (i) Wachovia Securities is acting solely in the capacity of an arm's
length contractual counterparty to the Issuer and the Co-Issuer with respect to
the purchase, placement and sale of the Notes pursuant to this Agreement and not
as a financial advisor or a fiduciary to, or agent of, the Issuer or the
Co-Issuer or any other person, (ii) neither Dealer is advising the Issuer, the
Co-Issuer or any other person as to any legal, tax, investment, accounting or
regulatory matters in any jurisdiction, (iii) the Issuer and the Co-Issuer shall
consult with their own advisors concerning any such matter and shall be
responsible for making their own independent investigation and appraisal of any
transactions contemplated by this Agreement, and the Dealers shall have no
responsibility or liability to the Issuer or the Co-Issuer with respect thereto,
and (iv) any review by the Dealers of the Issuer, the Co-Issuer or any
transactions contemplated by this Agreement or any other matters relating
thereto will be performed solely for the benefit of the Dealers and shall not be
on behalf of the Issuer, the Co-Issuer or any other person.

13. Judgment Currency. If, pursuant to a judgment or order being made
or registered against either the Issuer or the Co-Issuer, any payment under or
in connection with this Agreement to the Dealers is made or satisfied in a
currency (the "Judgment Currency") other than in United States Dollars then, to
the extent that the payment (when converted into United States Dollars at the
rate of exchange on the date of payment or, if it is not practicable for the
Dealers to purchase United States Dollars with the Judgment Currency on the date
of payment, at the rate of exchange as soon thereafter as it is practicable to
do so) actually received by the Dealers falls short of the amount due under the
terms of this Agreement, the Issuer or the Co-Issuer, as applicable, shall, to
the extent permitted by law, as a separate and independent obligation, indemnify
and hold harmless the Dealers against the amount of such short fall and such
indemnity shall continue in full force and effect notwithstanding any such
judgment or order as aforesaid. For the purpose of this Section 13, "rate of
exchange" means the rate at which the Dealers are able on the relevant date to
purchase United States Dollars with the Judgment Currency and shall take into
account any premium and other costs of exchange.

14. Amendments to this Agreement. This Agreement may be amended by the
parties hereto only if such amendment is specifically approved in writing by the
Issuer, the Co-Issuer and the Dealers. The Co-Issuers must provide notice of any
amendment or modification of this Agreement to each Rating Agency rating the
Notes at the time of any such amendment or modification.

-21-

15. Parties. This Agreement shall inure to the benefit of and be
binding upon the Dealers, the Co-Issuers and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Dealers, the
Co-Issuers and their respective successors and the controlling persons and
officers and directors referred to in Section 8, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provisions herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Dealers, the Co-Issuers, each of
their respective affiliates and their respective successors, and said
controlling persons and officers, directors and managers and their heirs and
legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities shall be deemed to be a successor by
reason merely of such purchase.

16. Governing Law. This Agreement shall be construed in accordance
with the internal laws of the State of New York, without giving effect to the
choice of law principles thereof.

17. Counterparts. This Agreement may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and all
such counterparts shall together constitute but one and the same agreement.

18. Representations, Warranties and Indemnities to Survive Delivery.
The respective representations, warranties and indemnities of the Issuer, the
Co-Issuer, of their respective officers and of the Dealers set forth in or made
pursuant to, this Agreement, including any warranty relating to the payment of
expenses owed to the Dealers hereunder shall remain in full force and effect and
shall survive delivery of and payment for the Securities and any termination of
this Agreement.

19. No Petition Agreement. Each Dealer agrees that, so long as any
Note is outstanding and for a period of one year plus one day or, if longer, the
applicable preference period then in effect after payment in full of all amounts
payable under or in respect of the Transaction Documents, it shall not institute
against or join or assist any other Person in instituting against, any of the
Issuer or the Co-Issuer any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceedings, or other proceedings under any federal or state
bankruptcy or similar law of any jurisdiction. This Section 19 shall survive any
termination of this Agreement.

20. Non-Recourse Agreement. Notwithstanding any other provision of
this Agreement, all obligations of the Issuer or the Co-Issuer arising hereunder
or in connection herewith are limited in recourse to the Pledged Obligations and
to the extent the proceeds of the Pledged Obligations, when applied in
accordance with the Priority of Payments, are insufficient to meet the
obligations of the Issuer or the Co-Issuer hereunder in full, the Issuer or the
Co-Issuer, as applicable, shall have no further liability in respect of any such
outstanding obligations and any claims against the Issuer or the Co-Issuer, as
applicable, shall be extinguished and shall not thereafter revive. The Dealers
hereby agree and acknowledge that the obligations of the Co-Issuers hereunder
are solely the corporate obligations of the Co-Issuer and that no recourse shall
be had against any officer, director, employee, shareholder, limited partner or
incorporator of the

-22-

Co-Issuers for any amounts payable hereunder. This Section 20 shall survive any
termination of this Agreement.

21. Taxes. The Issuer shall not be obligated to pay any additional
amounts to the holders or beneficial owners of any Note as a result of
withholding or deduction for, or on account of, any present or future taxes,
duties, assessments or governmental charges with respect to such Notes.

-23-

IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Purchase and Placement Agreement as of the day and year first above
written.

ARBOR REALTY MORTGAGE SECURITIES SERIES
2006-1, LTD., as Issuer

By:  /s/  George Danforth
-----------------------------------
Name:  George Danforth
---------------------------------
Title:  Director
--------------------------------

ARBOR REALTY MORTGAGE SECURITIES SERIES
2006-1 LLC, as Co-Issuer

By:  /s/  Guy R. Milone, Jr.
-----------------------------------
Name:  Guy R. Milone, Jr.
---------------------------------
Title:  Authorized Signatory
--------------------------------

WACHOVIA CAPITAL MARKETS, LLC

By:  /s/  Michelle Tan
-----------------------------------
Name:  Michelle Tan
---------------------------------
Title:  Director
--------------------------------

CREDIT SUISSE SECURITIES (USA) LLC

By:  /s/  Jeffrey Altabef
-----------------------------------
Name:  Jeffrey Altabef
---------------------------------
Title:  Managing Director
--------------------------------

EXHIBIT A

ARBOR REALTY COLLATERAL MANAGEMENT, LLC

Officer's Certificate

The undersigned, ____________________, pursuant to Section 7(c) of
that certain Purchase and Placement Agreement dated as of December 14, 2006, by
and among Arbor Realty Mortgage Securities Series 2006-1, Ltd., Arbor Realty
Mortgage Securities Series 2006-1 LLC, Wachovia Capital Markets, LLC and Credit
Suisse Securities (USA) LLC (the "Purchase Agreement") does HEREBY CERTIFY that:

(a) The Collateral Manager (i) is a limited liability company, duly
organized, is validly existing and is in good standing under the laws of the
State of Delaware, (ii) has full power and authority to own its assets and to
transact the business in which it is currently engaged, and (iii) is duly
qualified and is in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires, or the
performance of the Collateral Management Agreement and the Indenture would
require, such qualification, except for failures to be so qualified that would
not in the aggregate have a material adverse effect on the business, operations,
assets or financial condition of the Collateral Manager or on the ability of the
Collateral Manager to perform its obligations thereunder, or on the validity or
enforceability of, the Collateral Management Agreement and the provisions of the
Indenture applicable to the Collateral Manager; the Collateral Manager has full
power and authority to execute, deliver and perform the Collateral Management
Agreement and its obligations thereunder and the provisions of the Indenture
applicable to it; the Collateral Management Agreement has been duly authorized,
executed and delivered by it and constitutes a legal, valid and binding
agreement of the Collateral Manager, enforceable against it in accordance with
the terms thereof, except that the enforceability thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and (ii) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law);

(b) Neither the Collateral Manager nor any of its Affiliates is in
violation of any Federal or state securities law or regulation promulgated
thereunder that would have a material adverse effect upon the ability of the
Collateral Manager to perform its duties under the Collateral Management
Agreement or the Indenture, and there is no charge, investigation, action, suit
or proceeding before or by any court or regulatory agency pending or, to the
best knowledge of the Collateral Manager, threatened which could reasonably be
expected to have a material adverse effect upon the ability of the Collateral
Manager to perform its duties under the Collateral Management Agreement or the
Indenture;

(c) Neither the execution and delivery of the Collateral Management
Agreement nor the performance by the Collateral Manager of its duties thereunder
or under the Indenture conflicts with or will violate or result in a breach or
violation of any of the terms or provisions of, or constitutes a default under:
(i) the limited liability company agreement of the Collateral Manager, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note

agreement or other evidence of indebtedness or other agreement, obligation,
condition, covenant or instrument to which the Collateral Manager is a party or
is bound, (iii) any law, decree, order, rule or regulation applicable to the
Collateral Manager of any court or regulatory, administrative or governmental
agency, body or authority or arbitrator having jurisdiction over the Collateral
Manager or its properties, and which would have, in the case of any of (i), (ii)
or (iii) of this subsection (c), either individually or in the aggregate, a
material adverse effect on the business, operations, assets or financial
condition of the Collateral Manager or the ability of the Collateral Manager to
perform its obligations under the Collateral Management Agreement or the
Indenture;

(d) No consent, approval, authorization or order of or declaration or
filing with any government, governmental instrumentality or court or other
person is required for the performance by the Collateral Manager of its duties
under the Collateral Management Agreement and under the Indenture, except such
as have been duly made or obtained;

(e) The Offering Memorandum, as of the date thereof (including as of
the date of any supplement thereto) and as of the Closing Date does not contain
any untrue statement of a material fact and does not omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;

(f) On the Closing Date, there shall not have been, since the
respective dates as of which information is given in the Offering Materials, any
material adverse change or prospective material adverse change with respect to
the Issuer, the Co-Issuer or the pool of Assets; and

(g) The Collateral Manager is subject to a valid exemption from
registration as a registered investment adviser under the United States
Investment Advisers Act or 1940, as amended.

Capitalized terms not set forth herein shall have the meaning ascribed
thereto in the Indenture.

-2-

IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
14th day of December, 2006.

ARBOR REALTY COLLATERAL MANAGEMENT, LLC

By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------

EXHIBIT B-1

ARBOR REALTY SR, INC.

Officer's Certificate

The undersigned, ____________________, pursuant to Section 7(c) of
that certain Purchase and Placement Agreement dated as of December 14, 2006, by
and among Arbor Realty Mortgage Securities Series 2006-1, Ltd., Arbor Realty
Mortgage Securities Series 2006-1 LLC, Wachovia Capital Markets, LLC and Credit
Suisse Securities (USA) LLC (the "Purchase Agreement") does HEREBY CERTIFY that:

(a) Arbor Realty SR, Inc. ("Arbor Realty") (i) is a corporation, duly
incorporated, is validly existing and is in good standing under the laws of the
State of Maryland, (ii) has full power and authority to own its assets and to
transact the business in which it is currently engaged, and (iii) is duly
qualified and is in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires, or the
performance of the Collateral Debt Securities Purchase Agreement and the
Indenture would require, such qualification, except for failures to be so
qualified that would not in the aggregate have a material adverse effect on the
business, operations, assets or financial condition of Arbor Realty or on the
ability of Arbor Realty to perform its obligations thereunder, or on the
validity or enforceability of, the Collateral Debt Securities Purchase Agreement
and the provisions of the Indenture applicable to Arbor Realty; Arbor Realty has
full power and authority to execute, deliver and perform the Collateral Debt
Securities Purchase Agreement and its obligations thereunder and the provisions
of the Indenture applicable to it; the Collateral Debt Securities Purchase
Agreement has been duly authorized, executed and delivered by it and constitutes
a legal, valid and binding agreement of Arbor Realty, enforceable against it in
accordance with the terms thereof, except that the enforceability thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights and (ii)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law);

(b) Neither Arbor Realty nor any of its Affiliates is in violation of
any Federal or state securities law or regulation promulgated thereunder that
would have a material adverse effect upon the ability of Arbor Realty to perform
its duties under the Collateral Debt Securities Purchase Agreement or the
Indenture, and there is no charge, investigation, action, suit or proceeding
before or by any court or regulatory agency pending or, to the best knowledge of
Arbor Realty, threatened which could reasonably be expected to have a material
adverse effect upon the ability of Arbor Realty to perform its duties under the
Collateral Debt Securities Purchase Agreement or the Indenture;

(c) Neither the execution and delivery of the Collateral Debt
Securities Purchase Agreement nor the performance by Arbor Realty of its duties
thereunder or under the Indenture conflicts with or will violate or result in a
breach or violation of any of the terms or provisions of, or constitutes a
default under: (i) the articles of incorporation or by-laws of Arbor Realty,
(ii) the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement or

other evidence of indebtedness or other agreement, obligation, condition,
covenant or instrument to which Arbor Realty is a party or is bound, (iii) any
law, decree, order, rule or regulation applicable to Arbor Realty of any court
or regulatory, administrative or governmental agency, body or authority or
arbitrator having jurisdiction over Arbor Realty or its properties, and which
would have, in the case of any of (i), (ii) or (iii) of this subsection (c),
either individually or in the aggregate, a material adverse effect on the
business, operations, assets or financial condition of Arbor Realty or the
ability of Arbor Realty to perform its obligations under the Collateral Debt
Securities Purchase Agreement or the Indenture;

(d) No consent, approval, authorization or order of or declaration or
filing with any government, governmental instrumentality or court or other
person is required for the performance by Arbor Realty of its duties under the
Collateral Debt Securities Purchase Agreement and under the Indenture, except
such as have been duly made or obtained; and

(e) With respect to any information in the Offering Memorandum
regarding Arbor Realty SR, the Offering Memorandum, as of the date thereof
(including as of the date of any supplement thereto) and as of the Closing Date
does not contain any untrue statement of a material fact and does not omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.

Capitalized terms not set forth herein shall have the meaning ascribed
thereto in the Indenture.

-2-

IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
14th day of December, 2006.

ARBOR REALTY SR, INC.

By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------

EXHIBIT B-2

ARBOR REALTY FUNDING LLC

Officer's Certificate

The undersigned, ____________________, pursuant to Section 7(c) of
that certain Purchase and Placement Agreement dated as of December 14, 2006, by
and among Arbor Realty Mortgage Securities Series 2006-1, Ltd., Arbor Realty
Mortgage Securities Series 2006-1 LLC, Wachovia Capital Markets, LLC and Credit
Suisse Securities (USA) LLC (the "Purchase Agreement") does HEREBY CERTIFY that:

(a) Arbor Realty Funding LLC ("Arbor Realty Funding") (i) is a limited
liability company, duly formed, is validly existing and is in good standing
under the laws of the State of Delaware, (ii) has full power and authority to
own its assets and to transact the business in which it is currently engaged,
and (iii) is duly qualified and is in good standing under the laws of each
jurisdiction where its ownership or lease of property or the conduct of its
business requires, or the performance of the Collateral Debt Securities Purchase
Agreement would require, such qualification, except for failures to be so
qualified that would not in the aggregate have a material adverse effect on the
business, operations, assets or financial condition of Arbor Realty Funding or
on the ability of Arbor Realty Funding to perform its obligations thereunder, or
on the validity or enforceability of, the Collateral Debt Securities Purchase
Agreement; Arbor Realty Funding has full power and authority to execute, deliver
and perform the Collateral Debt Securities Purchase Agreement and its
obligations thereunder; the Collateral Debt Securities Purchase Agreement has
been duly authorized, executed and delivered by it and constitutes a legal,
valid and binding agreement of Arbor Realty Funding, enforceable against it in
accordance with the terms thereof, except that the enforceability thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights and (ii)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law);

(b) Neither Arbor Realty Funding nor any of its Affiliates is in
violation of any Federal or state securities law or regulation promulgated
thereunder that would have a material adverse effect upon the ability of Arbor
Realty Funding to perform its duties under the Collateral Debt Securities
Purchase Agreement, and there is no charge, investigation, action, suit or
proceeding before or by any court or regulatory agency pending or, to the best
knowledge of Arbor Realty Funding, threatened which could reasonably be expected
to have a material adverse effect upon the ability of Arbor Realty Funding to
perform its duties under the Collateral Debt Securities Purchase Agreement;

(c) Neither the execution and delivery of the Collateral Debt
Securities Purchase Agreement nor the performance by Arbor Realty Funding of its
duties thereunder conflicts with or will violate or result in a breach or
violation of any of the terms or provisions of, or constitutes a default under:
(i) the limited liability company agreement of Arbor Realty Funding, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note agreement
or other evidence of indebtedness or other agreement, obligation, condition,
covenant or

instrument to which Arbor Realty Funding is a party or is bound, (iii) any law,
decree, order, rule or regulation applicable to Arbor Realty Funding of any
court or regulatory, administrative or governmental agency, body or authority or
arbitrator having jurisdiction over Arbor Realty Funding or its properties, and
which would have, in the case of any of (i), (ii) or (iii) of this subsection
(c), either individually or in the aggregate, a material adverse effect on the
business, operations, assets or financial condition of Arbor Realty Funding or
the ability of Arbor Realty Funding to perform its obligations under the
Collateral Debt Securities Purchase Agreement; and

(d) No consent, approval, authorization or order of or declaration or
filing with any government, governmental instrumentality or court or other
person is required for the performance by Arbor Realty Funding of its duties
under the Collateral Debt Securities Purchase Agreement, except such as have
been duly made or obtained.

Capitalized terms not set forth herein shall have the meaning ascribed
thereto in the Indenture.

-2-

IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
14th day of December, 2006.

ARBOR REALTY FUNDING LLC

By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------

EXHIBIT B-3

ARBOR REALTY LIMITED PARTNERSHIP

Officer's Certificate

The undersigned, ____________________, pursuant to Section 7(c) of
that certain Purchase and Placement Agreement dated as of December 14, 2006, by
and among Arbor Realty Mortgage Securities Series 2006-1, Ltd., Arbor Realty
Mortgage Securities Series 2006-1 LLC, Wachovia Capital Markets, LLC and Credit
Suisse Securities (USA) LLC (the "Purchase Agreement") does HEREBY CERTIFY that:

(a) Arbor Realty Limited Partnership ("Arbor Realty LP") (i) is a
limited partnership, duly formed, is validly existing and is in good standing
under the laws of the State of Delaware, (ii) has full power and authority to
own its assets and to transact the business in which it is currently engaged,
and (iii) is duly qualified and is in good standing under the laws of each
jurisdiction where its ownership or lease of property or the conduct of its
business requires, or the performance of the Collateral Debt Securities Purchase
Agreement would require, such qualification, except for failures to be so
qualified that would not in the aggregate have a material adverse effect on the
business, operations, assets or financial condition of Arbor Realty LP or on the
ability of Arbor Realty LP to perform its obligations thereunder, or on the
validity or enforceability of, the Collateral Debt Securities Purchase
Agreement; Arbor Realty LP has full power and authority to execute, deliver and
perform the Collateral Debt Securities Purchase Agreement and its obligations
thereunder; the Collateral Debt Securities Purchase Agreement has been duly
authorized, executed and delivered by it and constitutes a legal, valid and
binding agreement of Arbor Realty LP, enforceable against it in accordance with
the terms thereof, except that the enforceability thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and (ii) general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law);

(b) Neither Arbor Realty LP nor any of its Affiliates is in violation
of any Federal or state securities law or regulation promulgated thereunder that
would have a material adverse effect upon the ability of Arbor Realty LP to
perform its duties under the Collateral Debt Securities Purchase Agreement, and
there is no charge, investigation, action, suit or proceeding before or by any
court or regulatory agency pending or, to the best knowledge of Arbor Realty LP,
threatened which could reasonably be expected to have a material adverse effect
upon the ability of Arbor Realty LP to perform its duties under the Collateral
Debt Securities Purchase Agreement;

(c) Neither the execution and delivery of the Collateral Debt
Securities Purchase Agreement nor the performance by Arbor Realty LP of its
duties thereunder conflicts with or will violate or result in a breach or
violation of any of the terms or provisions of, or constitutes a default under:
(i) the limited partnership agreement of Arbor Realty LP, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement or other
evidence

of indebtedness or other agreement, obligation, condition, covenant or
instrument to which Arbor Realty LP is a party or is bound, (iii) any law,
decree, order, rule or regulation applicable to Arbor Realty LP of any court or
regulatory, administrative or governmental agency, body or authority or
arbitrator having jurisdiction over Arbor Realty LP or its properties, and which
would have, in the case of any of (i), (ii) or (iii) of this subsection (c),
either individually or in the aggregate, a material adverse effect on the
business, operations, assets or financial condition of Arbor Realty LP or the
ability of Arbor Realty LP to perform its obligations under the Collateral Debt
Securities Purchase Agreement; and

(d) No consent, approval, authorization or order of or declaration or
filing with any government, governmental instrumentality or court or other
person is required for the performance by Arbor Realty LP of its duties under
the Collateral Debt Securities Purchase Agreement, except such as have been duly
made or obtained.

Capitalized terms not set forth herein shall have the meaning ascribed
thereto in the Indenture.

-2-

IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
14th day of December, 2006.

ARBOR REALTY LIMITED PARTNERSHIP

By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------

SCHEDULE A

PURCHASED NOTES    WACHOVIA SECURITIES   PURCHASE PRICE
-----------------   -------------------   --------------

Class A-1A Notes:       $230,000,000           100%
Class A-2 Notes:        $ 72,900,000           100%
Class B Notes:          $ 41,100,000           100%
Class C Notes:          $ 31,200,000           100%
Class D Notes:          $ 13,350,000           100%
Class E Notes:          $ 14,250,000           100%
Class F Notes:          $ 13,650,000           100%
Class G Notes:          $ 16,950,000           100%
Class H Notes:          $ 14,100,000           100%

CLASS A-1AR NOTES   WACHOVIA SECURITIES               PURCHASE PRICE
------------------   -------------------   -------------------------------------

Class A-1AR Notes:    Up to $100,000,000   The initial principal balance thereof
which was $0 on the Closing Date

Exhibit 10.26

ARBOR REALTY MORTGAGE SECURITIES SERIES 2006-1, LTD.,
as the Issuer,

ARBOR REALTY MORTGAGE SECURITIES SERIES 2006-1 LLC,
as the Co-Issuer,

WELLS FARGO BANK, NATIONAL ASSOCIATION
as Class A-1AR Note Agent

and

THE CLASS A-1AR HOLDERS PARTY HERETO

CLASS A-1AR NOTE PURCHASE AGREEMENT

Dated as of December 14, 2006

TABLE OF CONTENTS

Page
----

ARTICLE 1

DEFINITIONS..............................................................     2
Section 1.01   Defined Terms..........................................     2
Section 1.02   Terms Generally........................................     5

ARTICLE 2

THE COMMITMENTS..........................................................     5
Section 2.01   Commitments............................................     5
Section 2.02   Advances and Class A-1AR Draws.........................     6
Section 2.03   Requests for Class A-1AR Draws.........................     6
Section 2.04   Funding of Class A-1AR Draws...........................     7
Section 2.05   Termination and Reduction of Class A-1AR Commitments...     7
Section 2.06   Advances; Prepayments..................................     8
Section 2.07   [Reserved].............................................     8
Section 2.08   Class A-1AR Commitment Fee.............................     8
Section 2.09   Breakage Costs.........................................     8

ARTICLE 3

REPRESENTATIONS AND WARRANTIES; COLLATERAL...............................     9
Section 3.01   Representations and Warranties.........................     9
Section 3.02   Several Representations and Covenants of Each Holder
and Each Committed Liquidity Provider..................    10

ARTICLE 4

CONDITIONS...............................................................    13
Section 4.01   Closing Date Conditions................................    13
Section 4.02   Conditions to Advances.................................    14
Section 4.03   Obligations Unconditional..............................    14
Section 4.04   Class A-1AR Draws

on a Mandatory Class A-1AR
Draw Date..............................................    14

-ii-

ARTICLE 5

THE CLASS A-1AR NOTE AGENT...............................................    15
Section 5.01   Appointment............................................    15
Section 5.02   Certain Duties and Responsibilities....................    15
Section 5.03   Compensation...........................................    16
Section 5.04   Resignation and Removal; Appointment of a Successor....    17
Section 5.05   Acceptance of Appointment by Successor.................    18

ARTICLE 6

MISCELLANEOUS............................................................    19
Section 6.01   Notices................................................    19
Section 6.02   Waivers; Amendments....................................    19
Section 6.03   Successors and Assigns.................................    20
Section 6.04   Survival...............................................    23
Section 6.05   Counterparts; Integration; Effectiveness...............    23
Section 6.06   Severability...........................................    23
Section 6.07   Governing Law; Jurisdiction; Consent to Service of
Process; Waiver of Jury Trial Right....................    23
Section 6.08   Benefits of Indenture and this Agreement...............    24
Section 6.09   Headings...............................................    25
Section 6.10   No Proceedings.........................................    25
Section 6.11   Recourse Against Certain Parties.......................    25
Section 6.12   Non-Petition; Non-Recourse Obligations.................    26
Section 6.13   Term, Termination......................................    26
Section 6.14   Disclosure.............................................    26

Schedule I  Initial Holders
Schedule II Holder Representations
EXHIBIT A   Form of Assignment and Acceptance
EXHIBIT B   Form of Class A-1AR Draw Request

-iii-

CLASS A-1AR NOTE PURCHASE AGREEMENT (as amended, restated,
supplemented or modified from time to time, this "Agreement") dated as of
December 14, 2006 among:

ARBOR REALTY MORTGAGE SECURITIES SERIES 2006-1, LTD., a Cayman Islands
exempted company with limited liability (together with its successors and
assigns, the "Issuer");

ARBOR REALTY MORTGAGE SECURITIES SERIES 2006-1 LLC, a Delaware limited
liability company (together with its successors and assigns, the "Co-Issuer" and
together with the Issuer, the "Co-Issuers");

The HOLDERS (as such term is defined below) party hereto; and

WELLS FARGO BANK, NATIONAL ASSOCIATION, as agent for the Holders from
time to time of the Class A-1AR Notes (together with its successors in such
capacity, the "Class A-1AR Note Agent").

WHEREAS, the Co-Issuers will issue the U.S.$230,000,000 Class A-1A
Senior Secured Floating Rate Term Notes, Due 2042 (the "Class A-1A Notes"), up
to U.S.$100,000,000 Class A-1AR Revolving Senior Secured Floating Rate Term
Notes, Due 2042 (the "Class A-1AR Notes" and, together with the Class A-1A
Notes, the "Class A-1 Notes"), the U.S.$72,900,000 Class A-2 Second Priority
Senior Secured Floating Rate Term Notes, Due 2042 (the "Class A-2 Notes" and,
together with the Class A-1 Notes, the "Class A Notes"), the U.S.$41,100,000
Class B Third Priority Floating Rate Term Notes, Due 2042 (the "Class B Notes"),
the U.S.$31,200,000 Class C Fourth Priority Floating Rate Capitalized Interest
Term Notes, Due 2042 (the "Class C Notes"), the U.S.$13,350,000 Class D Fifth
Priority Floating Rate Capitalized Interest Term Notes, Due 2042 (the "Class D
Notes"), the U.S.$14,250,000 Class E Sixth Priority Floating Rate Capitalized
Interest Term Notes, Due 2042 (the "Class E Notes"), the U.S.$13,650,000 Class F
Seventh Priority Floating Rate Capitalized Interest Term Notes, Due 2042 (the
"Class F Notes"), the U.S.$16,950,000 Class G Eighth Priority Floating Rate
Capitalized Interest Term Notes, Due 2042 (the "Class G Notes"), and the
U.S.$14,100,000 Class H Ninth Priority Floating Rate Capitalized Interest Term
Notes, Due 2042 (the "Class H Notes" and, together with the Class A Notes, the
Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes, the
Class F Notes and the Class G Notes, the "Notes");

WHEREAS, the Issuer also will issue 52,500,000 Preferred Shares, par
value U.S.$0.0001 per share (the "Preferred Shares" and, together with the
Notes, the "Securities"), having a notional amount equal to U.S.$1.00 per share;

WHEREAS, the Notes will be issued pursuant to an Indenture to be dated
as of the date hereof (the "Indenture"), among the Issuer, the Co-Issuer, Arbor
Realty SR, Inc., as advancing agent, and Wells Fargo Bank, National Association
("Wells Fargo"), as trustee (together with any successor permitted under the
Indenture, the "Trustee"), paying agent, calculation agent, transfer agent,
custodial securities intermediary, backup advancing agent and

notes registrar, and the Preferred Shares will be issued pursuant to a preferred
shares paying agency agreement to be dated as of the date hereof (the "Preferred
Shares Paying Agency Agreement"), among the Issuer, Wells Fargo, as paying agent
and transfer agent (together with any successor permitted under the Preferred
Shares Paying Agency Agreement, the "Preferred Shares Paying Agent"), and Maples
Finance Limited, as share registrar;

WHEREAS, the Co-Issuers, the Class A-1AR Note Agent and the Holders
from time to time of the Class A-1AR Notes issued under the Indenture wish to
evidence certain agreements relating to, among other things, the right of the
Issuer (at the direction of the Collateral Manager) to borrow, repay and
re-borrow amounts under the Class A-1AR Notes both during the Ramp-Up Period and
the Reinvestment Period, and the appointment of the Class A-1AR Note Agent as
agent for the Holders, all as provided in this Agreement and in the Indenture;
and

WHEREAS, the Co-Issuers have, under and in accordance with the terms
of the Indenture, Granted to the Trustee, for the benefit and security of the
Secured Parties, all of the Co-Issuers' right, title and interest in, to and
under this Agreement.

NOW THEREFORE, in consideration of the foregoing premises and the
mutual agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01 Defined Terms.

Terms used but not defined herein have the respective meanings
ascribed to such terms in (or incorporated by reference in) the Indenture. In
addition, as used in this Agreement, the following terms have the meanings
specified below:

"Advances" means the advances made to the Issuer by the Holders or by
one or more Liquidity Providers hereunder, as the case may be, in respect of the
Class A-1AR Notes.

"Assignment and Acceptance" means an assignment and acceptance entered
into by a Holder and an assignee of such Holder substantially in the form of
Exhibit A or any other form reasonably approved by the Collateral Manager and
the Class A-1AR Note Agent.

"Break Funding Event" has the meaning specified in Section 2.09(a).

"Class A-1AR Breakage Amount" has the meaning specified in Section
2.09(a).

"Class A-1AR Commitment" means, in the case of any Holder, the
obligation of such Holder at any time to make Advances in an aggregate principal
amount not to exceed the

-2-

initial Class A-1AR Commitment of each Holder as set forth on Schedule I (in the
case of an Initial Holder) or in the Assignment and Acceptance pursuant to which
such Holder shall have assumed its Class A-1AR Commitment, as applicable, as
such obligation may be reduced or increased from time to time pursuant to
Section 2.05 or pursuant to assignments by or to such Holder pursuant to Section
6.03.

"Class A-1AR Draw" has the meaning specified in Section 2.01.

"Class A-1AR Draw Request" has the meaning specified in Section 2.03.

"Class A-1AR Eligible Investments" has the meaning set forth in
Section 3.02(d).

"Class A-1AR Note Agent Fee" means U.S.$0.

"Class A-1AR Note Register" has the meaning specified in Section 2.06.

"Collateral Account Termination Date" means, with respect to any
Holder that (i) has deposited cash into the Holder Subaccount pursuant to
Section 3.02(c) or (ii) has had payments deposited into the Holder Subaccount
pursuant to the last sentence of Section 3.02(c), the earliest to occur of (a)
the assignment by such Holder of all of its rights and obligations pursuant to
Section 3.02(c), (b)(x) in the case of a Holder described in clause (i) above,
the delivery by such Holder, to the Co-Issuers, the Class A-1AR Note Agent, the
Collateral Manager, the Trustee and each Rating Agency, of a certification in
writing that such Holder satisfies the Class A-1AR Ratings Criteria, such
certification to include a letter from each Rating Agency establishing such
ratings upgrade or such other evidence as shall be reasonably satisfactory to
the Trustee, the Class A-1AR Note Agent, the Collateral Manager and the
Co-Issuers and (y) in the case of a Holder described in clause (ii) above, the
delivery by such Holder of a certification in writing that such Holder has
satisfied in full all previously defaulted obligations to make Advances under
Section 2.01 and (c) the end of the Revolving Period.

"Committed Liquidity Provider" has the meaning specified in Section
6.03(f).

"CP Conduit" means a limited-purpose entity established to issue
commercial paper notes, and any Holder which is a CP Conduit shall be identified
as such on the signature pages hereto, Schedule I hereto and/or any related
Assignment and Assumption Agreement, as applicable.

"Defaulting Holder" has the meaning specified in Section 3.02(c).

"Election Notice" has the meaning specified in Section 6.03(f).

"Excepted Persons" has the meaning specified in Section 6.14(a).

"Holder" means each Initial Holder and any other Person that shall
have become a Holder of a Class A-1AR Note pursuant to a transfer of Class A-1AR
Notes in accordance with Section 6.03 (including any Committed Liquidity
Provider) (other than any such Person that ceases to be a party hereto pursuant
to a transfer of all of its Class A-1AR Notes to another Person pursuant to
Section 6.03).

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"Indemnified Person" has the meaning specified in Section
5.03(a)(iii).

"Initial Holder" means each initial Holder of Class A-1AR Notes listed
on Schedule I under the caption "INITIAL HOLDERS."

"Losses" has the meaning specified in Section 5.03(a)(iii).

"Maximum Class A-1AR Commitment" means the maximum aggregate Class
A-1AR Commitments, which shall equal U.S.$100,000,000 on the Closing Date; as
such amount may be decreased as a result of Mandatory Redemptions, Special
Amortizations or redemptions in connection with Rating Confirmation Failures as
described in Section 18.1(e) of the Indenture.

"Notice of Prepayment" has the meaning set forth in Section 2.09(a).

"Qualified Securitization Pledge" means, with respect to any Holder of
a Class A-1AR Note that is a CP Conduit and indicates that it will make a
Qualified Securitization Pledge on Schedule I to this Agreement (in the case of
any Initial Holder) or in the Assignment and Acceptance delivered by it with
respect to the interests of a Holder of a Class A-1AR Note, a bona fide pledge
by such Holder of its right, title and interest in and to any Class A-1AR Note
pursuant to its program collateral or security agreement with a collateral agent
to secure obligations owing by such Holder to such Holder's Liquidity Providers,
debt holders or other creditors, but only:

(1) if such pledge would not (in the reasonable judgment of the
Holder; provided that the Co-Issuers do not reasonably object) (A) have the
effect of requiring the Issuer, the Co-Issuer or the pool of Assets to
register as an "investment company" under the Investment Company Act; (B)
adversely affect the Issuer's ability to use the exception provided for by
Section 3(c)(7) of the Investment Company Act; (C) subject the Issuer or
the Notes to the registration requirements of the Securities Act; (D)
result in a non-exempt prohibited transaction under ERISA or the Code, or a
violation of provisions of federal, state, local, non-U.S. or other laws or
regulations that are substantively similar thereto; or (E) cause the Issuer
to fail to maintain its status as a "qualified REIT subsidiary" (within the
meaning of Section 856(i)(2) of the Code), or otherwise subject the Issuer
to U.S. federal income tax on a net income basis; and

(2) if such Holder from time to time delivers to the Co-Issuers, the
Collateral Manager and the Trustee such information concerning such Holder,
such collateral agent and such Liquidity Providers, debt holders or other
creditors as the Co-Issuers or the Collateral Manager may reasonably
request in order for the Co-Issuers to determine whether they object to the
Holder's conclusion referred to in clause (1) above;

provided that, upon any foreclosure action in respect of any such pledge and any
related purported transfer of legal or beneficial ownership of such Class A-1AR
Note or any right, title or interest therein, any such purported transfer will
be considered to be a "transfer" of such Class A-1AR Note (or such right, title
or interest) for all purposes of the Indenture (including for purposes of
Section 2.5 of the Indenture).

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"Revolving Period" means the period from and including the Closing
Date to but excluding the Commitment Termination Time.

Section 1.02 Terms Generally.

The definitions of terms herein shall apply equally to the singular
and plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
The words "include," "includes" and "including" shall be deemed to be followed
by the phrase "without limitation." The word "will" shall be construed to have
the same meaning and effect as the word "shall." Unless the context requires
otherwise (a) any definition of or reference to any agreement, instrument or
other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth herein), (b) any reference herein to any Person shall
be construed to include such Person's successors and assigns, (c) the words
"herein," "hereof" and "hereunder," and words of similar import, shall be
construed to refer to this Agreement in its entirety and not to any particular
provision hereof and (d) all references herein to Articles, Sections, Exhibits
and Schedules shall be construed to refer to Articles and Sections of, and
Exhibits and Schedules to, this Agreement.

ARTICLE 2

THE COMMITMENTS

Section 2.01 Commitments.

(a) Subject to the terms and conditions set forth herein, each Holder
agrees to make Advances (the aggregate of all contemporaneous Advances by the
Holders, a "Class A-1AR Draw") to the Issuer from time to time during the
Revolving Period in an aggregate principal amount at any one time outstanding up
to but not exceeding the amount of such Holder's Class A-1AR Commitment;
provided that (i) the aggregate principal amount of all Advances of the Holders
hereunder at any one time outstanding shall in no event exceed the Maximum Class
A-1AR Commitment and (ii) the aggregate principal amount of Advances of any one
Holder hereunder at any one time outstanding shall in no event exceed such
Holder's Class A-1AR Commitment.

(b) Notwithstanding the foregoing, but subject to the foregoing
provisos and to Section 6.03(f):

(i) no Holder that enters into a Liquidity Facility with one or more
Committed Liquidity Providers that is subject to Section 6.03(f) (other
than a Holder that is maintaining a Holder Subaccount as provided in
Section 3.02(d), and has delivered an Election Notice identifying the
Committed Liquidity Provider, who shall be so obligated to the extent of
funds then on deposit therein) shall be obligated to make any Advance to
the Issuer with respect to any Class A-1AR Note, except to the extent that
such Holder has received funds from its financing arrangements in place
with respect to the Class A-1AR Notes (including such Liquidity Facility
with one or more Committed Liquidity

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Providers) which may (consistent with such financing arrangements) be used
to make such Advance; and

(ii) any such Holder referred to in clause (i) above shall enforce all
of its material rights under such Liquidity Facility from time to time to
ensure that, to the fullest extent possible consistent with such Liquidity
Facility, such Holder shall have funds available to make Advances hereunder
in a timely manner.

Within the foregoing limits and subject to the terms and conditions
set forth herein and in the Indenture, the Issuer (at the direction of the
Collateral Manager) may borrow, repay and re-borrow Advances.

Section 2.02 Advances and Class A-1AR Draws.

(a) Each Advance shall be made as part of a Class A-1AR Draw
consisting of Advances made by the Holders ratably in accordance with the
unfunded amounts of their respective Class A-1AR Commitments. The failure of any
Holder to make any Advance required to be made by it shall not relieve any other
Holder of its obligations hereunder; provided that the Class A-1AR Commitments
are several and no Holder shall be responsible for any other Holder's failure to
make Advances as so required. No Advance may be made if, after giving effect
thereto and to any other Class A-1AR Draw Request given and pending, the
aggregate outstanding principal amount of all Advances shall exceed the Maximum
Class A-1AR Commitment; provided that aggregate partial Advances up to and
including the Maximum Class A-1AR Commitments shall be made.

(b) The aggregate principal amount of all Advances required to be made
in respect of any requested Class A-1AR Draw shall be at least U.S.$500,000 (and
integral multiples of U.S.$500 in excess thereof) or, if the aggregate undrawn
amount is less than such required threshold, such lesser amount.

(c) In the case of any Class A-1AR Draw, the proceeds of such Class
A-1AR Draw shall be deposited solely (i) into the Delayed Funding Obligations
Account, to fund Delayed Funding Amounts relating to Delayed Draw Term Loans,
(ii) into the Principal Collection Account, to acquire additional Collateral
Debt Securities in accordance with the relevant provisions of the Indenture or
otherwise distributed pursuant to and in accordance with the Priority of
Payments or (iii) into the Principal Collection Account to be used in connection
with a Special Amortization. None of the proceeds of such Class A-1AR Draw shall
be used by the Issuer, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any Margin Stock. No
Advance will be secured, directly or indirectly, by Margin Stock and the pool of
Assets will not include any Margin Stock.

Section 2.03 Requests for Class A-1AR Draws.

To request a Class A-1AR Draw on any date other than the Closing Date,
the Issuer (or the Collateral Manager on behalf of the Issuer) shall notify the
Class A-1AR Note Agent (with a copy to the Trustee) (each such notice, a "Class
A-1AR Draw Request") of such request by facsimile or electronic messaging system
not later than 11:00 a.m. (New York City time), at least three Business Days
prior to the date of the proposed Class A-1AR Draw. Each

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such facsimile or electronic Class A-1AR Draw Request shall be irrevocable and
shall be confirmed promptly by certified mail, return receipt requested, hand
delivered or sent by overnight courier service guaranteeing next day delivery to
the Class A-1AR Note Agent (with a copy to the Trustee) of a written Class A-1AR
Draw Request in the form of Exhibit B hereto and signed by the Issuer (or the
Collateral Manager on behalf of the Issuer). Each such Class A-1AR Draw Request
shall specify the following information in compliance with Section 2.02 of this
Agreement and Section 18.1 of the Indenture:

(a) the aggregate amount of the requested Class A-1AR Draw;

(b) the date of such Class A-1AR Draw, which shall be a Business Day;
and

(c) wire instructions and account information for the Class A-1AR
Draw.

Promptly following receipt of a Class A-1AR Draw Request, on the date
of receipt of a Class A-1AR Draw Request for a Class A-1AR Draw, the Class A-1AR
Note Agent shall forward (by facsimile or electronic messaging system) to each
Holder (with a copy to the Trustee) a copy of such Class A-1AR Draw Request
substantially in the form of Exhibit B hereto and of the amount of such Holder's
pro rata Advance to be made as part of the requested Class A-1AR Draw. Any Class
A-1AR Draw Request received after 11:00 a.m. (New York City time) on any
Business Day or on a day which is not a Business Day shall be deemed to be a
Class A-1AR Draw Request received at 9:00 a.m. on the next Business Day and to
be funded on the second next Business Day by the Holders of Class A-1AR Notes.

Section 2.04 Funding of Class A-1AR Draws.

Subject to Sections 2.01, 3.02(d), 4.02 and 4.03, each Holder shall
make each Advance to be made by it hereunder by initiating a wire transfer in
immediately available funds by 1:00 p.m. (New York City time) on the Business
Day specified in the Class A-1AR Draw Request to the account designated by the
Issuer (or the Collateral Manager on behalf of the Issuer) for such purpose by
notice to the Holders and the Trustee.

Section 2.05 Termination and Reduction of Class A-1AR Commitments.

(a) The Class A-1AR Commitments shall terminate at the close of
business (New York City time) on the last day of the Revolving Period.

(b) The aggregate amount of the Class A-1AR Commitments shall be
subject to reduction from time to time as provided in Section 11.1 and Section
18.1 of the Indenture.

(c) Each reduction of the Class A-1AR Commitments shall be made
ratably among the Holders in accordance with the amounts of their respective
Class A-1AR Commitments. No termination or reduction of the Class A-1AR
Commitments shall be effected except as provided in Section 2.05(b) hereof, and
Section 11.1 and Section 18.1 of the Indenture.

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Section 2.06 Advances; Prepayments.

(a) All Advances made by a Holder shall be evidenced by the Class
A-1AR Note of such Holder and shall be governed by and subject to this Agreement
and the Indenture. Advances may be prepaid from time to time to the extent
payments are either required or permitted to be made under the Indenture;
provided that any Class A-1AR Prepayment on a Payment Date, under Section 18.3
of the Indenture, shall be made upon not less than two Business Days notice to
the Class A-1AR Note Agent (with a copy to the Trustee and the Holders of the
Class A-1AR Notes) by Issuer Order (or by the Collateral Manager on behalf of
the Issuer) specifying the amount and date of such Class A-1AR Prepayment, and
the Class A-1AR Note Agent shall promptly notify each Holder of the contents of
such notice from the Issuer (or from the Collateral Manager). Each such notice
of a Class A-1AR Prepayment shall be irrevocable.

(b) The Class A-1AR Note Agent hereby agrees that it shall keep a
register (the "Class A-1AR Note Register") at the office of the Class A-1AR Note
Agent and in which the Class A-1AR Note Agent shall maintain records of the
Class A-1AR Commitment of each Holder, the aggregate principal amount of
Advances from time to time outstanding in respect of each Class A-1AR Note, a
copy of each Assignment and Acceptance delivered to the Class A-1AR Note Agent
pursuant to Section 6.03(b) and a copy of each Election Notice and of each
Assignment and Acceptance delivered to the Class A-1AR Note Agent pursuant to
Section 6.03(f). On each Determination Date and at any time promptly following a
request therefor by the Collateral Manager or the Trustee, the Class A-1AR Note
Agent shall provide the Collateral Manager and the Trustee with a report
specifying the aggregate principal amount of all Advances outstanding in respect
of each Class A-1AR Note, the Class A-1AR Commitment of the related Holder (as
of such Determination Date) and the ratings of each Holder (as reported by the
Collateral Manager to the Class A-1AR Note Agent) and any related Committed
Liquidity Provider.

(c) The aggregate principal amount of any partial voluntary Class
A-1AR Prepayment, in respect of the Class A-1AR Notes (taken as a whole), will
be at least U.S.$500,000 (and integral multiples of U.S.$500 in excess thereof)
or, if the Aggregate Outstanding Amount under the Class A-1AR Notes is less than
U.S.$500,000, such lesser amount.

Section 2.07 [Reserved].

Section 2.08 Class A-1AR Commitment Fee.

The Class A-1AR Commitment Fee shall accrue and be payable by the
Issuer as provided in the Indenture.

Section 2.09 Breakage Costs.

(a) If the Issuer prepays any principal of any Advance other than on a
Payment Date (including as a result of an Event of Default) (each such
prepayment, a "Break Funding Event"), the Issuer, or the Collateral Manager on
behalf of the Issuer, shall give each of the Class A-1AR Note Agent and the
Trustee notice (each, a "Notice of Prepayment") of a Class

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A-1AR Prepayment, no later than 10:00 a.m. (New York City time) at least four
Business Days before the date of such Class A-1AR Prepayment and the Class A-1AR
Note Agent, no later than 4:00 p.m. (New York City time) on the Business Day
following the date on which it receives such Notice of Prepayment (so long as
the Class A-1AR Note Agent has received such Notice of Prepayment by 10:00
a.m.), shall provide a copy of such Notice of Prepayment to each Holder and
notify each Holder of such Holder's pro rata share (calculated on the basis of
such Holder's purchase percentage) of such Class A-1AR Prepayment.

(b) If the Issuer, or the Collateral Manager on behalf of the Issuer,
gives a Notice of Prepayment, the Issuer shall compensate each Holder, in
accordance with the Priority of Payments, for funding losses in an amount (the
"Class A-1AR Breakage Amount") equal to the excess, if any, of (i) the amount of
interest that such Holder would earn on the principal amount of such prepayment
for the period (the "Remaining Period") from (and including) the date of such
Break Funding Event to but excluding the next Payment Date if the interest rate
payable on such principal prepayment were equal to LIBOR for the then current
Interest Accrual Period for such Advance, over (ii) the amount of interest that
such Holder would have earned on such principal amount of such prepayment for
the Remaining Period if such Holder were to invest such prepayment for the
Remaining Period at LIBOR determined with respect to the Remaining Period
(assuming LIBOR is determined in accordance with the Indenture). The Class A-1AR
Note Agent shall calculate each such Class A-1AR Breakage Amount in accordance
with the foregoing provisions and such calculation shall be conclusive absent
manifest error. The Issuer shall pay, in accordance with the Priority of
Payments, such Holder the Class A-1AR Breakage Amount on the next succeeding
Payment Date.

(c) The Issuer shall not be obligated to pay any additional amounts to
the Holder of any Class A-1AR Note or any beneficial owner of an interest in a
Class A-1AR Note as a result of any deduction for, or on account of, any present
or future taxes, duties, assessments or governmental charges with respect to
such Class A-1AR Note.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES; COLLATERAL

Section 3.01 Representations and Warranties.

Each of the Issuer and the Co-Issuer represents and warrants, as to
itself only, to the Holders, the Class A-1AR Note Agent and the Trustee that, as
of the date hereof:

(a) The Issuer has been duly incorporated and is validly existing
under the laws of the Cayman Islands. The Co-Issuer has been duly formed and is
validly existing under the laws of the State of Delaware.

(b) It has the power to execute and deliver this Agreement and the
Indenture and to perform its obligations under this Agreement and the Indenture
and has taken all necessary action to authorize such execution, delivery and
performance.

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(c) Such execution, delivery and performance do not violate or
conflict with any law applicable to it, any provision of its constitutional
documents, any order or judgment of any court or other agency of government
applicable to it or any of its assets or any contractual restriction binding on
or affecting it or any of its assets.

(d) All governmental and other consents that are required to have been
obtained by it with respect to the execution, delivery and performance of this
Agreement and the Indenture have been obtained and are in full force and effect
and all conditions of any such consents have been complied with.

(e) Its obligations under this Agreement, the Class A-1AR Notes and
the Indenture constitute its legal, valid and binding obligations, enforceable
against it in accordance with their respective terms (subject to applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally and subject, as to enforceability, to equitable
principles of general application (regardless of whether enforcement is sought
in a proceeding in equity or at law)).

(f) There is not pending or, to its knowledge, threatened against it,
or against any of its Affiliates, any action, suit or proceeding at law or in
equity or before any court, tribunal, government body, agency or official or any
arbitrator that is likely to affect the legality, validity or enforceability
against it of this Agreement or the Indenture or its ability (as a matter of
law) to perform its obligations under this Agreement or the Indenture.

(g) It is not required to register as an "investment company" under
the Investment Company Act.

(h) It has timely filed or caused to be filed all tax returns and
reports required to have been filed and has timely paid or caused to be paid all
taxes required to have been paid by it where the failure to do so could
reasonably be expected to result, singularly or in the aggregate, in a material
adverse effect.

(i) No Event of Default has occurred and is continuing.

Section 3.02 Several Representations and Covenants of Each Holder and
Each Committed Liquidity Provider.

Each Holder and each Committed Liquidity Provider severally represents
and warrants as of each date it shall acquire any interest in, or fund any
Advance (including the date that such Person shall become a party hereto
pursuant to an Assignment and Acceptance) and covenants (as to itself only and
as to no other Holder or Committed Liquidity Provider) to the Co-Issuers and the
Class A-1AR Note Agent that:

(a) it is an entity duly organized and validly existing and (if
applicable) in good standing under the laws of the jurisdiction of its
organization; it has the organizational power to execute and deliver this
Agreement and to perform its obligations under this Agreement and has taken all
necessary organizational action to authorize such execution, delivery and
performance; such execution, delivery and performance do not violate or conflict
with any law applicable to it, any provision of its constitutional documents,
any order or judgment of any court

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or other agency of government applicable to it or any of its assets and do not
violate or conflict with in any material respect any material contractual
restriction binding on or affecting it or any of its assets; all governmental
and other consents that are required to have been obtained by it with respect to
the execution, delivery and performance of this Agreement have been obtained and
are in full force and effect and all conditions of any such consents have been
complied with; there is not pending or, to its knowledge, threatened against it,
or against any of its Affiliates, any action, suit or proceeding at law or in
equity or before any court, tribunal, government body, agency or official or any
arbitrator that is likely to affect the legality, validity or enforceability
against it of this Agreement or the Indenture or its ability to perform its
obligations under this Agreement or the Indenture; it has duly executed and
delivered this Agreement and its obligations under this Agreement constitute its
legal, valid and binding obligations, enforceable against it in accordance with
their respective terms (subject to applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general application
(regardless of whether enforcement is sought in a proceeding in equity or at
law));

(b) each of the representations and warranties set forth on Schedule
II is true, correct and complete;

(c) except in the case of any Committed Liquidity Provider which has
funded the related Holder Subaccount in an amount equal to its unfunded Class
A-1AR Commitment, it satisfies the Class A-1AR Ratings Criteria, and
acknowledges and agrees that, if it shall at any time fail to comply with the
Class A-1AR Ratings Criteria, it shall promptly (but in no event later than 5:00
p.m. on the Business Day such Holder or such Committed Liquidity Provider, as
applicable, receives notice or otherwise becomes aware thereof, or, if such
notice is received or such Holder or such Committed Liquidity Provider, as
applicable, becomes aware thereof after 5:00 p.m. (New York City time) on a
Business Day or on any day which is not a Business Day, 9:00 a.m. (New York City
time) on the Business Day following the date such Holder or such Committed
Liquidity Provider, as applicable, receives notice or otherwise becomes aware
thereof) notify the Co-Issuers, the Collateral Manager, the Rating Agencies, the
Class A-1AR Note Agent and the Trustee thereof. Each Holder or Committed
Liquidity Provider, as applicable, agrees that if it fails at any time to comply
with or satisfy the Class A-1AR Ratings Criteria, such Holder or Committed
Liquidity Provider, as applicable, shall, within five Business Days thereafter,
deposit or cause to be deposited cash in immediately available funds in an
amount equal to the undrawn amount of the related Holder's Class A-1AR
Commitment in a Holder Subaccount. Each Holder or Committed Liquidity Provider,
as applicable, acknowledges that if such Holder or Committed Liquidity Provider,
as applicable, fails to fund such Holder Subaccount in accordance with the terms
of this Section 3.02(c), (i) the Issuer (or the Collateral Manager on behalf of
the Issuer) has the right hereunder, and is required under Section 18.4 of the
Indenture, to promptly use reasonable efforts to replace such Holder and any
Committed Liquidity Provider with respect thereto (at the cost of such Holder or
Committed Liquidity Provider, as applicable) with another entity that meets the
Class A-1AR Ratings Criteria by requiring the replaced Holder and any Committed
Liquidity Provider with respect thereto to transfer all of its rights and
obligations in respect of the Class A-1AR Notes to the transferee entity in
accordance with the provisions specified in Section 6.03 and the replaced Holder
and any Committed Liquidity Provider with respect thereto agrees to cooperate
with all reasonable requests of the Issuer (or the Collateral Manager on behalf
of the Issuer) for the purpose of

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effecting such transfer and (ii) any payments of principal of or interest on any
Class A-1AR Note held by such Holder and any payments of a Class A-1AR
Commitment Fee, that would otherwise be payable to such Holder under this
Agreement and the Indenture shall, until such Holder is replaced by another
entity that meets the Class A-1AR Ratings Criteria, be deposited into a Holder
Subaccount with respect to such Holder and such Holder Subaccount shall be
governed by the terms of the Indenture. Each Holder or Committed Liquidity
Provider, as applicable, agrees to notify the Class A-1AR Note Agent promptly
after any deposit of funds by such Holder or Committed Liquidity Provider, as
applicable, into a Holder Subaccount. Each Holder or Committed Liquidity
Provider, as applicable, further acknowledges and agrees that if at any time it
fails to fund any portion of a Class A-1AR Draw as required under Article 2 of
this Agreement (taking into account the terms of Section 6.03(f)) (any such
Holder or Committed Liquidity Provider, as applicable, a "Defaulting Holder"),
that (i) any payments of principal of or interest on any Class A-1AR Note held
by such Holder and any payments of a Class A-1AR Commitment Fee, that would
otherwise be payable to such Defaulting Holder under this Agreement and the
Indenture shall, for so long as such Defaulting Holder continues to fail to
satisfy such requirement or until such Defaulting Holder is replaced by another
entity that meets the Class A-1AR Ratings Criteria and satisfies such Defaulting
Holder's failed funding obligation, be deposited into a Holder Subaccount with
respect to such Holder as provided in Section 3.02(d)(ii) of this Agreement and
Section 18.5 of the Indenture and such Holder Subaccount shall be governed by
the terms of the Indenture and (ii) the Issuer (or the Collateral Manager on
behalf of the Issuer) has the right hereunder, and is required under Section
18.4 of the Indenture, to promptly use reasonable efforts to replace such
Defaulting Holder with another entity that meets the Class A-1AR Ratings
Criteria;

(d) the deposit of cash to a Holder Subaccount by any Holder or
Committed Liquidity Provider, as applicable, shall not constitute a Class A-1AR
Draw by the Issuer and shall not constitute a utilization of the Class A-1AR
Commitment of such Holder, and the funds on deposit in a Holder Subaccount shall
not constitute principal outstanding under a Class A-1AR Note. Each Holder or
Committed Liquidity Provider, as applicable, that deposits cash into a Holder
Subaccount as contemplated by Section 3.02(c) or that has had payments deposited
into a Holder Subaccount pursuant to the last sentence of Section 3.02(c) agrees
that from and after the date of such deposit and until the related Collateral
Account Termination Date, (i) the obligation of such Holder or Committed
Liquidity Provider, as applicable, to fund any Class A-1AR Draw shall be
satisfied by the Collateral Manager instructing the Trustee to withdraw funds
(and the Trustee will provide prior or contemporaneous notice of any such
withdrawal to the Class A-1AR Note Agent and the Holders of the Class A-1AR
Notes) from such Holder Subaccount (provided that such Holder or Committed
Liquidity Provider, as applicable, shall remain obligated in respect of such
Class A-1AR Draw to the extent the portion of the Class A-1AR Draw applicable to
such Holder exceeds the amount on deposit in such Holder Subaccount), (ii) all
payments of principal (and, if such Holder or such Committed Liquidity Provider,
as applicable, is a Defaulting Holder, interest) with respect to such Class
A-1AR Draw (and, if such Holder or such Committed Liquidity Provider, as
applicable, is a Defaulting Holder, any Class A-1AR Commitment Fees payable to
such Holder or such Committed Liquidity Provider, as applicable) shall be made
by depositing the related funds into such Holder Subaccount and (iii) the
Collateral Manager shall have full authority to instruct the Trustee to withdraw
funds (and the Trustee will provide prior notice of any such withdrawal to the
Class A-1AR Note Agent) from such Holder Subaccount at the time of, and in
connection with, the

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making of any such Class A-1AR Draw or any payment described in the foregoing
clauses of this Section 3.02(d) and to deposit funds (with prior or
contemporaneous notice of any such deposit to the Class A-1AR Note Agent) into
such Holder Subaccount, all in accordance with the terms of and for the purposes
set forth in this Agreement and in the Indenture. After the Collateral Account
Termination Date for any Holder and any Committed Liquidity Provider with
respect thereto (subject to the terms of Section 18.5 of the Indenture), all
funds then held in the related Holder Subaccount shall be withdrawn from such
Holder Subaccount and applied in accordance with Section 18.5 of the Indenture,
and thereafter all payments of principal and interest with respect to Advances
made by such Holder or such Committed Liquidity Provider, as applicable, shall
be paid directly to such Holder or such Committed Liquidity Provider, as
applicable, in accordance with the Indenture. The Trustee shall promptly (at the
direction of such Holder or such Committed Liquidity Provider, as applicable)
invest any amounts on deposit in any Holder Subaccount in securities which
satisfy the definition of Eligible Investments maturing on the day following the
date of acquisition thereof (collectively, the "Class A-1AR Eligible
Investments"). Investment earnings received during each Due Period in respect of
Class A-1AR Eligible Investments in a Holder Subaccount will be paid to the
applicable Holder or Committed Liquidity Provider, as applicable, on the related
Payment Date so long as it is not a Defaulting Holder at such time, and
otherwise shall be deposited into such Holder Subaccount; and

(e) it agrees to treat each of the Co-Issuers as a disregarded entity
for U.S. Federal, state and local income tax purposes, to report all income (or
loss) in accordance with such treatment and not take any action inconsistent
with such treatment.

ARTICLE 4

CONDITIONS

Section 4.01 Closing Date Conditions.

The obligations of the Holders to make Advances shall not become
effective until the date on which the Indenture is executed and delivered and
the Notes are duly authorized, issued, authenticated and delivered thereunder.

The purchase of any Class A-1AR Note on the Closing Date and the
obligation of the related Holder to make an Advance on the occasion of the
initial Class A-1AR Draw pursuant to Article 2 is subject to the satisfaction of
the following conditions (in addition to the conditions specified in Section
4.02):

(a) All of the conditions precedent in Article III of the Indenture
shall have been satisfied or waived in accordance with the terms thereof.

(b) Each of the statements referred to in Sections 4.02(b) and (c)
hereof shall be true (as if a Class A-1AR Draw shall occur on the Closing Date),
and the Class A-1AR Note Agent (with a copy to the Holders of the Class A-1AR
Notes) and the Collateral Manager shall be deemed to have certified, as of the
Closing Date, to such effect.

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(c) The Class A-1AR Notes shall have been duly executed by the
Co-Issuers and delivered to the Class A-1AR Note Agent for the benefit of the
Initial Holders.

Section 4.02 Conditions to Advances.

The obligation of each Holder to make an Advance on the occasion of
any Class A-1AR Draw pursuant to Article 2 is subject to the satisfaction or
waiver of the following conditions:

(a) In the case of any Class A-1AR Draw (other than a Class A-1AR Draw
on the Closing Date), the Class A-1AR Note Agent, or, pending the appointment of
a successor Class A-1AR Note Agent pursuant to Section 5.04(e), the Collateral
Manager, shall have received a Class A-1AR Draw Request given in accordance with
Section 2.03.

(b) Each of this Agreement, the Indenture and each Class A-1AR Note is
in full force and effect.

(c) All other conditions precedent to such Class A-1AR Draw set forth
in this Agreement and the Indenture have been satisfied in all material respects
(or waived pursuant to the terms hereof or thereof).

Except for a Class A-1AR Draw made as contemplated under Section 4.03,
each Class A-1AR Draw shall be deemed to constitute a representation and
warranty by each of the Issuer and the Co-Issuer on the date thereof as to the
applicable matters specified in Sections 4.02 (b) and (c).

Section 4.03 Obligations Unconditional.

Notwithstanding the failure to satisfy any of the conditions in the
foregoing Section 4.02(c), the Holders (or, if an Election Notice has been
delivered pursuant to Section 6.03(f), the Committed Liquidity Provider) shall,
subject to Section 2.01, be obligated to make Advances to the Issuer in
connection with Class A-1AR Draws to fund Delayed Funding Amounts relating to
Delayed Draw Term Loans. However, the obligation of each Holder under this
Section 4.03 shall terminate on the Commitment Termination Time following the
occurrence of any Class A-1AR Draw required at such time.

Section 4.04 Class A-1AR Draws on a Mandatory Class A-1AR Draw Date.

(a) Notwithstanding anything herein to the contrary, on the Mandatory
Class A-1AR Draw Date, the Issuer (or the Collateral Manager on behalf of the
Issuer) shall make a Class A-1AR Draw Request in accordance with Section 2.03
hereof in an amount equal to the Aggregate Class A-1AR Undrawn Amount as of such
date. The Trustee shall (at the direction of the Collateral Manager and on
behalf of the Issuer) upon receipt of such Class A-1AR Draw, out of the proceeds
of such Class A-1AR Draw, deposit into the Delayed Funding Obligations Account
an amount equal to the Total Unfunded Delayed Funding Amount and shall deposit
the remaining proceeds of such Class A-1AR Draw into the Principal Collection
Account where such amounts shall be applied in accordance with the Priority of
Payments as Principal Proceeds on the following Payment Date (or, if such amount
is received on a Payment Date, on such

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Payment Date). The Class A-1AR Commitments will terminate immediately after such
Class A-1AR Draw is made and such funds are transferred to the Trustee.

(b) No Class A-1AR Draw Request may be made after the Mandatory Class
A-1AR Draw Date.

Section 4.05 Liquidity Facility Term; Class A-1AR Draws on Liquidity
Facility Extension Failure.

(a) Notwithstanding anything to the contrary herein, no Holder may
enter into a Liquidity Facility for a term of less than 364-days, subject to
one-year extensions up to the Stated Maturity of the Class A-1AR Notes.

(b) Upon any failure of the Holder to extend any related Liquidity
Facility, if any, the Issuer (or the Collateral Manager on behalf of the Issuer)
shall make a Class A-1AR Draw Request to each Holder in accordance with Section
2.03 hereof in an amount equal to such Holder's pro rata share of the Aggregate
Class A-1AR Undrawn Amount as of such date. The Trustee shall (at the direction
of the Collateral Manager and on behalf of the Issuer) deposit the proceeds of
such Class A-1AR Draw into the Delayed Funding Obligations Account.

ARTICLE 5

THE CLASS A-1AR NOTE AGENT

Section 5.01 Appointment.

Each of the Holders hereby irrevocably appoints the Class A-1AR Note
Agent as its agent and authorizes the Class A-1AR Note Agent to take such
actions on its behalf and to exercise such powers as are delegated to the Class
A-1AR Note Agent by the terms hereof and of the Indenture, together with such
actions and powers as are reasonably incidental thereto.

Section 5.02 Certain Duties and Responsibilities.

(a) The Class A-1AR Note Agent undertakes to perform such duties and
only such duties as are specifically set forth in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Class
A-1AR Note Agent.

(b) Upon receipt of certificates and other notices furnished to the
Class A-1AR Note Agent and conforming to the requirements of this Agreement, the
Class A-1AR Note Agent may, in the absence of gross negligence, willful
misconduct or bad faith on its part, conclusively rely as to the truth of the
statements and the correctness of the opinions expressed therein. Neither the
Class A-1AR Note Agent nor any of its affiliates, directors, officers, agents or
employees shall be liable for any action taken or not taken by it in connection
herewith (i) in the absence of its own gross negligence, willful misconduct or
bad faith with the consent or at the request of the Holders representing at
least a majority of the Class A-1AR Commitments (and to the extent required
under the Transaction Documents, the Issuer or the Collateral Manager on behalf
of the Issuer) or (ii) in the absence of its own gross negligence, willful

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misconduct or bad faith. Neither the Class A-1AR Note Agent nor any of its
affiliates, directors, officers, agents or employees shall be responsible or
have any duty to ascertain, inquire or verify: (i) any statement, warranty or
representation made in connection with this Agreement, any of the other
Transaction Documents or any Class A-1AR Draw hereunder, (ii) the performance or
observation of any of the covenants or agreements of the Issuer or (iii) the
validity, effectiveness or genuineness of this Agreement, the Indenture or any
instrument or writing furnished in connection herewith. The Class A-1AR Note
Agent shall not incur any liability by acting in reliance upon any notice,
consent, certificate, statement or other writing (which may be a bank wire,
facsimile, electronic messaging or similar writing) reasonably believed by it to
be genuine or signed by the proper party or parties.

(c) No provision of this Agreement shall be construed to relieve the
Class A-1AR Note Agent from liability for its own grossly negligent action, its
own grossly negligent failure to act, or its own willful misconduct, except
that:

(i) this subsection shall not be construed to limit the effect of
subsections (a) and (b) of this Section 5.02;

(ii) the Class A-1AR Note Agent shall not be liable for any error of
judgment made in good faith by an officer, director, agent or employee
unless it shall be proven that the Class A-1AR Note Agent was grossly
negligent in ascertaining the pertinent facts; and

(iii) no provision of this Agreement shall require the Class A-1AR
Note Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers contemplated hereunder, if it shall
have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it, unless such risk or liability relates to performance of its ordinary
services under this Agreement.

(d) Whether or not therein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Class A-1AR Note Agent shall be subject to the
provisions of this Section 5.02. Each Holder shall, ratably, in accordance with
its Class A-1AR Commitment (or, if the Class A-1AR Commitments have been
terminated or permanently reduced to zero, the unpaid principal amount of its
Advances) indemnify each Indemnified Person for all Losses not reimbursed by the
Issuer pursuant to Section 5.03(a)(iii); provided that no Holder shall have such
indemnity or reimbursement obligation to the extent that such Loss incurred by
the applicable Indemnified Person arises out of, or in connection with any act
or omission of any Indemnified Person constituting (x) negligence or (y) a
breach of this Agreement.

Section 5.03 Compensation.

(a) Subject to Section 6.12 the Issuer agrees:

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(i) to pay the Class A-1AR Note Agent on each Payment Date a Class
A-1AR Note Agent Fee as a Company Administrative Expense for all services
rendered by it hereunder;

(ii) except as otherwise expressly provided herein, to reimburse the
Class A-1AR Note Agent (subject to any written agreement between the Issuer
and the Class A-1AR Note Agent) forthwith upon its request for all
reasonable fees and expenses (including attorneys' fees) incurred or made
by the Class A-1AR Note Agent in accordance with any provision of this
Agreement; and

(iii) to indemnify the Class A-1AR Note Agent and its affiliates,
officers, directors, employees and agents (collectively, "Indemnified
Persons"), and to hold them harmless against, any loss, liability or
expense incurred without gross negligence, willful misconduct or bad faith
on their part, arising out of or in connection with the exercise or
performance of any of the Class A-1AR Note Agent's obligations or duties
under this Agreement, including the reasonable costs and expenses of
defending themselves against any claim or liability in connection therewith
(collectively "Losses");

provided that (x) such amounts described in clauses (i), (ii) and (iii) above
shall be payable on each Payment Date as Company Administrative Expenses only to
the extent that funds are available for such purpose in accordance with the
Priority of Payments and (y) any such amounts that are not paid in full on any
Payment Date shall be deferred and shall be payable on a subsequent Payment Date
to the extent funds are available for such purpose in accordance with the
Priority of Payments.

(b) The Class A-1AR Note Agent shall, subject to Section 6.12 and the
Priority of Payments, receive amounts pursuant to this Section 5.03 only to the
extent that the payment thereof will not result in an Event of Default, and the
failure to pay such amounts to the Class A-1AR Note Agent shall not, by itself,
constitute an Event of Default. The Class A-1AR Note Agent hereby agrees not to
file, cause the filing of, or join in any petition in bankruptcy against the
Issuer for the non-payment to the Class A-1AR Note Agent of any amounts provided
by this Section 5.03 until at least one year and one day, or if longer the
applicable preference period then in effect, after the payment in full of all
the Notes issued under the Indenture. The provisions of this Section 5.03(b)
shall survive any termination of this Agreement.

Section 5.04 Resignation and Removal; Appointment of a Successor.

(a) No resignation or removal of the Class A-1AR Note Agent and no
appointment of a successor Class A-1AR Note Agent pursuant to this Article 5
shall become effective until the appointment by the successor Class A-1AR Note
Agent under Section 5.05 becomes effective.

(b) Subject to Section 5.04(a), the Class A-1AR Note Agent may resign
at any time by giving written notice thereof to the Co-Issuers, the Collateral
Manager, the Holders, the Trustee and each Rating Agency.

(c) The Class A-1AR Note Agent may be removed at any time by Holders
representing at least a majority of the Class A-1AR Commitments with 60 days
prior written

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notice delivered to the Class A-1AR Note Agent, the Trustee, the Collateral
Manager and to the Co-Issuers.

(d) If at any time the Class A-1AR Note Agent shall become incapable
of acting or shall be adjudged as bankrupt or insolvent or a receiver or
liquidator of the Class A-1AR Note Agent or of its property shall be appointed
or any public officer shall take charge or control of the Class A-1AR Note Agent
or of all or a substantial part of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case (subject to
Section 5.04(e)), (i) the Issuer (at the direction of the Collateral Manager and
on behalf of the Issuer), by Issuer Order, shall remove the Class A-1AR Note
Agent, or (ii) any Holder may, on behalf of itself and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Class A-1AR Note Agent and the appointment of a successor Class A-1AR Note
Agent.

(e) If the Class A-1AR Note Agent shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the Class
A-1AR Note Agent for any reason, the Issuer (at the direction of the Collateral
Manager and on behalf of the Issuer), by Issuer Order, shall promptly appoint a
successor Class A-1AR Note Agent. If the Issuer shall fail to appoint a
successor Class A-1AR Note Agent within 60 days after such resignation, removal
or incapability or the occurrence of such vacancy, a successor Class A-1AR Note
Agent may be appointed by Holders representing a majority of the Class A-1AR
Commitments at such time delivered to the Issuer and the retiring Class A-1AR
Note Agent. The successor Class A-1AR Note Agent so appointed shall, forthwith
upon its acceptance of such appointment, become the successor Class A-1AR Note
Agent and supersede any successor Class A-1AR Note Agent proposed by the Issuer.
If no successor Class A-1AR Note Agent shall have been so appointed by the
Issuer or such Holders and shall have accepted appointment in the manner
hereinafter provided, any Holder may, on behalf of itself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Class A-1AR Note Agent.

(f) The Issuer shall give prompt notice of each resignation and each
removal of the Class A-1AR Note Agent and each appointment of a successor Class
A-1AR Note Agent by mailing written notice of such event by first class mail,
postage prepaid, to the Trustee, each Rating Agency, the Collateral Manager and
to the Holders as their names and addresses appear in the Class A-1AR Note
Register. Each notice shall include the name and address of the successor Class
A-1AR Note Agent. If the Issuer fails to mail such notice within 10 days after
acceptance of appointment by the successor Class A-1AR Note Agent, the successor
Class A-1AR Note Agent shall cause such notice to be given at the expense of the
Issuer.

Section 5.05 Acceptance of Appointment by Successor.

Every successor Class A-1AR Note Agent appointed hereunder shall
execute, acknowledge and deliver to the Co-Issuers and the retiring Class A-1AR
Note Agent an instrument accepting such appointment with immediate effect. Upon
delivery of the required instrument, the resignation or removal of the retiring
Class A-1AR Note Agent shall become effective and such successor Class A-1AR
Note Agent, without any other act, deed or conveyance, shall become vested with
all the rights, powers, duties and obligations of the retiring Class A-1AR Note
Agent; save that, upon request of the Issuer or Holders representing a

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majority of the Class A-1AR Commitments or the successor Class A-1AR Note Agent,
such retiring Class A-1AR Note Agent shall, upon payment of its fees and
expenses then unpaid, execute and deliver an instrument transferring to such
successor Class A-1AR Note Agent all the rights, powers and trusts of the
retiring Class A-1AR Note Agent.

ARTICLE 6

MISCELLANEOUS

Section 6.01 Notices.

Except in the case of notices and other communications expressly
permitted to be given by facsimile or electronic messaging system, all notices
and other communications provided for herein (including each consent, notice,
direction or request) shall be in writing and shall be delivered by hand or
overnight courier service or sent by facsimile, as follows:

(a) if to the Co-Issuers, the Rating Agencies, the Collateral Manager
or the Trustee, at its address or facsimile number set forth in the Indenture;

(b) if to the Class A-1AR Note Agent, at its address or facsimile
number set forth on Schedule I or at such other address as shall be designated
by the Class A-1AR Note Agent in a notice to the Co-Issuers, each Holder, the
Trustee and the Collateral Manager; and

(c) if to any Holder, at its address or facsimile number set forth on
Schedule I (in the case of any Initial Holder) or in the Assignment and
Acceptance delivered by it; or at such other address as shall be designated by a
Holder in a notice to the Co-Issuers, the Class A-1AR Note Agent, the Trustee
and the Collateral Manager.

All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt.

Section 6.02 Waivers; Amendments.

(a) No waiver of any provision of this Agreement or consent to any
departure by the Issuer herefrom shall in any event be effective unless the same
shall be permitted by Section 6.02(b), and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.

(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Collateral Manager on behalf of the Issuer and the Class
A-1AR Note Agent with the consent of Holders representing at least a majority of
the Class A-1AR Commitments except as otherwise expressly provided in Section
6.02(c); provided that no such agreement shall amend, modify or otherwise affect
the rights or duties of the Trustee or of the Collateral Manager, as applicable,
hereunder or in respect hereof without the prior written consent of the Trustee
or of the Collateral Manager, as applicable. Prior to entering into any
amendment, waiver or modification to this Agreement, the Rating Agency Condition
shall be satisfied with respect thereto. Subject to the

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foregoing, the Collateral Manager, on behalf of the Issuer, shall give prior
written notice to each Rating Agency and the Trustee of any waiver, amendment or
modification of any provision of this Agreement.

(c) No waiver, amendment or modification of the Indenture or any other
agreement referred to herein or therein to which the Issuer is a party (other
than this Agreement) shall affect any of the rights or obligations under this
Agreement of the parties hereto unless such waiver, amendment or modification is
effected in accordance with the applicable provisions of this Agreement and the
Indenture; provided that no such waiver, amendment or modification shall
increase the Maximum Class A-1AR Commitment, modify the interest payable
thereon, materially change the provisions of Article 18 of the Indenture, modify
the calculation of the Class A-1AR Commitment Fee or extend the term of any of
the Class A-1AR Commitments, or extend the time or waive any requirement for the
reduction or termination of any of the Class A-1AR Commitments, without the
consent of each of the Holders.

(d) A failure or delay in exercising any right, power or privilege in
respect of this Agreement shall not be presumed to operate as a waiver, and a
single or partial exercise of any right, power or privilege shall not be
presumed to preclude any subsequent or further exercise, of that right, power or
privilege or the exercise of any other right, power or privilege.

Section 6.03 Successors and Assigns.

(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
transferees.

(b) The Issuer may not assign or delegate any of its rights or
obligations under this Agreement without the prior consent of each Holder, the
Class A-1AR Note Agent, the Trustee and the Collateral Manager; provided that it
is understood and agreed that the Issuer is Granting all of its right, title and
interest in, to and under this Agreement to the Trustee for the benefit and
security of the Secured Parties. No Holder may assign or delegate any of its
rights or obligations under this Agreement or under any Class A-1AR Notes,
except that (i) any Holder may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Class A-1AR Commitment and the Advances at the time owing to it);
provided that, in either such case, (A) any assignment by a Holder of less than
all of a Class A-1AR Note or the related Class A-1AR Commitment shall be of the
same ratable portion of such Class A-1AR Note and the related Class A-1AR
Commitment, (B) no such assignment shall be effected unless all conditions
precedent to the transfer of the relevant Class A-1AR Note specified in the
Indenture (including such assignee's satisfaction of the Class A-1AR Ratings
Criteria) have been satisfied and such Holder shall have received the prior
written consent of the Issuer and the Collateral Manager to such assignment, and
(C) no such assignment shall be effected unless the parties to such assignment
shall have executed and delivered to the Class A-1AR Note Agent (with a copy to
the Trustee, the Collateral Manager and the Holders of the Class A-1AR Notes) a
duly completed Assignment and Acceptance and (ii) any Holder that is entitled
under a Liquidity Facility to borrow loans from, or sell all or a portion of
Class A-1AR Notes or interests therein to, Liquidity Providers may assign its
rights hereunder and under the Class A-1AR Notes and/or delegate to the related
Liquidity Providers, and such Liquidity Providers may severally agree to each
perform their ratable share (determined in accordance with

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their respective Class A-1AR Commitments under the relevant Liquidity Facility)
of, all of the Holder's obligations hereunder or under the Class A-1AR Notes;
provided that each related Liquidity Provider which is a Committed Liquidity
Provider either executes and delivers a signature page hereto or enters into an
Assignment and Acceptance agreeing to be a Committed Liquidity Provider
hereunder. Upon acceptance and recording pursuant to Section 6.03(c), from and
after the effective date specified in each Assignment and Acceptance, the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Holder or of a Committed Liquidity Provider, as applicable, under this
Agreement, and the assigning Holder thereunder shall, to the extent of the
interest assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Holder's rights and obligations under
this Agreement and in respect of Class A-1AR Notes, such Holder shall cease to
be a party hereto).

(c) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Holder and an assignee and/or delegee, the Class A-1AR
Note Agent shall accept such Assignment and Acceptance and record the
information contained therein in the Class A-1AR Note Register. No such
assignment or delegation shall be effective for purposes of this Agreement
unless it has been recorded in the Class A-1AR Note Register as provided in this
paragraph.

(d) Any Holder may at any time Grant a security interest in all or any
portion of its rights under this Agreement to secure obligations of such Holder,
including any such Grant to a Federal Reserve Bank, and this Section 6.03 shall
not apply to any such Grant of a security interest; provided that no such Grant
of a security interest shall release a Holder from any of its obligations
hereunder or substitute any such assignee for such Holder as a party hereto.

(e) Notwithstanding anything in Section 6.03(b) to the contrary, any
Holder may delegate its obligations hereunder in respect of any Class A-1AR Note
held by such Holder to its Liquidity Providers; provided that (i) each such
Liquidity Provider which is a Committed Liquidity Provider complies with the
Class A-1AR Ratings Criteria and either executes and delivers a signature page
hereto or enters into an Assignment and Acceptance Agreement pursuant to which
it agrees to be a Committed Liquidity Provider hereunder, (ii) such delegation
shall be effected ratably according to the respective Class A-1AR Commitments
under the Liquidity Facility of the Liquidity Providers, (iii) notwithstanding
such delegation, such Holder may, in its sole discretion, continue to perform
the obligations so delegated (and the Liquidity Providers shall have no right to
perform such obligations in the event such Holder performs such obligations) and
(iv) subject to the immediately preceding clause (iii), the rights and
obligations of the parties hereto in respect of any Advances made by such Holder
hereunder shall not be affected by such delegation. Any such delegation shall
also be subject to the several agreement of the Liquidity Providers (for the
express benefit of such Holder, the Issuer, the Class A-1AR Note Agent, the
Collateral Manager and the Trustee) to be included in their respective
Assignment and Acceptance Agreements to perform all of the obligations of such
Holder hereunder delegated to the Liquidity Providers as provided in the
foregoing sentence, with each Liquidity Provider agreeing to perform only its
ratable share of such obligations as so provided. With respect to Advances made
by the Liquidity Providers in accordance with the delegation provided above, the
Liquidity Providers shall be subrogated, severally and ratably in accordance

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with their respective Class A-1AR Commitments under the Liquidity Facility, to
the rights of the relevant Holder against the Issuer in respect of the related
Class A-1AR Note and under the Indenture.

(f) Notwithstanding anything in Section 2.01 or Section 6.03(b) to the
contrary, if any Holder party hereto elects to be subject to this Section
6.03(f), then such Holder (unless it is maintaining a Class A-1AR Holder
Collateral Account as provided in Section 3.02(d)) shall not be obligated to
make Advances hereunder except as provided in Section 2.01(b)(i); provided that
such Holder shall have in effect at all times (unless it is maintaining a Class
A-1AR Holder Collateral Account as provided in Section 3.02(d) for the full
amount of its unfunded Class A-1AR Commitment) a Liquidity Facility with one or
more Liquidity Providers pursuant to which such Liquidity Providers are
obligated (ratably according to their respective Class A-1AR Commitments under
the Liquidity Facility), to make loans to, or acquire interests in assets of,
such Holder in an aggregate principal amount up to the aggregate stated
principal amount at such time Outstanding of Class A-1AR Notes held by such
Holder (such a Liquidity Provider, a "Committed Liquidity Provider") and each
such Committed Liquidity Provider complies with the Class A-1AR Ratings Criteria
and has agreed (for the express benefit of such Holder, the Issuer, the Class
A-1AR Note Agent, the Collateral Manager and the Trustee) to be a Committed
Liquidity Provider and to be liable hereunder by either executing and delivering
a signature page hereto or by entering into an Assignment and Acceptance
Agreement. Notwithstanding the foregoing, such Holder may, in its sole
discretion, elect, from time to time, to fund any Advance requested by the
Issuer in respect of any Class A-1AR Note held by such Holder. With respect to
Advances made by the Liquidity Providers under the Liquidity Facility as
contemplated by this Section 6.03(f) at the request of the Issuer on behalf of
such Holder, the Liquidity Providers for such Holder shall be subrogated,
severally and ratably in accordance with their respective Class A-1AR
Commitments under the Liquidity Facility, to the rights of such Holder against
the Issuer in respect of the related Class A-1AR Notes and under the Indenture.
Any such Holder that elects to enter into a Liquidity Facility as contemplated
by and to be subject to this Section 6.03(f) shall indicate such Holder's
election by providing an original executed signature page to this Agreement (in
the case of a Committed Liquidity Provider that becomes a party hereto on the
Closing Date) or an original executed copy of each Assignment and Acceptance
Agreement, in each case, executed by its Committed Liquidity Providers to the
Issuer and the Trustee with a copy thereof to the Class A-1AR Note Agent and the
Collateral Manager (an "Election Notice").

(g) Without limiting the effect of Section 6.03(f), for so long as a
Holder is a CP Conduit, and notwithstanding any provisions contained herein or
in the Indenture, such Holder shall not, and shall not be obligated to, make any
payments hereunder or under the Indenture (except with respect to funding Class
A-1AR Draws in full as, when and to the extent required under this Agreement
which shall not be conditioned upon this Section 6.03(g), but which shall remain
subject to any conditions precedent specified herein), unless such Holder has
received funds which may be used to make such payment and which funds are not
required to repay its commercial paper notes when due and, after giving effect
to such payment, either (i) the Holder could issue commercial paper notes to
refinance all of such Holder's outstanding commercial paper notes (assuming such
outstanding commercial paper notes matured at such time) in accordance with the
governing documents governing such Holder's commercial paper program or (ii) all
of such Holder's commercial paper notes are paid in full. Any amount which

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the Holder does not fund pursuant to the operation of this paragraph shall not
constitute a claim (as defined in Section 101 of the Bankruptcy Code) against or
obligation of such Holder for any such insufficiency.

Section 6.04 Survival.

All covenants, agreements, representations and warranties made by the
Co-Issuers herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of any Advances, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Trustee, the Collateral Manager, the Class A-1AR Note Agent or any
Holder may have had notice or knowledge of any incorrect representation or
warranty at the time any credit is extended hereunder, and shall continue in
full force and effect as long as any Class A-1AR Note or any amount payable
under this Agreement or the Indenture in respect of any Class A-1AR Note is
outstanding and unpaid and so long as the Class A-1AR Commitments have not
expired or terminated.

Section 6.05 Counterparts; Integration; Effectiveness.

This Agreement may be executed in any number of counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Agreement, any Liquidity Facility and the Indenture
constitute the entire contract among the parties relating to the subject matter
hereof and supersede any and all previous agreements and understandings, oral or
written, relating to the subject matter hereof. Except as provided in Section
4.01, this Agreement shall become effective when it shall have been executed by
the Co-Issuers, the Initial Holders party hereto and the Class A-1AR Note Agent
and when the Co-Issuers shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by facsimile or by electronic messaging
shall be effective as delivery of a manually executed counterpart of this
Agreement.

Section 6.06 Severability.

Any provision of this Agreement held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability without
affecting the validity, legality and enforceability of the remaining provisions
hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.

Section 6.07 Governing Law; Jurisdiction; Consent to Service of
Process; Waiver of Jury Trial Right.

(a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND THIS
AGREEMENT AND ALL MATTERS ARISING OUT OF OR RELATING IN ANY WAY WHATSOEVER TO
THIS AGREEMENT (WHETHER IN CONTRACT,

-23-

TORT OR OTHERWISE) SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK.

(b) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State court or, to the extent permitted by law, in
such Federal court. Each of the parties hereto 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 other manner provided by law.
Subject to Section 6.12, nothing in this Agreement shall affect any right that
the Class A-1AR Note Agent or any Holder may otherwise have to bring any action
or proceeding relating to this Agreement against the Issuer or their properties
in the courts of any jurisdiction.

(c) Each of the parties hereto hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any court
referred to in the first sentence of Section 6.07(b). Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.

(d) Except as otherwise expressly provided in this Section 6.07(d),
each party to this Agreement irrevocably consents to service of process in the
manner provided for notices in Section 6.01. Nothing in this Agreement shall
affect the right of any party to this Agreement to serve process in any other
manner permitted by law. The Co-Issuers hereby irrevocably appoint and designate
CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, New York 10011,
or any other Person having and maintaining a place of business in the State of
New York whom the Co-Issuers may from time to time hereafter designate as the
true and lawful attorney and duly authorized agent for acceptance of service of
legal process of the Co-Issuers. The Co-Issuers agree 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 other manner provided by law.

(e) EACH PARTY TO THIS AGREEMENT HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

Section 6.08 Benefits of Indenture and this Agreement.

The Co-Issuers hereby acknowledge and confirm that each
representation, warranty, covenant and agreement made pursuant to the Indenture
by it also is made herein to the

-24-

Trustee, all for the benefit and security of the Securityholders (including the
Holders of the Class A-1AR Notes) as provided in the Indenture.

Nothing in this Agreement, express or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns and the Holders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.

Section 6.09 Headings.

Article and Section headings and the Table of Contents used herein are
for convenience of reference only, are not part of this Agreement and shall not
affect the construction of, or be taken into consideration in interpreting, this
Agreement.

Section 6.10 No Proceedings.

Each of the parties hereto hereby agrees (which agreement shall,
pursuant to the terms of this Agreement, be binding upon their respective
successors and assigns) that they shall not institute against, or join any other
Person in instituting against, any Holder which is a CP Conduit any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding, or other
proceeding under any federal or state bankruptcy or similar law, for one year
and a day (or, if longer, the applicable preference period then in effect) after
the latest maturing commercial paper note or other debt obligation issued by
such Holder is paid in full; provided that the foregoing shall not limit the
rights of the Issuer to take any such action with respect to any Liquidity
Provider to which the obligations of such Holder have been delegated in
accordance with Sections 6.03(e) and 6.03(f). The provisions of this Section
6.10 shall survive the termination of this Agreement.

Section 6.11 Recourse Against Certain Parties.

No recourse under or with respect to any obligation, covenant or
agreement of any Holder shall be had against any incorporator, stockholder,
affiliate, officer, member, manager, partner, employee or director of such
Holder, as such, by the enforcement of any assessment, by any legal or equitable
proceeding, by virtue of any statute or otherwise; it being expressly agreed and
understood that the agreements of such Holder contained in this Agreement and
all of the other agreements, instruments and documents entered into by it
pursuant hereto or in connection herewith are, in each case, solely the
corporate or limited liability company, as applicable, obligations of such
Holder, and that no personal liability whatsoever shall attach to or be incurred
by any incorporator, stockholder, affiliate, officer, member, agent,
administrative agent, manager, partner, employee or director of such Holder, as
such, or any of them, under or by reason of any of the obligations, covenants or
agreements of such Holder contained in this Agreement or in any other such
instrument, document or agreement, or which are implied therefrom, and that any
and all personal liability of every such incorporator, stockholder, affiliate,
officer, employee, member, agent, administrative agent, manager, partner or
director of such Holder for breaches by such Holder of any such obligations,
covenants or agreements, which liability may arise either at common law or at
equity, by statute or constitution, or otherwise, is hereby expressly waived as
a condition of and in consideration for the execution of

-25-

this Agreement. The provisions of this Section 6.11 shall survive the
termination of this Agreement.

Section 6.12 Non-Petition; Non-Recourse Obligations.

Each Holder, Committed Liquidity Provider and the Class A-1AR Note
Agent agrees that it shall not file, cause the filing of or join any Person in a
petition in bankruptcy against the Issuer in any jurisdiction for any amounts
due hereunder until at least one year and one day, or if longer the applicable
preference period then in effect, after the payment in full of all the Notes
issued under the Indenture. The Class A-1AR Notes and all obligations of the
Issuer under this Agreement are non-recourse obligations of the Issuer. The
Class A-1AR Notes and all of the other obligations of the Issuer under this
Agreement are payable solely from the Collateral Granted by the Issuer to secure
the Notes subject to the availability of funds for such purpose in accordance
with the Priority of Payments established under the Indenture and, following
realization of the Collateral and application of the proceeds thereof in
accordance with the Indenture, any claims against the Issuer and the obligations
of the Issuer hereunder and under the Class A-1AR Notes shall be extinguished
and shall not thereafter revive. None of the security holders, stockholders,
beneficial owners, members, managers, officers, directors, employees, partners
or incorporators of the Issuer, the Collateral Manager, the Placement Agent, the
Trustee, any of their respective affiliates and any other person or entity shall
be obligated to make payments on the Notes. Consequently, the Holders of the
Notes, the Class A-1AR Note Agent and any other party to this Agreement must
rely solely on amounts received in respect of the Collateral Granted to secure
the Notes for the payment of principal thereof and interest, the Class A-1AR
Commitment Fee and all other amounts owing thereon or hereunder. The Holders and
the Class A-1AR Note Agent hereby acknowledge and agree that the Issuer's
obligations hereunder will be solely the corporate obligations of the Issuer,
and neither a Holder nor the Class A-1AR Note Agent will have recourse to any of
the directors, officers, employees, shareholders or affiliates of the Issuer
with respect to any claims, losses, damages, liabilities, indemnities or other
obligations in connection with any transaction contemplated hereby. The
provisions of this Section 6.12 shall survive the termination of this Agreement.

Section 6.13 Term, Termination.

This Agreement shall commence as of the date first set forth above and
shall continue in force until the earliest of (i) the Commitment Termination
Time or (ii) the termination of the Indenture in accordance with its terms.

Section 6.14 Disclosure.

(a) Each of the Class A-1AR Note Agent and each Holder shall maintain
and shall cause each of its employees and officers to maintain the
confidentiality of this Agreement and all information with respect to the other
parties, including all information regarding the business of the Issuer and the
Co-Issuer and their respective businesses obtained by it or them in connection
with the structuring, negotiating and execution of the transactions contemplated
herein, except that each such party and its directors, officers and employees
may (i) disclose such information to its external accountants, attorneys,
investors, potential investors, credit enhancers and the agents or advisors of
such Persons ("Excepted Persons"); provided, however, that each

-26-

Excepted Person shall, as a condition to any such disclosure, agree for the
benefit of the Class A-1AR Note Agent and each Holder that such information
shall be used solely in connection with such Excepted Person's evaluation of, or
relationship with, the Issuer and the Co-Issuer and its affiliates, (ii)
disclose the existence of this Agreement, but not the financial terms thereof,
(iii) disclose such information as is required by Applicable Law and (iv)
disclose this Agreement and such information in any suit, action, proceeding or
investigation (whether in law or in equity or pursuant to arbitration) involving
any of the Transaction Documents for the purpose of defending itself, reducing
its liability, or protecting or exercising any of its claims, rights, remedies,
or interests under or in connection with any of the Transaction Documents. It is
understood that the financial terms that may not be disclosed except in
compliance with this Section 6.14(a) including, without limitation, all fees and
other pricing terms, and all Events of Default and priority of payment
provisions.

(b) Anything herein to the contrary notwithstanding, the Issuer and
the Co-Issuer hereby consent to the disclosure of any nonpublic information with
respect to it (i) to the Class A-1AR Note Agent and each Holder, (ii) by the
Holder to any prospective or actual assignee or participant of any of them or
(iii) by the Liquidity Provider or the Holder to any Rating Agency, commercial
paper dealer or provider of a surety, guaranty or credit or liquidity
enhancement to a Holder and to any officers, directors, employees, outside
accountants, advisors, and attorneys of any of the foregoing, provided each such
Person is informed of the confidential nature of such information. In addition,
the Class A-1AR Note Agent and each Holder may disclose any such nonpublic
information as required pursuant to any law, rule, regulation, direction,
request or order of any judicial, administrative or regulatory authority or
proceedings (whether or not having the force or effect of law).

(c) Notwithstanding anything herein to the contrary, the foregoing
shall not be construed to prohibit (i) disclosure of any and all information
that is or becomes publicly known, (ii) disclosure of any and all information
(A) if required to do so by any applicable statute, law, rule or regulation, (B)
to any government agency or regulatory body having or claiming authority to
regulate or oversee any respects of the Issuer's or the Co-Issuer's business or
that of their respective affiliates, (C) pursuant to any subpoena, civil
investigative demand or similar demand or request of any court, regulatory
authority, arbitrator or arbitration to which the Issuer, the Co-Issuer, the
Collateral Manager or an affiliate or an officer, director, employer or
shareholder thereof is a party, (D) in any preliminary or final offering
circular, registration statement or contract or other document pertaining to the
transactions contemplated herein approved in advance by the Issuer or (E) to any
affiliate, independent or internal auditor, agent, employee or attorney of the
Issuer having a need to know the same, provided that the Issuer advises such
recipient of the confidential nature of the information being disclosed, or
(iii) any other disclosure authorized by the Issuer.

(d) Each of the parties hereby covenants and agrees that so long as
any Holder that is a CP Conduit is a registered owner of Class A-1AR Notes:

(i) except with respect to the Class A-1AR Holder Collateral Account
and any relevant Holder Subaccount, it waives any right to set-off and to
appropriate and apply any and all deposits and any other indebtedness at
any time held or owing thereby

-27-

to or for the credit or the account of such Holder against and on account
of the obligations and liabilities of such Holder to such party under this
Agreement; and

(ii) notwithstanding anything to the contrary herein no provision of
this Agreement adversely affecting the rights or duties of such Holder or a
related Liquidity Provider for such Holder may be amended or waived without
the written consent of such Holder.

-28-

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective Authorized Officers as of the day and year
first above written.

ARBOR REALTY MORTGAGE SECURITIES SERIES
2006-1, LTD., as the Issuer

By:  /s/  George Danforth
------------------------------------
Name:  George Danforth
----------------------------------
Title:  Director
---------------------------------

ARBOR REALTY MORTGAGE SECURITIES SERIES
2006-1 LLC, as the Co-Issuer

By:  /s/  Guy R. Milone, Jr.
------------------------------------
Name:  Guy R. Milone, Jr.
----------------------------------
Title:  Authorized Signatory
---------------------------------

WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Class A-1AR Note Agent

By:  /s/  Thomas J. Varcados
------------------------------------
Name:  Thomas J. Varcados
----------------------------------
Title:  Vice President
---------------------------------

BNP PARIBAS LONDON BRANCH,
as a Class A-1AR Note Holder

By:  /s/ Brett Dean, Christoph Opfermann
------------------------------------
Name:  Brett Dean, Christoph Opfermann
----------------------------------
Title:  Authorized Signatory, 
Authorized Signatory
---------------------------------

SCHEDULE I

INITIAL HOLDERS

NAME OF HOLDER/CP CONDUIT   INITIAL CLASS A-1AR COMMITMENT         ADDRESS FOR NOTICES
-------------------------   ------------------------------   -------------------------------

BNP Paribus London Branch          U.S.$100,000,000          BNP Paribas Brokerage Services
Attn: Jay Brown or Thomas Bland
610-491-1741
555 Croton Road
King of Prussia, PA 19406

The Initial Holder shall not make a Qualified Securitization Pledge

Payment Instructions:

JPMorgan Chase Bank New York (chasus33 swift)
A/C BNP Paribas London (bnpag22 swift)
A/C: 544714183
Tax ID#: 94-1677765

CLASS A-1AR NOTE AGENT

Address for Notices

Wells Fargo Bank, National Association
9062 Old Annapolis Road
Columbia, Maryland 21045
Attention: CDO Trust Services Group -
Arbor Realty Mortgage Securities Series 2006-1
Facsimile No.: (410) 715-3748

Schedule I-1

SCHEDULE II

Pursuant to Section 3.02 of the Class A-1AR Note Purchase Agreement to
which this Schedule II is attached, each Holder (including each Assignee
thereof) and each Committed Liquidity Provider, if any (as if it were deemed to
be a Holder hereunder) hereby makes the acknowledgments, covenants,
representations and agreements set forth below solely with respect to itself:

(i) The Holder is one of the following:

(1) (A) a Qualified Purchaser; (B) a QIB; (C) is aware that the sale
of the Definitive Class A-1AR Notes to it is being made in reliance on the
exemption from registration provided by Rule 144A; (D) is acquiring the
Definitive Class A-1AR Notes for its own account or for one or more accounts,
each of which is a QIB who is a Qualified Purchaser, and as to each of which the
Holder exercises sole investment discretion and (E) is acquiring the Definitive
Class A-1AR Notes in a minimum principal amount of not less than U.S.$500,000
for each such account; or

(2) (A) is not a U.S. Person; (B) is aware that the sale of the
Definitive Class A-1AR Notes to it is being made in reliance on the exemption
from registration provided by Regulation S and (C) understands that the
Definitive Class A-1AR Notes offered in reliance on Regulation S under the
Securities Act will bear the additional legend in substantially the following
form:

THIS NOTE MAY NOT BE HELD BY A PERSON THAT IS A U.S. PERSON (AS DEFINED IN
REGULATION S UNDER THE SECURITIES ACT) AT ANYTIME.

and in each case the owner has such knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of its
investment in the Definitive Class A-1AR Notes and the owner and any accounts
for which it is acting are each able to bear the economic risk of the
investment; and

(ii) Before any interest in a Definitive Class A-1AR Note may be
offered, resold, pledged or otherwise transferred, the transferee and transferor
shall be required to provide the Trustee, with a written certification
substantially in the form of Exhibits D-1 and D-2 to the Indenture as to
compliance with the transfer restrictions and the Holder must inform a
prospective transferee of the transfer restrictions.

(iii) The Holder understands that the Class A-1AR Notes are being
offered only in a transaction not involving any public offering in the United
States within the meaning of the Securities Act, the Class A-1AR Notes have not
been and will not be registered under the Securities Act, and, if in the future
the Holder decides to offer, resell, pledge or otherwise transfer the Class
A-1AR Notes, such Class A-1AR Notes may only be offered, resold, pledged or
otherwise transferred only in accordance with the Indenture and the applicable
legend on such Class A-1AR Notes set forth below. The Holder acknowledges that
no representation is made by the Issuer, the Co-Issuer, the Dealers or the
Placement Agent, as the case may be, as to the

Schedule II-1

availability of any exemption under the Securities Act or any State securities
laws for resale of the Class A-1AR Notes.

(iv) The Holder understands that the Class A-1AR Notes have not been
approved or disapproved by the SEC or any other governmental authority or agency
or any jurisdiction and that neither the SEC nor any other governmental
authority or agency has passed upon the accuracy of the final offering
memorandum relating to the Class A-1AR Notes. The Holder further understands
that any representation to the contrary is a criminal offense.

(v) The Holder is not purchasing the Class A-1AR Notes with a view to
the resale, distribution or other disposition thereof in violation of the
Securities Act. The Holder understands that an investment in the Class A-1AR
Notes involves certain risks, including the risk of loss of all or a substantial
part of its investment under certain circumstances. The Holder has had access to
such financial and other information concerning the Issuer, the Co-Issuer and
the Class A-1AR Notes as it deemed necessary or appropriate in order to make an
informed investment decision with respect to its purchase of the Class A-1AR
Notes, including, without limitation, an opportunity to ask questions of and
request information from the Collateral Manager, the Initial Purchaser, the
Issuer and the Co-Issuer, including without limitation, an opportunity to
request and review the Moody's Matrix, the S&P Matrix and the Fitch Matrix
incorporated by reference in the Offering Memorandum and access to such legal
and tax representation as the Holder deemed necessary or appropriate.

(vi) In connection with the purchase of the Class A-1AR Notes (A) none
of the Issuer, the Co-Issuer, the Placement Agent, the Dealers, the Collateral
Manager or the Trustee is acting as a fiduciary or financial or investment
adviser for the Holder; (B) the Holder is not relying (for purposes of making
any investment decision or otherwise) upon any advice, counsel or
representations (whether written or oral) of the Issuer, the Co-Issuer, the
Dealers, the Placement Agent, the Collateral Manager or the Trustee other than
in a current offering memorandum for such Class A-1AR Notes and any
representations expressly set forth in a written agreement with such party; (C)
none of the Issuer, the Co-Issuer, the Dealers, the Placement Agent, the
Collateral Manager or the Trustee has given to the Holder (directly or
indirectly through any other person) any assurance, guarantee, or representation
whatsoever as to the expected or projected success, profitability, return,
performance, result, effect, consequence, or benefit (including legal,
regulatory, tax, financial, accounting, or otherwise) of its purchase; (D) the
Holder has consulted with its own legal, regulatory, tax, business, investment,
financial, accounting and other advisers to the extent it has deemed necessary,
and it has made its own investment decisions (including decisions regarding the
suitability of any transaction pursuant to the Indenture) based upon its own
judgment and upon any advice from such advisers as it has deemed necessary and
not upon any view expressed by the Issuer, the Co-Issuer, the Dealers, the
Placement Agent, the Collateral Manager or the Trustee; (E) the Holder is
purchasing the Class A-1AR Notes with a full understanding of all of the terms,
conditions and risks thereof (economic and otherwise), and is capable of
assuming and willing to assume (financially and otherwise) these risks; (F) the
Holder is a sophisticated investor familiar with transactions similar to its
investment in the Class A-1AR Notes; and (G) the purchase of such Class A-1AR
Notes by the Holder is within its powers and authority, is permissible under
applicable laws governing such purchase, has been duly authorized by it and
otherwise complies with applicable laws.

Schedule II-2

(vii) The Holder understands that the Class A-1AR Notes will bear the
applicable legend set forth below. The Holder will provide notice to each Person
to whom it proposes to transfer any interest in the Class A-1AR Notes of the
transfer restrictions set forth in Section 2.5 of the Indenture, including the
Exhibits referenced in Section 2.5 of the Indenture.

(viii) The Class A-1AR Notes will bear a legend to the following
effect unless the Issuer and the Co-Issuer determine otherwise in compliance
with applicable law:

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES, AND NEITHER THE ISSUER NOR THE CO-ISSUER
HAS BEEN REGISTERED UNDER THE UNITED STATES INVESTMENT COMPANY ACT OF 1940, AS
AMENDED (THE "INVESTMENT COMPANY ACT"). THIS NOTE MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT (A)(1) TO A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (A "QIB") WHO IS
A QUALIFIED PURCHASER AS DEFINED IN SECTION 2(A)(51) OF THE INVESTMENT COMPANY
ACT (A "QUALIFIED PURCHASER") AND IS EITHER PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER WHO IS A QUALIFIED PURCHASER,
IN A PRINCIPAL AMOUNT OF NOT LESS THAN U.S.$500,000 (AND INTEGRAL MULTIPLES OF
U.S.$500 IN EXCESS THEREOF) FOR THE PURCHASER AND FOR EACH SUCH ACCOUNT, IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT SO
LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT, SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS SPECIFIED IN
THE INDENTURE, OR (2) TO A NON U.S. PERSON IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT IN A PRINCIPAL AMOUNT OF NOT LESS THAN U.S.$500,000 (AND INTEGRAL
MULTIPLES OF U.S.$500 IN EXCESS THEREOF), SUBJECT TO THE SATISFACTION OF CERTAIN
CONDITIONS SPECIFIED IN THE INDENTURE, AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE
JURISDICTION. EACH PURCHASER OF A NOTE WILL BE REQUIRED TO MAKE THE
REPRESENTATIONS AND AGREEMENTS SET FORTH IN SECTION 2.5 OF THE INDENTURE. ANY
TRANSFER IN VIOLATION OF THE FOREGOING WILL BE OF NO FORCE AND EFFECT, WILL BE
VOID AB INITIO, AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE,
NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE ISSUER, THE CO-ISSUER,
AS APPLICABLE, THE TRUSTEE OR ANY INTERMEDIARY. IF AT ANY TIME, THE ISSUER AND
THE CO-ISSUER, AS APPLICABLE, DETERMINE OR ARE NOTIFIED THAT THE HOLDER OF SUCH
BENEFICIAL INTEREST IN SUCH NOTE WAS IN BREACH, AT THE TIME GIVEN, OF ANY OF THE
REPRESENTATIONS SET FORTH IN THE INDENTURE, THE TRUSTEE MAY CONSIDER THE
ACQUISITION OF THIS NOTE VOID AND REQUIRE THAT THIS NOTE BE TRANSFERRED TO A
PERSON DESIGNATED BY THE ISSUER AND THE CO-ISSUER, AS APPLICABLE.

Schedule II-3

(ix) Unless a prospective Holder of a Class A-1AR Note has provided
another representation acceptable to the Trustee, the Collateral Manager, the
Issuer and the Co-Issuer, the Holder represents that either (a) it is not and is
not investing on behalf of an "employee benefit plan" (as defined in Section
3(3) of ERISA) or "plan" (as defined in Section 4975(e)(1) of the Code) that is
subject to Title I of ERISA or Section 4975 of the Code, or any other employee
benefit plan or plan which is subject to any federal, state or local law
("Similar Law") that is substantially similar to Section 406 of ERISA or Section
4975 of the Code (each a "Benefit Plan"), or an entity whose underlying assets
include plan assets of any such Benefit Plan or (B) its purchase and holding of
the Class A-1AR Notes will not constitute or result in a non-exempt prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code, or, in the
case of a Benefit Plan subject to Similar Law, do not result in a non-exempt
violation of Similar Law.

(x) The Holder will not, at any time, offer to buy or offer to sell
the Class A-1AR Notes by any form of general solicitation or advertising,
including, but not limited to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar medium or
broadcast over television or radio or at a seminar or meeting whose attendees
have been invited by general solicitations or advertising.

(xi) The Holder is not a member of the public in the Cayman Islands,
within the meaning of Section 194 of the Cayman Islands Companies Law (2004
Revision).

(xii) The Holder understands that the Issuer, the Co-Issuer, the
Trustee or the Paying Agent shall require certification acceptable to it (A) as
a condition to the payment of principal of and interest on (and commitment fees
in respect of) any Notes without, or at a reduced rate of, U.S. withholding or
backup withholding tax, and (B) to enable the Issuer, the Co-Issuer, the Trustee
and the Paying Agent to determine their duties and liabilities with respect to
any taxes or other charges that they may be required to pay, deduct or withhold
from payments in respect of such Notes or the Holder of such Class A-1AR Notes
under any present or future law or regulation of the Cayman Islands or the
United States or any present or future law or regulation of any political
subdivision thereof or taxing authority therein or to comply with any reporting
or other requirements under any such law or regulation. Such certification may
include U.S. federal income tax forms (such as IRS Form W-8BEN (Certification of
Foreign Status of Beneficial Owner), IRS Form W-8IMY (Certification of Foreign
Intermediary Status), IRS Form W-9 (Request for Taxpayer Identification Number
and Certification), or IRS Form W-8ECI (Certification of Foreign Person's Claim
for Exemption from Withholding on Income Effectively Connected with Conduct of a
U.S. Trade or Business) or any successors to such IRS forms). In addition, the
Issuer, the Co-Issuer, the Trustee or the Paying Agent may require certification
acceptable to it to enable the Issuer to qualify for a reduced rate of
withholding in any jurisdiction from or through which the Issuer receives
payments on its assets. Each Holder agrees to provide any certification
requested pursuant to this paragraph and to update or replace such form or
certification in accordance with its terms or its subsequent amendments.

(xiii) The Holder acknowledges that it is its intent and that it
understands it is the intent of the Issuer that, for purposes of U.S. federal
income, state and local income and franchise tax and any other income taxes, for
so long as ARMS Equity or a direct or indirect wholly owned subsidiary of Arbor
Parent owns 100% of the Preferred Shares, the Issuer will be

Schedule II-4

treated as a Qualified REIT Subsidiary and the Notes will be treated as
indebtedness solely of the Arbor Parent and the Preferred Shares will be treated
as equity of the Arbor Parent; the Holder agrees to such treatment and agrees to
take no action inconsistent with such treatment.

(xiv) The Holder, if not a "United States person" (as defined in
Section 7701(a)(30) of the Code), either: (A) is not a bank (within the meaning
of Section 881(c)(3)(A) of the Code) (and see (C) below); (B) is a bank that has
provided an IRS Form W-8ECI representing that all payments received or to be
received by it from the Issuer are effectively connected with the conduct of a
trade or business in the United States; or (C) is a bank and is, or is not a
bank (within the meaning of Section 881(c)(3)(A) of the Code) but with respect
to commitment fees is, eligible for benefits under an income tax treaty with the
United States that eliminates U.S. federal income taxation of U.S. source
interest and commitment fees not attributable to a permanent establishment in
the United States and the Issuer is treated as a fiscally transparent entity (as
defined in Treasury Regulations section 1.894-1(d)(3)(iii)) under the laws of
Holder's jurisdiction with respect to payments made on the Collateral Debt
Securities held by the Issuer.

(xv) The Holder will, prior to any sale, pledge or other transfer by
such Holder of any Class A-1AR Note (or interest therein), obtain from the
prospective transferee, and deliver to the Trustee, a duly executed transferee
certificate addressed to each of the Trustee, the Issuer and the Collateral
Manager in the form of the relevant exhibit attached to the Indenture, and such
other certificates and other information as the Issuer, the Collateral Manager
or the Trustee may reasonably require to confirm that the proposed transfer
complies with the transfer restrictions contained in the Indenture.

(xvi) The Holder agrees that no Class A-1AR Note may be purchased,
sold, pledged or otherwise transferred in an amount less than the minimum
denomination set forth in the Indenture. In addition, the Holder understands
that the Class A-1AR Notes will be transferable only upon registration of the
transferee in the Note Register of the Issuer following delivery to the Note
Registrar of a duly executed transfer certificate and the Definitive Class A-1AR
Note to be transferred, and any other certificates and other information
required by the Indenture.

(xvii) The Holder is aware and agrees that no Class A-1AR Note may be
offered or sold, pledged or otherwise transferred except (i)(A) to a transferee
that the Holder reasonably believes is a QIB, purchasing for its account, to
which notice is given that the resale, pledge or other transfer is being made in
reliance on the exemption from the registration requirements of the Securities
Act provided by Rule 144A or another person the sale to which is exempt under
the Securities Act, (B) to a transferee that is a Qualified Purchaser, and (C)
if such transfer is made in accordance with any applicable securities laws of
any state of the United States and any other relevant jurisdiction, (ii)(A) to a
transferee that is acquiring such interest in an offshore transaction in
accordance with Rule 904 of Regulation S, (B) to a transferee that is not a U.S.
resident (within the meaning of the Investment Company Act) unless such
transferee is a Qualified Purchaser, (C) such transfer is made in compliance
with the other requirements set forth in the Indenture and (D) if such transfer
is made in accordance with any applicable securities laws of any state of the
United States and any other jurisdiction or (iii) if such transfer

Schedule II-5

would have the effect of requiring the Issuer or the Collateral to register as
an "investment company" under the Investment Company Act.

(xviii)The Holder understands that there is no market for the Class
A-1AR Notes and that no assurances can be given as to the liquidity of any
trading market for the Class A-1AR Notes and that it is unlikely that a trading
market for the Class A-1AR Notes will develop. The Holder further understands
that, although the Dealers may from time to time make a market in the Class
A-1AR Notes, the Dealers are not under any obligation to do so and, following
the commencement of any market-making, may discontinue the same at any time.
Accordingly, the Holder must be prepared to hold the Class A-1AR Notes until the
Stated Maturity.

(ix) The Holder agrees that (i) any sale, pledge or other transfer of
a Class A-1AR Note made in violation of the transfer restrictions contained in
the Indenture, or made based upon any false or inaccurate representation made by
the Holder or a transferee to the Issuer, the Trustee or the Note Registrar,
will be void and of no force or effect and (ii) none of the Issuer, the Trustee
and the Note Registrar has any obligation to recognize any sale, pledge or other
transfer of a Class A-1AR Note made in violation of any such transfer
restriction or made based upon any such false or inaccurate representation.

(xx) The Holder approves and consents to any direct trades between the
Issuer and the Collateral Manager and/or its affiliates that is permitted under
the terms of the Indenture and the Collateral Management Agreement.

(xxi) The Holder acknowledges that the Issuer, the Trustee, the Note
Registrar, the Collateral Manager, the Dealers and others will rely upon the
truth and accuracy of the foregoing acknowledgments, representations and
agreements and agrees that, if any of the acknowledgments, representations or
warranties made or deemed to have been made by it in connection with its
purchase of the Class A-1AR Notes are no longer accurate, the Holder will
promptly notify the Issuer, the Trustee, Note Registrar, the Collateral Manager
and the Dealers.

(xxii) The Holder is a Qualified Purchaser for purposes of Section
3(c)(7) of the Investment Company Act and is not a Flow-Through Investment
Vehicle (other than a Qualifying Investment Vehicle). The Holder, to the extent
it is a private investment company formed before April 30, 1996, has received
the necessary consent from its beneficial owners and the Holder agrees that it
will not hold such Class A-1AR Notes for the benefit of any other person and
will be the sole beneficial owner thereof for all purposes and that it will not
sell participation interests in the Class A-1AR Notes or enter into any other
arrangement pursuant to which any other person will be entitled to a beneficial
interest in the distributions on the Class A-1AR Notes. The Holder understands
and agrees that any purported transfer of the Class A-1AR Notes to a Holder that
does not comply with the requirements of this paragraph will be null and void ab
initio.

(xxiii) The Holder understands that the Indenture permits the Issuer
and the Co-Issuer to require any Holder a Class A-1AR Note who is determined not
to have been a Qualified Purchaser at the time of acquisition of such Class
A-1AR Note to sell such interest to a person

Schedule II-6

that is both a Qualified Institutional Buyer and Qualified Purchaser in a
transaction meeting the requirements of Rule 144A.

Schedule II-7

EXHIBIT A

ASSIGNMENT AND ACCEPTANCE

Reference is made to the Class A-1AR Note Purchase Agreement, dated as
of December 14, 2006 (as modified and supplemented and in effect from time to
time, the "Class A-1AR Note Purchase Agreement"), among ARBOR REALTY MORTGAGE
SECURITIES SERIES 2006-1, LTD., a Cayman Islands exempted company with limited
liability (the "Issuer"), ARBOR REALTY MORTGAGE SECURITIES SERIES 2006-1 LLC, a
Delaware limited liability company (the "Co-Issuer" and together with the
Issuer, the "Co-Issuers"), the Holders party thereto and WELLS FARGO BANK,
NATIONAL ASSOCIATION, as Class A-1AR Note Agent (the "Class A-1AR Note Agent"),
relating to the Class A-1AR Notes issued under the Indenture, dated as of
December 14, 2006 (as modified and supplemented and in effect from time to time,
the "Indenture"), entered into by the Co-Issuers, Arbor Realty SR, Inc., as
advancing agent and Wells Fargo Bank, National Association, as trustee ("Wells
Fargo"), as trustee (together with any successor permitted under the Indenture,
the "Trustee"), paying agent, calculation agent, transfer agent, custodial
securities intermediary, backup advancing agent and notes registrar. Terms used
but not defined herein have the respective meanings given to such terms in (or
incorporated by reference in) the Class A-1AR Note Purchase Agreement and in the
Indenture.

The Assignor named on the signature pages hereof (the "Assignor")
hereby sells and assigns to the Assignee named on the signature pages hereof
(the "Assignee"), and the Assignee hereby purchases and assumes from the
Assignor, effective as of the Assignment Date set forth below, the interests set
forth below (the "Assigned Interest") in the Assignor's rights and obligations
under the Class A-1AR Note Purchase Agreement, including, without limitation,
the interests set forth below in the Class A-1AR Notes held by (and the related
Class A-1AR Commitment of and outstanding principal amount of Advances held by)
the Assignor on the Assignment Date. The Assignee hereby acknowledges receipt of
a copy of the Class A-1AR Note Purchase Agreement and the Indenture. From and
after the Assignment Date (A) the Assignee shall be a party to and be bound by
the provisions of the Class A-1AR Note Purchase Agreement and, to the extent of
the Assigned Interest, have the rights and obligations of a Holder thereunder
and (B) the Assignor shall, to the extent of the Assigned Interest, relinquish
its rights and be released from its obligations under the Class A-1AR Note
Purchase Agreement. The Assignor hereby represents and warrants to the Assignee
that, as of the Assignment Date, the Assignor (1) owns the Assigned Interest
free and clear of any lien or other encumbrance and (2) is not aware of any
Default or Event of Default under the Indenture. The Assignee hereby makes to
the Assignor, the Co-Issuers, the Collateral Manager, the Trustee and the Class
A-1AR Note Agent all of the representations and warranties set forth in Section
3.02 of the Class A-1AR Note Purchase Agreement (including those made by
reference to Schedule II thereof).

Each of the parties hereby covenants and agrees that so long as [_] is
the registered owner of the Class A-1AR Notes:

(1) except with respect to the Class A-1AR Holder Account, it waives
any right to set-off and to appropriate and apply any and all deposits and
any other

indebtedness at any time held or owing thereby to or for the credit or the
account of [_] against and on account of the obligations and liabilities of
[_] to such party under this Agreement; and

(2) notwithstanding anything to the contrary herein no provision of
this Agreement adversely affecting the rights or duties of [_] or a
Liquidity Provider for [_] may be amended or waived without the written
consent of [_].

This Assignment and Acceptance shall be governed by and construed in
accordance with the law of the State of [_].

Legal Name of Assignor: _____________________
Legal Name of Assignee: _____________________
Assignee's Address for Notices: _____________________
Fax No.: _____________________
Details of electronic messaging system: _____________________
Payment Instructions: _____________________
Federal Taxpayer ID No. of Assignee: _____________________
Effective Date of Assignment ("Assignment Date"): _____________________

AMOUNT ASSIGNED   AMOUNT RETAINED
---------------   ---------------

Class A-1AR Commitment:      U.S.$[_]          U.S.$[_]

Outstanding Principal

Amount of Advances:          U.S.$[_]          U.S.$[_]

The Assignee [shall/shall not] make a Qualified Securitization Pledge

[[Name of Holder] elects to be subject to Section 6.03(f) of the Note Purchase
Agreement]

The terms set forth above are hereby agreed to:

[Name of Assignor], as Assignor

By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------

Exhibit A-2

[Name of Assignee], as Assignee

By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------

[_], as Committed Liquidity Provider with regard to

[_], as Class A-1AR Note Holder

By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------

Exhibit A-3

EXHIBIT B

FORM OF CLASS A-1AR DRAW REQUEST
(Advances)

[Date]

Wells Fargo Bank, National Association
9062 Old Annapolis Road
Columbia, Maryland 21045
Attention: CDO Trust Services, Arbor Realty Mortgage Securities Series 2006-1

Re: Class A-1AR Note Purchase Agreement dated as of December 14, 2006.

Ladies and Gentlemen:

This Class A-1AR Draw Request is delivered to you pursuant to Sections
2.03 of that certain Class A-1AR Note Purchase Agreement, dated as of December
14, 2006 (as modified and supplemented and in effect from time to time, the
"Class A-1AR Note Purchase Agreement"), among ARBOR REALTY MORTGAGE SECURITIES
SERIES 2006-1, LTD., a Cayman Islands exempted company with limited liability
(the "Issuer"), ARBOR REALTY MORTGAGE SECURITIES SERIES 2006-1 LLC, a Delaware
limited liability company (the "Co-Issuer" and together with the Issuer, the
"Co-Issuers"), the Holders party thereto and WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Class A-1AR Note Agent (the "Class A-1AR Note Agent").
Capitalized terms used but not defined herein shall have the respective meanings
given to such terms in (or incorporated by reference in) the Class A-1AR Note
Purchase Agreement and the Indenture.

1.   The Issuer hereby requests a Class A-1AR Draw in the principal amount of
$_____________.

2.   The Issuer hereby requests that the Advances be made on and as of
_____________.

3.   The amount of the Class A-1AR Draw shall be wired to the following account:
_____________.

4.   All of the conditions applicable to the Advance requested herein as set
forth in the Class A-1AR Note Purchase Agreement have been satisfied as of
the date hereof.

IN WITNESS WHEREOF, the undersigned have executed this Class A-1AR
Draw Request this ___ day of [_], 20[__].

ARBOR REALTY MORTGAGE SECURITIES SERIES
2006-1, LTD., as the Issuer

By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------

 
 
EXHIBIT 21.1
 
SUBSIDIARIES OF ARBOR REALTY TRUST, INC.
 
Arbor Realty GPOP, Inc., a Delaware corporation
Arbor Realty LPOP, Inc., a Delaware corporation
Arbor Realty Limited Partnership, a Delaware limited partnership
Arbor Realty SR, Inc., a Maryland corporation
ANMB Holdings LLC, a New York limited liability company
ACM Gateway LLC, a Delaware limited liability company
Arbor Texas CDS, LLC, a New York limited liability company
420 5th Investor, LLC, a Delaware limited liability company
Arbor Realty Funding, LLC, a Delaware limited liability company
Arbor Realty Member LLC, a Delaware limited liability company
ART 450 LLC, a Delaware limited liability company
AT 450 II LLC, a Delaware limited liability company
ARMS 2004-1 Equity Holdings LLC, a Delaware limited liability company
Arbor Realty Mortgage Securities Series 2004-1 LLC, a Delaware limited liability company
Arbor Realty Mortgage Securities Series 2004-1, Ltd., a Cayman Islands exempted company with limited liability
Arbor Realty Collateral Management, LLC, a Delaware limited liability company
AC Flushing, LLC, a New York limited liability company
ACM Lakeview, LLC, a New York limited liability company (TRS)
AR Prime Holdings LLC, a Delaware limited liability company
Arbor Realty Mortgage Securities Series 2005-1 Ltd., a Cayman Islands exempted company with limited liability
Arbor Realty Mortgage Securities Series 2005-1 LLC, a Delaware limited liability company
ARMS 2005-1 Equity Holdings LLC, a Delaware limited liability company
Arbor Realty OTA LLC, a Delaware limited liability company (TRS)
Arbor Realty RMBS LLC, a Delaware limited liability company
Arbor SR West 35th LLC, a Delaware limited liability company
Arbor TRS Holding Co., Inc., a Delaware corporation (TRS)
Arbor Toy LLC, a Delaware limited liability company (TRS)
ARLP 263 Ninth Avenue, a New York limited liability company (TRS)
ARMS 2006-1 Equity Holdings LLC, a Delaware limited liability company
Arbor Realty Mortgage Securities Series 2006-1 LLC, a Delaware limited liability company
Arbor Realty Mortgage Securities Series 2006-1, Ltd., a Cayman Islands exempted company with limited liability
Arbor Realty Participation LLC, a Delaware limited liability company
Arbor Realty Mezzanine LLC, a Delaware limited liability company
Arbor Realty Mezzanine Holdings LLC, a Delaware limited liability company
ART 823 LLC, a Delaware limited liability company (TRS)
ARSR Tahoe LLC, a Delaware limited liability company
Ashley Court — Fort Wayne LLC, an Indiana limited liability company
Richland Terrace Apts. LLC, a South Carolina limited liability company
Arbor Capital Trust I, a Delaware Statutory Trust
Arbor Capital Trust II, a Delaware Statutory Trust
Arbor Capital Trust III, a Delaware Statutory Trust
Arbor Capital Trust IV, a Delaware Statutory Trust
Arbor Capital Trust V, a Delaware Statutory Trust
Arbor Capital Trust VI, a Delaware Statutory Trust
Arbor Capital Trust VII, a Delaware Statutory Trust

 
 
EXHIBIT 23.1
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in the Registration Statement on the Post-Effective Amendment No. 2 on Form S-3 to Form 11 (No. 333-116223) and the related prospectus and on Form S-8 (No. 333-121461) pertaining to the registration of shares of common stock of Arbor Realty Trust, Inc. issued pursuant to the Arbor Realty Trust, Inc. 2003 Omnibus Stock Incentive Plan, as amended and restated, of our reports dated February 28, 2007, with respect to the consolidated financial statements and schedule of Arbor Realty Trust, Inc. and Subsidiaries, Arbor Realty Trust, Inc. and Subsidiaries management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Arbor Realty Trust, Inc. and Subsidiaries, included in this Annual Report (Form 10-K) for the year ended December 31, 2006.
 
/s/  Ernst & Young LLP
 
New York, New York
February 28, 2007

 
 
EXHIBIT 31.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
 
I, Ivan Kaufman, certify that:
 
1. I have reviewed this annual report on Form 10-K of Arbor Realty Trust, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a — 15(f) and 15d — 15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 	By: 	/s/  Ivan Kaufman	
Name:     Ivan Kaufman
 	 	 	
 	Title: 	Chief Executive Officer	
 
Date: February 28, 2007

 
 
EXHIBIT 31.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER
 
I, Paul Elenio, certify that:
 
1. I have reviewed this annual report on Form 10-K of Arbor Realty Trust, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a — 15(f) and 15d — 15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 	By: 	/s/  Paul Elenio	
Name:     Paul Elenio
 	 	 	
 	Title: 	Chief Financial Officer	
 
Date: February 28, 2007

 
 
EXHIBIT 32.1
 
CERTIFICATION OF CEO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report on Form 10-K of Arbor Realty Trust, Inc.. (the “Company”) for the annual period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Ivan Kaufman, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 	By: 	/s/  Ivan Kaufman	
Name:     Ivan Kaufman
 	 	 	
 	Title: 	Chief Executive Officer	
 
Date: February 28, 2007
 
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
 
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 
 
EXHIBIT 32.2
 
CERTIFICATION OF CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report on Form 10-K of Arbor Realty Trust, Inc. (the “Company”) for the annual period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Paul Elenio, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 	By: 	/s/  Paul Elenio	
Name:     Paul Elenio
 	 	 	
 	Title: 	Chief Financial Officer	
 
Date: February 28, 2007
 
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
 
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.