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Important Notice Attached Please Find An Electronic Copy Of The

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IMPORTANT NOTICE Attached please find an electronic copy of the offering memorandum (the “Offering Memorandum”), dated June 19, 2007, relating to (i) the Class A-1 Senior Secured Floating Rate Notes due 2021, the Class A-2R Senior Secured Revolving Floating Rate Notes due 2021, the Class A-2B Senior Secured Floating Rate Notes due 2021, the Class B Senior Secured Floating Rate Notes due 2021, the Class C Senior Secured Deferrable Floating Rate Notes due 2021, the Class D-1 Senior Secured Deferrable Floating Rate Notes due 2021 and the Class D-2 Senior Secured Deferrable Fixed Rate Notes due 2021 offered by Kingsland V, Ltd. (the “Issuer”) and by Kingsland V, Corp. (the “Co-Issuer” and, together with the Issuer, the “Co-Issuers”), and (ii) the Class E Secured Deferrable Floating Rate Notes due 2021, the Composite Notes due 2021 and the Subordinated Notes due 2021 offered by the Issuer. The Offering Memorandum does not constitute an offer to any person (other than, subject to the provisions of the last four paragraphs of this notice, the recipient) or to the public generally to subscribe for or otherwise acquire the Notes described therein. DISTRIBUTION OF THE OFFERING MEMORANDUM TO ANY PERSON OTHER THAN THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM THE CO-ISSUERS, THE INITIAL PURCHASER REFERRED TO THEREIN AND THEIR RESPECTIVE AGENTS, AND ANY PERSONS RETAINED TO ADVISE THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM THE CO-ISSUERS OR THE INITIAL PURCHASER WITH RESPECT THERETO, IS UNAUTHORIZED. ANY PHOTOCOPYING, DISCLOSURE OR ALTERATION OF THE CONTENTS OF THE OFFERING MEMORANDUM, AND ANY FORWARDING OF A COPY OF THE OFFERING MEMORANDUM OR ANY PORTION THEREOF BY ELECTRONIC MAIL OR ANY OTHER MEANS TO ANY PERSON OTHER THAN THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM THE CO-ISSUERS OR THE INITIAL PURCHASER, IS PROHIBITED. BY ACCEPTING DELIVERY OF THE OFFERING MEMORANDUM, THE RECIPIENT AGREES TO THE FOREGOING. THE NOTES REFERRED TO IN THE OFFERING MEMORANDUM, AND THE ASSET POOLS BACKING THEM, ARE SUBJECT TO MODIFICATION OR REVISION (INCLUDING THE POSSIBILITY THAT ONE OR MORE CLASSES OF NOTES MAY BE SPLIT, COMBINED OR ELIMINATED AT ANY TIME PRIOR TO ISSUANCE OR AVAILABILITY OF A FINAL OFFERING MEMORANDUM) AND ARE OFFERED ON A “WHEN, AS AND IF ISSUED” BASIS. EACH PROSPECTIVE INVESTOR UNDERSTANDS THAT, WHEN SUCH PROSPECTIVE INVESTOR IS CONSIDERING THE PURCHASE OF THESE NOTES, A CONTRACT OF SALE WILL COME INTO BEING NO SOONER THAN THE DATE ON WHICH THE RELEVANT CLASS OF NOTES, AS APPLICABLE, HAVE BEEN PRICED AND THE INITIAL PURCHASER HAS CONFIRMED THE ALLOCATION OF NOTES TO BE MADE TO SUCH PROSPECTIVE INVESTOR; ANY “INDICATIONS OF INTEREST” EXPRESSED BY ANY PROSPECTIVE INVESTOR, AND ANY “SOFT CIRCLES” GENERATED BY THE INITIAL PURCHASER, THE PORTFOLIO MANAGER, THE ISSUER, THE CO-ISSUER OR ANY OF THEIR RESPECTIVE AGENTS OR AFFILIATES, WILL NOT CREATE BINDING CONTRACTUAL OBLIGATIONS FOR SUCH PROSPECTIVE INVESTOR, ON THE ONE HAND, OR THE INITIAL PURCHASER, THE PORTFOLIO MANAGER, THE ISSUER, THE CO-ISSUER OR ANY OF THEIR RESPECTIVE AGENTS OR AFFILIATES, ON THE OTHER HAND. AS A RESULT OF THE FOREGOING, A PROSPECTIVE INVESTOR MAY COMMIT TO PURCHASE NOTES THAT HAVE CHARACTERISTICS THAT MAY CHANGE, AND EACH PROSPECTIVE INVESTOR IS ADVISED THAT ALL OR A PORTION OF THE NOTES MAY NOT BE ISSUED THAT HAVE THE CHARACTERISTICS DESCRIBED IN THESE MATERIALS. THE INITIAL PURCHASER’S OBLIGATION TO SELL NOTES TO ANY PROSPECTIVE INVESTOR IS CONDITIONED ON THE NOTES HAVING THE CHARACTERISTICS DESCRIBED IN THESE MATERIALS. IF THE INITIAL PURCHASER DETERMINES THAT CONDITION IS NOT SATISFIED IN ANY MATERIAL RESPECT, SUCH PROSPECTIVE INVESTOR WILL BE NOTIFIED, AND NEITHER THE ISSUER, THE CO-ISSUER NOR THE INITIAL PURCHASER WILL HAVE ANY OBLIGATION TO SUCH PROSPECTIVE INVESTOR TO DELIVER ANY PORTION OF THE NOTES WHICH SUCH PROSPECTIVE INVESTOR HAS COMMITTED TO PURCHASE, AND THERE WILL BE NO LIABILITY BETWEEN THE INITIAL PURCHASER, THE PORTFOLIO MANAGER, THE ISSUER, THE CO-ISSUER OR ANY OF THEIR RESPECTIVE AGENTS OR AFFILIATES, ON THE ONE HAND, AND SUCH PROSPECTIVE INVESTOR, ON THE OTHER HAND, AS A CONSEQUENCE OF THE NONDELIVERY. EACH PROSPECTIVE INVESTOR IN THE NOTES REQUESTED THAT THE INITIAL PURCHASER PROVIDE TO SUCH PROSPECTIVE INVESTOR INFORMATION IN CONNECTION WITH SUCH PROSPECTIVE INVESTOR’S CONSIDERATION OF THE PURCHASE OF CERTAIN NOTES DESCRIBED IN THESE MATERIALS. THESE MATERIALS ARE BEING PROVIDED TO EACH PROSPECTIVE INVESTOR FOR INFORMATIVE PURPOSES ONLY IN RESPONSE TO SUCH PROSPECTIVE INVESTOR’S SPECIFIC REQUEST. THE INITIAL PURCHASER DESCRIBED IN THESE MATERIALS MAY FROM TIME TO TIME PERFORM INVESTMENT BANKING SERVICES FOR, OR SOLICIT INVESTMENT BANKING BUSINESS FROM, ANY COMPANY NAMED IN THESE MATERIALS. THE INITIAL PURCHASER AND/OR ITS EMPLOYEES MAY FROM TIME TO TIME HAVE A LONG OR SHORT POSITION IN ANY CONTRACT OR NOTE DISCUSSED IN THESE MATERIALS. THE INFORMATION CONTAINED HEREIN SUPERSEDES ANY PREVIOUS SUCH INFORMATION DELIVERED TO ANY PROSPECTIVE INVESTOR AND MAY BE SUPERSEDED BY INFORMATION DELIVERED TO SUCH PROSPECTIVE INVESTOR PRIOR TO THE TIME OF SALE. OFFERING MEMORANDUM KINGSLAND V, LTD. KINGSLAND V, CORP. U.S.$295,975,000 CLASS A-1 SENIOR SECURED FLOATING RATE NOTES DUE 2021 U.S.$60,000,000 CLASS A-2R SENIOR SECURED REVOLVING FLOATING RATE NOTES DUE 2021 U.S.$12,125,000 CLASS A-2B SENIOR SECURED FLOATING RATE NOTES DUE 2021 U.S.$22,900,000 CLASS B SENIOR SECURED FLOATING RATE NOTES DUE 2021 U.S.$25,000,000 CLASS C SENIOR SECURED DEFERRABLE FLOATING RATE NOTES DUE 2021 U.S.$13,000,000 CLASS D-1 SENIOR SECURED DEFERRABLE FLOATING RATE NOTES DUE 2021 U.S.$5,000,000 CLASS D-2 SENIOR SECURED DEFERRABLE FIXED RATE NOTES DUE 2021 U.S.$14,900,000 CLASS E SECURED DEFERRABLE FLOATING RATE NOTES DUE 2021 U.S.$36,100,000 SUBORDINATED NOTES DUE 2021 U.S.$15,330,000 COMPOSITE NOTES DUE 2021 The Offered Securities will be issued on or about May 24, 2007 (the "Closing Date") pursuant to an Indenture, dated as of May 24, 2007 (the "Indenture"), among Kingsland V, Ltd. (the "Issuer"), Kingsland V, Corp. (the "Co-Issuer" and, together with the Issuer, the "Co-Issuers"), and The Bank of New York Trust Company, National Association, as Trustee (the "Trustee"). Kingsland Capital Management, LLC will serve as portfolio manager (the "Portfolio Manager") for the Issuer's portfolio. KINGSLAND CAPITAL MANAGEMENT It is a condition of the issuance of the Notes that (i) the Class A-1 Notes be rated "Aaa" by Moody's Investors Service, Inc. ("Moody's") and "AAA" by Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. ("S&P" and, together with Moody's, the "Rating Agencies"), (ii) the Class A-2R Notes be rated "Aaa" by Moody's and "AAA" by S&P, (iii) the Class A-2B Notes be rated at least "Aa1" by Moody's and "AAA" by S&P, (iv) the Class B Notes be rated at least "Aa2" by Moody's and at least "AA" by S&P, (v) the Class C Notes be rated at least "A2" by Moody's and at least "A" by S&P, (vi) the Class D-1 Notes and the Class D-2 Notes be rated at least "Baa3" by Moody's and at least "BBB-" by S&P, (vii) the Class E Notes be rated at least "Ba2" by Moody's and at least "BB" by S&P and (viii) the Composite Notes be rated at least "Baa2" with respect to the Rated Amount thereof, in each case as more fully described under "Ratings of the Senior Notes and the Composite Notes." The Subordinated Notes will not be rated. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning Rating Agency. This Offering Memorandum constitutes the Prospectus (the "Prospectus") for the purposes of Directive 2003/71/EC (the "Prospectus Directive"). Application has been made to the Irish Financial Services Regulatory Authority (the "Financial Regulator"), as competent authority under the Prospectus Directive for the Prospectus to be approved. Application has been made to the Irish Stock Exchange (the "Irish Stock Exchange") for the Offered Securities to be admitted to the Official List (the "Official List") and to trading on its regulated market. No assurance can be given that the application to admit the Offered Securities will be accepted. No assurances can be given that, following the Closing Date, the listing of the Offered Securities on the Irish Stock Exchange will be obtained or, if obtained, maintained for the entire period that the Offered Securities are outstanding. See "Risk Factors" for a description of certain factors that should be considered in connection with an investment in the Offered Securities. THE OFFERED SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND NEITHER THE ISSUER NOR THE CO-ISSUER WILL BE REGISTERED UNDER THE UNITED STATES INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "INVESTMENT COMPANY ACT"). THE OFFERED SECURITIES WILL BE OFFERED AND SOLD TO NON-U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT ("REGULATION S")) OUTSIDE THE UNITED STATES IN RELIANCE ON REGULATION S. THE OFFERED SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT TO PERSONS THAT ARE (I) (X) QUALIFIED INSTITUTIONAL BUYERS ("QUALIFIED INSTITUTIONAL BUYERS") (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) IN TRANSACTIONS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT, (Y) SOLELY IN THE CASE OF ALL OR A PORTION OF THE CLASS E NOTES RESOLD BY THE INITIAL PURCHASER ON THE CLOSING DATE, INSTITUTIONAL ACCREDITED INVESTORS (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTORS") IN TRANSACTIONS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OR (Z) SOLELY IN THE CASE OF THE SUBORDINATED NOTES, ACCREDITED INVESTORS ("ACCREDITED INVESTORS") (AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT) IN TRANSACTIONS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND (II) (A) QUALIFIED PURCHASERS ("QUALIFIED PURCHASERS") (FOR THE PURPOSES OF RULE 3(c)(7) OF THE INVESTMENT COMPANY ACT) OR (B) SOLELY IN THE CASE OF THE SUBORDINATED NOTES, KNOWLEDGEABLE EMPLOYEES ("KNOWLEDGEABLE EMPLOYEES") (AS DEFINED IN RULE 3c-5 UNDER THE INVESTMENT COMPANY ACT) WITH RESPECT TO THE ISSUER OR AN ENTITY OWNED EXCLUSIVELY BY QUALIFIED PURCHASERS AND/OR KNOWLEDGEABLE EMPLOYEES, AND IN ACCORDANCE WITH ANY OTHER APPLICABLE LAW. The Offered Securities are offered by Wachovia Capital Markets, LLC ("Wachovia Securities") as initial purchaser (in such capacity, the "Initial Purchaser"), from time to time at varying prices in negotiated transactions subject to prior sale, when, as and if issued. Wachovia Securities, as Initial Purchaser, is expected to purchase 100% of the Senior Notes (other than the Class A-2R Notes and the Class E Notes) from the Co-Issuers and 100% of the Class E Notes and the Subordinated Notes from the Issuer, subject, in each case, to certain conditions. Investors in Class A-2R Notes and, in certain circumstances, certain other investors may purchase Offered Securities directly from the Co-Issuers in transactions arranged by Wachovia Securities acting as placement agent (directly or through one or more dealers). The Initial Purchaser will act as sole manager and bookrunner with respect to the Offered Securities. The Initial Purchaser reserves the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of each Rule 144A Global Note, each Regulation S Global Note and each Regulation S Global Subordinated Note (each as defined herein) will be made in book-entry form through the facilities of The Depository Trust Company ("DTC") on or about the Closing Date and that the Subordinated Notes in definitive form will be made available for delivery to the owners thereof on such date, in each case, in New York, New York against payment therefor in immediately available funds. WACHOVIA SECURITIES The date of this Offering Memorandum is June 19, 2007 Certain pledged assets of the Issuer are the sole source of payments on the Offered Securities. The Subordinated Notes are not secured by the assets of the Issuer. The Offered Securities do not represent an interest in or obligations of, and are not insured or guaranteed by, the Portfolio Manager, the Trustee, any paying agent, Wachovia Securities, any Hedge Counterparty, or any of their respective affiliates. This Offering Memorandum has been prepared by the Co-Issuers solely for use in connection with the offering and listing of the Offered Securities. The Co-Issuers accept responsibility for the information contained in the Offering Memorandum (other than the information appearing under the sections entitled "Risk Factors-Relating to the Portfolio Manager-Performance History of the Principals of the Portfolio Manager May Not Be Indicative of Future Results," "Risk Factors-Relating to Certain Conflicts of Interest-The Issuer Will Be Subject to Various Conflicts of Interest Involving the Portfolio Manager" and "The Portfolio Manager", together the "Portfolio Manager Information"). To the best of the knowledge and belief of the Co-Issuers' the information contained in the Offering Memorandum (other than the Portfolio Manager Information) is in accordance with the facts and does not omit anything likely to affect the import of such information. The Portfolio Manager Information has been prepared by the Portfolio Manager and has not been independently verified by Wachovia Securities or the Co-Issuers. The Portfolio Manager accepts responsibility solely for the information set forth under the "Portfolio Manager Information" in the Prospectus. To the best knowledge and belief of the Portfolio Manager, such information contained in the Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. The information appearing in the sections entitled "Risk Factors—Relating to the Portfolio Manager—Performance History of the Principals of the Portfolio Manager May Not Be Indicative of Future Results," "Risk Factors—Relating to Certain Conflicts of Interest—The Issuer Will Be Subject to Various Conflicts of Interest Involving the Portfolio Manager" and "The Portfolio Manager" has been prepared by the Portfolio Manager and has not been independently verified by Wachovia Securities or the Co-Issuers. Wachovia Securities and the Co-Issuers do not assume any responsibility for the accuracy, completeness, or applicability of such information, except that the Co-Issuers assume responsibility for accurately reproducing such information in this Offering Memorandum. Neither Wachovia Securities nor (except with respect to the sections entitled "Risk Factors— Relating to the Portfolio Manager—Performance History of the Principals of the Portfolio Manager May Not Be Indicative of Future Results," "Risk Factors—Relating to Certain Conflicts of Interest—The Issuer Will Be Subject to Various Conflicts of Interest Involving the Portfolio Manager" and "The Portfolio Manager") the Portfolio Manager has independently verified, makes any representation or warranty, express or implied, as to or assumes any responsibility for the accuracy or completeness of the information in this Offering Memorandum. Each person receiving this Offering Memorandum acknowledges that such person has not relied on Wachovia Securities nor (except with respect to the sections entitled "Risk Factors—Relating to the Portfolio Manager—Performance History of the Principals of the Portfolio Manager May Not Be Indicative of Future Results," "Risk Factors—Relating to Certain Conflicts of Interest— The Issuer Will Be Subject to Various Conflicts of Interest Involving the Portfolio Manager" and "The Portfolio Manager") the Portfolio Manager, in connection with its investigation of the accuracy of such information or its investment decision. Nothing contained in this Offering Memorandum is, or shall be relied upon as, a promise or representation as to the past or the future by Wachovia Securities or the Portfolio Manager. Each person contemplating making an investment in the Offered Securities must make its own investigation and analysis of the creditworthiness of the Co-Issuers and its own determination of the suitability of any such investment, with particular reference to its own investment objectives and experience, and any other factors that may be relevant to it in connection with such investment. ii THE OFFERED SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, AND NONE OF THE FOREGOING AUTHORITIES HAS CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Offered Securities are a new issue of securities. There can be no assurance that a secondary market for any of the Offered Securities will develop, or if a secondary market does develop, that it will provide the holders of such Offered Securities with liquidity of investment or that it will continue. Accordingly, investors should be prepared to bear the risks of holding the Offered Securities until final payment is made thereon. THE CONTENTS OF THIS OFFERING MEMORANDUM ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR AND TAX ADVISOR AS TO LEGAL, BUSINESS AND TAX ADVICE. Neither the Issuer nor the Co-Issuer has been registered under the Investment Company Act. Each purchaser of Senior Notes and Composite Notes that are represented by an interest in a Rule 144A Global Note will be deemed to represent and agree that the purchaser is acquiring such Notes or Composite Notes in a principal amount of not less than U.S.$250,000, in the case of the Senior Notes, or $600,000, in the case of the Composite Notes, for such purchaser and each account for which such purchaser is purchasing such Notes and that the purchaser and each such account is a Qualified Purchaser. Each purchaser of Subordinated Notes that is a U.S. person will be required to represent and agree that the purchaser is acquiring such Subordinated Notes in a principal amount of not less than $100,000 for its own account and that the purchaser is (i) a Qualified Purchaser, (ii) a Knowledgeable Employee or (iii) an entity owned exclusively by Qualified Purchasers and/or Knowledgeable Employees. See "Transfer Restrictions." Prospective purchasers are hereby notified that a seller of the Offered Securities may be relying on an exemption from the registration requirements of Section 5 of the Securities Act provided by Section 4(2) of, or Rule 144A under, the Securities Act. In this Offering Memorandum references to "Dollars", "$" and "U.S.$" are dollars or other equivalent units in such coin or currency of the United States of America as at the time shall be legal tender for all debts, public and private. NO ACTION WAS TAKEN OR IS BEING CONTEMPLATED BY THE CO-ISSUERS THAT WOULD PERMIT A PUBLIC OFFERING OF THE OFFERED SECURITIES OR POSSESSION OR DISTRIBUTION OF THIS OFFERING MEMORANDUM OR ANY AMENDMENT THEREOF, OR SUPPLEMENT THERETO OR ANY OTHER OFFERING MATERIAL RELATING TO THE OFFERED SECURITIES IN ANY JURISDICTION (OTHER THAN IRELAND) WHERE, OR IN ANY OTHER CIRCUMSTANCES IN WHICH, ACTION FOR THOSE PURPOSES IS REQUIRED. NOTHING CONTAINED HEREIN SHALL CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY OFFERED SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO ABSENT THE TAKING OF SUCH ACTION OR THE AVAILABILITY OF AN EXEMPTION THEREFROM. iii THE INITIAL PURCHASER DESCRIBED IN THESE MATERIALS MAY FROM TIME TO TIME PERFORM INVESTMENT BANKING SERVICES FOR, OR SOLICIT INVESTMENT BANKING BUSINESS FROM, ANY COMPANY NAMED IN THESE MATERIALS. THE INITIAL PURCHASER AND/OR ITS EMPLOYEES MAY FROM TIME TO TIME HAVE A LONG OR SHORT POSITION IN ANY CONTRACT OR NOTE DISCUSSED IN THESE MATERIALS. THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, (I) ANY SECURITIES OTHER THAN THE OFFERED SECURITIES OR (II) ANY SECURITIES IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. THE DISTRIBUTION OF THIS OFFERING MEMORANDUM AND THE OFFER OR SALE OF THE OFFERED SECURITIES MAY BE RESTRICTED BY LAW IN CERTAIN JURISDICTIONS. PERSONS INTO WHOSE POSSESSION THIS OFFERING MEMORANDUM OR ANY OF THE OFFERED SECURITIES COME ARE REQUIRED BY THE CO ISSUERS AND THE INITIAL PURCHASER TO INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. EACH PROSPECTIVE PURCHASER OF ANY OF THE OFFERED SECURITIES MUST COMPLY WITH ALL APPLICABLE LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION IN WHICH IT PURCHASES, OFFERS OR SELLS SUCH OFFERED SECURITIES OR POSSESSES OR DISTRIBUTES THIS OFFERING MEMORANDUM AND MUST OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED BY IT FOR THE PURCHASE, OFFER OR SALE BY IT OF THE OFFERED SECURITIES UNDER THE LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION TO WHICH IT IS SUBJECT OR IN WHICH IT MAKES SUCH PURCHASES, OFFERS OR SALES, AND NONE OF THE COISSUERS, THE INITIAL PURCHASER, THE PORTFOLIO MANAGER OR ANY OF THEIR RESPECTIVE AFFILIATES WILL HAVE ANY RESPONSIBILITY THEREFOR. IRS CIRCULAR 230 NOTICE THIS OFFERING MEMORANDUM WAS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSES OF AVOIDING U.S. FEDERAL, STATE, OR LOCAL TAX PENALTIES. THIS OFFERING MEMORANDUM WAS WRITTEN AND PROVIDED BY THE CO-ISSUERS IN CONNECTION WITH THE PROMOTION OR MARKETING BY THE CO-ISSUERS AND/OR INITIAL PURCHASERS OF THE OFFERED SECURITIES. EACH NOTEHOLDER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE iv SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. NOTICE TO FLORIDA RESIDENTS THE OFFERED SECURITIES ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION UNDER SECTION 517.061 OF THE FLORIDA SECURITIES ACT (THE "FLORIDA ACT") AND HAVE NOT BEEN REGISTERED UNDER THE FLORIDA ACT IN THE STATE OF FLORIDA. FLORIDA RESIDENTS WHO ARE NOT INSTITUTIONAL INVESTORS DESCRIBED IN SECTION 517.061(7) OF THE FLORIDA ACT HAVE THE RIGHT TO VOID THEIR PURCHASES OF THE OFFERED SECURITIES WITHOUT PENALTY WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION. NOTICE TO RESIDENTS OF THE UNITED KINGDOM THE OFFERED SECURITIES HAVE NOT BEEN OFFERED OR SOLD AND, PRIOR TO THE EXPIRY OF THE PERIOD OF SIX MONTHS FROM THE CLOSING DATE, MAY NOT BE OFFERED OR SOLD, TO PERSONS IN THE UNITED KINGDOM, 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 BUSINESSES 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. THIS COMMUNICATION IS DIRECTED ONLY AT PERSONS WHO (i) ARE OUTSIDE THE UNITED KINGDOM, OR (ii) HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS, OR (iii) ARE PERSONS FALLING WITHIN ARTICLE 49(2)(a) TO (d) ("HIGH NET WORTH COMPANIES," "UNINCORPORATED ASSOCIATIONS," ETC.) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2001 (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS "RELEVANT PERSONS"). THIS COMMUNICATION MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS COMMUNICATION RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. NOTICE TO THE PUBLIC IN THE CAYMAN ISLANDS NO OFFER MAY BE MADE TO THE PUBLIC IN THE CAYMAN ISLANDS WITHIN THE MEANING OF SECTION 194 OF THE COMPANIES LAW (2004 REVISION) OF THE CAYMAN ISLANDS TO SUBSCRIBE FOR ANY OFFERED SECURITIES. THE SENIOR NOTES (OTHER THAN THE CLASS E NOTES) REPRESENT LIMITEDRECOURSE DEBT OBLIGATIONS ONLY OF THE CO-ISSUERS AND THE CLASS E NOTES, THE COMPOSITE NOTES AND THE SUBORDINATED NOTES REPRESENT LIMITED-RECOURSE DEBT OBLIGATIONS ONLY OF THE ISSUER. THE OFFERED SECURITIES DO NOT REPRESENT DEPOSITS OR OTHER INTERESTS IN, OR OBLIGATIONS OF, AND ARE NOT GUARANTEED BY OR SECURED BY, THE ASSETS OF THE INITIAL PURCHASER, THE PORTFOLIO MANAGER, ANY HEDGE COUNTERPARTY, THE TRUSTEE, OR ANY OF THEIR v RESPECTIVE AFFILIATES. NEITHER THE OFFERED SECURITIES NOR THE RELATED ASSETS IS INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR GOVERNMENTAL PERSON. THE OFFERED SECURITIES WILL BEAR RESTRICTIVE LEGENDS AND WILL BE SUBJECT TO RESTRICTIONS ON TRANSFER AS DESCRIBED HEREIN, INCLUDING THE REQUIREMENT THAT EACH INITIAL INVESTOR IN THE OFFERED SECURITIES IN GLOBAL FORM WILL BE DEEMED TO HAVE MADE, AND EACH INITIAL INVESTOR IN THE OFFERED SECURITIES IN CERTIFICATED FORM WILL BE REQUIRED TO MAKE, CERTAIN REPRESENTATIONS AND AGREEMENTS AS DESCRIBED HEREIN. ANY RESALE OR OTHER TRANSFER, OR ATTEMPTED RESALE OR OTHER TRANSFER, OF ANY OF THE OFFERED SECURITIES THAT IS NOT MADE IN COMPLIANCE WITH THE APPLICABLE TRANSFER RESTRICTIONS WILL BE NULL AND VOID AB INITIO. BECAUSE OF THE RESTRICTIONS ON TRANSFER, AN INVESTOR SHOULD BE PREPARED TO BEAR THE RISK OF ITS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME OR UNTIL THE STATED MATURITY. THE OFFERED SECURITIES AND THE RELATED DOCUMENTATION (INCLUDING, WITHOUT LIMITATION, THE INDENTURE) MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, WITHOUT THE CONSENT OF, BUT UPON NOTICE TO, THE HOLDERS OF OFFERED SECURITIES, TO, AMONG OTHER THINGS, MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THE OFFERED SECURITIES TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) AND/OR TO ENABLE THE CO-ISSUERS TO RELY UPON ANY EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR THE INVESTMENT COMPANY ACT (AND TO REMOVE CERTAIN EXISTING RESTRICTIONS TO THE EXTENT NOT REQUIRED UNDER SUCH EXEMPTION); PROVIDED THAT NO SUCH CHANGE WILL CAUSE THE RATING (IF ANY) OF THE OFFERED SECURITIES THEN OUTSTANDING TO BE REDUCED OR WITHDRAWN. THE BENEFICIAL OWNER OF ANY NOTE WILL BE DEEMED, BY ACCEPTANCE THEREOF, DIRECTLY OR THROUGH A NOMINEE, TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT (EACH OF WHICH WILL BE CONCLUSIVE AND BINDING ON SUCH BENEFICIAL OWNER AND ALL FUTURE BENEFICIAL OWNERS OF SUCH NOTE AND ANY NOTE ISSUED IN EXCHANGE OR SUBSTITUTION FOR SUCH NOTE WHETHER OR NOT ANY NOTATION THEREOF IS MADE THEREON). EXCEPT AS SET FORTH IN THIS OFFERING MEMORANDUM, NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS OFFERING MEMORANDUM; IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. NEITHER THE DELIVERY OF THIS OFFERING MEMORANDUM AT ANY TIME NOR ANY SALE MADE HEREUNDER WILL, UNDER ANY CIRCUMSTANCE, IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS OFFERING MEMORANDUM. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS OFFERING MEMORANDUM, ALL PERSONS MAY DISCLOSE TO ANY AND ALL PERSONS, WITHOUT LIMITATION OF ANY KIND, THE U.S. FEDERAL, STATE AND LOCAL TAX TREATMENT AND TAX STRUCTURE OF THE OFFERED SECURITIES AND THE ISSUER, ANY FACT THAT MAY BE RELEVANT TO UNDERSTANDING THE U.S. FEDERAL, STATE AND LOCAL TAX TREATMENT AND TAX STRUCTURE OF THE OFFERED SECURITIES AND THE ISSUER, AND ALL MATERIALS OF ANY KIND (INCLUDING OPINIONS OR OTHER TAX ANALYSES) RELATING TO SUCH U.S. FEDERAL, STATE AND LOCAL TAX TREATMENT vi AND TAX STRUCTURE (AS SUCH TERMS ARE DEFINED IN TREASURY REGULATION SECTION 1.6011-4(c) AND APPLICABLE UNITED STATES STATE AND LOCAL LAW. AVAILABLE INFORMATION The Co-Issuers (or, in the case of the Class E Notes, the Composite Notes and the Subordinated Notes, the Issuer) are not required by law to publish financial statements. However, to permit compliance with Rule 144A in connection with the sale of the Notes, the Co-Issuers (or, in the case of the Class E Notes, the Composite Notes and the Subordinated Notes, the Issuer) under the Indenture will be required to furnish, upon request of a holder of a Note, to such holder and a prospective purchaser designated by such holder the information required to be delivered under Rule 144A(d)(4) under the Securities Act if, at the time of the request, the Co-Issuers are not reporting companies under Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act. The Trustee will provide or cause to be provided, without charge to each investor upon request, a copy of the Indenture. Requests to the Trustee should be directed in writing to its principal Corporate Trust Office located at The Bank of New York Trust Company, National Association, Attention: Global Corporate Trust – Kingsland V, Ltd., 601 Travis Street, 16th Floor, Houston, Texas 77002. Unless otherwise indicated, (i) references herein to "dollars," "U.S. dollars" and "$" will be to the lawful currency of the United States; (ii) the term "Rating Agencies" will, except as otherwise provided herein, mean Moody's and Standard & Poor's; (iii) references to a "Rating Agency" will mean Moody's or Standard & Poor's; (iv) references to a Rating Agency in connection with a rating of the Offered Securities will be deemed to mean such Rating Agency with respect to the Offered Securities rated by it; (v) references to the term "holder" will mean the person in whose name a security is registered; except where the context otherwise requires, holder will include the beneficial owner of such security; and (vi) references to "U.S." and "United States" will be to the United States of America, its territories and its possessions. SUMMARIES AND INCORPORATION BY REFERENCE OF TRANSACTION DOCUMENTS This Offering Memorandum summarizes certain provisions of the Offered Securities, the Indenture, the Portfolio Management Agreement and other transaction documents. The summaries do not purport to be complete and (whether or not so stated herein) are subject to, are qualified in their entirety by reference to, and incorporate by reference, the provisions of the actual documents (including definitions of terms). Copies of the above documents are available on request from the Trustee. The above documents are incorporated by reference in this Offering Memorandum but will be deemed not to constitute a part of the Prospectus for the purpose of the listing of the Offered Securities on the Irish Stock Exchange. MARKET STABILIZATION IN CONNECTION WITH THE ISSUE OF THE OFFERED SECURITIES, THE INITIAL PURCHASER OR ANY PERSON ACTING ON ITS BEHALF MAY OVER-ALLOT OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE OFFERED SECURITIES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL FOR A LIMITED PERIOD AFTER THE CLOSING DATE. HOWEVER, THERE MAY BE NO OBLIGATION ON THE INITIAL PURCHASER OR ANY OF ITS AGENTS TO DO THIS. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME AND MUST BE BROUGHT TO AN vii END AFTER A LIMITED PERIOD. ALL SUCH TRANSACTIONS WILL BE CARRIED OUT IN ACCORDANCE WITH ALL APPLICABLE LAWS AND REGULATIONS. FORWARD-LOOKING STATEMENTS This Offering Memorandum contains forward-looking statements, which can be identified by words like "anticipate," "believe," "plan," "hope," "goal," "initiative," "expect," "future," "intend," "will," "could" and "should" and similar expressions. Other information herein, including any estimated, targeted or assumed information, also may be deemed to be, or to contain, forward-looking statements. Prospective investors should not place undue reliance on forward-looking statements. Actual results could differ materially from those referred in forward-looking statements for many reasons, including the risks described in "Risk Factors." Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying any forward-looking statements will not materialize or will vary significantly from actual results. Variations of assumptions and results may be material. Without limiting the generality of the foregoing, the inclusion of forward-looking statements herein should not be regarded as a representation by any of the Issuer or the Co-Issuer, the Trustee, the Portfolio Manager, the Initial Purchaser, any Hedge Counterparty or any of their respective affiliates or any other person of the results that will actually be achieved by the Co-Issuers or the Offered Securities. None of the foregoing persons has any obligation to update or otherwise revise any forward-looking statements, including any revision to reflect changes in any circumstances arising after the date hereof relating to any assumptions or otherwise. viii TABLE OF CONTENTS Page SUMMARY OF TERMS ............................................................................................................................. 1 RISK FACTORS ........................................................................................................................................ 32 DESCRIPTION OF THE OFFERED SECURITIES ................................................................................. 52 The Indenture and the Senior Notes ................................................................................................ 52 Status and Security .......................................................................................................................... 52 Interest ............................................................................................................................................. 53 Principal........................................................................................................................................... 55 Optional Redemption....................................................................................................................... 56 Mandatory Redemption ................................................................................................................... 58 Special Redemption......................................................................................................................... 58 Cancellation..................................................................................................................................... 59 Class A-2R Notes Borrowings ........................................................................................................ 59 Reduction of Class A-2R Commitments ......................................................................................... 61 Entitlement to Payments.................................................................................................................. 61 Priority of Payments ........................................................................................................................ 62 The Indenture................................................................................................................................... 62 Form, Denomination and Registration of the Notes and the Composite Notes............................... 71 The Subordinated Notes .................................................................................................................. 74 The Composite Notes ...................................................................................................................... 75 RATINGS OF THE SENIOR NOTES AND THE COMPOSITE NOTES ............................................... 76 The Senior Notes ............................................................................................................................. 76 The Composite Notes ...................................................................................................................... 77 SECURITY FOR THE SENIOR NOTES .................................................................................................. 77 Collateral Obligations...................................................................................................................... 78 The Concentration Limitations........................................................................................................ 79 The Collateral Quality Test ............................................................................................................. 79 Collateral Assumptions ................................................................................................................... 86 The Coverage Tests ......................................................................................................................... 88 Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria.......... 88 The Collection and Payment Accounts ........................................................................................... 91 The Ramp-Up Account.................................................................................................................... 92 The Custodial Account .................................................................................................................... 93 The Delayed Funding Obligation Account...................................................................................... 94 The Subordinated Note Collateral Delayed Funding Obligation Account ...................................... 94 The Synthetic Security Counterparty Accounts .............................................................................. 95 The Synthetic Security Issuer Accounts .......................................................................................... 96 Class A-2R Purchaser Collateral Accounts ..................................................................................... 97 The Expense Reserve Account ........................................................................................................ 98 The Excess CCC/Caa Reserve Account .......................................................................................... 98 The Securities Lending Account ..................................................................................................... 98 ix Hedge Agreements .......................................................................................................................... 99 Short Positions............................................................................................................................... 100 Margin Loans................................................................................................................................. 100 Securities Lending ......................................................................................................................... 101 USE OF PROCEEDS ............................................................................................................................... 104 General .......................................................................................................................................... 104 Ramp-Up Period............................................................................................................................ 104 THE PORTFOLIO MANAGER............................................................................................................... 105 General .......................................................................................................................................... 105 Kingsland Capital .......................................................................................................................... 105 Investment Philosophy .................................................................................................................. 106 Credit Philosophy .......................................................................................................................... 106 Biographies of Certain Key Individuals ........................................................................................ 107 THE PORTFOLIO MANAGEMENT AGREEMENT ............................................................................ 110 THE CO-ISSUERS................................................................................................................................... 115 General .......................................................................................................................................... 115 Capitalization of the Issuer ............................................................................................................ 117 Business of the Co-Issuers............................................................................................................. 117 WACHOVIA ............................................................................................................................................ 118 INCOME TAX CONSIDERATIONS ...................................................................................................... 119 General .......................................................................................................................................... 119 United States Federal Income Taxation......................................................................................... 120 Tax Treatment of the Issuer........................................................................................................... 120 Tax Treatment of U.S. Holders of the Senior Notes...................................................................... 122 Tax Treatment of U.S. Holders of Composite Notes..................................................................... 126 Tax Treatment of U.S. Holders of Subordinated Notes................................................................. 127 Tax Treatment of Tax-Exempt U.S. Holders................................................................................. 131 Transfer Reporting Requirements ................................................................................................. 132 Tax Return Disclosure and Investor List Requirements................................................................ 132 Tax Treatment of Non-U.S. Holders of Offered Securities........................................................... 133 Information Reporting and Backup Withholding .......................................................................... 133 Cayman Islands Taxation .............................................................................................................. 134 ERISA AND LEGAL INVESTMENT CONSIDERATIONS ................................................................. 136 The Class A Notes, the Class B Notes, the Class C Notes and Class D Notes.............................. 137 The Class E Notes and the Subordinated Notes ............................................................................ 138 The Composite Notes .................................................................................................................... 140 Legal Investment Considerations .................................................................................................. 140 x PLAN OF DISTRIBUTION ..................................................................................................................... 141 CERTAIN SECURITIES LAW CONSIDERATIONS ............................................................................ 142 TRANSFER RESTRICTIONS ................................................................................................................. 144 Global Notes and Regulation S Global Subordinated Notes ......................................................... 144 Certificated Subordinated Notes.................................................................................................... 147 Class A-2R Notes .......................................................................................................................... 149 Additional Restrictions .................................................................................................................. 149 Legends.......................................................................................................................................... 150 Non-Permitted Holder/Non-Permitted ERISA Holder.................................................................. 163 Cayman Islands Placement Provisions .......................................................................................... 164 LISTING AND GENERAL INFORMATION......................................................................................... 165 LEGAL MATTERS.................................................................................................................................. 166 GLOSSARY OF DEFINED TERMS ....................................................................................................... 167 INDEX OF DEFINED TERMS..................................................................................................................I-1 ANNEX A-1 – Form of Class E Note and Subordinated Note ERISA and Affected Bank Certificate ...................................................................................... A1-1 ANNEX A-2 – Form of Composite Note ERISA and Affected Bank Certificate ................................................................................................................ A2-1 ANNEX A-3 – Collateral Quality Matrices ........................................................................................... A3-1 ANNEX A-4 – S&P Recovery Rate Tables ........................................................................................... A4-1 xi SUMMARY OF TERMS The following summary does not purport to be complete and is qualified in its entirety by reference to the detailed information appearing elsewhere in this Offering Memorandum and related documents referred to herein. An index of defined terms appears at the back of this Offering Memorandum. Principal Terms of the Offered Securities Designation1 Class A-1 Notes Class A-2R Notes Class A-2B Notes Class B Notes Class C Notes Class D-1 Notes Class D-2 Notes Class E Notes Type Senior Secured Floating Rate Senior Secured Revolving Floating Rate Senior Secured Floating Rate Senior Secured Floating Rate Senior Secured Deferrable Floating Rate Senior Secured Deferrable Floating Rate Senior Secured Deferrable Fixed Rate Secured Deferrable Floating Rate Composite Notes Subordinated Notes Issuer(s) Co-Issuers Co-Issuers Co-Issuers Co-Issuers Co-Issuers Co-Issuers Co-Issuers Issuer Issuer Issuer Initial Principal Amount / Face Amount (U.S.$) $295,975,000 $60,000,0002 $12,125,000 $22,900,000 $25,000,000 $13,000,000 $5,000,000 $14,900,000 $15,330,0003 $36,100,000 Expected Moody's Initial Rating "Aaa" "Aaa" "Aa1" "Aa2" "A2" "Baa3" "Baa3" "Ba2" "Baa2"4 N/A Expected S&P Initial Rating "AAA" "AAA" "AAA" "AA" "A" "BBB-" "BBB-" "BB" N/A N/A 6 6 6 6 5 LIBOR + 0.42% LIBOR + 0.80% LIBOR + 2.00% 7.149% LIBOR + 4.25% N/A N/A July 2021 Payment Date July 2021 Payment Date July 2021 Payment Date July 2021 Payment Date July 2021 Payment Date July 2021 Payment Date July 2021 Payment Date July 2021 Payment Date $250,000 ($1.00) $250,000 ($1.00) $250,000 ($1.00) $250,000 ($1.00) $250,000 ($1.00) $250,000 ($1.00) $250,000 ($1.00) $250,000 ($1.00) $600,000 ($1.00) $100,000 ($1.00) Priority Class7 None None A-2R A A, B A, B, C A, B, C A, B, C, D N/A A, B, C, D, E Junior Class7 B, C, D, E, Subordinated Notes A-2B, B, C, D, E, Subordinated Notes B, C, D, E, Subordinated Notes C, D, E, Subordinated Notes D, E, Subordinated Notes E, Subordinated Notes E, Subordinated Notes Subordinated Notes N/A None Deferred Interest Notes No No No No Yes Yes Yes Yes N/A N/A Minimum Denominations (U.S.$) (Integral Multiples) LIBOR + 0.35% 6 July 2021 Payment Date Stated Maturity LIBOR + 0.24% 6 July 2021 Payment Date Interest Rate LIBOR + 0.22% 6 Ranking of the Offered Securities: 1 1 2 3 4 5 6 7 Each Class is referred to in this Offering Memorandum by the applicable name set forth under the heading "Designation" in the table above. The Class A-1 Notes, the Class A-2R Notes and the Class A-2B Notes are collectively referred to herein as the "Class A Notes." The Class D-1 Notes and the Class D-2 Notes are collectively referred to herein as the "Class D Notes." The Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes are collectively referred to herein as the "Senior Notes" and are referred to herein collectively with the Subordinated Notes as the "Notes." The Notes and the Composite Notes are referred to herein as the "Offered Securities." The "Initial Principal Amount" of the Class A-2R Notes includes unfunded Class A-2R Commitments. On the Closing Date, it is expected that there will be no Class A-2R Borrowings under the Class A-2R Notes. The Composite Notes will consist of the "Class C Note Component" representing $8,430,000 original principal amount of the Class C Notes and the "Class E Note Component" representing $6,900,000 original principal amount of the Class E Notes. The Class C Note Component and the Class E Note Component are referred to herein collectively as the "Components." The initial face amount of each Component of the Composite Notes is included in the principal amount of the related Classes of Notes and is not issued in addition thereto. The Composite Notes are rated only as to the ultimate payment of the Rated Amount (as defined herein). The Class A-1 Notes, the Class A-2R Notes, the Class A-2B Notes, the Class B Notes, the Class C Notes, the Class D-1 Notes and the Class E Notes are collectively referred to herein as the "Floating Rate Notes." The Class D-2 Notes are referred to herein as the "Fixed Rate Notes." Three-Month LIBOR, calculated as set forth under "Description of the Offered Securities—The Indenture and the Senior Notes—Interest." Payments of principal and interest in respect of the Class A Notes will be made pro rata to the Class A-1 Notes, on the one hand, and the Class A-2R Notes and the Class A-2B Notes (collectively), on the other hand. The Class A-2B Notes are subordinated in right of payment to the Class A-2R Notes. The Class D-1 Notes and the Class D-2 Notes rank pari passu in right of payment. 2 Issuer: Kingsland V, Ltd., a Cayman Islands exempted company. Co-Issuer: Kingsland V, Corp., a Delaware corporation. Portfolio Manager: Kingsland Capital Management, LLC. Trustee: The Bank of New York Trust Company, National Association. Initial Purchaser: Wachovia Capital Markets, LLC. Eligible Purchasers: The Offered Securities are being offered hereby (i) to non-U.S. persons in offshore transactions in reliance on Regulation S ("Regulation S") under the Securities Act of 1933, as amended (the "Securities Act" ) and (ii) in the United States to persons that are either (A) Qualified Purchasers (as defined in Section 2(a)(51) of the Investment Company Act of 1940, as amended (the "Investment Company Act")) ("Qualified Purchasers") or (B) (in the case of the Subordinated Notes only) Knowledgeable Employees (as defined in Rule 3c-5 under the Investment Company Act) ("Knowledgeable Employees") with respect to the Issuer or corporations, partnerships, limited liability companies or other entities (other than trusts) each shareholder, partner, member or other equity owner of which is either a Knowledgeable Employee or a Qualified Purchaser that in the case of (A) and (B) are either (1) qualified institutional buyers ("Qualified Institutional Buyers") within the meaning of Rule 144A under the Securities Act ("Rule 144A"), (2) (in the case of all or a portion of the Class E Notes resold by the Initial Purchaser on the Closing Date) institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) ("Institutional Accredited Investors") or (3) (in the case of the Subordinated Notes only) accredited investors (as defined in Rule 501(a) under the Securities Act) ("Accredited Investors"). See "Description of the Offered Securities—The Indenture and the Senior Notes—Form, Denomination and Registration of the Notes and the Composite Notes" and "Transfer Restrictions." Purchasers of Offered Securities should consider the possible application of Regulation U to such purchases. See "Security for the Senior Notes—Margin Loans." Payments on the Notes: Payment Dates................................. The 14th day of January, April, July and October of each year (or, if such day is not a Business Day, then the next succeeding Business Day) commencing in January 2008 (each, a "Payment Date"). Stated Note Interest ......................... Interest on the Senior Notes is payable quarterly in arrears on each Payment Date in accordance with the priority of payments 3 described herein. Deferral of Interest .......................... So long as any more senior Class of Senior Notes is outstanding, to the extent interest is not paid on the Class C Notes, the Class D Notes or the Class E Notes on any Payment Date, such amounts will be deferred and added to the principal balance of the applicable Class of Senior Notes and will bear interest at the Interest Rate applicable to such Senior Notes, and the failure to pay such amounts prior to the maturity of the Notes will not be an Event of Default under the Indenture. See "Description of the Offered Securities—The Indenture and the Senior Notes—Interest." Distributions on Subordinated Notes................................................ The Subordinated Notes will not bear a stated rate of interest but will be entitled to receive distributions on each Payment Date if and to the extent funds are available for such purpose. Such payments will be made on the Subordinated Notes only pursuant to the priority of payments. See "—Priority of Payments" below and "Description of the Offered Securities— The Subordinated Notes—Distributions on the Subordinated Notes." Optional Redemption: Non-Call Period .............................. During the period from the Closing Date to but excluding the Payment Date in July 2012 (such period, the "Non-Call Period") the Senior Notes and the Subordinated Notes are not subject to Optional Redemption. See "Description of the Offered Securities—The Indenture and the Senior Notes— Optional Redemption." Redemption After Non-Call Period .............................................. Following the Non-Call Period, the Senior Notes may be redeemed, in whole but not in part, on any Payment Date, at the direction of the holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes (an "Optional Redemption"). An Optional Redemption may be implemented using one of two methods. First, the holders of the requisite amount of Subordinated Notes may direct that the Senior Notes be redeemed, in whole but not in part, using Sale Proceeds and other funds in the Payment Account and the Collection Account on such Payment Date. In such event, the Portfolio Manager will direct the sale of Assets in order to make payments as described under "Description of the Offered Securities—The Indenture and the Senior Notes—Optional Redemption—Optional Redemption of Notes by Liquidation of Assets." "Sale Proceeds" are all proceeds (excluding accrued interest, if any) received with respect to Assets as a result of sales of such Assets in accordance with the restrictions 4 described in "Security for the Senior Notes—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria," less any reasonable expenses incurred by the Portfolio Manager or the Trustee (other than amounts payable as Administrative Expenses (as defined herein)) in connection with such sales. Second, the Senior Notes may be redeemed in whole, but not in part, on any Payment Date after the Non-Call Period from proceeds of a secured loan or an issuance of a replacement class or classes of Senior Notes, at the direction of the holders of the requisite amount of Subordinated Notes and to the extent and subject to the restrictions described herein. See "Description of the Offered Securities—The Indenture and the Senior Notes—Optional Redemption—Optional Redemption of Notes using Additional Senior Notes or Secured Loans." The Subordinated Notes may be redeemed, in whole but not in part, on any Payment Date on or after the redemption or repayment of the Senior Notes, at the direction of the holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes. There are certain other restrictions on the ability of the CoIssuers to effect an Optional Redemption. See "Description of the Offered Securities—The Indenture and the Senior Notes— Optional Redemption." Redemption Prices........................... The redemption price of each Class of Senior Notes (the "Redemption Price" for such Senior Notes) will be (a) 100% of the outstanding principal amount of the Senior Notes to be redeemed plus (b) accrued and unpaid interest thereon (including defaulted interest and interest on any accrued and unpaid Deferred Interest with respect to such Senior Notes) to the day of redemption plus, (c) in the case of the Class A-2R Notes, accrued and unpaid Class A-2R Commitment Fees and any Class A-2R Commitment Fee Shortfalls plus (d) in the case of any Optional Redemption of the Class D-2 Notes prior to the Make-Whole End Date, the Make-Whole Amount. The holders of the Floating Rate Notes will not be entitled to the payment of a Make-Whole Amount. The Redemption Price for each Subordinated Note will be its proportional share of the amount of the proceeds of the Assets remaining after giving effect to redemption of the Senior Notes and payment in full of all expenses of the Co-Issuers. 5 Class A-2R Borrowings and Prepayments: Pursuant to the Class A-2R Note Purchase Agreement to be entered into among the Issuer, the Co-Issuer, the Class A-2R Note Agent and the purchasers of the Class A-2R Notes (the "Class A-2R Note Purchase Agreement"), the holders of the Class A-2R Notes will commit to make advances to the Issuer during the Reinvestment Period, subject to compliance with certain borrowing conditions specified therein, in an aggregate outstanding principal amount at any one time not in excess of $60,000,000. The actual amount that the Issuer may borrow is limited to the Class A-2R Permitted Amount notwithstanding the fact that the aggregate commitment of the holders of the Class A-2R Notes to make advances may be higher. The Bank of New York Trust Company, National Association, will serve as "Class A-2R Note Agent" under the Class A-2R Note Purchase Agreement. See "Description of the Offered Securities—The Indenture and the Senior Notes—Class A-2R Notes Borrowings." The Class A-2R Notes may be (and, to the extent described under "—Priority of Payments—Application of Principal Proceeds" shall be) prepaid (any such prepayment, a "Class A2R Prepayment") on any date that is a Business Day during the Reinvestment Period (provided that (x) no Class A-2R Prepayment shall be made during the period from (but excluding) any Determination Date to (but excluding) the related Payment Date and (y) no Class A-2R Prepayment shall be made on a date other than a Payment Date unless all previously incurred and unpaid Prepayment Costs have been paid in full and the Portfolio Manager reasonably believes that any Prepayment Costs incurred in connection with the current Class A-2R Prepayment will be paid on the immediately succeeding Payment Date), at the option of the Issuer (at the direction of the Portfolio Manager) from Principal Proceeds on deposit in the Collection Account on the date of such prepayment; provided that, if such Class A-2R Prepayment occurs on a Payment Date, such Class A-2R Prepayment may only be made to the extent Principal Proceeds are available for such application pursuant to paragraph (B)(2)(II) of "—Priority of Payments—Application of Principal Proceeds." Any Class A-2R Prepayment will be made by the Issuer pro rata according to the aggregate outstanding principal amount of the Class A-2R Notes; provided, however, that, with respect to any Class A-2R Prepayment made during any Interest Accrual Period in which one or more draws on the Class A-2R Notes were made, the Class A-2R Prepayment shall be made among such Class A-2R Notes drawn during such Interest Accrual Period in the priority directed by the Portfolio Manager (which may not be pro rata). The aggregate outstanding principal amount of any Class A-2R Prepayment made in accordance with paragraph (B)(2)(II) of "—Priority of Payments—Application of Principal Proceeds" shall be an integral multiple of $500,000 and at least $2,500,000 unless otherwise agreed to, in writing (including via email), by all of the holders of the Class A-2R Notes (or, if the aggregate 6 outstanding principal amount of the Class A-2R Notes is less than such amount, the entire aggregate outstanding principal amount of the Class A-2R Notes). Such Class A-2R Prepayments will not result in a reduction of Class A-2R Commitments. Subject to compliance with certain borrowing conditions specified in the Class A-2R Note Purchase Agreement, amounts may be borrowed, prepaid in accordance with the preceding paragraph and reborrowed during the Reinvestment Period. Under certain other circumstances, the Class A-2R Commitments may be reduced. See "Description of the Offered Securities—The Indenture and the Senior Notes—Reduction of Commitments." Each purchaser of Class A-2R Notes will be required to satisfy the Class A-2R Purchaser Rating Criteria as described under "Description of the Offered Securities—The Indenture and the Senior Notes—Class A-2R Notes Borrowings." Class A-2R Commitment Fee: A commitment fee (the "Class A-2R Commitment Fee") will accrue on the Class A-2R Aggregate Undrawn Amount of the Class A-2R Notes as of the close of business on each day during each Interest Accrual Period that occurs prior to the end Reinvestment Period, at a rate per annum equal to 0.16% (the "Class A-2R Commitment Fee Rate"). The aggregate amount of Class A-2R Commitment Fees that accrue during an Interest Accrual Period will be payable quarterly in arrears on the related Payment Date and will rank pari passu with the payment of interest on the Class A-2R Notes. No Class of Notes, other than the Class A-2R Notes, will be entitled to a commitment fee. If the Class A-2R Commitment Fees are not paid in full on the related Payment Date, such unpaid portion of the Class A-2R Commitment Fees will accrue interest at the Class A-2R Note Interest Rate. Any unpaid Class A-2R Commitment Fees plus the amount of interest which accrues on such unpaid Class A2R Commitment Fees (collectively, the "Class A-2R Commitment Fee Shortfall") will be payable on the next Payment Date. In addition, the failure to pay the Class A-2R Commitment Fees in full on any Payment Date will constitute an Event of Default. "Class A-2R Aggregate Undrawn Amount" means, at any time with respect to the Class A-2R Notes, the excess, if any, of (i) the aggregate amount of the Class A-2R Commitments in respect of all Class A-2R Notes (including, for the avoidance of doubt, any amounts on deposit in any Class A-2R Purchaser Collateral Account) (whether or not utilized) over (ii) the aggregate principal amount of the Class A-2R Notes funded on the Closing Date (if any) or by one or more Class A-2R 7 Borrowings after the Closing Date and not repaid under the Indenture. Priority of Payments: Application of Interest Proceeds ..... On each Payment Date, Interest Proceeds on deposit in the Collection Account that were received on or before the related Determination Date (or if such Determination Date is not a Business Day, the next succeeding Business Day) and that are transferred into the Payment Account, and, in the case of any Hedge Agreements, payments received on or before such Payment Date, will be applied in the following order of priority: (A) to the payment of taxes and governmental fees owing by the Issuer or the Co-Issuer or any ETB/897 Subsidiary, if any; (B) to the payment of the following amounts in the following priority: (i) accrued and unpaid Administrative Expenses (in the order set forth in the definition of such term) constituting fees and expenses (including in respect of any indemnities) of the Trustee, the Collateral Administrator and the Class A-2R Note Agent; and (ii) all other accrued and unpaid Administrative Expenses (including in respect of any indemnities) (in the order set forth in the definition of such term) including expenses of the Trustee, the Collateral Administrator and the Class A-2R Note Agent not paid pursuant to subclause (i) of this clause (B); provided that such payments pursuant to subclause (i) above shall be limited to payments not to exceed on any Payment Date 0.04% per annum and subclause (ii) above shall be limited to payments not to exceed on any Payment Date 0.045% per annum (in each case, prorated for the related Interest Accrual Period and computed on the basis of a 360-day year and the actual number of days elapsed) of the Collateral Principal Amount on the related Determination Date (the limits imposed on subclauses (i) and (ii) of this clause (B), the "Administrative Expense Cap"); provided, further, that, if the amount of Administrative Expenses paid under the Administrative Expense Cap (including any excess applied in accordance with this proviso) on the three immediately preceding Payment Dates or during the related Collection Periods is less than the stated Administrative Expense Cap (without regard to any excess applied in accordance with this proviso) in the aggregate for such three preceding Payment Dates, the excess may be applied to the Administrative Expense Cap with respect to the then-current Payment Date; provided, further, that in respect of the first three Payment Dates from the Closing Date, such excess amount shall be calculated based on the Payment Dates preceding such Payment Date; 8 (C) to the payment of all accrued and unpaid Hedge Payment Amounts (other than Specified Hedge Termination Payments); (D) to the payment of the Base Management Fee to the Portfolio Manager; (E) to the payment (pro rata based on the amounts payable under clauses (1) and (2)) of (1) accrued and unpaid interest on the Class A-1 Notes (including any defaulted interest) and (2) accrued and unpaid interest on the Class A-2R Notes (including any defaulted interest), the Class A-2R Commitment Fees and any Class A-2R Commitment Fee Shortfall with respect to such Payment Date and accrued and unpaid interest on the Class A2B Notes (including any defaulted interest), sequentially in the case of this clause (2) first, to all amounts payable under this clause (2) to the holders of the Class A-2R Notes and second, to all amounts payable under this clause (2) to the holders of the Class A-2B Notes; (F) to the payment of accrued and unpaid interest on the Class B Notes (including any defaulted interest); (G) to the deposit into the Interest Collection Subaccount of the Collection Account of an amount equal to the Liquidity Reserve Amount; (H) (1) first, to the deposit into the Excess CCC/Caa Reserve Account of an amount equal to the Excess CCC/Caa Reserve Amount and then (2) second, if either of the Class A/B Coverage Tests is not satisfied on the related Determination Date, to make payments in accordance with the Note Payment Sequence, to the extent necessary to cause both Class A/B Coverage Tests to be met; (I) to the payment of accrued and unpaid interest (including, if such Class is the Controlling Class, any defaulted interest) and any Deferred Interest on the Class C Notes, including interest accrued for the related Interest Accrual Period on any such Deferred Interest; (J) if either of the Class C Coverage Tests is not satisfied on the related Determination Date, to make payments in accordance with the Note Payment Sequence, to the extent necessary to cause both Class C Coverage Tests to be met; (K) to the payment of accrued and unpaid interest (including, if such Classes constitute the Controlling Class, any defaulted interest) and any Deferred Interest on the Class D-1 Notes and the Class D-2 Notes, including interest accrued for the related Interest Accrual Period on any such Deferred Interest (pro rata to the Class D-1 Notes and the Class D-2 Notes in 9 proportion to the amounts due each of them under this clause (K)); (L) if either of the Class D Coverage Tests is not satisfied on the related Determination Date, to make payments in accordance with the Note Payment Sequence, to the extent necessary to cause both Class D Coverage Tests to be met; (M) to the payment of accrued and unpaid interest (including, if such Class is the Controlling Class, any defaulted interest) and any Deferred Interest on the Class E Notes, including interest accrued for the related Interest Accrual Period on any such Deferred Interest; (N) (1) first, if the Class E Coverage Test is not satisfied on the related Determination Date, to make payments in accordance with the Note Payment Sequence, to the extent necessary to cause the Class E Coverage Test to be met and then (2) second, if a Special Redemption occurs as a result of a Ramp-Up Failure, to make payments in accordance with the Note Payment Sequence to the extent of the applicable Special Redemption Amount; (O) during the Reinvestment Period only, to the Collection Account as Principal Proceeds for the purchase of additional Collateral Obligations, an amount equal to the Reinvestment Diversion Threshold Payment (if any); (P) to the deposit into the Principal Collection Subaccount of an amount equal to the sum of the Terminated Loss Short Recapture Amounts (if any) with respect to such Payment Date; (Q) to the payment of (1) first, any Administrative Expenses not paid pursuant to clause (B) above due to the limitation contained therein or otherwise; and (2) second, any Specified Hedge Termination Payments; (R) to the payment of any accrued and unpaid Subordinated Management Fee to the Portfolio Manager, together with accrued interest thereon; (S) to the holders of the Subordinated Notes in an amount necessary (taking into account all payments made to the holders of the Subordinated Notes on prior Payment Dates) to cause the Contingent Management Fee IRR Threshold to be met; and (T) (1) 80% of any remaining Interest Proceeds to the holders of the Subordinated Notes and (2) 20% of any remaining Interest Proceeds to the Portfolio Manager as payment of the Contingent Management Fee; 10 provided that, (x) for purposes of clause (E) above, the interest accrued on the portion of the aggregate outstanding principal amount of the Class A-2R Notes from a Class A-2R Borrowing made after the end of the Collection Period for the relevant Payment Date will not be payable on that Payment Date, but instead will be payable on the next Payment Date and (y) principal of the Class A-2R Notes may be repaid from time to time by Class A-2R Prepayments as described herein. Application of Principal Proceeds .. On each Payment Date, Principal Proceeds on deposit in the Collection Account that are received on or before the related Determination Date, and that are transferred to the Payment Account, will be applied, except for any Principal Proceeds that will be used to settle binding commitments (entered into prior to the Determination Date) for the purchase of Collateral Obligations or the sale, assignment or termination of Short Positions, in the following order of priority: (A) to pay the amounts referred to in clauses (A) through (N) of "—Application of Interest Proceeds" above (in the priority stated therein, but excluding clause (H)(1)), but (a) only to the extent not paid in full thereunder and (b) in the case of clauses (I), (K) and (M), only to the extent that the applicable Class of Senior Notes is the Controlling Class as of the related Determination Date; (B) (1) first, to make payments in the amount of the Special Redemption Amount, if any, in connection with any Special Redemption not resulting from a Ramp-Up Failure (x) if the Pro Rata Special Redemption Conditions are satisfied on the related Determination Date, (A) first, to the payment of the amounts set forth in the Class A Note Payment Sequence and the principal of the Class B Notes, the Class C Notes, the Class D-1 Notes, the Class D-2 Notes and the Class E Notes, excluding any Deferred Interest (pro rata based on the Class A Amount and the aggregate outstanding principal amount of the Class B Notes, the Class C Notes, the Class D-1 Notes, the Class D-2 Notes and the Class E Notes) until the aggregate outstanding principal amount of the Class A-1 Notes is reduced to $177,585,000 and (B) second, in accordance with the Note Payment Sequence and (y) in any other case, in accordance with the Note Payment Sequence, (2) second, during the Reinvestment Period, at the discretion of the Portfolio Manager, (I) to the Collection Account as Principal Proceeds to invest in Eligible Investments and/or additional Collateral Obligations or (II) to the payment of any Class A-2R Prepayments; provided that, if any requirement of the Collateral Quality Test was not satisfied on the related Determination Date and has failed to be satisfied for the immediately preceding six month period, 11 amounts available for distribution pursuant to this subclause (2) shall be applied to the payment of any Class A-2R Prepayments until the aggregate outstanding principal amount of the Class A2R Notes is reduced to zero or such requirement is satisfied (subject to the conditions to Class A-2R Prepayments set forth in the Indenture and the Class A-2R Note Purchase Agreement), and (3) third, after the Reinvestment Period, to invest Principal Proceeds received with respect to a Prepaid Collateral Obligation in accordance with the requirements described under "Security for the Notes—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria"; (C) to make payments in accordance with the Note Payment Sequence; (D) to the payment of (1) first, Administrative Expenses and (2) second, any amount due any Hedge Counterparty or Short Position counterparty, each as referred to in clause (Q) of "— Application of Interest Proceeds" above, but in each case only to the extent not paid in full thereunder; (E) to the payment of the accrued but unpaid Subordinated Management Fee (including interest thereon), but only to the extent not paid in full on such Payment Date pursuant to clause (R) of "—Application of Interest Proceeds" above; (F) to the holders of the Subordinated Notes in an amount necessary (taking into account all payments made to the holders of the Subordinated Notes on prior Payment Dates and under clause (S) of "—Application of Interest Proceeds" above on such Payment Date) to cause the Contingent Management Fee IRR Threshold to be met; and (G) (1) 80% of any remaining Principal Proceeds to the holders of the Subordinated Notes and (2) 20% of any remaining Principal Proceeds to the Portfolio Manager as payment of the Contingent Management Fee. Note Payment Sequence .................. The "Note Payment Sequence" shall be the application, in accordance with the priority of payments described above, of Interest Proceeds or Principal Proceeds, as applicable, in the following order: (i) to the payment of the amounts set forth in the Class A Note Payment Sequence until the Class A-1 Notes, the Class A2R Notes and the Class A-2B Notes have been paid in full; (ii) to the payment of principal of the Class B Notes until the Class B Notes have been paid in full; (iii) to the payment of accrued and unpaid interest (including, if such Class is the Controlling Class, any defaulted interest) and any Deferred Interest on the Class C Notes until 12 such amounts have been paid in full; (iv) to the payment of principal of the Class C Notes until the Class C Notes have been paid in full; (v) to the payment of accrued and unpaid interest (including, if such Classes constitute the Controlling Class, any defaulted interest) and any Deferred Interest on the Class D-1 Notes and the Class D-2 Notes until such amounts have been paid in full (pro rata to the Class D-1 Notes and the Class D-2 Notes in proportion to the amounts due each of them under this clause (v)); (vi) to the payment of principal of the Class D-1 Notes and the Class D-2 Notes until the Class D Notes have been paid in full (pro rata to the Class D-1 Notes and the Class D-2 Notes in proportion to their respective aggregate outstanding principal amounts); (vii) to the payment of accrued and unpaid interest (including, if such Class is the Controlling Class, any defaulted interest) and any Deferred Interest on the Class E Notes until such amounts have been paid in full; and (viii) to the payment of principal of the Class E Notes until the Class E Notes have been paid in full. "Class A Amount" means, as of the Determination Date related to the applicable Payment Date, the sum of (i) the aggregate outstanding principal amount of the Class A-2R Notes plus (ii) the Class A-2R Undrawn Permitted Amount plus (iii) the aggregate outstanding principal amount of the Class A-2B Notes plus (iv) the aggregate outstanding principal amount of the Class A-1 Notes. "Class A Note Payment Sequence" means the payment of the following amounts on a pro rata basis: (a) the Class A-2 Portion of the amount to be applied, sequentially, first, to the payment of the Class A-2R Notes until the aggregate outstanding principal amount thereof is reduced to zero, second, to the deposit in the Delayed Funding Obligation Account of an amount up to the Class A-2R Required Reserve Amount, third, to the payment of the Class A-2B Notes until the aggregate outstanding principal amount thereof is reduced to zero and fourth, any excess to the Principal Collection Subaccount to be applied in accordance with "—Priority of Payments— Application of Principal Proceeds" and (b) the Class A-1 Portion of the amount to be applied, to the payment of the Class A-1 Notes until the aggregate outstanding principal amount thereof is reduced to zero; provided that if the Class A-2R Permitted Amount and the amounts drawn on the Class A-2R Notes equals zero, all amount payable pursuant to this Class A 13 Note Payment Sequence shall be paid to the Class A-1 Notes until the Class A-2R Commitments have been reduced to zero. "Class A-1 Portion" means, as of the Determination Date related to the applicable Payment Date, (i) the aggregate outstanding principal amount of the Class A-1 Notes divided by (ii) the Class A Amount. "Class A-2 Portion" means, as of the Determination Date related to the applicable Payment Date, (i) the aggregate outstanding principal amount of the Class A-2R Notes plus the Class A-2R Undrawn Permitted Amount plus the aggregate outstanding principal amount of the Class A-2B Notes divided by (ii) the Class A Amount. The "Determination Date" is the last day of each Collection Period. 14 Management Fees: The Management Fee consists of (a) the Base Management Fee in the amount of 0.15% per annum of the Fee Basis Amount, (b) the Subordinated Management Fee in the amount of 0.45% per annum of the Fee Basis Amount and (c) the Contingent Management Fee in an amount equal to the sum of (x) an amount equal to 20% of any Interest Proceeds remaining after application pursuant to paragraphs (A) through (S) of "— Priority of Payments—Application of Interest Proceeds" above and (y) an amount equal to 20% of any Principal Proceeds remaining after application pursuant to paragraphs (A) through (F) of "—Priority of Payments—Application of Principal Proceeds" above, in each case calculated as described, and subject to limitation and (in the case of the Base Management Fee) modification as described, under "The Portfolio Management Agreement," and is payable as described under "—Priority of Payments." The Portfolio Manager will also receive a structuring fee on the Closing Date equal to approximately $1,062,500 (the "Structuring Fee") from the proceeds of the Offered Securities. Security for the Senior Notes: General............................................ The Senior Notes will be secured by the Assets, which include the various accounts pledged under the Indenture. In purchasing and selling Collateral Obligations, the Issuer will generally be required to meet certain requirements imposed by the Concentration Limitations described under "— Concentration Limitations" and "Security for the Senior Notes—The Concentration Limitations," the Collateral Quality Test described under the "—Collateral Quality Test" and "Security for the Senior Notes—The Collateral Quality Test," the Coverage Tests described under "—Coverage Tests" and "Security for the Senior Notes—The Coverage Tests" and various other criteria described under "Security for the Senior Notes—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria." Substantially all of the Collateral Obligations will be rated below investment grade and accordingly will have greater credit and liquidity risk than investment grade corporate obligations. See "Risk Factors— Relating to Collateral Obligations—Below Investment-Grade Assets Involve Particular Risks." The initial portfolio of Collateral Obligations will be purchased and/or refinanced through the application of the net proceeds of the sale of the Offered Securities. See "Security for the Senior Notes— Collateral Obligations." During the Ramp-Up Period (as defined below), pending investment in such Collateral Obligations, a portion of such net proceeds will be invested in Eligible Investments. 15 The Issuer will be permitted to lend Collateral Obligations pursuant to one or more Securities Lending Agreements and in such cases the Senior Notes will be secured by the Issuer's rights under the related Securities Lending Agreement and not by the Collateral Obligations loaned pursuant to such Securities Lending Agreement. See "Risk Factors—Relating to the Offered Securities—The Issuer Has the Right to Engage in Securities Lending, which Involves Counterparty Risks and Other Risks." Subject to certain limitations described herein, the Senior Notes may be secured by Margin Loans. Purchasers of Senior Notes should consider the possible application of FRB Regulation U to such purchases. See "Security for the Senior Notes—Margin Loans." Collateral Obligations..................... An obligation meeting the standards set forth below, whether pledged to the Trustee on the Closing Date, during the RampUp Period or thereafter, will constitute a "Collateral Obligation." An obligation will be eligible for purchase by the Issuer and pledge to the Trustee as a Collateral Obligation if it is a debt obligation (including, but not limited to, high-yield debt securities and interests in bank loans acquired by way of a sale or assignment), Participation Interest, Synthetic Security or Structured Finance Obligation that as of the date of acquisition by the Issuer: (i) is U.S. Dollar denominated and is not convertible by the issuer thereof into any other currency; (ii) is not a Defaulted Obligation or a Credit Risk Obligation; (iii) is not a lease other than a Capital Lease; (iv) has not deferred payment of any accrued, unpaid interest which would have otherwise been due and continues to remain unpaid; (v) provides for a fixed amount of principal payable in cash on scheduled payment dates and/or at maturity (or a fixed notional amount in the case of a Synthetic Security) and does not by its terms provide for earlier amortization or prepayment at a price of less than par; (vi) does not constitute Margin Stock; (vii) is not a Margin Loan (unless it is a Subordinated Note Collateral Obligation); 16 (viii) has payments that do not subject the Issuer to withholding tax unless the related obligor is required to make "gross-up" payments that cover the full amount of any such withholding tax on an after tax basis (for the avoidance of doubt, this clause shall not apply to commitment fees or other fees that, by their nature are commitment fees); (ix) has a Moody's Rating and an S&P Rating; (x) will not cause the Issuer to be deemed to own 5% or more of the voting securities of any issuer (or, to the Portfolio Manager's knowledge, any affiliate thereof) or any securities that are immediately convertible into or immediately exercisable or exchangeable for 5% or more of the voting securities of the issuer, as determined by the Portfolio Manager; (xi) is not a debt obligation whose repayment is subject to substantial non-credit related risk as determined by the Portfolio Manager; (xii) will not cause the Issuer to be deemed to have participated in the negotiation of the terms of a primary loan origination; (xiii) is not acquired for the purpose of accommodating a request from a Securities Lending Counterparty to borrow such Collateral Obligation; (xiv) except for Delayed Drawdown Collateral Obligations, Revolving Collateral Obligations and Short Positions, is not an obligation pursuant to which any future advances or payments, other than Excepted Advances, to the borrower or the obligor thereof may be required to be made by the Issuer; (xv) does not have an "r", "p", "pi", "q" or "t" subscript assigned by S&P; (xvi) is not a Related Obligation; (xvii) will not require the Issuer, the Co-Issuer or the pool of Assets to be registered as an investment company under the Investment Company Act; (xviii) is not acquired for a purchase price of less than 50% of par; and (xix) is not a CDO Security other than a Permitted CDO 17 Security. Hedge Agreements........................... On the Closing Date, the Issuer will enter into an interest rate swap agreement and interest rate cap agreement with Wachovia Bank, National Association (collectively, the "Initial Hedge Agreement"). Subject to certain restrictions, the Issuer is permitted to enter into one or more additional interest rate Hedge Agreements, with any one or more institutions entering into or guaranteeing a Hedge Agreement that satisfies the Required Hedge Counterparty Rating (each, a "Hedge Counterparty"). See "Security for the Senior Notes—Hedge Agreements." Portfolio Management: Management of the portfolio will be conducted by the Portfolio Manager pursuant to a portfolio management agreement to be entered into between the Issuer and the Portfolio Manager (the "Portfolio Management Agreement"). Under the Portfolio Management Agreement, and subject to the limitations of the Indenture, the Portfolio Manager will manage the selection, acquisition, reinvestment and disposition of the Assets, including exercising rights and remedies associated with the Assets, disposing of the Assets and certain related functions. Use of Proceeds: The net cash proceeds of the offering of the Offered Securities (which does not include the unfunded Class A-2R Commitments of the Class A-2R Notes which total $60,000,000) will be applied by the Issuer to repay certain obligations incurred to finance the purchase of Collateral Obligations prior to the Closing Date, and to purchase additional Collateral Obligations on and after the Closing Date, all of which will be pledged under the Indenture by the Issuer to the Trustee. See "Use of Proceeds." Purchase of Collateral Obligations; Ramp-Up Period: The Issuer will use its commercially reasonable efforts to have purchased or to have entered into binding agreements to purchase, by the earlier of (a) 195 days after the Closing Date and (b) the date selected by the Portfolio Manager and upon which the Issuer has purchased, or entered into binding commitments to purchase Collateral Obligations, including Collateral Obligations acquired by the Issuer on or prior to the Closing Date, that in the aggregate equal or exceed the Target Initial Par Amount, without regard to prepayments, maturities, redemptions or sales (the period from the Closing Date to such date being the "Ramp-Up Period"). The Issuer will be subject to certain Interim Targets during the Ramp-Up Period, as described under "Use of Proceeds—Ramp18 Up Period." If a Ramp-Up Failure occurs, the Issuer will be required to effect a Special Redemption or take alternative actions as described under "Use of Proceeds—Ramp-Up Period". Reinvestment Period........................ The "Reinvestment Period" will be the period from and including the Closing Date to and including the earliest of (i) the end of the Collection Period preceding the Payment Date in July 2014, (ii) the date on which the maturity of any Class of Senior Notes is accelerated due to an Event of Default as described under "Description of the Offered Securities—The Indenture and the Senior Notes—The Indenture" or (iii) the date on which the Portfolio Manager reasonably determines and notifies the Issuer, the Rating Agencies and the Trustee that it can no longer reinvest in additional Collateral Obligations in accordance with the Indenture or the Portfolio Management Agreement. See "Security for the Senior Notes—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria." During the Reinvestment Period, payments of principal of the Senior Notes will not be made, except as provided under "Description of the Offered Securities—The Indenture and the Senior Notes—Optional Redemption," "—Mandatory Redemption" and "—Special Redemption." So long as the criteria for reinvestment described under "Security for the Senior Notes—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria" are met, during the Reinvestment Period, the Portfolio Manager may apply Principal Proceeds and, to a limited extent, Interest Proceeds on behalf of the Issuer to purchase additional Collateral Obligations meeting the criteria described herein. However, if appropriate Collateral Obligations are not then available, the Issuer will, at the sole discretion of the Portfolio Manager, either purchase Eligible Investments and/or make payments as described under "—Priority of Payments— Application of Principal Proceeds" and "Description of the Offered Securities—The Indenture and the Senior Notes— Special Redemption" on the next Payment Date. See "Security for the Senior Notes—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria" and "Description of the Offered Securities—The Indenture and the Senior Notes—Special Redemption." Collateral Quality Test: The "Collateral Quality Test" will be satisfied if, as of any date of determination at, or subsequent to, the end of the RampUp Period, in the aggregate, the Collateral Obligations owned (or in relation to a proposed purchase of a Collateral Obligation, 19 proposed to be owned) by the Issuer satisfy each of the tests set forth below (or, if any such test is not satisfied, the results of such test are maintained or improved) (see "Security for the Senior Notes—The Collateral Quality Test"): (i) the Minimum Fixed Coupon Test; (ii) the Minimum Floating Spread Test; (iii) the Maximum Moody's Rating Factor Test; (iv) the Moody's Diversity Test; (v) the S&P CDO Monitor Test; (vi) the Minimum Weighted Average Moody's Recovery Rate Test; (vii) the Minimum Weighted Average S&P Recovery Rate Test; and (viii) the Maximum Weighted Average Life Test. The "Minimum Fixed Coupon Test" will be satisfied on any date of determination if the Weighted Average Fixed Coupon plus the Excess Weighted Average Floating Spread equals or exceeds the Minimum Fixed Coupon. The "Minimum Floating Spread Test" will be satisfied on any date of determination if the Weighted Average Floating Spread plus the Excess Weighted Average Fixed Coupon equals or exceeds the Minimum Floating Spread. "Minimum Fixed Coupon" as of any date of determination means 7.75%. "Minimum Floating Spread" as of any date of determination means the number set forth in the column entitled "Minimum Weighted Average Spread" in the applicable Collateral Quality Matrix based upon the applicable row/column combination chosen by the Portfolio Manager in accordance with the Indenture. The "Maximum Moody's Rating Factor Test" will be satisfied on any date of determination if the Weighted Average Moody's Rating Factor (determined as described herein) of the Collateral Obligations is less than or equal to the number set forth in the column entitled "Maximum Weighted Average Moody's Rating Factor" in the applicable Collateral Quality Matrix (opposite the applicable case) plus the Rating Factor Adjustment, based upon the applicable row/column 20 combination chosen by the Portfolio Manager in accordance with the Indenture. "Rating Factor Adjustment" means, as of any date of determination: The product of the Weighted Average Moody's Recovery Rate as of such date of determination and 100 minus 42.75 X 50 provided, that if the Weighted Average Moody's Recovery Rate is (x) greater than or equal to 60%, then solely for the purpose of calculating the Rating Factor Adjustment, the Weighted Average Moody's Recovery Rate shall equal 60%, or (y) less than 42.75%, then solely for the purpose of calculating the Rating Factor Adjustment, the Weighted Average Moody's Recovery Rate shall equal 42.75%. The "Moody's Diversity Test" will be satisfied on any date of determination if the Diversity Score (rounded to the nearest whole number) equals or exceeds the number in the heading entitled "Minimum Diversity Score" in the applicable Collateral Quality Matrix chosen by the Portfolio Manager in accordance with the Indenture. The Portfolio Manager will use the applicable "Collateral Quality Matrix" set forth in Annex A-3 relating to the Minimum Diversity Score selected by the Portfolio Manager for purposes of determining the Moody's Diversity Test, the Maximum Moody's Rating Factor Test and the Minimum Floating Spread Test and for determining the Class A-2R Permitted Amount, as set forth in the Indenture. On the Closing Date, the row/column combination highlighted in Annex A-3 will apply. After the Closing Date, on notice of one Business Day to the Trustee, the Portfolio Manager may select a different row/column combination from any Collateral Quality Matrix to apply. The Class A-2R Permitted Amount may be adjusted in accordance with the definition of Class A-2R Permitted Amount in connection with the redemption or repayment of the Class A Notes. The "S&P CDO Monitor Test" will be satisfied on any date of determination following receipt by the Issuer of the S&P CDO Monitor if, after giving effect to the sale of a Collateral Obligation or the purchase of an additional Collateral Obligation, each Class Default Differential of the Proposed Portfolio is positive. The S&P CDO Monitor Test will be considered to be improved if each Class Default Differential of the Proposed Portfolio is greater than the corresponding Class 21 Default Differential of the Current Portfolio. The "Minimum Weighted Average Moody's Recovery Rate Test" will be satisfied on any date of determination if the Weighted Average Moody's Recovery Rate equals or exceeds 42.75%. The "Minimum Weighted Average S&P Recovery Rate Test" will be satisfied on any date of determination if the Weighted Average S&P Recovery Rate for each Class of Senior Notes outstanding equals or exceeds the Weighted Average S&P Recovery Rate for such Class based on the applicable case selected by the Portfolio Manager in connection with the S&P CDO Monitor Test. The "Maximum Weighted Average Life Test" will be satisfied on any date of determination if the Weighted Average Life Date is earlier than May 24, 2017. Concentration Limitations: The "Concentration Limitations" will be satisfied if, as of any date of determination at or subsequent to the end of the RampUp Period, in the aggregate, the Collateral Obligations owned (or in relation to a proposed purchase of a Collateral Obligation, proposed to be owned) by the Issuer comply with all of the requirements set forth below (or, if not in compliance, the relevant requirements must be maintained or improved): (i) all of the Collateral Obligations must be issued by NonNon-Emerging Market Obligors Emerging Market Obligors; Domicile of Obligor (ii) no more than the percentage listed below of the Collateral Principal Amount may be issued by obligors Domiciled in the country or countries set forth opposite such percentage: % Limit Country or Countries 20.0% All countries (in the aggregate) other than the United States; 10.0% Any individual Group I Country; 7.5% All Group II Countries in the aggregate; 5.0% Any individual Group II Country; 5.0% All Group aggregate; 3.0% Any individual country other than the United States, the United Kingdom, Canada, the Netherlands, any Group II 22 III Countries in the Country or any Group III Country Delayed Drawdown/ Revolving Collateral Obligations (iii) unfunded and funded commitments under Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations may not be more than 15% of the Collateral Principal Amount; Moody's Counterparty Criteria (iv) Senior Secured Loans (v) not less than 80% of the Collateral Principal Amount may consist of Senior Secured Loans; Floating Rate Collateral Obligations (vi) not less than 85% of the Collateral Principal Amount may consist of floating rate Collateral Obligations; Synthetic Securities, Participation Interests, Securities Lending and Short Position Payments (vii) (a) not more than 20% of the Collateral Principal Amount may consist of Participation Interests, Synthetic Securities or Collateral Obligations subject to Securities Lending Agreements (in the aggregate) and (b) the aggregate of all future periodic payments payable by the Issuer under all Short Positions shall not exceed 3% of the Collateral Principal Amount; provided that not more than 10% of the Collateral Principal Amount may consist of Synthetic Securities the terms of which do not require the Issuer to prepay the notional amount of such Synthetic Security or deposit an amount equal to the notional amount of such Synthetic Security into a Synthetic Security Counterparty Account at the time of acquisition; High Yield Bonds, Senior Secured Loans and Second Lien Loans (viii) (a) not more than 15% of the Collateral Principal Amount may consist of Collateral Obligations that are debt securities in a form other than bank loans or Participation Interests or Synthetic Securities the Reference Obligation of which is a bank loan or Participation Interest (collectively, "High Yield Bonds") and (b) not more than 20% of the Collateral Principal Amount may consist of Collateral Obligations that are High Yield Bonds, Senior Unsecured Loans and Second Lien Loans; Deferrable Securities and Zero Coupon Securities (ix) not more than 5% of the Collateral Principal Amount may consist of Deferrable Securities or Zero Coupon Securities; the Moody's Counterparty Criteria are met; 23 Step-Up Securities (x) not more than 5% of the Collateral Principal Amount may consist of Step-Up Securities; Interest less frequently than quarterly or semi-annually (xi) (a) not more than 15% of the Collateral Principal Amount may consist of Collateral Obligations that pay interest less frequently than quarterly or Collateral Obligations that constitute Zero Coupon Securities, Step-Up Securities or Deferrable Securities and (b) not more than 3% of the Collateral Principal Amount may consist of Collateral Obligations that pay interest less frequently than semi-annually (excluding Zero Coupon Securities); Current Pay Obligations/DIP Collateral Obligations (xii) (a) not more than 5% of the Collateral Principal Amount may consist of Current Pay Obligations, (b) not more than 5% of the Collateral Principal Amount may consist of DIP Collateral Obligations and (c) not more than 2% of the Collateral Principal Amount may consist of DIP Collateral Obligations issued by a single obligor; Conversion or Exchange into Equity Securities; Collateral Obligations subject to Offers (xiii) (a) not more than 5% of the Collateral Principal Amount may by the terms of such Collateral Obligations be convertible into or exchangeable for Equity Securities or may consist of Collateral Obligations with attached warrants (and any such Collateral Obligation may be convertible into or exchangeable for Equity Securities only at the option of the Issuer, unless such exchange is an exchange of a unit security) and (b) not more than 10% of the Collateral Principal Amount may consist of Collateral Obligations that are subject to an Offer or with respect to which a notice of a pending Offer of which the Portfolio Manager has actual knowledge has been issued (and any such Offer shall be in a cash amount equal to the par amount of such Collateral Obligation); Limitation on Maturity (xiv) not more than 3% of the Collateral Principal Amount may consist of obligations (including deliverable obligations under any Synthetic Security) which mature after the Stated Maturity of the Notes, and no such obligations may mature more than 365 days after the Stated Maturity of the Notes (unless, in each case, any such Collateral Obligations include a "put" option to the obligor at a price of at least par prior to the Stated Maturity of the Notes); Single Obligor (xv) not more than 2% of the Collateral Principal Amount may consist of obligations issued by a single obligor, except that up to 2.5% of the Collateral Principal Amount may consist of obligations issued by one designated obligor; 24 Rating of "Caa1"/ "CCC+" or below (xvi) (a) with respect to any Collateral Obligation having a Moody's Default Probability Rating of "Caa1" or below, (1) if it is not a Permissible Replacement Collateral Obligation, no more than 10% of the Collateral Principal Amount will consist of Collateral Obligations (excluding Defaulted Obligations) with a Moody's Default Probability Rating of "Caa1" or below as a result of such purchase and (2) if it is a Permissible Replacement Collateral Obligation, no more than 20% of the Collateral Principal Amount will consist of Collateral Obligations (excluding Defaulted Obligations but including Permissible Replacement Collateral Obligations) with a Moody's Default Probability Rating of "Caa1" or below; and (b) with respect to any Collateral Obligation having an S&P Rating of "CCC+" or below, (1) if it is not a Permissible Replacement Collateral Obligation, no more than 10% of the Collateral Principal Amount will consist of Collateral Obligations (excluding Defaulted Obligations) with an S&P Rating of "CCC+" or below as a result of such purchase and (2) if it is a Permissible Replacement Collateral Obligation, no more than 20% of the Collateral Principal Amount will consist of Collateral Obligations (excluding Defaulted Obligations but including Permissible Replacement Collateral Obligations) with an S&P Rating of "CCC+" or below; provided that none of the Collateral Obligations (other than Permissible Replacement Collateral Obligations, DIP Collateral Obligations and Current Pay Obligations) may have a Moody's Default Probability Rating lower than "Caa2" or an S&P Rating lower than "CCC" at the time of its purchase; Third Party Credit Exposure (xvii) the Third Party Credit Exposure may not exceed 20% of the Collateral Principal Amount and the Third Party Credit Exposure Limits may not be exceeded; S&P Rating derived from a Moody's Rating (xviii) not more than 10% of the Collateral Principal Amount may have an S&P Rating derived from a Moody's Rating as set forth in clause (iii)(a) of the definition of the term "S&P Rating"; Moody's Rating derived from an S&P Rating (xix) not more than 10% of the Collateral Principal Amount may consist of Collateral Obligations with a Moody's Rating derived from an S&P Rating as provided in clauses (iv)(A)(1) or (2) of the definition of the term "Moody's Derived Rating;" 25 not more than 5% of the Collateral Principal Amount Bridge Securities (xx) may consist of Bridge Securities; provided that (x) any Bridge Security that is secured by a first lien on collateral and is funded at the time of acquisition by the Issuer must have either a corporate family rating or a facility rating from Moody's and any other Bridge Security must have a facility rating from Moody's and (y) any Bridge Security must have an S&P Rating that is not notched or derived; Capital Leases (xxi) not more than 5% of the Collateral Principal Amount may consist of Capital Leases; Moody's Industry Classifications (xxii) not more than 12% of the Collateral Principal Amount may consist of Collateral Obligations in the same Moody's Industry Classification, except that up to 14% of the Collateral Principal Amount may consist of Collateral Obligations in each of two Moody's Industry Classifications; Structured Finance Obligations (xxiii) not more than 5% of the Collateral Principal Amount may consist of Structured Finance Obligations; Loan Facility (xxiv) not more than 10% of the Collateral Principal Amount may consist of loans issued under a loan facility with an aggregate maximum initial principal amount (including all tranches thereof, whether or not drawn in full) of less than U.S. $50,000,000; and Margin Loans (xxv) not more than 8.5% of the Collateral Principal Amount may consist of Margin Loans. "Group I Country" means The Netherlands and the United Kingdom (or such other countries as may be notified by Moody's to the Portfolio Manager from time to time). "Group II Country" means Germany, Ireland, Sweden and Switzerland (or such other countries as may be notified by Moody's to the Portfolio Manager from time to time). "Group III Country" means Austria, Belgium, Denmark, Finland, France, Iceland, Liechtenstein, Luxembourg, Norway and Spain (or such other countries as may be notified by Moody's to the Portfolio Manager from time to time). "Collateral Principal Amount" means as of any date of determination, the sum of (a) the Aggregate Principal Balance of the Collateral Obligations (other than Defaulted Obligations), (b) without duplication, the amounts on deposit in the Collection Account and the Ramp-Up Account (including Eligible Investments therein) representing Principal Proceeds 26 and, from and after a default under a Securities Lending Agreement, the amounts on deposit in the related Securities Lending Account (including Eligible Investments therein) and (c) without duplication, the Class A-2R Undrawn Permitted Amount. Coverage Tests: The Coverage Tests will be used primarily to determine whether principal and interest may be paid on the Senior Notes and distributions may be made on the Subordinated Notes or whether funds which would otherwise be used to pay interest on the Senior Notes other than the Class A Notes and the Class B Notes and to make distributions on the Subordinated Notes must instead be used to pay principal on one or more Classes of Senior Notes according to the priorities referred to in "Summary of Terms—Priority of Payments." The "Coverage Tests" will consist of the Overcollateralization Ratio Test and the Interest Coverage Test applied respectively to the Class A Notes and the Class B Notes (together, the "Class A/B Coverage Tests"), the Class C Notes (together, the "Class C Coverage Tests"), the Class D Notes (together, the "Class D Coverage Tests") and, with respect to the Class E Notes, only the Overcollateralization Ratio Test (the "Class E Coverage Test") Measurement of the degree of compliance with the Overcollateralization Ratio Tests will be required as of each Measurement Date beginning on the Determination Date which is the last day of the Ramp-Up Period and measurement of the degree of compliance with the Interest Coverage Tests will be required as of each Measurement Date beginning on the Determination Date in respect of the second Payment Date. The "Overcollateralization Ratio Test" and "Interest Coverage Test" applicable to the indicated Classes of Notes will be satisfied as of any date of determination at or subsequent to the end of the Ramp-Up Period, in the case of the Overcollateralization Ratio Tests, or the Determination Date occurring immediately prior to the second Payment Date, in the case of the Interest Coverage Tests, if the applicable Overcollateralization Ratio or Interest Coverage Ratio, as the case may be, is at least equal to the applicable ratio indicated below. If the Coverage Tests are not satisfied on any applicable Determination Date, the Issuer will be required to apply available amounts in the Payment Account on the related Payment Date to make payments in accordance with the Note Payment Sequence to the extent necessary to achieve compliance with such Coverage Tests. The required Overcollateralization Ratio for the Class E Notes in connection with the Reinvestment Diversion Threshold Payment is also included below. 27 Overcollateralization Ratio Class A-2R Permitted Amount* Class A/B Class C Class D Class E Class E (Reinvestment Diversion) $0 115.3% 108.5% 103.9% 101.7% 104.2% $15,000,000 114.3% 107.9% 103.5% 101.4% 103.9% $30,000,000 113.3% 107.3% 103.1% 101.2% 103.7% $45,000,000 112.4% 106.7% 102.8% 101.0% 103.5% $60,000,000 111.5% 106.2% 102.5% 100.8% 103.3% * Subject to adjustment as provided for in the definition of Class A-2R Permitted Amount. Interest Coverage Ratio Class Required Interest Coverage Ratio A/B 120.0% C 110.0% D 107.5% The "Overcollateralization Ratio" is, with respect to any specified Class or Classes of Senior Notes as of any Measurement Date, the percentage derived from: (a) the Adjusted Collateral Principal Amount; divided by (b) the aggregate outstanding principal amounts of the Senior Notes of such Class, each priority class of Senior Notes and each pari passu Class of Senior Notes, in each case, if applicable (assuming, for purposes of such calculation, that the aggregate outstanding principal amount of the Class A-2R Notes is equal to the Class A-2R Permitted Amount). 28 The "Interest Coverage Ratio" for any designated Class or Classes of Senior Notes as of any date of determination is the percentage derived from: The Collateral Interest Amount as of such date of determination minus Amounts payable (or expected as of the date of determination to be payable) on the following Payment Date as set forth in clauses (A), (B) and (D) and, with respect to the Interest Coverage Ratio for the Class C Notes and the Class D Notes, as set forth in clause (G) under "Summary of Terms—Priority of Payments—Application of Interest Proceeds" _________________________________________________ Amounts payable (or expected as of the date of determination to be payable) on the following Payment Date as set forth in clause (C) under "Summary of Terms—Priority of Payments— Application of Interest Proceeds" plus Interest (and, with respect to the Class A-2R Notes, the Class A-2R Commitment Fees) due and payable on the Senior Notes of such Class and each Class of Senior Notes that rank senior to or pari passu with such Class (excluding any Deferred Interest but including any interest on Deferred Interest with respect to any such Classes) on such Payment Date Other Information: Minimum Denominations ................ The Senior Notes will be issued in minimum denominations of $250,000 and integral multiples of $1.00 in excess thereof, the Subordinated Notes will be issued in minimum denominations of $100,000 and integral multiples of $1.00 in excess thereof and the Composite Notes will be issued in minimum denominations of $600,000 and integral multiples of $1.00 in excess thereof. "Minimum Denominations" means the minimum denomination in which the Offered Securities will be issued. Listing, Trading and Form of Notes................................................ This Offering Memorandum constitutes the Prospectus (the "Prospectus") for the purposes of Directive 2003/71/EC (the "Prospectus Directive"). Application has been made to the Irish Financial Services Regulatory Authority (the "Financial Regulator"), as competent authority under the Prospectus Directive for the Prospectus to be approved. Application has been made to the Irish Stock Exchange (the "Irish Stock Exchange") for the Offered Securities to be admitted to the Official List (the "Official List") and to trading on its regulated market. No assurance can be given that the application to admit 29 the Offered Securities will be accepted. No assurances can be given that, following the Closing Date, the listing of the Offered Securities on the Irish Stock Exchange will be obtained or, if obtained, maintained for the entire period that the Offered Securities are outstanding. See "Listing and General Information." There is currently no market for the Offered Securities of any Class and there can be no assurance that such a market will develop. See "Risk Factors—Relating to the Offered Securities—The Offered Securities Will Have Limited Liquidity; The Offered Securities Are Subject to Substantial Transfer Restrictions." All Class A-2R Notes will be issued in definitive, fully registered form with interest coupons. The Senior Notes (other than the Class A-2R Notes) and the Composite Notes sold to persons who are Qualified Purchasers in reliance on Rule 144A under the Securities Act (or, in the case of any Class E Notes resold by the Initial Purchaser on the Closing Date to Institutional Accredited Investors, another exemption from the registration requirements of the Securities Act) will be represented by global notes in fully registered form without interest coupons to be deposited with a custodian for and registered in the name of a nominee of The Depository Trust Company ("DTC"). The Senior Notes, the Composite Notes and, at the option of the Issuer, certain Subordinated Notes, sold to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act will be represented by global notes or certificates, as applicable, in fully registered form without interest coupons to be deposited with a custodian for and registered in the name of a nominee of DTC for the accounts of Euroclear or Clearstream. All other Subordinated Notes will be issued in definitive, fully registered form without interest coupons. Governing Law ................................ The Offered Securities and the Indenture will be governed by, and construed in accordance with, the laws of the State of New York. Tax Matters...................................... See "Income Tax Considerations." ERISA .............................................. See "ERISA and Legal Investment Considerations." Additional Issuance ......................... At any time during the Reinvestment Period, the Co-Issuers may issue and sell additional Notes of any one or more Classes and/or additional notes of one or more new classes and use the net proceeds to purchase additional Collateral Obligations or for other purposes permitted under the Indenture if the conditions for such additional issuance described under "Description of the Offered Securities—The Indenture and the Senior Notes—The Indenture—Additional Issuance" are met. 30 At any time after the end of the Non-Call Period, the Co-Issuer may issue and sell additional Notes in connection with an Optional Redemption of the outstanding Senior Notes as described under "Description of the Offered Securities—The Indenture and the Senior Notes—Optional Redemption— Optional Redemption of Notes using Additional Senior Notes or Secured Loans." 31 RISK FACTORS An investment in the Offered Securities involves certain risks. Prospective investors should carefully consider the following factors, in addition to the matters set forth elsewhere in this Offering Memorandum, prior to investing in the Offered Securities. Relating to the Offered Securities The Offered Securities Will Have Limited Liquidity; The Offered Securities Are Subject to Substantial Transfer Restrictions Currently, no market exists for the Offered Securities. The Initial Purchaser is under no obligation to make a market for the Offered Securities. There can be no assurance that any secondary market for any of the Offered Securities will develop, or if a secondary market does develop, that it will provide the holders of the Offered Securities with liquidity of investment or will continue for the life of the Offered Securities. Consequently, a purchaser of Offered Securities must be prepared to hold the Offered Securities until their Stated Maturity. In addition, the Offered Securities are subject to certain transfer restrictions and can only be transferred to certain transferees as described herein under “Transfer Restrictions.” As described herein, the Issuer may, in the future, impose additional restrictions to comply with changes in applicable law. Such restrictions on the transfer of the Offered Securities may further limit their liquidity. The Offered Securities will not be registered under the Securities Act or any state securities laws, and the Co-Issuers have no plans, and are under no obligation, to register the Offered Securities under the Securities Act. The Class A-2R Notes are also subject to additional transfer restrictions as described in "Transfer Restrictions⎯Class A-2R Notes." An investor in the Composite Notes may exchange its Composite Notes for the Notes to which its Components relate. However, after such exchange, such Notes would be subject to the liquidity risks with respect to the underlying Classes of Notes described above. The Initial Purchaser Will Not Have Any Ongoing Responsibility for the Assets or the Actions of the Portfolio Manager or the Issuer The Initial Purchaser will not have any obligation to monitor the performance of the Assets or the actions of the Portfolio Manager or the Issuer and will have no authority to advise the Portfolio Manager or the Issuer or to direct their actions, which will be solely the responsibility of the Portfolio Manager and /or the Issuer, as the case may be. If the Initial Purchaser acts as Hedge Counterparty, Synthetic Security Counterparty or Securities Lending Counterparty or owns Offered Securities, it will have no responsibility to consider the interests of any holders of Offered Securities in actions it takes in such capacities. While the Initial Purchaser may own Offered Securities at any time, it has no obligation to make any investment in any Offered Securities and may sell at any time any Offered Securities it does purchase. The Notes Are Limited Recourse Obligations; Investors Must Rely on Available Collections from the Collateral Obligations and Will Have No Other Source for Payment The Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes are limited recourse obligations of the Co-Issuers and the Class E Notes, the Composite Notes and the Subordinated Notes are limited recourse obligations of the Issuer; therefore, the Notes are payable solely from the Collateral Obligations and all other Assets pledged by the Co-Issuers pursuant to the Indenture. None of the Trustee, the Portfolio Manager, the Initial Purchaser or any of their respective affiliates or the CoIssuers' affiliates or any other person or entity will be obligated to make payments on the Notes. Consequently, holders of the Notes must rely solely on distributions on the Assets for payments on the 32 Notes. If distributions on such Assets are insufficient to make payments on the Notes, no other assets (in particular, no assets of the Portfolio Manager, the holders of the Notes, the Initial Purchaser, the Trustee or any affiliates of any of the foregoing) will be available for payment of the deficiency and all obligations of the Co-Issuers and any claims against the Co-Issuers in respect of the Notes will be extinguished and will not thereafter revive. The Subordinated Notes are Unsecured Obligations of the Issuer The Subordinated Notes will not be secured by any of the Assets, and will not generally be entitled to exercise remedies under the Indenture and, while the Senior Notes are outstanding, the Trustee will have no obligation to act on behalf of the holders of Subordinated Notes. Distributions to holders of the Subordinated Notes will be made solely from distributions on the Assets after all other payments have been made pursuant to the priority of payments described herein. There can be no assurance that the distributions on the Assets will be sufficient to make distributions to holders of the Subordinated Notes after making payments that rank senior to payments on the Subordinated Notes. The Issuer's ability to make distributions to the holders of the Subordinated Notes will be limited by the terms of the Indenture. If distributions on the Assets are insufficient to make distributions on the Subordinated Notes, no other assets will be available for any such distributions. See "Description of the Offered Securities—The Subordinated Notes." The Subordination of the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Subordinated Notes Will Affect Their Right to Payment The Class A Notes are subordinated to certain amounts payable by the Issuer to other parties as set forth in the priority of payments (including taxes, Administrative Expenses, Base Management Fees and certain payments under the Hedge Agreements and Short Positions); the Class A-2B Notes are subordinated on each Payment Date to the Class A-2R Notes; the Class B Notes are subordinated on each Payment Date to the Class A Notes; the Class C Notes are subordinated on each Payment Date to the Class B Notes; the Class D Notes are subordinated on each Payment Date to the Class C Notes; the Class E Notes are subordinated on each Payment Date to the Class D Notes; and the Subordinated Notes are subordinated on each Payment Date to the Class E Notes and certain fees and expenses (including, but not limited to, the diversion of Interest Proceeds to purchase additional Collateral Obligations if the Overcollateralization Ratio relating to the Class E Notes is less than the applicable level set forth in the column Class E (Reinvestment Diversion) under the "Summary of Terms—Coverage Tests", unpaid Administrative Expenses and certain Management Fees), in each case to the extent described herein. No payments of interest or distributions from Interest Proceeds will be made on any such Class of Offered Securities on any Payment Date until interest on the Notes of each Class to which it is subordinated has been paid, and no payments of principal (other than Deferred Interest with respect to the Class C Notes, the Class D Notes or the Class E Notes, as applicable, and payments of principal made in connection with a Special Redemption under certain circumstances if the Pro Rata Special Redemption Conditions are met, in each case, to the extent set forth in the priority of payments) or distributions from Principal Proceeds will be made on any such Class of Offered Securities on any Payment Date until principal on the Notes of each Class to which it is subordinated has been paid in full. Therefore, to the extent that any losses are suffered by any of the holders of any Offered Securities, such losses will be borne in the first instance by holders of the Subordinated Notes, then by the holders of the Class E Notes, then by the holders of the Class D Notes, then by the holders of the Class C Notes, then by the holders of the Class B Notes and last by the holders of the Class A Notes (with the holders of the Class A-2B Notes bearing losses prior to the holders of the Class A-2R Notes). Furthermore, payments on the Class C Notes, the Class D Notes and the Class E Notes are subject to diversion to pay more senior Classes of Notes pursuant to the priority of payments if certain Coverage Tests are not met, as described herein, and failure 33 to make such payments will not be a default under the Indenture. In addition, if an Event of Default occurs, the holders of the Controlling Class of Notes will be entitled to determine the remedies to be exercised under the Indenture. See "Description of the Offered Securities—The Indenture and the Senior Notes—The Indenture—Events of Default." Remedies pursued by the Controlling Class could be adverse to the interests of the holders of the Offered Securities that are subordinated to the Controlling Class, and the Controlling Class will have no obligation to consider any possible adverse effect on such other interests. Furthermore, the Assets may be sold and liquidated only if, among other things, (i) the Trustee determines that the anticipated proceeds of such sale or liquidation (after deducting the reasonable expenses of such sale or liquidation) would be sufficient to discharge in full the amounts then due and unpaid with respect to all the Notes and the holders of a majority of the aggregate outstanding principal amount of the Controlling Class agrees with such determination or (ii) the holders of at least 66⅔% of the aggregate outstanding principal amount of each of (a) the Class A Notes, voting together as a single class, (b) the Class B Notes, (c) the Class C Notes, (d) the Class D Notes, voting together as a single class, and (e) the Class E Notes direct the sale and liquidation of the Assets. For purposes of subordination, the Composite Notes will not be treated as a separate class of Offered Securities, but each Component will be treated as a part of the applicable Class of Notes. The Class E Notes and the Subordinated Notes are Highly Leveraged, which Increases Risks to Investors in That Class The Class E Notes and the Subordinated Notes represent a highly leveraged investment in the Assets. Therefore, the market value of the Class E Notes and the Subordinated Notes would be anticipated to be significantly affected by, among other things, changes in the market value of the Assets, changes in the distributions on the Assets, defaults and recoveries on the Assets, capital gains and losses on the Assets, prepayments on Assets and the availability, prices and interest rates of Assets and other risks associated with the Assets as described in "—Nature of Assets" below. Accordingly, the Class E Notes and the Subordinated Notes may not be paid in full and may be subject to up to 100% loss. Furthermore, the leveraged nature of each subordinated class of Offered Securities may magnify the adverse impact on each such class of changes in the market value of the Assets, changes in the distributions on the Assets, defaults and recoveries on the Assets, capital gains and losses on the Assets, prepayments on Assets and availability, prices and interest rates of Assets. Holders of the Class A-2R Notes Have Ongoing Obligations Under Certain Circumstances Holders of the Class A-2R Notes will be obligated to advance funds to the Issuer during the Reinvestment Period so long as certain borrowing conditions are met and the aggregate principal amount of borrowings under the Class A-2R Notes at any one time outstanding does not exceed the aggregate amount of Class A-2R Commitments to make advances under the Class A-2R Notes. A Failure by the Holders of the Class A-2R Notes to Comply With Ongoing Obligations May Adversely Affect the Issuer If a holder of a Class A-2R Note should fail to advance funds to the Issuer as required under the Class A-2R Note Purchase Agreement, the Issuer may be forced to obtain substitute sources of liquidity by selling Collateral Obligations (to the extent permitted by the Indenture) to meet the Issuer's obligations to fund Delayed Drawdown Collateral Obligations, Revolving Collateral Obligations and/or previously incurred commitments on transactions for which trades have been entered into but not yet settled or finding an alternative source of liquidity. Delayed Drawdown Collateral Obligations and Revolving 34 Collateral Obligations may constitute up to 15% of the Collateral Principal Amount and the Issuer and the Portfolio Manager will generally have no ability to control the timing of funding requests thereunder. Forced sales of Collateral Obligations by the Issuer caused by a failure of a holder of a Class A-2R Note to advance funds under the Class A-2R Note Purchase Agreement may be at disadvantageous prices to the Issuer. In addition, if the Issuer is unable to obtain substitute sources of liquidity, the Issuer may default on its obligations to fund Delayed Drawdown Collateral Obligations, Revolving Collateral Obligations and/or previously incurred commitments on transactions for which trades have been entered into but not yet settled. In addition, without limitation to the foregoing, the Issuer may be required to seek an advance of funds under the Class A-2R Note Purchase Agreement on short notice, which may increase the chance that a holder of a Class A-2R Note fails to advance funds in a timely manner. The Assets May Be Insufficient to Redeem the Offered Securities in an Event of Default It is anticipated that the proceeds received by the Issuer on the Closing Date from the issuance of the Offered Securities, net of certain fees and expenses, will be less than the aggregate amount of Notes. Consequently, it is anticipated that on the Closing Date the Assets would be insufficient to redeem the Senior Notes and Subordinated Notes in the event of an Event of Default under the Indenture. The Senior Notes May Be Subject to the Requirements of Regulation U Because the Collateral Obligations may include Margin Loans, certain purchasers of the Senior Notes may be subject to certain requirements under Regulation U. Regulation U of the Federal Reserve Board ("Regulation U") governs certain extensions of credit by persons other than securities brokerdealers that are secured directly or indirectly by Margin Stock (such persons, "Regulation U Lenders"). Under current interpretations of Regulation U by the FRB and its staff, the purchase of a debt security such as the Senior Notes in a private placement may constitute such an extension of credit. Among other things, Regulation U generally imposes certain limits on the amount of credit that Regulation U Lenders may extend which is used to purchase or carry Margin Stock ("Purpose Credit"). The provisions of the Indenture are intended to ensure that any credit extended by purchasers of the Senior Notes is not Purpose Credit. Regulation U Lenders generally are not subject to the Regulation U credit limits with respect to extensions of credit that are not Purpose Credit. Regulation U also generally requires Regulation U Lenders (other than persons that are banks within the meaning of Regulation U) who are not otherwise exempted from the registration requirements to register with the FRB. Under an interpretation of Regulation U by the FRB staff, qualified institutional buyers purchasing debt securities in a transaction in compliance with Rule 144A should not be required to register with the FRB where the proceeds of the securities are not used in a manner that would constitute Purpose Credit. Non-U.S. persons purchasing Senior Notes in reliance on Regulation S who do not have their principal place of business in a Federal Reserve District of the Federal Reserve System are also not required to register with the FRB. However, other purchasers of Senior Notes, including investors (if any) purchasing Offered Securities in reliance on an exemption from registration under the Securities Act other than Rule 144A, should consider (i) whether they are required to register with the FRB in connection with such purchase and (ii) on an ongoing basis, whether they are required to register with the FRB as a result of changes to the composition of the Collateral Obligations after such purchase. In addition, purchasers of Senior Notes subject to the registration requirements of Regulation U, as well as any purchasers of the Senior Notes that are banks within the meaning of Regulation U, may also be subject to certain additional requirements under Regulation U. If the registration or other requirements of Regulation U are applicable to a purchaser of Offered Securities and such purchaser does not comply with such requirements, such failure may affect the enforceability of such purchaser's Offered Securities. See "Security for the Senior Notes— Margin Loans." Purchasers of the Offered Securities should consult their own legal advisers as to Regulation U and its applicability to them. 35 The Indenture Requires Mandatory Redemption of the Senior Notes for Failure to Satisfy Coverage Tests If the Coverage Tests with respect to any Class or Classes of Senior Notes are not met on any applicable Determination Date, Interest Proceeds that otherwise would have been paid or distributed to the holders of the Offered Securities of each Class (other than Class A Notes and the Class B Notes) that is subordinated to such Class or Classes and (during the Reinvestment Period) Principal Proceeds that would otherwise have been reinvested in Collateral Obligations will instead be used to redeem the Senior Notes of the most senior Class or Classes then outstanding to the extent necessary to satisfy the applicable Coverage Tests as described under "Summary of Terms—Priority of Payments." This could result in an elimination, deferral or reduction in the payments of Interest Proceeds to the holders of the Class C Notes, the Class D Notes, the Class E Notes and/or the Subordinated Notes, as the case may be. It could result in an increase in the average weighted interest rate payable by the Issuer on the Senior Notes, which would adversely affect the Issuer. The Indenture May Require Mandatory Redemption of the Senior Notes Upon Effective Date Ratings Failure After the Ramp-Up Period, a redemption of the Senior Notes may result from a failure to obtain from each Rating Agency its written confirmation of its initial ratings of the Senior Notes. See "Description of the Offered Securities—The Indenture and the Senior Notes—Special Redemption." In the event of an early redemption, the holders of the Senior Notes will be repaid prior to the respective Stated Maturity dates of such Senior Notes. Interest Proceeds or Principal Proceeds diverted for this purpose would not be available to make distributions in respect of the Subordinated Notes. In addition, a mandatory redemption of Senior Notes could require the Portfolio Manager to liquidate positions more rapidly than would otherwise be desirable, which could adversely affect the realized value of the Collateral Obligations sold. The Notes Are Subject to Optional Redemption The holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes may cause the Senior Notes and the Subordinated Notes to be redeemed as described under "Description of the Offered Securities—The Indenture and the Senior Notes—Optional Redemption" and "Description of the Offered Securities—The Subordinated Notes—Optional Redemption" on any Payment Date after the expiration of the Non-Call Period. In the event of an early redemption, the holders of the Senior Notes and the Subordinated Notes will be repaid prior to the respective Stated Maturity dates of such Notes. In the case of an Optional Redemption effected through a Redemption by Liquidation, there can be no assurance that the Sale Proceeds realized and other available funds would permit any distribution on the Subordinated Notes after all required payments are made to the holders of the Senior Notes. In addition, an Optional Redemption of Notes effected through a Redemption by Liquidation could require the Portfolio Manager to liquidate positions more rapidly than would otherwise be desirable, which could adversely affect the realized value of the Collateral Obligations sold. In addition, in the case of an Optional Redemption effected through a Redemption by Refinancing, the holders of the Subordinated Notes may cause an Optional Redemption through a Redemption by Refinancing if interest rates on investments similar to the Senior Notes fall below current levels. If exercised, such redemption would result in the Senior Notes being redeemed at the Redemption Price at a time when they may be trading in the market at a premium and when other investments bearing 36 the same rate of interest relative to the level of risk assumed may be difficult or expensive to acquire. In addition, if the holders of the Subordinated Notes cause the Senior Notes to be redeemed pursuant to a Redemption by Refinancing in which additional Notes are issued or borrowings under secured loans are made, the Subordinated Notes will be subordinate to payments on such additional Notes or secured loans. The additional Notes issued, or secured loans obtained, as the case may be, in connection with a Redemption by Refinancing would have such terms and priorities as are negotiated at the time and that are set forth in a supplemental indenture. The terms and priorities of the Subordinated Notes may be less favorable to the holders of the Subordinated Notes than the Senior Notes that are being redeemed pursuant to the Redemption by Refinancing. The Reinvestment Period May Terminate Earlier Than Expected Although the Reinvestment Period is expected to terminate on the end of the Collection Period preceding the Payment Date occurring in July 2014, the Reinvestment Period may terminate prior to such date if the Portfolio Manager notifies the Issuer, the Rating Agencies and the Trustee that it can no longer make investments in additional Collateral Obligations in accordance with the Indenture or the Portfolio Management Agreement or if the Senior Notes are accelerated following an Event of Default. Such early termination of the Reinvestment Period may shorten the expected lives of the Notes. The Offered Securities May Be Affected by Interest Rate Risks, Including Mismatches Between the Notes and the Collateral Obligations The Aggregate Principal Balance of the Floating Rate Notes may be different than the Aggregate Principal Balance of the floating rate Collateral Obligations. In addition, any payments of principal of or interest on Collateral Obligations received during a Collection Period occurring during the Reinvestment Period and not reinvested in Collateral Obligations during such Collection Period will be reinvested in Eligible Investments maturing not later than the Business Day immediately preceding the next Payment Date. There is no requirement that such Eligible Investments bear interest at a floating rate, and the interest rates available for such Eligible Investments are inherently uncertain. As a result of such mismatches, changes in the level of LIBOR or any other applicable floating rate index could adversely affect the ability of the Co-Issuers or the Issuer, as applicable, to make payments on the Notes. The Issuer will enter into the Initial Hedge Agreement and may, to the extent described herein, enter into additional Hedge Agreements to reduce the effect of any such interest rate mismatch. However, there can be no assurance that such Hedge Agreements will significantly reduce the effect of such interest rate mismatch. The Subordinated Notes will be subordinated to the payment of interest on the Senior Notes. There can be no assurance that the Collateral Obligations and the Eligible Investments will in all circumstances generate sufficient Interest Proceeds to make timely payments of interest on the Senior Notes and to make distributions to the holders of the Subordinated Notes, nor that the Hedge Agreements will ensure any particular return on such Offered Securities. A Hedge Counterparty may terminate the applicable Hedge Agreements if any withholding tax is imposed on payments thereunder by such Hedge Counterparty, and any amounts that would be required to be paid by the Issuer to enter into replacement Hedge Agreements will reduce amounts available for payments to holders of Notes. A Hedge Counterparty may also terminate the applicable Hedge Agreements upon the occurrence of certain events of default or termination events thereunder with respect to the Issuer (including, but not limited to, bankruptcy, a change in law making the performance of the obligations under such Hedge Agreement unlawful, or the determination to sell or liquidate the Assets upon the occurrence of an Event of Default under the Indenture), and in the case of such early termination of any Hedge Agreement, the Issuer may be required to make a payment to the related Hedge Counterparty. Any amounts that would be required to be paid by the Issuer to enter into replacement 37 Hedge Agreements will reduce amounts available for payments to holders of Notes. In either case, there can be no assurance that the remaining payments on the Assets would be sufficient to make payments of interest and principal on the Senior Notes and distributions with respect to the Subordinated Notes. The Weighted Average Lives of the Notes May Vary The Stated Maturity of the Notes is July 14, 2021. The average life of each Class of Notes is expected to be shorter than the number of years until its respective Stated Maturity date. Each such average life may vary due to various factors affecting the early retirement of Collateral Obligations, the timing and amount of sales of such Collateral Obligations, the ability of the Portfolio Manager to invest collections and proceeds in additional Collateral Obligations, and the occurrence of any Mandatory Redemption, Optional Redemption or Special Redemption. Retirement of the Collateral Obligations prior to their respective final maturities will depend, among other things, on the financial condition of the issuers of the underlying Collateral Obligations and the respective characteristics of such Collateral Obligations, including the existence and frequency of exercise of any Optional Redemption, mandatory redemption or sinking fund features, the prevailing level of interest rates, the redemption prices, the actual default rates and the actual amount collected on any Defaulted Obligations and the frequency of tender or exchange offers for such Collateral Obligations. In particular, loans are generally prepayable at par, and a high proportion of loans could be prepaid. The ability of the Issuer to reinvest proceeds in securities with comparable interest rates that satisfy the reinvestment criteria specified herein may affect the timing and amount of payments received by the holders of Notes and the yield to maturity of the Notes. See "Security for the Senior Notes—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria." Changes in Tax Law Could Result in the Imposition of Withholding Taxes with Respect to Payments on the Offered Securities and Interest and Other Payments on the Collateral Obligations, and Issuer Will Not Gross-Up Payments to Holders of Offered Securities The Issuer expects to conduct its affairs so that its net income will not be subject to United States federal income tax. There can be no assurance, however, that its net income will not become subject to United States federal income tax as the result of activities by the Issuer, changes in law, contrary conclusions by United States tax authorities or other causes. Payments on the Collateral Obligations (other than commitment fees) are required not to be subject to withholding tax when the Collateral Obligations are acquired by the Issuer unless the obligor thereof is required to make "gross-up" payments that cover the full amount of such withholding tax on an after-tax basis. In the case of debt obligations issued by U.S. obligors after July 18, 1984, interest payments thereon are generally exempt under current United States tax law from the imposition of United States federal income withholding tax. See "Income Tax Considerations—United States Federal Income Taxation—Tax Treatment of the Issuer—United States Withholding Taxes." With respect to Collateral Obligations that are not subject to withholding tax at the time of acquisition by the Issuer, however, there can be no assurance that the payments on such Collateral Obligations will not become subject to U.S. or other withholding tax as a result of a change in any applicable law, treaty, rule or regulation or interpretation thereof or other causes, possibly with retroactive effect. If any withholding tax is or becomes applicable to payments on the Collateral Obligations and such tax is not fully offset by "gross-up" payments, such withholding tax will reduce the amounts available to make payments on the Offered Securities. There can be no assurance that the remaining payments on the Collateral Obligations would be sufficient to make payments on the Offered Securities. 38 Withholding tax is not currently imposed by the Cayman Islands on payments of interest or principal on the Senior Notes or distributions on the Subordinated Notes. There can be no assurance, however, that the law will not change. In the event that any withholding tax is imposed on payments of interest or principal on any of the Senior Notes or distributions on the Subordinated Notes, the holders of the Offered Securities will not be entitled to receive grossed-up amounts to compensate for such withholding tax. Each of the Issuer and the Co-Issuer is Recently Formed, Has No Significant Operating History, Has No Assets Other Than the Collateral and is Limited in its Permitted Activities Each of the Issuer and the Co-Issuer is a recently incorporated or organized entity and has no prior operating history or track record (except for the acquisition of Collateral Obligations by the Issuer in anticipation of the closing of the transactions contemplated by this Offering Memorandum pursuant to the warehousing facility described herein). Accordingly, neither the Issuer nor the Co-Issuer has a performance history for a prospective investor to consider in making its decision to invest in the Offered Securities. The Offered Securities Are Not Guaranteed by the Co-Issuers, the Initial Purchaser, the Portfolio Manager, any Hedge Counterparty or the Trustee None of the Co-Issuers, the Initial Purchaser, the Portfolio Manager, any Hedge Counterparty or the Trustee or any affiliate thereof makes 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) to investors of ownership of the Offered Securities and no purchaser may rely on any such party for a determination of expected or projected success, profitability, return, performance result, effect, consequence or benefit (including legal, regulatory, tax, financial, accounting or otherwise) to such purchaser of ownership of the Offered Securities. Each purchaser of any Class of the Offered Securities (other than the Class A-2R Notes), by its acceptance thereof, will be deemed, and each purchaser of the Class A-2R Notes and the Certificated Subordinated Notes, by its acceptance thereof, will be required, to represent to the Issuer and the Initial Purchaser among other things, that such purchaser has consulted with its own legal, regulatory, tax, business, investment, financial, and accounting advisors regarding investment in the Offered Securities as such purchaser has deemed necessary and that the investment by such purchaser is within its powers and authority, is permissible under applicable laws governing such purchase, has been duly authorized by it and complies with applicable securities laws and other laws. Non-Compliance with Restrictions on Ownership of the Offered Securities and the United States Investment Company Act of 1940 Could Adversely Affect the Issuer Neither the Issuer nor the Co-Issuer has registered with the United States Securities and Exchange Commission ("SEC") as an investment company pursuant to the Investment Company Act, in reliance on an exception under Section 3(c)(7) of the Investment Company Act for investment companies (a) whose outstanding securities are beneficially owned only by "qualified purchasers" and "knowledgeable employees" and certain transferees thereof identified in Rules 3c-5 and 3c-6 under the Investment Company Act and (b) which do not make a public offering of their securities in the United States. If the SEC or a court of competent jurisdiction were to find that the Issuer or the Co-Issuer is required, but in violation of the Investment Company Act had failed, to register as an investment company, possible consequences include, but are not limited to, the following: (i) the SEC could apply to a district court to enjoin the violation; (ii) investors in the Issuer and the Co-Issuer could sue the Issuer 39 and the Co-Issuer and recover any damages caused by the violation; and (iii) any contract to which the Issuer and/or the Co-Issuer is party that is made in violation of the Investment Company Act or whose performance involves such violation would be unenforceable by any party to the contract unless a court were to find that under the circumstances enforcement would produce a more equitable result than nonenforcement and would not be inconsistent with the purposes of the Investment Company Act. In addition, such a finding would constitute an Event of Default under the Indenture. Should the Issuer or the Co-Issuer be subjected to any or all of the foregoing, the Issuer and the Co-Issuer would be materially and adversely affected. Book-Entry Holders Are Not Considered Holders Under the Indenture Holders of beneficial interests in any Offered Securities held in global form will not be considered holders of such Offered Securities under the Indenture. After payment of any interest, principal or other amount to DTC, neither the Issuer nor the Co-Issuer will have any responsibility or liability for the payment of such amount by DTC or to any holder of a beneficial interest in a Note or Composite Note. DTC or its nominee will be the sole holder for any Offered Securities held in global form, and therefore each person owning a beneficial interest in an Offered Security held in global form must rely on the procedures of DTC (and if such person is not a participant in DTC, on the procedures of the participant through which such person holds such interest) with respect to the exercise of any rights of a holder of a Note or Composite Note under the Indenture. Relating to the Portfolio Manager Performance History of the Principals of the Portfolio Manager May Not Be Indicative of Future Results The past performance of the principals of the Portfolio Manager in other portfolios or investment vehicles may not be indicative of the results that the Portfolio Manager may be able to achieve with the Collateral Obligations. Similarly, the past performance of the principals of the Portfolio Manager over a particular period may not necessarily be indicative of the results that may be expected in future periods. Furthermore, the nature of, and risks associated with, the Issuer's investments may differ substantially from those investments and strategies undertaken historically by the principals of the Portfolio Manager. There can be no assurance that the Issuer's investments will perform as well as past investments of such principals, that the Issuer will be able to avoid losses or that the Issuer will be able to make investments similar to the past investments managed by the principals or any other person described herein. In addition, such past investments may have been made utilizing a leveraged capital structure, an asset mix and fee arrangements that are different from the anticipated capital structure, asset mix and fee arrangements of the Issuer. Moreover, because the investment criteria that govern investments in the Issuer's portfolio will not govern the principals' investments and investment strategies generally, such investments conducted in accordance with such criteria, and the results they yield, are not directly comparable with, and may differ substantially from other investments undertaken by the principals of the Portfolio Manager. The Contingent Management Fee and the Structuring Fee May Create Different Incentives for the Portfolio Manager The existence of the Contingent Management Fee payable to the Portfolio Manager may create an incentive for the Portfolio Manager to approve or cause the Issuer to make investments in more speculative Collateral Obligations than it would otherwise make in the absence of such performance40 based compensation. The Portfolio Manager will also receive the Structuring Fee on the Closing Date from the proceeds of the Offered Securities. The Issuer Will Depend on the Managerial Expertise Available to the Portfolio Manager and its Key Personnel The performance of the Issuer's portfolio depends heavily on the skills of the Portfolio Manager in analyzing, selecting and managing the Collateral Obligations. As a result, the Co-Issuers will be highly dependent on the financial and managerial experience of certain investment professionals associated with the Portfolio Manager, none of whom is under any contractual obligation to the Issuer to continue to be associated with the Portfolio Manager for the term of this transaction. The loss of one or more of these individuals could have a material adverse effect on the performance of the Co-Issuers. Furthermore, the Portfolio Manager has informed the Issuer that these investment professionals may also be actively involved from time to time in other investment activities and will not be able to devote all of their time to the Issuer's business and affairs. In addition, individuals not currently associated with the Portfolio Manager may become associated with the Portfolio Manager and the performance of the Collateral Obligations may also depend on the financial and managerial experience of such individuals. Moreover, the Portfolio Management Agreement may be terminated under certain circumstances, including, without limitation, the discontinuance of active involvement in the affairs of the Portfolio Manager by certain named key personnel. In accordance with the Portfolio Management Agreement, the Issuer will remove the Portfolio Manager if directed to by the holders of a majority of the aggregate outstanding principal amount of the Subordinated Notes in the event Joyce C. DeLucca no longer has primary responsibility for managing the Assets and the Portfolio Manager does not provide a replacement portfolio manager acceptable to the holders of a majority of the aggregate outstanding principal amount of the Subordinated Notes (excluding any Subordinated Notes owned by the Portfolio Manager, its employees or any affiliate) as provided in the Portfolio Management Agreement. See "The Portfolio Management Agreement" and "The Portfolio Manager." Relating to the Collateral Obligations Below Investment-Grade Assets Involve Particular Risks The Assets will consist primarily of non-investment grade loans or interests in non-investment grade loans and high-yield debt securities, which are subject to liquidity, market value, credit, interest rate, reinvestment and certain other risks. It is anticipated that the Assets generally will be subject to greater risks than investment grade corporate obligations. These risks could be exacerbated to the extent that the portfolio is concentrated in one or more particular types of Collateral Obligations. Prices of the Assets may be volatile, and will generally fluctuate due to a variety of factors that are inherently difficult to predict, including but not limited to changes in interest rates, prevailing credit spreads, general economic conditions, financial market conditions, domestic and international economic or political events, developments or trends in any particular industry, and the financial condition of the obligors of the Assets. Additionally, loans and interests in loans have significant liquidity and market value risks since they are not generally traded in organized exchange markets but are traded by banks and other institutional investors engaged in loan syndications. Because loans are privately syndicated and loan agreements are privately negotiated and customized, loans are not purchased or sold as easily as publicly traded securities. In addition, historically the trading volume in the loan market has been small relative to the high-yield debt securities market. 41 The market for high-yield debt securities, in particular, has experienced periods of volatility and reduced liquidity. High-yield debt securities are generally unsecured, may be subordinated to other obligations of the issuer and generally have greater credit, insolvency and liquidity risk than is typically associated with investment grade obligations. Depending upon market conditions, there may be a very limited market for high-yield debt securities. High-yield debt securities are often issued in connection with leveraged acquisitions or recapitalizations in which the issuers incur a substantially higher amount of indebtedness than the level at which they had previously operated. The lower rating of high-yield debt securities reflects a greater possibility that adverse changes in the financial condition of the obligor or general economic conditions (including, for example, a substantial period of rising interest rates or declining earnings or disruptions in the financial markets) or both may impair the ability of the obligor to make payments of principal and interest. High-yield debt securities and leveraged loans have historically experienced greater default rates than has been the case for investment grade securities. There can be no assurance as to the levels of defaults and/or recoveries that may be experienced on the Collateral Obligations. A non-investment grade loan or debt obligation or an interest in a non-investment grade loan is generally considered speculative in nature and may become a Defaulted Obligation for a variety of reasons. Upon any Collateral Obligation becoming a Defaulted Obligation, such Defaulted Obligation may become subject to either substantial workout negotiations or restructuring, which may entail, among other things, a substantial reduction in the interest rate, a substantial write-down of principal, and a substantial change in the terms, conditions and covenants with respect to such Defaulted Obligation. In addition, such negotiations or restructuring may be quite extensive and protracted over time, and therefore may result in substantial uncertainty with respect to the ultimate recovery on such Defaulted Obligation. The liquidity for Defaulted Obligations may be limited, and to the extent that Defaulted Obligations are sold, it is highly unlikely that the proceeds from such sale will be equal to the amount of unpaid principal and interest thereon. Furthermore, there can be no assurance that the ultimate recovery on any Defaulted Obligation will be at least equal to either the minimum recovery rate assumed by either Rating Agency in rating the Senior Notes and the Composite Notes or any recovery rate used in connection with any analysis of the Offered Securities that may have been prepared by the Initial Purchaser for or at the direction of holders of any Offered Securities. There is Limited Disclosure About the Collateral Obligations in this Offering Memorandum A substantial portion of the initial portfolio of Collateral Obligations to be acquired before the end of the Ramp-Up Period has been identified by the Portfolio Manager but, for reasons of confidentiality, is not identified in this Offering Memorandum. Investors that regard the identity of the portfolio in whole or in part necessary or desirable for their investment decision need to consider the availability of that information other than through this Offering Memorandum. The Issuer and the Portfolio Manager will not be required to provide the holders of the Offered Securities or the Trustee with financial or other information (which may include material non-public information) it receives pursuant to the Collateral Obligations and related documents. The Portfolio Manager also will not disclose to any of these parties the contents of any notice it receives pursuant to the Collateral Obligations or related documents. In particular, the Portfolio Manager will not have any obligation to keep any of these parties informed as to matters arising in relation to any Collateral Obligations, except with respect to: (i) the receipt or non-receipt, on an aggregate basis, of principal, interest, or other amounts of collections or recoveries; (ii) the cancellation of any Collateral Obligations; (iii) default amounts in respect of the Collateral Obligations; and (iv) certain other information required to be reported under the Portfolio Management Agreement and the Indenture. 42 The holders of the Offered Securities and the Trustee will not have any right to inspect any records relating to the Collateral Obligations, and the Portfolio Manager will not be obligated to disclose any further information or evidence regarding the existence or terms of, or the identity of any obligor on, any Collateral Obligations, unless specifically required by the Portfolio Management Agreement. Furthermore, the Portfolio Manager and the Trustee may demand that any persons requesting that information execute confidentiality agreements before being provided with the information. Lender Liability Considerations and Equitable Subordination Can Affect the Issuer's Rights with Respect to Collateral Obligations A number of judicial decisions have upheld judgments of borrowers against lending institutions on the basis of various evolving legal theories, collectively termed "lender liability." Generally, lender liability is founded on the premise that a lender has violated a duty (whether implied or contractual) of good faith, commercial reasonableness and fair dealing, or a similar duty owed to the borrower or has assumed an excessive degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. Because of the nature of the Assets, the Issuer may be subject to allegations of lender liability. In addition, under common law principles that in some cases form the basis for lender liability claims, if a lender or bondholder (a) intentionally takes an action that results in the undercapitalization of a borrower to the detriment of other creditors of such borrower, (b) engages in other inequitable conduct to the detriment of such other creditors, (c) engages in fraud with respect to, or makes misrepresentations to, such other creditors or (d) uses its influence as a stockholder to dominate or control a borrower to the detriment of other creditors of such borrower, a court may elect to subordinate the claim of the offending lender or bondholder to the claims of the disadvantaged creditor or creditors, a remedy called "equitable subordination." Because of the nature of the Assets, the Assets may be subject to claims of equitable subordination. Because affiliates of, or persons related to, the Portfolio Manager may hold equity or other interests in obligors of Collateral Obligations, the Issuer could be exposed to claims for equitable subordination or lender liability or both based on such equity or other holdings. The preceding discussion is based upon principles of United States federal and state laws. Insofar as Collateral Obligations that are obligations of non-United States obligors are concerned, the laws of certain foreign jurisdictions may impose liability upon lenders or bondholders under factual circumstances similar to those described above, with consequences that may or may not be analogous to those described above under United States federal and state laws. Loan Prepayments May Affect the Ability of the Issuer to Invest and Reinvest Available Funds in Appropriate Assets Loans are generally prepayable in whole or in part at any time at the option of the obligor thereof at par plus accrued unpaid interest thereon. Prepayments on loans may be caused by a variety of factors which are often difficult to predict. Consequently, there exists a risk that loans purchased at a price greater than par may experience a capital loss as a result of such a prepayment. In addition, principal proceeds received upon such a prepayment are subject to reinvestment risk during the Reinvestment Period. Any inability of the Issuer to reinvest payments or other proceeds in Assets with comparable interest rates that satisfy the Investment Criteria specified herein may adversely affect the timing and amount of payments received by the holders of Offered Securities and the yield to maturity of the Notes and the distributions on the Subordinated Notes. There is no assurance that the Issuer will be able to 43 reinvest proceeds in assets with comparable interest rates that satisfy the Investment Criteria or (if it is able to make such reinvestments) as to the length of any delays before such investments are made. The Issuer May Not Be Able to Acquire Collateral Obligations That Satisfy the Investment Criteria A portion of the initial Collateral Obligations is expected to be purchased after the Closing Date as described herein. The ability of the Issuer to acquire an initial portfolio of Collateral Obligations that satisfies the Investment Criteria at the projected prices, ratings, rates of interest and any other applicable characteristics will be subject to market conditions and availability of such Collateral Obligations. Any inability of the Issuer to acquire Collateral Obligations that satisfy the Investment Criteria specified herein may adversely affect the timing and amount of payments received by the holders of Offered Securities and the yield to maturity of the Senior Notes and the distributions on the Subordinated Notes. There is no assurance that the Issuer will be able to acquire Collateral Obligations that satisfy the Investment Criteria. Investing in Loans Involves Particular Risks The Issuer may acquire interests in loans either directly (by way of assignment from the selling institution) or indirectly (by purchasing a Participation Interest from the selling institution or through the acquisition of Synthetic Securities). As described in more detail below, holders of Participation Interests and Synthetic Securities are subject to additional risks not applicable to a holder of a direct interest in a loan. Participations by the Issuer in a selling institution's portion of a loan typically result in a contractual relationship only with such selling institution, not with the borrower. In the case of a Participation Interest, the Issuer will generally have the right to receive payments of principal, interest and any fees to which it is entitled only from the institution selling the participation and only upon receipt by such selling institution of such payments from the borrower. By holding a Participation Interest in a loan, the Issuer generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor any rights of set off against the borrower, and the Issuer may not directly benefit from the collateral supporting the loan in which it has purchased the participation. As a result, the Issuer will assume the credit risk of both the borrower and the institution selling the participation, which will remain the legal owner of record of the applicable loan. In the event of the insolvency of the selling institution, the Issuer, by owning a Participation Interest, may be treated as a general unsecured creditor of the selling institution, and may not benefit from any set off between the selling institution and the borrower. In addition, the Issuer may purchase a participation from a selling institution that does not itself retain any portion of the applicable loan and, therefore, may have limited interest in monitoring the terms of the loan agreement and the continuing creditworthiness of the borrower. When the Issuer holds a Participation Interest in a loan it will not have the right to vote under the applicable loan agreement with respect to every matter that arises thereunder, and it is expected that each selling institution will reserve the right to administer the loan sold by it as it sees fit and to amend the documentation evidencing such loan in all respects. Selling institutions voting in connection with such matters may have interests different from those of the Issuer and may fail to consider the interests of the Issuer in connection with their votes. Certain of the loans or Participation Interests may be governed by the law of a jurisdiction other than a United States jurisdiction. The Issuer is unable to provide any information with respect to the risks associated with purchasing a loan or a Participation Interest under an agreement governed by the laws of a jurisdiction other than a United States jurisdiction, including characterization under such laws of such Participation Interest or sub-Participation Interest in the event of the insolvency of the institution from 44 whom the Issuer purchases such Participation Interest or sub-Participation Interest or the insolvency of the institution from whom the grantor of the sub-Participation Interest purchased its Participation Interest. The purchaser of an assignment of an interest in a loan typically succeeds to all the rights and obligations of the assigning selling institution and becomes a lender under the loan agreement with respect to that loan. As a purchaser of an assignment, the Issuer generally will have the same voting rights as other lenders under the applicable loan agreement, including the right to vote to waive enforcement of breaches of covenants or to enforce compliance by the borrower with the terms of the loan agreement, and the right to set off claims against the borrower and to have recourse to collateral supporting the loan. Assignments are, however, arranged through private negotiations between assignees and assignors, and in certain cases the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than, those held by the assigning selling institution. Assignments and participations are sold strictly without recourse to the selling institutions, and the selling institutions will generally make no representations or warranties about the underlying loan, the borrowers, the documentation of the loans or any collateral securing the loans. In addition, the Issuer will be bound by provisions of the underlying loan agreements, if any, that require the preservation of the confidentiality of information provided by the borrower. Because of certain factors including confidentiality provisions, the unique and customized nature of the loan agreement, and the private syndication of the loan, loans are not purchased or sold as easily as are publicly traded securities. Investing in Structured Finance Obligations Involves Particular Risks A portion of the Collateral Obligations may consist of Structured Finance Obligations. Structured Finance Obligations may present risks similar to those of the other types of Collateral Obligations in which the Issuer may invest and, in fact, the risks may be of greater significance in the case of Structured Finance Obligations. Moreover, investing in Structured Finance Obligations may entail a variety of unique risks. Among other risks, Structured Finance Obligations may be subject to prepayment risk, credit risk, liquidity risk, market risk, structural risk, legal risk and interest rate risk (which may be exacerbated if the interest rate payable on a Structured Finance Obligation changes based on multiples of changes in interest rates or inversely to changes in interest rates). In addition, certain Structured Finance Obligations (particularly subordinated collateralized bond obligations) may provide that non-payment of interest is not an event of default in certain circumstances and the holders of the securities will therefore not have available to them any associated default remedies. During the period of non-payment, unpaid interest will generally be capitalized and added to the outstanding principal balance of the related security. Furthermore, the performance of a Structured Finance Obligation will be affected by a variety of factors, including its priority in the capital structure of its issuer, the availability of any credit enhancement, the level and timing of payments and recoveries on and the characteristics of the underlying receivables, loans, or other assets that are being securitized, bankruptcy remoteness of those assets from the originator or transferor, the adequacy of and ability to realize on any related collateral, and the skill of the manager of the Structured Finance Obligation in managing securitized assets. The price of a Structured Finance Obligation, if required to be sold, may be subject to certain market and liquidity risks for securities of its type at the time of sale. In addition, Structured Finance Obligations may involve initial and ongoing expenses above the costs associated with the related direct investments. Investing in Synthetic Securities Involves Particular Risks A portion of the Assets may consist of Synthetic Securities the Reference Obligations of which may be leveraged loans, high-yield debt securities or similar securities. Investments in such types of assets through the purchase of Synthetic Securities present risks in addition to those resulting from direct 45 purchases of such Collateral Obligations. With respect to each Synthetic Security, the Issuer will usually have a contractual relationship only with the counterparty of such Synthetic Security, and not the reference obligor on the Reference Obligation. The Issuer generally will have no right directly to enforce compliance by the reference obligor with the terms of the Reference Obligation nor any rights of set-off against the reference obligor, may be subject to set-off rights exercised by the reference obligor against the counterparty or another person or entity, and generally will not have any voting or other contractual rights of ownership with respect to the Reference Obligation. The Issuer will not directly benefit from any collateral supporting the Reference Obligation and will not have the benefit of the remedies that would normally be available to a holder of such Reference Obligation. In addition, in the event of the insolvency of the counterparty, the Issuer will be treated as a general creditor of such counterparty, and will not have any claim with respect to the Reference Obligation. Consequently, the Issuer will be subject to the credit risk of the counterparty as well as that of the reference obligor. As a result, concentrations of Synthetic Securities entered into with any one counterparty will subject the Offered Securities to an additional degree of risk with respect to defaults by such counterparty as well as by the reference obligor. Moody's or S&P may downgrade any Class of Senior Notes or Composite Notes then rated by it if a counterparty to a material portion of the Synthetic Securities held by the Issuer has been downgraded by Moody's or S&P, respectively, below the then-current rating of such Senior Notes. Before any Synthetic Security (other than a Form Approved Synthetic Security) may be included in the Assets, each Rating Agency must confirm prior to the date of such purchase that such Synthetic Security may be included as a Collateral Obligation without causing the reduction or withdrawal of its then-current rating, if any, of any Class of Senior Notes. Additionally, while the Issuer expects that the returns on a Synthetic Security will generally reflect those of the related Reference Obligation, as a result of the terms of the Synthetic Security and the assumption of the credit risk of the Synthetic Security Counterparty, a Synthetic Security may have a different expected return, a different (and potentially greater) probability of default and expected loss characteristics following a default, and a different expected recovery following default. Additionally, when compared to the Reference Obligation, the terms of a Synthetic Security may provide for different maturities, payment dates, interest rates, interest rate references, credit exposures, or other credit or noncredit related characteristics. Upon maturity, default, acceleration or any other termination (including a put or call) other than pursuant to a credit event (as defined therein) of the Synthetic Security, the terms of the Synthetic Security may permit or require the issuer of such Synthetic Security to satisfy its obligations under the Synthetic Security by delivering to the Issuer securities other than the Reference Obligation or an amount different than the then current market value of the Reference Obligation. The Indenture also permits the Issuer, subject to certain limitations, to purchase credit protection through Synthetic Securities that are Short Positions. Investing in Short Positions involves certain risks not generally implicated by acquiring other Synthetic Securities, as described in the succeeding two paragraphs. International Investing Up to 20% of the Collateral Principal Amount may consist of obligations of, or securities issued by, obligors Domiciled in countries other than the United States, subject to certain criteria described herein. Investing outside the United States may involve greater risks than investing in the United States. These risks include: (i) less publicly available information, (ii) varying levels of governmental regulation and supervision and (iii) the difficulty of enforcing legal rights in a foreign jurisdiction and uncertainties as to the status, interpretation and application of laws. Moreover, foreign companies are generally not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to United States companies. 46 Foreign markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have failed to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in periods when assets of the Issuer are uninvested and no return is earned thereon. The inability of the Issuer to make intended Collateral Obligation purchases due to settlement problems or the risk of intermediary counterparty failures could cause the Issuer to miss investment opportunities. The inability to dispose of a Collateral Obligation due to settlement problems could result either in losses to the Issuer due to subsequent declines in the value of such Collateral Obligation or, if the Issuer has entered into a contract to sell the security, could result in possible liability to the purchaser. Transaction costs of buying and selling foreign securities, including brokerage, tax and custody costs, also are generally higher than those involved in domestic transactions. Furthermore, foreign financial markets, while generally growing in volume, have, for the most part, substantially less volume than U.S. markets, and securities of many foreign companies are less liquid and their prices more volatile than securities of comparable domestic companies. The economies of individual non-United States countries also may differ favorably or unfavorably from the United States economy in such respects as growth of gross domestic product, rate of inflation, volatility of currency exchange rates, depreciation, capital reinvestment, resources selfsufficiency and balance of payments position. The Issuer Has the Right to Acquire Short Positions, which Involves Counterparty Risks and Other Risks The Issuer may from time to time acquire Short Positions pursuant to which the applicable counterparty assumes credit risk in respect of a specified Reference Obligation (including where the Issuer has no exposure to such Reference Obligation) in the event of the occurrence of specified credit events in respect thereof, in return for payment of a periodic payment by the Issuer to such counterparty. The acquisition by the Issuer of a Short Position will be subject to (i) satisfaction of the Global Rating Agency Condition, (ii) the premiums thereunder being payable on Payment Dates only and (iii) compliance with the Minimum Floating Spread Test, the Coverage Tests, the S&P CDO Monitor Test and the Maximum Moody's Rating Factor Test. No assurance can be given that the acquisition of such Short Positions will result in any return to the Issuer and the periodic premiums payable by the Issuer under Short Positions will reduce the amount of proceeds that would otherwise be available to invest in other Collateral Obligations or make payments in respect of the Notes. The Issuer is required to terminate Short Positions if there would be insufficient Interest Proceeds to pay interest on the Class A Notes or the Class B Notes on any Payment Date and the termination payment received by the Issuer in connection with such a termination would be sufficient to pay such interest. This requirement may require the Portfolio Manager to terminate Short Positions at a time that it would not otherwise elect to do so. If any Short Position is sold, assigned or terminated, the Issuer is required to make a termination payment and the Overcollateralization Ratio Threshold Test was not satisfied at the time of sale, assignment or termination, Interest Proceeds that would otherwise have been paid to the holders of the Subordinated Notes will be transferred to the Principal Collection Subaccount to be applied as Principal Proceeds. See "Security for the Senior Notes—Short Positions." 47 The Issuer Has the Right to Engage in Securities Lending, which Involves Counterparty Risks and Other Risks The Collateral Obligations may be loaned to banks, broker-dealers or other financial institutions that have, or are guaranteed by entities that have, the required ratings set forth under “Security for the Senior Notes—Securities Lending.” Such loans will be required to be secured by cash or direct registered debt obligations of the United States that have a maturity of five years or less, in an amount equal to at least 102% of the market value of the loaned Collateral Obligations. However, in the event that a borrower of loaned Collateral Obligations defaults in its obligation to return such loaned Collateral Obligations, whether because of insolvency or otherwise, the Issuer could experience delays and costs in gaining access to the collateral posted by the borrower (and in extreme circumstances could be restricted from selling the collateral). Additionally, in such an event the holders of the Notes could suffer a loss to the extent the realized value of the cash or securities securing the obligation of the borrower to return the loaned Collateral Obligation (less expenses) is less than the amount required to purchase such Collateral Obligation in the open market. This shortfall could be due to, among other things, discrepancies between the mark-to-market and actual transaction prices for the loaned Collateral Obligations arising from limited liquidity or availability of the loaned Collateral Obligations, and in extreme circumstances, the loaned Collateral Obligations being unavailable at any price. One or both of the Rating Agencies may downgrade one or more Classes of the Senior Notes or Composite Notes if a borrower of a Collateral Obligation, or, if applicable, the entity guaranteeing the performance of such borrower, has been downgraded by such Rating Agency such that the Issuer is no longer in compliance with the requirements relating to credit ratings of Securities Lending Counterparties. Generally, the Issuer will have no right to directly enforce compliance by the obligor of a loaned Collateral Obligation with the terms of such Collateral Obligation, will not have any voting or other contractual rights of ownership with respect to such Collateral Obligation and will not have the benefit of the remedies that would normally be available to a holder of such Collateral Obligation. One or more of the Initial Purchaser and/or one or more of its affiliates may borrow Collateral Obligations, which may create certain conflicts of interest. See "— Relating to Certain Conflicts of Interest." Insolvency Considerations With Respect to Issuers of Collateral Obligations May Affect the Issuer's Rights Various laws enacted for the protection of creditors may apply to the Collateral Obligations. The information in this and the following paragraph is applicable with respect to U.S. issuers. Insolvency considerations will differ with respect to non-U.S. Issuers. If a court in a lawsuit brought by an unpaid creditor or representative of creditors of an issuer of a Collateral Obligation, such as a trustee in bankruptcy, were to find that the issuer did not receive fair consideration or reasonably equivalent value for incurring the indebtedness constituting such Collateral Obligation and, after giving effect to such indebtedness, the issuer (i) was insolvent, (ii) was engaged in a business for which the remaining assets of such issuer constituted unreasonably small capital or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature, such court could determine to invalidate, in whole or in part, such indebtedness as a fraudulent conveyance, to subordinate such indebtedness to existing or future creditors of the issuer or to recover amounts previously paid by the issuer in satisfaction of such indebtedness. The measure of insolvency for purposes of the foregoing will vary. Generally, an issuer would be considered insolvent at a particular time if the sum of its debts were then greater than all of its property at a fair valuation or if the present fair salable value of its assets were then less than the amount that would be required to pay its probable liabilities on its existing debts as they became absolute and matured. There can be no assurance as to what standard a court would apply in order to determine whether the issuer was "insolvent" after giving effect to the incurrence of the indebtedness constituting the Collateral Obligations or that, regardless of the method of valuation, a court would not determine that 48 the issuer was "insolvent" upon giving effect to such incurrence. In addition, in the event of the insolvency of an issuer of a Collateral Obligation, payments made on such Collateral Obligations could be subject to avoidance as a "preference" if made within a certain period of time (which may be as long as one year under Federal bankruptcy law or even longer under state laws) before insolvency. In general, if payments on Collateral Obligations are avoidable, whether as fraudulent conveyances or preferences, such payments can be recaptured either from the initial recipient (such as the Issuer) or from subsequent transferees of such payments (such as the holders of the Offered Securities). To the extent that any such payments are recaptured from the Issuer, the resulting loss will be borne by the holders of the Offered Securities in inverse order of seniority as described above under "—The Subordination of the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Subordinated Notes Will Affect Their Right to Payment." However, a court in a bankruptcy or insolvency proceeding would be able to direct the recapture of any such payment from a holder of Offered Securities only to the extent that such court has jurisdiction over such holder or its assets. Moreover, it is likely that avoidable payments could not be recaptured directly from a holder that has given value in exchange for its Offered Security, in good faith and without knowledge that the payments were avoidable. Nevertheless, since there is no judicial precedent relating to a structured transaction such as the Offered Securities, there can be no assurance that a holder of Offered Securities will be able to avoid recapture on this or any other basis. A Substantial Amount of Collateral Obligations Was Acquired Before the Closing Date, and the Terms of the Acquisition May Adversely Affect the Issuer A majority of the Collateral Obligations to be held by the Issuer as of the Closing Date will be purchased prior to the Closing Date in coordination with the Portfolio Manager at terms prevailing in the market at the time of purchase. Wachovia Securities and/or its affiliates have provided financing to the Issuer in order to finance such purchases, which financing arrangements must be terminated in all respects on the Closing Date and all amounts owing to Wachovia Securities and/or its affiliates in connection with such financing arrangements must be repaid by the Closing Date from the proceeds of the offering of the Notes. In connection with the termination of the financing arrangements on the Closing Date, the Issuer has agreed to pay Wachovia Securities and/or its affiliates an amount approximately equal to the purchase price of the Collateral Obligations. To the extent the marked value of the Collateral Obligations have declined since the date on which they were purchased (but are still eligible for purchase by the Issuer), it is possible that the Issuer will pay Wachovia Securities and/or its affiliates an amount that exceeds the market value of the Collateral Obligations. Such excess will reduce the proceeds of the offering of the Notes which might otherwise be used to purchase Collateral Obligations. Investors in the Notes will be assuming the risk of market value and credit quality changes in the Collateral Obligations from the date such Collateral Obligations are acquired until the Closing Date but will not receive the benefit of interest earned on the Collateral Obligations during such period. Relating to Certain Conflicts of Interest In General, the Transaction Will Involve Various Potential and Actual Conflicts of Interest Various potential and actual conflicts of interest may arise from the overall investment activity of the Portfolio Manager, its clients and its affiliates and the Initial Purchaser and its affiliates. The following briefly summarizes some of these conflicts, but is not intended to be an exhaustive list of all such conflicts. 49 The Issuer Will Be Subject to Various Conflicts of Interest Involving the Portfolio Manager The Portfolio Manager, its partners, its members, its managers, its employees, its affiliates and its clients may buy Offered Securities from which the Portfolio Manager or such other persons may derive revenues and profits in addition to the fees disclosed herein. The Portfolio Manager, its partners, its members, its managers, its employees, its affiliates and/or its clients have invested and may continue to invest in debt obligations that would also be appropriate as Collateral Obligations. The investment policies, fee arrangements and other circumstances applicable to such other parties may vary from those applicable to the Issuer. The Portfolio Manager, its clients, its employees and its affiliates may also have or establish relationships with companies whose debt obligations are Collateral Obligations and may now or in the future own or seek to acquire equity securities or debt obligations issued by issuers of Collateral Obligations, and such debt obligations may have interests different from or adverse to the securities that are Collateral Obligations. The Portfolio Manager currently serves as investment manager for four CDO vehicles, Kingsland I, Kingsland II, Kingsland III and Kingsland IV and the Portfolio Manager or its affiliates may serve as investment managers of other CDOs and other investment vehicles. In addition, the Portfolio Manager, its clients, its employees or its affiliates may serve as a general partner and/or manager of limited partnerships or other entities organized to issue notes or certificates, similar to the Offered Securities, which are secured by high-yield debt securities, loans and other investments, or may manage third party accounts which invest in high-yield debt securities, loans and other investments. The Portfolio Manager and/or its affiliates may often be seeking simultaneously to purchase investments for the Issuer, such affiliates and similar entities or other investment accounts for which the Portfolio Manager or an affiliate serves as investment manager or for its clients or affiliates, and the Portfolio Manager will have the discretion to apportion such investments among such entities. The Portfolio Manager cannot assure equal treatment across its investment clients. The Portfolio Manager may also provide investment banking services or other advisory services for a customary fee to issuers whose debt obligations or other securities are Collateral Obligations and neither the holders of Offered Securities nor the Co-Issuers shall have any right to such fees. In connection with the foregoing activities the Portfolio Manager and its affiliates may from time to time come into possession of material nonpublic information that limits the ability of the Portfolio Manager to effect a transaction for the Issuer, and the Issuer's investments may be constrained as a consequence of the Portfolio Manager's inability to use such information for advisory purposes or otherwise to effect transactions that otherwise may have been initiated on behalf of its clients, including the Issuer. See "The Portfolio Manager." The Portfolio Manager and its affiliates may from time to time incur expenses on behalf of the Issuer and its or their other clients or accounts. There can be no assurance that such expenses will in all cases be allocated ratably. The Portfolio Manager and its affiliates may have economic interests in or other relationships with issuers in whose obligations or securities the Issuer may invest. In particular, such persons may make and/or hold an investment in an issuer's securities that may be pari passu, senior or junior in ranking to an investment in such issuer's securities made and/or held by the Issuer or in which partners, security holders, officers, directors, agents or employees of such persons serve on boards of directors or otherwise have ongoing relationships. Each of such ownership and other relationships may result in securities laws restrictions on transactions in such securities by the Issuer and otherwise create conflicts of interest for the Issuer. In such instances, the Portfolio Manager and its affiliates may in their discretion make investment recommendations and decisions that may be the same as or different from those made with respect to the Issuer's investments. 50 On the Closing Date, one or more affiliates and/or employees of the Portfolio Manager may purchase a portion of the Subordinated Notes. Such Subordinated Notes may be sold by such party or parties to related and unrelated parties at any time after the Closing Date. Subordinated Notes held by the Portfolio Manager and its affiliates will have no voting rights with respect to any vote in connection with the removal or replacement of the Portfolio Manager or the appointment of a successor portfolio manager and will be deemed not to be outstanding in connection with any such vote. However, Subordinated Notes held by the Portfolio Manager, its affiliates or employees will have voting rights with respect to other matters as to which the holders of Subordinated Notes are entitled to vote. See "Description of the Offered Securities—The Indenture and the Senior Notes—Optional Redemption." The Portfolio Manager may from time to time cause the Issuer to acquire Assets from or sell Assets to the Portfolio Manager as principal, any affiliate of the Portfolio Manager or accounts or portfolios for which the Portfolio Manager or its affiliate serves as investment advisor. However, the Portfolio Management Agreement provides that the Portfolio Manager shall not direct the Trustee (a) to acquire an obligation to be included in the Assets from the Portfolio Manager as principal, any affiliate of the Portfolio Manager or any account or portfolio for which the Portfolio Manager or any of its affiliates serves as investment advisor or (b) to sell an obligation to the Portfolio Manager as principal, any affiliate of the Portfolio Manager or any account or portfolio for which the Portfolio Manager or any of its affiliates serves as investment advisor, unless (i) the terms and conditions thereof are no less favorable to the Issuer as the terms it would obtain in a comparable arm's length transaction with a non-affiliate, (ii) the transactions are effected in accordance with all applicable laws (including, without limitation, the Investment Advisers Act of 1940, as amended) and (iii) the transactions are exempt from the prohibited transaction rules of ERISA and the Code. The principals of the Portfolio Manager may in the future organize and manage one or more entities with objectives similar to or different from those of the Issuer. The Issuer Will Be Subject to Various Conflicts of Interest Involving the Initial Purchaser The Initial Purchaser or one or more of its affiliates may retain a portion of the Offered Securities, purchase the Offered Securities for their own account, or sell the Offered Securities to one of their affiliates. Wachovia Bank, National Association ("Wachovia Bank") entered into a warehousing agreement with the Issuer prior to the Closing Date that was used by the Issuer to finance the purchase of Collateral Obligations. Wachovia Bank is entitled to repayment of amounts under the warehousing agreement on the Closing Date. Moreover, it is expected that Wachovia Securities and/or its affiliates (collectively, "Wachovia") may have placed or underwritten certain of the Collateral Obligations at original issuance, will own equity or other securities of issuers of or obligors on Collateral Obligations and will have acted as a broker or provided investment banking services or advisory or commercial banking and other services to issuers of or obligors on Collateral Obligations and the Portfolio Manager and its affiliates. From time to time, the Portfolio Manager on behalf of the Issuer may purchase or sell Collateral Obligations from, to or through Wachovia. These and other future investments and activities may give rise to interests that conflict with those of the Issuer. The Issuer may invest in the securities of Wachovia or its affiliates or in securities in which Wachovia or its affiliates has an equity or participation interest. The purchase, holding and sale of such investments by the Issuer may enhance the profitability of Wachovia's or its affiliate's own investments in such companies. In addition, an affiliate of the Initial Purchaser will act as Hedge Counterparty under the Initial Hedge Agreement and the Initial Purchaser and/or its affiliates may act as counterparty with respect to one or more Synthetic Securities or Securities Lending Agreements or additional Hedge 51 Agreements and may perform commercial or investment banking services for the Portfolio Manager or its affiliates. Prevention of Money Laundering and Terrorism The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended (the "USA PATRIOT Act"), signed into law on and effective as of October 26, 2001, requires that financial institutions, a term that includes banks, brokerdealers and investment companies, establish and maintain compliance programs to guard against money laundering activities. The USA PATRIOT Act requires the Secretary of the U.S. Treasury ("Treasury") to prescribe regulations in connection with anti-money laundering policies of financial institutions. The U.S. Federal Reserve Board, the Treasury and the SEC are currently studying what types of investment vehicles should be required to adopt anti-money laundering procedures, and it is unclear at this time whether such procedures will apply to pooled investment vehicles such as the Co-Issuers. Future rules and regulations regarding money laundering or proceeds of crime could regulate the Issuer or the CoIssuer. In addition, the Treasury Department has published proposed regulations that would require certain investment advisors to establish an anti-money laundering program. It is possible that there could be promulgated legislation or regulations that would require the Issuer, the Co-Issuer, the Initial Purchaser or other service providers to the Co-Issuers, in connection with the establishment of anti-money laundering procedures, to share information with governmental authorities with respect to investors in the Notes. Such legislation and/or regulations could require the Co-Issuers to implement additional restrictions on the transfer of the Notes. The Co-Issuers reserve the right to request such information as is necessary to verify the identity of investors in the Notes, and the source of the payment of subscription monies, or as is necessary to comply with any customer identification programs required by Financial Crimes Enforcement Network and/or the SEC or such information as may be required in order for the Administrator to discharge its obligations under the laws of the Cayman Islands (including pursuant to the Proceeds of Criminal Conduct Law (2005 Revision) (the "PCCL")). In the event of delay or failure by the applicant to produce any information required for verification purposes, an application for or transfer of the Notes and the subscription monies relating thereto may be refused. DESCRIPTION OF THE OFFERED SECURITIES The Indenture and the Senior Notes All of the Notes and the Composite Notes will be issued pursuant to the Indenture. However, only the Senior Notes (including the Components of the Composite Notes) will be secured obligations of the Issuer. The following summary describes certain provisions of the Senior Notes and the Indenture and, to a limited extent, the Subordinated Notes and the Composite Notes. The summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the Indenture. Additional information regarding the Subordinated Notes appears under "—The Subordinated Notes" and additional information regarding the Composite Notes appears under "—The Composite Notes." Status and Security The Senior Notes (other than the Class E Notes) will be limited recourse obligations of the CoIssuers and the Class E Notes will be limited recourse obligations of the Issuer, secured as described below, and will rank in priority with respect to each other as described herein. Under the terms of the Indenture, the Issuer will grant to the Trustee a security interest in the Assets to secure the Issuer's obligations under the Indenture and the Senior Notes. See "Security for the Senior Notes." 52 Payments of interest and principal on the Senior Notes will be made from the proceeds of the Assets, in accordance with the priorities described under "Summary of Terms—Priority of Payments" herein. The aggregate amount that will be available from the Assets for payment on the Senior Notes and of certain expenses of the Co-Issuers on any Payment Date will be (i) the sum of Interest Proceeds and Principal Proceeds for the period (a "Collection Period") commencing immediately following the prior Collection Period (or on the Closing Date, in the case of the Collection Period relating to the first Payment Date) and ending on the 10th day prior to such Payment Date or, in the case of (x) the final Collection Period preceding the latest Stated Maturity of any Class of Notes or (y) the final Collection Period preceding an Optional Redemption, ending on the day preceding such Stated Maturity or the redemption date, respectively, plus (ii) any payments received on or before such Payment Date on any Hedge Agreement. To the extent these amounts are insufficient to meet payments due in respect of the Senior Notes and expenses following liquidation of the Assets, the Co-Issuers will have no obligation to pay such deficiency. Interest The Senior Notes will bear stated interest from the Closing Date and such interest will be payable in arrears on each quarterly Payment Date (x) in the case of the Senior Notes other than the Class A-2R Notes, on the aggregate outstanding principal amount thereof on the first day of the related Interest Accrual Period (after giving effect to payments of principal thereof on such date) and (y) in the case of each Class A-2R Borrowing under the Class A-2R Notes, on the average daily balance of such Class A2R Borrowing during the related Interest Accrual Period. The period from and including the Closing Date to but excluding the first Payment Date (or, with respect to any Class A-2R Borrowing made under the Class A-2R Notes, the period from, and including, the date of such Class A-2R Borrowing to, but excluding, the earlier to occur of the Payment Date immediately following the Interest Accrual Period in which such Class A-2R Borrowing is made and the date on which such Class A-2R Borrowing is repaid in accordance with the Indenture), and each succeeding period from and including each Payment Date to but excluding the following Payment Date (or, with respect to any Class A-2R Borrowing made under the Class A-2R Notes, the date on which such Class A-2R Borrowing is repaid in accordance with the Indenture) until the principal of the Senior Notes is paid or made available for payment, is an "Interest Accrual Period." For purposes of determining any Interest Accrual Period, (a) in the case of Fixed Rate Notes, the Payment Date shall be assumed to be the 14th day of the relevant month (irrespective of whether such day is a Business Day) and (b) in the case of Floating Rate Notes, if any Payment Date is not a Business Day, then the Interest Accrual Period ending on such Payment Date shall be extended to but excluding the date on which payment is required to be made pursuant to an adjustment for legal holidays pursuant to the Indenture and the succeeding Interest Accrual Period shall begin on and include such date. The per annum stated interest rate payable on the Senior Notes of each Class (the "Interest Rate" for such Class) with respect to each Interest Accrual Period will be the rate indicated under "Summary of Terms—Principal Terms of the Offered Securities". As used herein, "Class" means, in the case of (x) the Senior Notes, all of the Senior Notes having the same Interest Rate, Stated Maturity and designation, (y) the Composite Notes, all of the Composite Notes and (z) the Subordinated Notes, all of the Subordinated Notes. So long as any more senior Class of Senior Notes is outstanding, to the extent that funds are not available on any Payment Date to pay the full amount of interest on the Class C Notes, the Class D Notes or the Class E Notes or if such interest is not paid in order to satisfy the Coverage Tests, such amounts ("Deferred Interest") will not be due and payable on such Payment Date, but will be deferred and added to the principal balance of such Classes and, thereafter, will bear interest at the Interest Rate for such 53 Classes until paid, and the failure to pay such Deferred Interest on such Payment Date will not be an Event of Default under the Indenture; provided, however, that any such Deferred Interest must, in any case, be paid no later than the earlier of the redemption date or Stated Maturity of the relevant Class of the Senior Notes. See "—The Indenture—Events of Default." Interest may be deferred on the Class C Notes as long as any Class A Note or Class B Note is outstanding, on the Class D Notes as long as any Class A Notes, Class B Notes or Class C Notes are outstanding and on the Class E Notes as long as any Class A Notes, Class B Notes, Class C Notes or Class D Notes are outstanding. If any interest due and payable in respect of any Class A Note or Class B Note is not punctually paid or duly provided for on the applicable Payment Date or at the applicable Stated Maturity and such default continues for five Business Days, an Event of Default will occur. To the extent lawful and enforceable, interest on such defaulted interest will accrue at a per annum rate equal to the Interest Rate applicable to such Notes from time to time in each case until paid. Interest on the Floating Rate Notes will be calculated on the basis of the actual number of days elapsed in the applicable Interest Accrual Period divided by 360. Interest on the Fixed Rate Notes will be calculated on the basis of a 360-day year of twelve 30-day months. The Issuer has initially appointed the Trustee as calculation agent (the "Calculation Agent") for purposes of determining LIBOR for each Interest Accrual Period. The Calculation Agent will determine LIBOR for each Interest Accrual Period on the second London Banking Day preceding the first day of each Interest Accrual Period (which first day, in the case of the first Interest Accrual Period in respect of a Class A-2R Borrowing, is the date of such Class A-2R Borrowing) (each, an "Interest Determination Date"); provided that, in the case of a Class A-2R Borrowing made on less than 2 London Banking Days notice, the Interest Determination Date will be the date of the related borrowing request. "LIBOR" for any Interest Accrual Period will equal (a) the rate appearing on the Reuters Screen for deposits with a term of three months; provided, that LIBOR for the first Interest Accrual Period will be determined by interpolating linearly between (i) the rate appearing on the Reuters Screen for deposits with a term of seven months and (ii) the rate appearing on the Reuters Screen for deposits with a term of eight months; provided, further, that LIBOR for the first Interest Accrual Period with respect to any Class A-2R Borrowing that is not made on a Payment Date will equal the rate appearing on the Reuters Screen with a term equal to the period from and including the date of such Class A-2R Borrowing to but excluding the next succeeding Payment Date or, if such period does not equal a period appearing on the Reuters Screen shall be determined by interpolating linearly between (i) the rate for the period appearing on the Reuters Screen that is closest to and greater than the length of such period and (ii) the rate for the period appearing on the Reuters Screen that is closest to and less than the length of such period or (b) if such rate is unavailable at the time LIBOR is to be determined, LIBOR shall be determined on the basis of the rates at which deposits in U.S. Dollars are offered by four major banks in the London market selected by the Calculation Agent (the "Reference Banks") at approximately 11:00 a.m., London time, on the Interest Determination Date to prime banks in the London interbank market for a period approximately equal to such period and an amount approximately equal to the amount of the applicable Class A-2R Borrowing or the aggregate outstanding principal amount of the Floating Rate Notes, as applicable. The Calculation Agent will request the principal London office of each Reference Bank to provide a quotation of its rate. If at least two such quotations are provided, LIBOR shall be the arithmetic mean of such quotations (rounded upward to the next higher 1/100). If fewer than two quotations are provided as requested, LIBOR with respect to such Interest Accrual Period will be the arithmetic mean of the rates quoted by three major banks in New York, New York selected by the Calculation Agent at approximately 11:00 a.m., New York Time, on such Interest Determination Date for loans in U.S. Dollars to leading European banks for a term approximately equal to such Interest Accrual Period and an amount 54 approximately equal to the amount of the applicable Class A-2R Borrowing or the aggregate outstanding principal amount of the Floating Rate Notes, as applicable. If the Calculation Agent is required but is unable to determine a rate in accordance with at least one of the procedures described above, LIBOR will be LIBOR as determined on the previous Interest Determination Date. "London Banking Day" means a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in London, England. "Reuters Screen" means the rates for deposits in dollars which appear on the Reuters Screen LIBOR 01 Page (or such other page that may replace that page on such service for the purpose of displaying comparable rates) as reported by Bloomberg Financial Markets Commodities News as of 11:00 a.m., London time, on the Interest Determination Date. As soon as possible after 11:00 a.m. London time on each Interest Determination Date, but in no event later than 11:00 a.m. London time on the London Banking Day immediately following each Interest Determination Date, the Calculation Agent will calculate the Interest Rate for each Class of Floating Rate Notes for the next Interest Accrual Period and the amount of interest payable in respect of each $100,000 principal amount of each Class of Floating Rate Notes (the "Note Interest Amount" with respect thereto) (in each case, rounded to the nearest cent, with half a cent being rounded upward) on the related Payment Date to be given to the Co-Issuers, the Trustee, the Paying Agent (as defined herein), Euroclear, Clearstream, the Portfolio Manager and, so long as any Notes are listed thereon, the Irish Stock Exchange. The Calculation Agent will also specify to the Co-Issuers the quotations upon which the Interest Rate for each Class of Floating Rate Notes are based, and in any event the Calculation Agent shall notify the CoIssuers before 5:00 p.m. (London time) on every Interest Determination Date that either: (i) it has determined or is in the process of determining the Interest Rate and Note Interest Amount for each Class of Floating Rate Notes or (ii) it has not determined and is not in the process of determining any such Interest Rate or Note Interest Amount, together with its reasons therefor. The Issuer will agree that for so long as any Senior Notes remain outstanding there will at all times be a Calculation Agent which shall not control, be controlled by or be under common control with the Issuer or its affiliates or the Portfolio Manager or its affiliates. The Calculation Agent may be removed by the Issuer or the Portfolio Manager, on behalf of the Issuer, at any time. If the Calculation Agent is unable or unwilling to act as such or is removed by the Issuer or the Portfolio Manager, on behalf of the Issuer, or if the Calculation Agent fails to determine any of the information required to be published by an announcement to the Companies Announcement Office (the “Announcement Office”) of the Irish Stock Exchange, the Issuer or the Portfolio Manager, on behalf of the Issuer, will be required to appoint promptly a replacement Calculation Agent which does not control and is not controlled by or under common control with the Issuer, the Portfolio Manager or their respective affiliates. In addition, for so long as any Offered Securities are listed on the Irish Stock Exchange and the guidelines of such exchange so require, notice of the appointment of any replacement Calculation Agent will be published with the Announcement Office of the Irish Stock Exchange, as promptly as practicable after such appointment. Principal The Senior Notes of each Class will mature at par on July 14, 2021 (the "Stated Maturity" for each Class of Senior Notes), unless previously redeemed or repaid prior thereto as described herein. During the Reinvestment Period, principal will not be payable on the Senior Notes except with respect to Deferred Interest, prepayments with respect to the Class A-2R Notes and in the limited circumstances described under "—Optional Redemption," "—Mandatory Redemption," "—Special Redemption," and 55 "Summary of Terms—Priority of Payments—Application of Principal Proceeds." After the Reinvestment Period, on each Payment Date Principal Proceeds will be payable on the Senior Notes in accordance with the priorities set forth under "Summary of Terms—Priority of Payments—Application of Principal Proceeds." At any time during which the Coverage Tests are not met, principal payments on the Senior Notes will be made as described under "—Mandatory Redemption." The average life of each class of Senior Notes is expected to be less than the number of years until the Stated Maturity of such Senior Notes. See "Risk Factors—Relating to the Offered Securities— The Weighted Average Lives of the Notes May Vary." Any payment of principal on a Class of Senior Notes will be made by the Trustee on a pro rata basis among the holders of such Class of Notes according to the respective unpaid principal amounts thereof outstanding immediately prior to such payment. Optional Redemption Optional Redemption of Notes by Liquidation of Assets. The Senior Notes are redeemable by the Co-Issuers or the Issuer, as the case may be, in whole but not in part, on any Payment Date after the end of the Non-Call Period at the applicable Redemption Price by liquidating Assets (a "Redemption by Liquidation"), at the written direction of the holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes provided to the Issuer, the Trustee, each Hedge Counterparty and the Portfolio Manager not later than 50 days prior to the Payment Date on which such redemption shall occur); provided, that all Senior Notes must be redeemed simultaneously. In such event, the Portfolio Manager in its sole discretion will direct the sale of all or part of the Assets in an amount sufficient that the proceeds of sale therefrom and all other funds available for such purpose in the Collection Account and the Payment Account will be at least sufficient to redeem all of the Senior Notes and to pay all administrative and other fees and expenses payable under "Summary of Terms—Priority of Payments—Application of Interest Proceeds" (including, without limitation, any amounts due to the Hedge Counterparties). If such proceeds of sale and all other funds available for such purpose in the Collection Account and the Payment Account would not be sufficient to redeem all Senior Notes and to pay such fees and expenses, the Senior Notes may not be redeemed. The Portfolio Manager, in its discretion, may effect the sale of all or any part of the Collateral Obligations or other Assets through the sale of one or more participations in such Assets. Optional Redemption of Notes Using Additional Senior Notes or Secured Loans. The Senior Notes are redeemable, in whole but not in part, by the Co-Issuers or the Issuer, as the case may be, on any Payment Date after the end of the Non-Call Period at the applicable Redemption Price by issuing additional Senior Notes (that would replace the Senior Notes being redeemed) or incurring secured loans (a "Redemption by Refinancing"), at the written direction of the holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes provided to the Issuer, the Trustee, each Hedge Counterparty and the Portfolio Manager not later than 50 days prior to the Payment Date on which such redemption shall occur); provided, that the Senior Notes must be redeemed simultaneously. In such event, the Co-Issuers or the Issuer, as the case may be, shall commence the structuring of the additional Senior Notes to be issued or the secured loans to be borrowed in order to ensure that the sum of the amount received from such additional Senior Notes or secured loans and all other funds available for such purpose in the Collection Account and the Payment Account is sufficient to redeem all of the Senior Notes and to pay all administrative and other fees and expenses payable under "Summary of Terms— Priority of Payments—Application of Interest Proceeds" (including, without limitation, any amounts due 56 to the Hedge Counterparties). Such issuance proceeds must be on deposit at the Trustee at least one Business Day prior to the date on which the Redemption by Refinancing of the Senior Notes occurs and the additional Senior Notes or the secured loans are issued or incurred, as applicable. If the amount received from the sale of the additional Senior Notes or the amount borrowed under the secured loans, together with other amounts available for such purpose, would not be sufficient to redeem the Senior Notes being redeemed and to pay such fees and expenses, the Senior Notes may not be redeemed unless the holders of the Subordinated Notes instead elect to effect a Redemption by Liquidation as described in "— Optional Redemption of Notes by Liquidation of Assets." None of the Co-Issuers, the Trustee, the Portfolio Manager or any other Person shall have a liability to the holders of the Subordinated Notes for the failure to issue additional Senior Notes or to obtain secured loans. Redemption Procedures. Notice of Optional Redemption will be given by first-class mail, postage prepaid, mailed not later than ten Business Days prior to the applicable redemption date, to each holder of Senior Notes at such holder's address in the register maintained by the registrar under the Indenture. In addition, for so long as any Offered Securities are listed on the Irish Stock Exchange and so long as the guidelines of such exchange so require, notice of Optional Redemption to the holders of such Offered Securities shall also be given by publication with the Announcement Office of the Irish Stock Exchange. Senior Notes called for redemption must be surrendered at the office of any paying agent appointed under the Indenture, except for the Irish Paying Agent, (each a “Paying Agent”) in order to receive the Redemption Price. The initial paying agents for the Senior Notes will be the Trustee and, so long as any Offered Securities are listed on the Irish Stock Exchange, Maples Finance Dublin (the "Irish Paying Agent "). The Co-Issuers will have the option to withdraw any such notice of redemption in connection with a Redemption by Liquidation up to the fourth Business Day prior to the scheduled redemption date by written notice to the Trustee, each Hedge Counterparty and the Portfolio Manager only if the Portfolio Manager is unable to deliver the sale agreement or agreements or certifications as described in the following paragraph in form satisfactory to the Trustee. If the Co-Issuers so withdraw any notice of redemption or is otherwise unable to complete redemption of the Senior Notes, the proceeds received from the sale of any Collateral Obligations and other Assets sold in contemplation of such redemption may during the Reinvestment Period, at the Portfolio Manager's discretion, be reinvested in accordance with the Investment Criteria described herein. No Senior Notes or Subordinated Notes may be optionally redeemed pursuant to a Redemption by Liquidation unless (i) at least ten Business Days before the scheduled redemption date the Portfolio Manager shall have furnished to the Trustee evidence, in form satisfactory to the Trustee, that the Portfolio Manager on behalf of the Issuer has entered into a binding agreement or agreements with a financial or other institution or institutions whose short-term unsecured debt obligations (other than such obligations whose rating is based on the credit of a person other than such institution) are rated at least "A-1+" by S&P and at least "P-1" by Moody's to purchase (which purchase may be through participation), not later than the Business Day immediately preceding the scheduled redemption date in immediately available funds, all or part of the Collateral Obligations and/or any Hedge Agreements at a purchase price at least equal to an amount sufficient, together with the Eligible Investments maturing (or putable to the issuer thereof at par) on or prior to the scheduled redemption date, Eligible Investments redeemed by the Issuer and any payments to be received in respect of any Hedge Agreements, to pay all administrative and other fees and expenses payable in accordance with the priority of payments prior to the payment of the Notes to be redeemed and to redeem all of the Notes on the scheduled redemption date at the applicable Redemption Price, or (ii) prior to selling any Collateral Obligations and/or Eligible Investments, the Portfolio Manager shall certify to the Trustee that, in its judgment, the aggregate sum of (A) expected proceeds from Hedge Agreements and the sale of Eligible Investments, and (B) for each 57 Collateral Obligation, the product of its principal balance and its market value (expressed as a percentage of its principal balance) and its Applicable Advance Rate, shall exceed the sum of (X) the aggregate Redemption Prices of the outstanding Senior Notes and (Y) all administrative and other fees and expenses payable pursuant to the priority of payments prior to the redemption of the Notes. Any certification delivered by the Portfolio Manager as described above shall include (1) the prices of, and expected proceeds from, the sale of any Collateral Obligations, Eligible Investments and/or Hedge Agreements and (2) all calculations required as described above. Notice of redemption shall be given by the Co-Issuers or, upon an issuer order, by the Trustee in the name and at the expense of the Co-Issuers. Failure to give notice of redemption, or any defect therein, to any holder of any Note selected for redemption shall not impair or affect the validity of the redemption of any other Notes. Mandatory Redemption If a Coverage Test (as described under "Security for the Senior Notes—The Coverage Tests") is not met on any Determination Date occurring subsequent to the Ramp-Up Period, the Issuer will be required to apply available amounts in the Payment Account on the related Payment Date to make payments in accordance with the Note Payment Sequence (a "Mandatory Redemption") to the extent necessary to achieve compliance with such Coverage Tests, as described under "Summary of Terms— Priority of Payments." Special Redemption The Senior Notes will be subject to redemption in part by the Co-Issuers or the Issuer, as applicable, on any Payment Date (i) during the Reinvestment Period if the Portfolio Manager at its discretion notifies the Trustee that it has been unable, for a period of 20 consecutive Business Days, to identify additional Collateral Obligations that are deemed appropriate by the Portfolio Manager in its sole discretion and which would meet the criteria for reinvestment described under "Security for the Notes— Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria" in sufficient amounts to permit the investment or reinvestment of all or a portion of the funds then in the Collection Account that are to be invested in additional Collateral Obligations or (ii) after the Ramp-Up Period, if a redemption is required due to a Ramp-Up Failure (in either case, a "Special Redemption"). On the first Payment Date following the Collection Period in which such notice is given (a "Special Redemption Date"), the amount in the Collection Account representing Principal Proceeds (and, in the case of clause (2) below, the amount in the Interest Collection Subaccount representing Interest Proceeds) which (1) the Portfolio Manager has determined cannot be reinvested in additional Collateral Obligations or (2) must be applied to redeem the Senior Notes in order to obtain confirmation from each of the Rating Agencies of the initial ratings of the Senior Notes (such amount, the "Special Redemption Amount"), as the case may be, will be applied as described under "Summary of Terms—Priority of Payments—Application of Principal Proceeds" (and, in the case of clause (2) above, as described under "Summary of Terms— Priority of Payments—Application of Interest Proceeds"). Notice of Special Redemption will be given by first class mail, postage prepaid, mailed not less than three Business Days prior to the applicable Special Redemption Date to each holder of Senior Notes affected thereby at such holder's address in the register maintained by the applicable registrar under the Indenture. In addition, for so long as any Offered Securities are listed on the Irish Stock Exchange and so long as the guidelines of such exchange so require, notice of Special Redemption to the holders of such Offered Securities shall also be given by publication with the Announcement Office of the Irish Stock Exchange. 58 Cancellation All Notes that are redeemed or paid in full and surrendered for cancellation as described herein will forthwith be canceled and may not be reissued or resold. Class A-2R Notes Borrowings On any Business Day during the Reinvestment Period, at the election of the Issuer (as directed by the Portfolio Manager), amounts may be borrowed under the Class A-2R Notes (each a "Class A-2R Borrowing" and the date of any such Borrowing, a "Class A-2R Borrowing Date"); provided, that (i) the Class A-2R Note Agent has received a borrowing request in accordance with the Class A-2R Note Purchase Agreement, (ii) each condition to a Class A-2R Borrowing in the Indenture and the Class A-2R Note Purchase Agreement (including the requirements that, other than in the case of the Class A-2R Required Borrowing, a Required Downgrade Borrowing or a Class A-2R Borrowing the proceeds of which will be used to fund required draws on any Revolving Collateral Obligation or Delayed Drawdown Collateral Obligation included in the Assets, the Overcollateralization Ratio Tests are satisfied and the related Class A-2R Borrowing Date does not occur during the period from (but excluding) any Determination Date to (but excluding) the related Payment Date) shall have been satisfied, (iii) the Class A-2R Borrowing will not cause the Class A-2R Commitments to be exceeded and (iv) the maximum amount of Class A-2R Borrowings which may be outstanding on any Class A-2R Borrowing Date may not exceed the Class A-2R Permitted Amount for the then-applicable row/column combination of the applicable Collateral Quality Matrix. The aggregate principal amount of any Class A-2R Borrowing (other than the Class A-2R Borrowing made pursuant to the immediately following paragraph) (taken as a whole) shall be an integral multiple of $1,000 and at least $5,000,000 (or, if the remaining available amount of the Class A-2R Aggregate Undrawn Amount is less than $5,000,000, such remaining amount). Except as otherwise provided by the Class A-2R Note Purchase Agreement, any Class A-2R Borrowing shall be made pro rata according to the unused Class A-2R Commitments in respect of the Class A-2R Notes. On the last day of the Reinvestment Period (the "Class A-2R Required Borrowing Date"), the Issuer (at the direction of the Portfolio Manager) shall make a Class A-2R Borrowing under the Class A2R Notes in an aggregate amount equal to the sum of the Collateral Obligation Funding Amount and the Class A Pro Rata Adjustment Amount, subject to the limitation that the aggregate amount of Borrowings under the Class A-2R Notes may not in any event exceed the aggregate amount of Class A-2R Commitments to make advances in respect of the Class A-2R Notes. Upon receipt of funds from such borrowing, the Trustee (at the direction of the Portfolio Manager) will apply such funds in the following order of priority: (i) to the Principal Collection Subaccount for application as Principal Proceeds, the Pending Collateral Obligation Purchase Funding Amount (ii) to the Delayed Funding Obligation Account, the Delayed Drawdown Funding Amount and (iii) to the Principal Collection Subaccount (to be applied as a payment of principal on the Class A-1 Notes on the Payment Date on with it is received (or, if such amount is not received on a Payment Date, on the next Payment Date)), the Class A Pro Rata Adjustment Amount. The "Collateral Obligation Funding Amount" means the sum of (x) the excess, if any, of (A) the aggregate amount of all unfunded portions of all Collateral Debt Obligations that are Delayed Drawdown Collateral Obligations or Revolving Collateral Obligations other than Subordinated Note Collateral Obligations over (B) the aggregate amount on deposit in the Delayed Funding Obligation Account (such excess, the "Delayed Drawdown Funding Amount"); and (y) the excess, if any, of (A) the aggregate amount of any commitments to purchase Collateral Obligations made by the Issuer but not settled at the time of such termination of the Reinvestment Period over (B) the amount of any Principal 59 Proceeds on deposit in the Collection Account (determined as of the Class A-2R Required Borrowing Date) (such excess, the "Pending Collateral Obligation Purchase Funding Amount"). The "Class A Pro Rata Adjustment Amount" means the excess (determined as of the Class A2R Required Borrowing Date), if any, of (A) (1) the aggregate amount of Class A-2R Commitments plus the Aggregate outstanding principal amount of the Class A-2B Notes multiplied by (2) the sum of the Aggregate outstanding principal amount of the Class A-2R Notes, the Class A-2B Notes and the Class A1 Notes and the Collateral Obligation Funding Amount divided by (3) the sum of the aggregate outstanding principal amount of the Class A-1 Notes and the Class A-2B Notes and the aggregate amount of Class A-2R Commitments over (B) the sum of the aggregate outstanding principal amount of the Class A-2R Notes, the outstanding balance of Class A-2B Notes and the Collateral Obligation Funding Amount. If any holder of Class A-2R Notes is downgraded to a rating of "P-2" or below by Moody's during the Reinvestment Period, the Portfolio Manager, on behalf of the Issuer, will be required to promptly make a Class A-2R Borrowing (from the related Class A-2R Purchaser Collateral Account if a Downgrade Draw has occurred or otherwise pursuant to a borrowing request) such that the sum of the amount of funds on deposit in the Delayed Funding Obligation Account is at least equal to the Issuer's unfunded commitments under all Delayed Funding Collateral Obligations and Revolving Collateral Obligations then owned by it (such Class A-2R Borrowing, a "Required Downgrade Borrowing"). Holders of Class A-2R Notes are permitted under the terms of the Class A-2R Note Purchase Agreement to obtain funding for their obligations as a holder of the Class A-2R Notes by entering into a liquidity agreement (which agreement, if the holder of Class A-2R Notes is a conduit purchaser, is satisfactory to the Issuer) with a financing provider that satisfies the Class A-2R Purchaser Rating Criteria. If any holder of Class A-2R Notes shall fail to satisfy the Class A-2R Purchaser Rating Criteria at any time during the Reinvestment Period, then the Issuer will, under the Class A-2R Note Purchase Agreement, be entitled to (and, under the Indenture, will use its commercially reasonable efforts to) cause such holder to transfer its rights and obligations in respect of the Class A-2R Notes to a person that satisfies such Class A-2R Purchaser Rating Criteria (or obtain a guarantee from a guarantor that meets or, if the holder is a conduit entity, enter into a liquidity facility with a financing provider that meets, the Class A-2R Purchaser Rating Criteria) within 30 days of such failure (unless such holder again satisfies the Class A-2R Purchaser Rating Criteria within 30 days after such failure) and, if it fails to do so, deposit into a Class A-2R Purchaser Collateral Account maintained with the Trustee the total unfunded Class A2R Commitment attributable to such holder. If such holder cannot be replaced within such 30-day period, the Issuer will demand the entire undrawn portion of such holder’s Class A-2R Commitment for deposit to a Class A-2R Purchaser Collateral Account, as specified in the Class A-2R Note Purchase Agreement. Any amount deposited into such Class A-2R Purchaser Collateral Account will not be considered a draw on the Class A-2R Notes and interest with respect to the Class A-2R Notes shall not accrue on such amount; provided that Class A-2R Commitment Fees will be payable with respect to the amount on deposit in the Class A-2R Purchaser Collateral Account. During the time that any holder of Class A-2R Notes has posted amounts into a Class A-2R Purchaser Collateral Account, the Issuer will have the right to cause it to replace itself as a holder of Class A-2R Notes with a transferee designated by the Issuer, subject to certain limitations set forth in the Class A-2R Note Purchase Agreement. If any holder of Class A-2R Notes fails to satisfy the Class A-2R Purchaser Rating Criteria (or, without limitation, is downgraded to a rating of "P-2" or below by Moody's) or defaults on its obligation to fund a Class A-2R Borrowing at any time during the Reinvestment Period, then such Class A-2R Note 60 holder will be required to immediately give notice of such fact to the Issuer, the Class A-2R Note Agent, the Portfolio Manager, the Trustee and each Rating Agency. In addition, if any holder of a Class A-2R Note is replaced as described in the preceding paragraph, such holder will be required to immediately give notice of such replacement to the Issuer, the Class A-2R Note Agent, the Portfolio Manager, the Trustee and each Rating Agency. If any holder of Class A-2R Notes fails to fund its portion of any Class A-2R Borrowing and such failure remains uncured for a period of five Business Days following notice, the Issuer may require the applicable holder to replace itself as a holder of Class A-2R Notes with a transferee designated by the Issuer, subject to certain limitations set forth in the Class A-2R Note Purchase Agreement. If and to the extent that a holder of Class A-2R Notes is required to post amounts to a Class A-2R Purchaser Collateral Account pursuant to the Class A-2R Note Purchase Agreement, the amounts in such Class A-2R Purchaser Collateral Account will be held solely for the benefit of the Issuer and the related holder and no person other than the Trustee, the Issuer and such holder shall have any legal or beneficial interest therein. Amounts in such Class A-2R Purchaser Collateral Account will not constitute Interest Proceeds or Principal Proceeds and such amounts (including any investment earnings thereon) will be applied solely as provided in the Class A-2R Note Purchase Agreement and will be remitted to the related holder if and to the extent provided for therein regardless of the occurrence of an Event of Default under the Indenture. Amounts remaining in any Class A-2R Purchaser Collateral Account will be returned to the applicable holder if its Class A-2R Commitment terminates or it again satisfies the Class A-2R Purchaser Rating Criteria. Reduction of Class A-2R Commitments On any Payment Date during the Reinvestment Period on which the Class A Notes are repaid or redeemed other than in connection with a Class A-2R Prepayment, the Class A-2R Commitments shall be reduced by an amount equal to the lesser of (i) the amount of the Class A-2R Commitments immediately prior to such reduction and (ii) the product of (1) the sum of the amount of the Class A-2R Commitments and the aggregate outstanding principal amount of the Class A-2B Notes immediately prior to such repayment and (2) a ratio the numerator of which is the aggregate outstanding principal amount of the Class A-1 Notes redeemed or repaid on such Payment Date and the denominator of which is the aggregate outstanding principal amount of the Class A-1 Notes immediately prior to such Payment Date (such that, after giving effect to such reduction in the Class A-2R Commitments, the ratio of the sum of Class A-2R Commitments and the aggregate outstanding principal amount of the Class A-2B Notes to the aggregate outstanding principal amount of the Class A-1 Notes at such time is the same as it was immediately prior to such payment). Any such reduction of the Class A-2R Commitments will be applied to the Class A-2R Commitments pro rata in accordance with each holder’s Class A-2R Commitment. Any reduction or termination of the Class A-2R Commitments shall be permanent. Following the end of the Reinvestment Period, the Class A-2R Commitments shall be reduced to zero. Entitlement to Payments Payments in respect of principal and interest on the Notes will be made to the person in whose name the Note is registered fifteen days prior to the applicable Payment Date (the "Record Date"). Payments on certificated Notes will be made in U.S. Dollars by wire transfer, as directed by the investor, in immediately available funds to the investor; provided, that wiring instructions have been provided to the Trustee on or before the related Record Date and provided, further, that if appropriate instructions for any such wire transfer are not received by the Record Date, then such payment shall be made by check drawn on a U.S. bank mailed to such holder of a Note at such holder's address specified in the applicable 61 register maintained by the Trustee. Final payments in respect of principal on the Notes will be made only against surrender of the Notes at the office of the Paying Agent. Payments in respect of the principal and interest of any Global Notes will be made to DTC or its nominee, as the registered owner thereof. None of the Co-Issuers, the Portfolio Manager, the Trustee nor the Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in Global Notes or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests. The Co-Issuers expect that DTC or its nominee, upon receipt of any payment of principal or interest in respect of a Global Note representing a Class of Notes held by it or its nominee, will immediately credit participants' accounts (through which, in the case of Regulation S Global Notes, Euroclear and Clearstream hold their respective interests) with payments in amounts proportionate to their respective beneficial interests in the stated original principal amount of a Global Note for a Class of Notes, as shown on the records of DTC or its nominee. The Co-Issuers also expect that payments by participants to owners of beneficial interests in a Global Note held through the participants 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 the customers. The payments will be the responsibility of the participants. Prescription. Except as otherwise required by applicable law, claims by holders of Notes in respect of principal and interest must be made to the Trustee or any Paying Agent if made within two years of such principal or interest becoming due and payable. Any funds deposited with the Trustee or any Paying Agent in trust for the payment of principal or interest remaining unclaimed for two years after such principal or interest has become due and payable shall be paid to the Issuer and, if applicable, the Co-Issuer, pursuant to the Indenture; and the holder of a Note shall thereafter, as an unsecured general creditor, look only to the Issuer and, if applicable, the Co-Issuer, for payment of such amounts and all liability of the Trustee and any Paying Agent with respect to such trust funds shall thereupon cease. Priority of Payments On each Payment Date, Interest Proceeds will be applied in the order of priority described under "Summary of Terms—Priority of Payments—Application of Interest Proceeds." On each Payment Date, Principal Proceeds will be applied in the order of priority described under "Summary of Terms—Priority of Payments—Application of Principal Proceeds." For so long as any Class of Offered Securities is listed on the Irish Stock Exchange, the Trustee will provide copies of each monthly report and distribution report prepared by or on behalf of the Issuer to the Irish Paying Agent and the Irish Paying Agent shall provide such reports to the Irish Stock Exchange. In addition, for so long as any Offered Securities are listed on the Irish Stock Exchange, such reports will be obtainable free of charge upon request at the offices of the Trustee. The Indenture The following summary describes certain provisions of the Indenture among the Co-Issuers and the Trustee to be dated as of the Closing Date. The summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the Indenture. Events of Default. An "Event of Default" is defined in the Indenture as: 62 (a) a default in the payment, when due and payable, of (i) any Class A-2R Commitment Fees, (ii) any interest on any Class A Note or Class B Note or, if there are no Class A Notes or Class B Notes outstanding and no Class A-2R Aggregate Undrawn Amount remains outstanding, any Class C Note or, if there are no Class A Notes, Class B Notes or Class C Notes outstanding and no Class A-2R Aggregate Undrawn Amount remains outstanding, any Class D Note or, if there are no Class A Notes, Class B Notes, Class C Notes or Class D Notes outstanding and no Class A-2R Aggregate Undrawn Amount remains outstanding, any Class E Note, and the continuation of any such default for five Business Days, or (iii) any principal, interest, or Deferred Interest on, or any Redemption Price in respect of, any Senior Note at its Stated Maturity or any redemption date, and in the case of any Redemption Price on any redemption date, the continuation of any such default for five Business Days; (b) the failure on any Payment Date to disburse amounts available in the Payment Account in accordance with the priority of payments set forth in the Indenture and continuation of such failure for a period of five Business Days; (c) either of the Co-Issuers or the Assets becomes an investment company required to be registered under the Investment Company Act; (d) except as otherwise provided in this definition of "Event of Default", a default, in a material respect (as determined by the holders of a majority of the aggregate outstanding principal amount of the Controlling Class), in the performance, or breach, in a material respect (as determined by the holders of a majority of the aggregate outstanding principal amount of the Controlling Class), of any other covenant or other agreement of the Issuer or the Co–Issuer in the Indenture (it being understood, without limiting the generality of the foregoing, that any failure to meet any Concentration Limitation, Collateral Quality Test or Coverage Test is not an Event of Default except to the extent provided in clause (f) below), or the failure of any representation or warranty of the Issuer or the Co–Issuer made in the Indenture or in any certificate or other writing delivered pursuant thereto or in connection therewith to be correct in all material respects when the same shall have been made, and the continuation of such default, breach or failure for a period of 30 days after notice to the Issuer or the Co-Issuer, as applicable, and the Portfolio Manager by registered or certified mail or overnight courier, by the Trustee, or to the CoIssuers, the Portfolio Manager and the Trustee by the holders of a majority of the aggregate outstanding principal amount of the Controlling Class, specifying such default, breach or failure and requiring it to be remedied and stating that such notice is a "Notice of Default" under the Indenture; (e) certain events of bankruptcy, insolvency, receivership or reorganization of either of the Co-Issuers; or (f) on any Measurement Date, failure to maintain the Overcollateralization Ratio with respect to the Class A Notes at 102% or higher. If an Event of Default occurs and is continuing (other than an Event of Default referred to in clause (e) above), the Trustee may, and shall, upon the written direction of the holders of a majority of the aggregate outstanding principal amount of the Notes of the Controlling Class by notice to the applicable Co-Issuers and each Rating Agency, declare the principal of and accrued interest on the Senior Notes to be immediately due and payable. If an Event of Default described in clause (e) above occurs, such an acceleration will occur automatically. The holders of a majority of the aggregate outstanding principal amount of the Notes of the Controlling Class may rescind and annul a declaration of acceleration under the Indenture if the Issuer has delivered to the Trustee amounts sufficient to pay interest and principal of the Senior Notes and outstanding Administrative Expenses, so long as the Trustee has determined that all Events of Default not related to non-payment of principal and interest have been cured or waived (and the 63 holders of a majority of the aggregate outstanding principal amount of the Controlling Class agree with such determination). The "Controlling Class" will be the Class A-1 Notes, the Class A-2R Notes and the Class A-2B Notes, voting as a single class, so long as any Class A-1 Notes, Class A-2R Notes or Class A-2B Notes are outstanding or any Class A-2R Aggregate Undrawn Amount remains outstanding; then the Class B Notes, so long as any Class B Notes are outstanding; then the Class C Notes, so long as any Class C Notes are outstanding; then the Class D-1 Notes and the Class D-2 Notes, voting as a single class, 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 Subordinated Notes. Upon an acceleration, the Trustee will retain the Assets intact (provided that Defaulted Obligations, Equity Securities, Credit Risk Obligations and Credit Improved Obligations may continue to be sold and offers with respect to the Assets may continue to be dealt with thereafter) and collect all payments in respect of the Assets unless either (i) the Trustee 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 (or, in the case of interest, accrued) and unpaid on the Senior Notes for principal and interest (including Deferred Interest) and Class A-2R Commitment Fees and all amounts payable prior to payment of principal on such Senior Notes (including all amounts due and payable to any Hedge Counterparty) and each Hedge Counterparty (in its commercially reasonable judgment) and a majority of the aggregate outstanding principal amount of the Controlling Class agrees with such determination; or (ii) the holders of at least 66⅔% of the aggregate outstanding principal amount of each of (a) the Class A-1 Notes, the Class A-2R Notes and the Class A2B Notes, voting together as a single class, (b) the Class B Notes, (c) the Class C Notes, (d) the Class D-1 Notes and the Class D-2 Notes, voting together as a single class, (e) the Class E Notes and (f) each Hedge Counterparty (unless each such Hedge Counterparty shall be paid in full the amounts due and unpaid (other than any Specified Hedge Termination Payment), including, without limitation, any payments (however described) due and payable by the Issuer under each Hedge Agreement upon termination of such Hedge Agreement (including any interest that may accrue thereon, but excluding any Specified Hedge Termination Payment or interest on such payment)), direct the sale and liquidation of the Assets. The holders of a majority of the aggregate outstanding principal amount of the Controlling Class will have the right following the occurrence, and during the continuance of, an Event of Default to cause the institution of and direct the time, method and place of conducting any proceeding for any remedy available to the Trustee; provided, that (a) such direction shall not conflict with any rule of law or with any express provision of the Indenture, (b) the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction, (c) the Trustee shall have been provided with indemnity reasonably satisfactory to it, and (d) notwithstanding the foregoing, any direction to the Trustee to undertake a sale of Assets may be given only in accordance with the preceding paragraph and the applicable provisions of the Indenture. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee will be under no obligation to exercise the rights or powers vested in it under the Indenture in respect of such Event of Default at the request or direction of the holders of any Notes unless such holders have provided to the Trustee reasonable security or indemnity. The holders of a majority in aggregate outstanding principal amount of the Notes of the Controlling Class may, in certain cases, waive any default with respect to such Notes, except a default (a) in the payment of the principal of any Senior Note (which may be waived with the consent of each holder of such Note), (b) in the payment of interest on the Notes of the Controlling Class (which may be waived with the consent of the holders of 100% of the Controlling Class) or (c) in respect of a provision of the Indenture that cannot be modified or amended without the 64 waiver or consent of the holder of each such outstanding Note adversely affected thereby (which may be waived with the consent of each such holder). No holder of a Note will have the right to institute any proceeding with respect to the Indenture unless (i) such holder previously has given to the Trustee written notice of an Event of Default, (ii) the holders of not less than 25% in aggregate outstanding principal amount of the Notes of the Controlling Class have made a written request upon the Trustee to institute such proceedings in its own name as Trustee and such holders have provided the Trustee reasonable indemnity, (iii) the Trustee for 30 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding and (iv) no direction inconsistent with such written request has been given to the Trustee during such 30day period by the holders of a majority of the aggregate outstanding principal amount of the Controlling Class. In determining whether the holders of the requisite aggregate outstanding principal amount have given any request, demand, authorization, direction, notice, consent, vote or waiver under the Indenture, (a) Notes owned by the Issuer, the Co–Issuer, or (only in the case of a vote to remove or replace the Portfolio Manager, approve an affiliate of the Portfolio Manager as a successor Portfolio Manager or consent to an assignment of the Portfolio Management Agreement) the Portfolio Manager or any affiliate of the Portfolio Manager, or any other obligor upon the Notes or any affiliate thereof shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, vote or waiver, only Notes that the Trustee knows to be so owned shall be so disregarded, (b) 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 Co–Issuer, the Portfolio Manager or any other obligor upon the Notes or any affiliate of the Issuer, the Co–Issuer, the Portfolio Manager or such other obligor and (c) during the Reinvestment Period, the Class A-2R Aggregate Undrawn Amount shall be deemed to be outstanding. Notices. Notices to the holders of the Notes shall be given by first class mail, postage prepaid, to registered holders of Notes at each such holder's address appearing in the register maintained by the Trustee or to such other entity designated by any such holder of Notes. In addition, for so long as the Offered Securities are listed on the Irish Stock Exchange and so long as the guidelines of such exchange so require, notices to the holders of such Offered Securities shall also be given by publication with the Announcement Office of the Irish Stock Exchange. Modification of Indenture. With the consent of the holders of not less than a majority in aggregate outstanding principal amount of the Notes of each Class materially and adversely affected thereby (for which purpose, the Class A-1 Notes, the Class A-2R Notes and the Class A-2B Notes will constitute and vote together as a single Class and the Class D-1 Notes and the Class D-2 Notes will constitute and vote together as a single Class), the Trustee and the Co-Issuers may execute one or more supplemental indentures to add provisions to, or change in any manner or eliminate any provisions of, the Indenture or modify in any manner the rights of the holders of the Notes of such Class. The Trustee may rely, and shall be fully protected in relying on, the written advice of counsel or an officer’s certificate of the Portfolio Manager, as to whether or not the holders of Notes would be materially and adversely affected by such change; provided that the Trustee may not so rely on such advice of counsel or officer's certificate with respect to the Controlling Class if it has received written notice from one or more holders of the Notes of the Controlling Class prior to the proposed date of execution of such supplemental indenture stating that such holders believe that they will be materially and adversely affected thereby. Such determination shall be conclusive and binding on all present and future holders. 65 The Portfolio Manager will be bound to follow any amendment or supplement to the Indenture from the time it has received a copy of such amendment or supplement from the Issuer or the Trustee; provided, however, that with respect to any amendment or supplement to the Indenture which would (i) increase the duties or liabilities of, or adversely change the economic consequences to the Portfolio Manager, (ii) modify the restrictions on the sales or loans of Collateral Obligations or the Investment Criteria described under "Security for the Senior Notes—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria" or (iii) expand or restrict the Portfolio Manager's discretion, the Portfolio Manager shall not be bound thereby unless the Portfolio Manager shall have consented thereto in writing, such consent to not be unreasonably withheld or delayed. Without the consent of the holders of each outstanding Note materially and adversely affected thereby, however, no supplemental indenture may: (i) change the Stated Maturity of the principal of any Note or the due date of any installment of interest on any Senior Note, reduce the principal amount thereof or the rate of interest thereon (or, in the case of the Class A-2R Notes, the Class A-2R Commitment Fee Rate) or the Redemption Price with respect to any Offered Security, or change the earliest date on which Notes of any Class may be redeemed, change the provisions of the Indenture relating to the application of proceeds of any Assets to the payment of principal of or interest on Senior Notes or distributions on the Subordinated Notes or change any place where, or the coin or currency in which, Notes 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); (ii) reduce the percentage of the aggregate outstanding principal amount of holders of Notes of each Class whose consent is required for the authorization of any such supplemental indenture or for any waiver of compliance with certain provisions of the Indenture or certain defaults thereunder or their consequences provided for in the Indenture; (iii) Indenture; impair or adversely affect the Assets except as otherwise permitted in the (iv) except as otherwise permitted by the Indenture, permit the creation of any lien ranking prior to or on a parity with the lien of the Indenture with respect to any part of the Assets or terminate such lien on any property at any time subject thereto or deprive the holder of any Senior Note or any other Secured Party of the security afforded by the lien of the Indenture; (v) reduce the percentage of the aggregate outstanding principal amount of holders of Senior 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 or to sell or liquidate the Assets pursuant to the Indenture; (vi) modify any of the provisions of the Indenture with respect to supplemental indentures, except to increase the percentage of outstanding Notes the consent of the holders of which is required for any such action or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the holder of each Note outstanding and affected thereby; (vii) modify the definition of the term "Controlling Class" or "outstanding" or the priority of payments set forth in the Indenture; or 66 (viii) modify any of the provisions of the Indenture in such a manner as to affect the calculation of the amount of any payment of interest or principal on any Senior Note, or any amount available for distribution to the Subordinated Notes or to affect the rights of the holders of Senior Notes to the benefit of any provisions for the redemption of such Senior Notes contained therein. In addition, with the consent of the holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes delivered to the Trustee, the Co-Issuers and the Portfolio Manager, the Trustee and the Co-Issuers may enter into one or more supplemental indentures to accommodate the issuance of additional Notes in connection with the purchase of additional Collateral Obligations. In addition, with the consent of the holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes delivered to the Trustee, the Co-Issuers and the Portfolio Manager, the Trustee and the Co-Issuers may enter into one or more supplemental indentures to (i) in connection with an Optional Redemption effected through a Redemption by Refinancing involving the issuance of additional Notes, to accommodate the issuance of such additional Notes and to fix the terms thereof and (ii) in connection with an Optional Redemption effected by Redemption by Refinancing involving secured loans, to accommodate borrowings under such secured loans and to establish the terms thereof. The Co-Issuers and the Trustee may also enter into supplemental indentures, without obtaining the consent of holders of the Offered Securities (except as expressly noted below), at any time and from time to time, subject to certain requirements described in the Indenture: (i) 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 in the Indenture and in the Notes; (ii) to add to the covenants of the Co-Issuers or the Trustee for the benefit of the Secured Parties or to surrender any right or power conferred upon the Co-Issuers by the Indenture; (iii) Trustee; to convey, transfer, assign, mortgage or pledge any property to or with the (iv) to evidence and provide for the acceptance of appointment under the Indenture by a successor Trustee and to add to or change any of the provisions of the Indenture as shall be necessary to facilitate the administration of the trusts under the Indenture by more than one Trustee, pursuant to the requirements of the Indenture; (v) to correct or amplify the description of any property at any time subject to the lien of the Indenture, or to better assure, convey and confirm unto the Trustee any property subject or required to be subjected to the lien of the 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 the Indenture any additional property; (vi) 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 enable the Co-Issuers to rely upon any exemption from registration under the Securities Act or the Investment Company Act or to remove restrictions on resale and transfer to the extent not required by the Indenture; 67 (vii) to make such changes as shall be necessary or advisable in order for the Notes or the Composite Notes to be listed on an exchange, including the Irish Stock Exchange; (viii) at any time within the Reinvestment Period, subject to the approval of the holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes, to make such changes as shall be necessary to permit the Co-Issuers to issue additional notes of any one or more new classes not issued in connection with a Redemption by Refinancing; provided, that any such new classes of notes shall be subordinate in payment of principal and interest to all existing Classes of Senior Notes; (ix) otherwise to correct any inconsistency or cure any ambiguity, omission or errors in the Indenture or to conform the provisions of the Indenture to this Offering Memorandum; (x) Agreements; to accommodate, modify or amend existing and/or replacement Hedge (xi) to take any action advisable to prevent the Issuer or the Trustee from becoming subject to withholding or other taxes, fees or assessments or to prevent the Issuer from being treated as engaged in a United States trade or business or otherwise being subject to United States federal, state or local income tax on a net income basis; (xii) to enter into any additional agreements not expressly prohibited by the Indenture as well as any amendment, modification or waiver if the Issuer determines that such amendment, modification or waiver would not, upon or after becoming effective, materially and adversely affect the rights or interest of holders of any Class of Notes or any Hedge Counterparty; (xiii) to evidence any waiver by any Rating Agency as to any requirement or condition, as applicable, of such Rating Agency set forth herein; (xiv) to make such changes as may be necessary to permit the Issuer to use Interest Proceeds to purchase Senior Notes in the order of the Note Payment Sequence at a discount in order to satisfy the Coverage Tests; (xv) with the consent of the Portfolio Manager and the holders of a majority of the aggregate outstanding principal amount of the Class A Notes, (x) to modify the definitions of "Credit Improved Obligation", "Credit Risk Obligation", "Defaulted Obligation" or "Equity Security", the restrictions on the sales of Collateral Obligations or the Investment Criteria set forth under "Security for the Senior Notes—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria" (other than the calculation of the Concentration Limitations and the Collateral Quality Test) or (y) to modify the calculation of the Concentration Limitations, the Collateral Quality Test or the Coverage Tests in order to conform to new Rating Agency methodology, in each case, in a manner not material and adverse to holders of any Class of the Notes; (xvi) to amend, modify, enter into or accommodate the execution of any contract relating to a Synthetic Security; (xvii) to amend or modify the Indenture in order to enter into or otherwise accommodate the execution of any Securities Lending Agreement; 68 (xviii) subject to the approval of the holders of a majority of the aggregate outstanding principal amount of the Class A-2R Notes, to amend any provision of the Indenture relating solely to the manner, timing and conditions of Class A-2R Borrowings and any increases to the Class A-2R Commitments; and (xix) with the consent of the holders of a majority of the aggregate outstanding principal amount of the Class A Notes, to make any change that does not materially and adversely affect the rights of the holders of the Offered Securities. At the cost of the Co-Issuers, for so long as any Notes or Composite Notes shall remain outstanding, (x) not later than 15 Business Days prior to the execution of any proposed supplemental indenture pursuant to clause (x), (xii), (xiv), (xv) or (xix) in the immediately preceding paragraph, the Trustee shall deliver to the holders of the Notes and the Composite Notes and each Hedge Counterparty a copy of such supplemental indenture and (y) not later than 15 Business Days prior to the execution of any other proposed supplemental indenture pursuant to the immediately preceding paragraph, the Trustee shall deliver to the holders of the Class A Notes and each Hedge Counterparty a copy of such supplemental indenture (any failure of the Trustee to deliver a copy of any supplemental indenture as provided above will not, however, in any way impair or affect the validity of any such supplemental indenture). In addition, for so long as any Offered Securities are listed on the Irish Stock Exchange and the guidelines of such exchange shall so require, the Issuer will notify the Irish Stock Exchange of any material modification of the Indenture. Except as described below, and as described in clause (vii) of the preceding paragraph, no supplemental indenture, or other modification or amendment of the Indenture not requiring consent of the holders of the Offered Securities, may become effective unless each of the Rating Agencies has confirmed in writing that such supplemental indenture, modification or amendment will not result in a reduction or withdrawal of its then current rating of any Class of Senior Notes; provided, however, if a supplemental indenture is entered into in connection with the issuance of additional Senior Notes or incurrence of secured loans related to a Redemption by Refinancing, such supplemental indenture shall not be effective unless each of the Rating Agencies has (a) if additional Senior Notes are issued in substantially the same capital structure as the Senior Notes issued on the Closing Date, confirmed in writing that such supplemental indenture will not result in a reduction or withdrawal of the then current rating of any Class of Senior Notes or (b) in any other case, provided a rating to the additional Senior Notes to be issued or the secured loans to be incurred as agreed upon by the investors in such obligations. In addition, if the holders of a majority of the aggregate outstanding principal amount of the Class A Notes notify the Trustee prior to the proposed date of execution of any supplemental indenture pursuant to the immediately preceding paragraph that such holders object to such supplemental indenture, the Issuer and the Trustee shall not enter into such supplemental indenture. The Trustee may rely, and shall be fully protected in relying on, the written advice of counsel or an officer’s certificate of the Portfolio Manager, as to whether or not the holders of Notes would be materially and adversely affected by any supplemental indenture entered into pursuant to clauses (x), (xii), (xiv), (xv) or (xix) above) (and other than the Class A Notes, with respect to clauses (xv) and (xix)) unless it has received written notice prior to the proposed date of its execution from the holders of a majority of the aggregate outstanding principal amount of any Class of Notes that such holders believe that such Class will be materially and adversely affected by such supplemental indenture. Not less than 10 days prior to any Payment Date, at the direction of the holders of not less than 100% of the aggregate outstanding principal amount of the Subordinated Notes but without any amendment to the Indenture, any confirmation from either Rating Agency or the consent of any holder of Senior Notes, all or a specified portion of amounts that would otherwise be distributed on such Payment Date to the holders of the Subordinated Notes will instead be retained by the Trustee in the Collection Account as Principal Proceeds and will be available for reinvestment in additional Collateral Obligations. 69 Additional Issuance. The Indenture will provide that, at any time during the Reinvestment Period, the Co-Issuers may issue and sell additional Notes of any one or more existing Classes and use the proceeds to purchase additional Collateral Obligations or as otherwise permitted under the Indenture; provided, that the following conditions are met: (a) such issuance is approved by holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes; (b) such issuance may not exceed 25% of the respective original outstanding amount of the Subordinated Notes or the applicable Class or Classes of Senior Notes; (c) the terms of the Notes issued must be identical to the respective terms of previously issued Notes of the applicable Class (except that the interest due on additional Senior Notes will accrue from the issue date of such additional Senior Notes and the price at which such additional Notes may be offered may differ from the applicable initial offering price); (d) (1) in the case of additional Senior Notes, the initial ratings of the Senior Notes must not have been reduced or withdrawn and (2) the Global Rating Agency Condition shall have been satisfied; (e) the issuance of additional Notes must be proportional across all Classes; provided, however, (i) that a larger proportion of Subordinated Notes and of each Class of Senior Notes subordinate to the most senior Class of Notes as to which additional Notes are being issued (relative to the amount of each Class of Notes) may be issued and (ii) additional Class D Notes may be issued as Class D-1 Notes or Class D-2 Notes; (f) the net proceeds of any additional Notes are used to purchase additional Collateral Obligations or as otherwise permitted under the Indenture and (g) an opinion of tax counsel of nationally recognized standing in the United States experienced in such matters shall be delivered to the Trustee to the effect that (i) such additional issuance will not result in the Issuer becoming subject to United States federal income taxation with respect to its net income, (ii) such issuance would not cause the holders or beneficial owners of Notes previously issued to be deemed to have sold or exchanged such Notes under Section 1001 of the United States Internal Revenue Code of 1986, as amended (the "Code") and (iii) any additional Class A Notes, Class B Notes, Class C Notes or Class D Notes will be debt for United States federal income tax purposes. Such additional Notes may be offered at prices that differ from the applicable initial offering price; provided that such initial offering price shall not be below 100% of the principal amount of the additional Notes being offered. Any additional Notes of any existing Class will, to the extent reasonably practicable, be offered first to holders of that Class, in such amounts as are necessary to preserve their pro rata holdings of Notes of such Class. The Indenture will also provide that, at any time during the Reinvestment Period, the Co-Issuers and the Trustee may amend the Indenture to make such changes as to permit the Co-Issuers to issue and sell additional notes of any one or more new classes; provided, that the following conditions are met: (a) such issue is approved by holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes; and (b) any such new class or classes of notes shall be subordinate in payment of principal and interest to all existing Classes of Senior Notes. Consolidation, Merger or Transfer of Assets. Except under the limited circumstances set forth in the Indenture, neither the Issuer nor the Co-Issuer may consolidate with, merge into, or transfer or convey all or substantially all of its assets to, any other corporation, partnership, trust or other person or entity. Petitions for Bankruptcy. The Indenture will provide that the holders of the Notes may not seek to commence a bankruptcy proceeding against or cause the Issuer or Co-Issuer to petition for bankruptcy until the payment in full of the Notes and not before one year and a day, or if longer, the applicable preference period then in effect, has elapsed since such payment. Satisfaction and Discharge of the Indenture. The Indenture will be discharged with respect to the Assets securing the Senior Notes upon (i) delivery to the Trustee for cancellation of all of the Notes, or, 70 with certain exceptions (including the obligation to pay principal and interest), upon deposit with the Trustee of funds sufficient for the payment or redemption of the Senior Notes and (ii) the payment by the Co-Issuers of all other amounts due under the Indenture. Trustee. The Bank of New York Trust Company, National Association, will be the Trustee under the Indenture for the Notes. The payment of the fees and expenses of the Trustee relating to the Notes is solely the obligation of the Co-Issuers and solely payable out of the Assets. The Trustee and/or its affiliates may receive compensation in connection with the Trustee's investment of trust assets in certain Eligible Investments as provided in the Indenture. Eligible Investments may include investments for which the Trustee or an affiliate of the Trustee provides services. The Co-Issuers, the Portfolio Manager and their affiliates may maintain other banking relationships in the ordinary course of business with the Trustee or its affiliates. The Indenture contains provisions for the indemnification of the Trustee by the Issuer, payable solely out of the Assets, for any loss, liability or expense incurred without negligence, willful misconduct or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust. The Trustee may resign at any time by providing 30 days' notice. The Trustee may be removed at any time by the holders of a majority in aggregate outstanding principal amount of each Class of Senior Notes, or, at any time when an Event of Default shall have occurred and be continuing, by the holders of a majority in aggregate outstanding principal amount of the Controlling Class or by order of a court of competent jurisdiction as set forth in the Indenture. No resignation or removal of the Trustee will become effective until the acceptance of the appointment of the successor Trustee. Governing Law. The Indenture, the Notes and the Composite Notes will be governed by, and construed in accordance with, the law of the State of New York. Form, Denomination and Registration of the Notes and the Composite Notes The Senior Notes and the Composite Notes will be sold only to (i) non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act and (ii) persons that are Qualified Purchasers and are Qualified Institutional Buyers (except that a portion of the Class E Notes may be resold by the Initial Purchaser on the Closing Date to Institutional Accredited Investors). Each Senior Note (other than a Class A-2R Note) or Composite Note sold to a person that, at the time of the acquisition, purported acquisition or proposed acquisition of any such Senior Note or Composite Note is both a Qualified Institutional Buyer (and, solely in the case of a portion of the Class E Notes resold by the Initial Purchaser on the Closing Date, Institutional Accredited Investors) and a Qualified Purchaser, will be issued in the form of one or more permanent global notes in definitive, fully registered form without interest coupons (the "Rule 144A Global Notes"). The Senior Notes (other than the Class A-2R Notes) and the Composite Notes sold to non-U.S. persons in offshore transactions in reliance on Regulation S will be issued in the form of one or more permanent global notes in definitive, fully registered form without interest coupons (the "Regulation S Global Notes"). The Rule 144A Global Notes and the Regulation S Global Notes are referred to herein collectively as the "Global Notes". All Class A-2R Notes will be issued only in definitive, fully registered form without interest coupons. Each initial investor in a Class E Note will be required to provide a purchaser representation letter in which it will be required to certify, among other matters, as to its status under ERISA. The Subordinated Notes are being initially offered, and may subsequently be transferred, only (a) to persons in the United States that are either (A) Qualified Purchasers or (B) Knowledgeable Employees with respect to the Issuer or corporations, partnerships, limited liability companies or other entities (other 71 than trusts) each shareholder, partner, member or other equity owner of which is either a Knowledgeable Employee or a Qualified Purchaser that in the case of (A) and (B) are either Qualified Institutional Buyers, Institutional Accredited Investors or other Accredited Investors and (b) to certain non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act. All Subordinated Notes sold to U.S. purchasers and at the election of the Issuer, Subordinated Notes sold to certain non-U.S. purchasers in offshore transactions in reliance on Regulation S, will be evidenced by notes in definitive, fully registered form without interest coupons ("Certificated Subordinated Notes"). At the option of the Issuer, certain Subordinated Notes sold to non-U.S. Persons in offshore transactions in reliance on Regulation S will each be represented by one or more permanent global notes in definitive, fully registered form without interest coupons (the "Regulation S Global Subordinated Notes"). Each initial investor in a Subordinated Note and each subsequent transferee of a Certificated Subordinated Note, will be required to provide a purchaser representation letter in which it will be required to certify, among other matters, as to its status under the Securities Act, the Investment Company Act and ERISA. As used above, "U.S. person" and "offshore transaction" shall have the meanings assigned to such terms in Regulation S under the Securities Act. The Global Notes and the Regulation S Global Subordinated Notes will be deposited with the Trustee as custodian for, and registered in the name of, a nominee of DTC and, in the case of the Regulation S Global Notes and the Regulation S Global Subordinated Notes, for the respective accounts of Euroclear Clearance System plc. ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream"). A beneficial interest in a Regulation S Global Note may be transferred to a person who takes delivery in the form of an interest in the corresponding Rule 144A Global Note only upon receipt by the Trustee of a written certification from the transferor in the form required by the Indenture to the effect that such transfer is being made to a person whom the transferor reasonably believes is a Qualified Institutional Buyer and a Qualified Purchaser (a "QIB/QP") in a transaction meeting the requirements of Rule 144A under the Securities Act and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. Beneficial interests in a Rule 144A Global Note may be transferred to a person who takes delivery in the form of an interest in the corresponding Regulation S Global Note only upon receipt by the Trustee of a written certification from the transferor in the form required by the Indenture to the effect that such transfer is being made in accordance with Regulation S under the Securities Act. Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in another Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in such other Global Note, and accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. A beneficial interest in a Class E Note represented by an interest in a Rule 144A Global Note purchased from the Initial Purchaser on the Closing Date by Institutional Accredited Investors may only be transferred to a person that is either (i) a Qualified Institutional Buyer and a Qualified Purchaser or (ii) a non-U.S. person under Regulation S. A beneficial interest in a Regulation S Global Subordinated Note may be transferred to a person who takes delivery in the form of a Certificated Subordinated Note only upon receipt by the Issuer and the Trustee of (A) a certificate in the form required by the Indenture relating to the satisfaction of the transfer restrictions under the Indenture executed by the transferee and (B) a certificate substantially in the form of Annex A-1 attached hereto executed by the transferee. A Certificated Subordinated Note may be transferred to a person who takes delivery in the form of an interest in a Regulation S Global 72 Subordinated Note only upon receipt by the Issuer and the Trustee of the transferor's Subordinated Note together with an interest transfer form in the form prescribed by the Indenture executed by the transferor. A Certificated Subordinated Note may be transferred to a person who takes delivery in the form of an interest in a Certificated Subordinated Note only upon receipt by the Issuer and the Trustee of (A) the transferor's Subordinated Note together with an interest transfer form in the form prescribed by the Indenture executed by the transferor, (B) a certificate in the form required by the Indenture relating to the satisfaction of the transfer restrictions under the Indenture executed by the transferee and (C) a certificate substantially in the form of Annex A-1 attached hereto executed by the transferee. No service charge will be made for any registration of transfer or exchange of Notes, but the Trustee may require payment of a sum sufficient to cover any transfer, tax or other governmental charge payable in connection therewith. The registered owner of the relevant Global Note or Regulation S Global Subordinated Note will be the only person entitled to receive payments in respect of the Offered Securities represented thereby, and the Co-Issuers will be discharged by payment to, or to the order of, the registered owner of such Global Note or Regulation S Global Subordinated Note in respect of each amount so paid. No person other than the registered owner of the relevant Global Note or Regulation S Global Subordinated Note will have any claim against the Co-Issuers in respect of any payment due on that Global Note or Regulation S Global Subordinated Note. Account holders or participants in Euroclear and Clearstream shall have no rights under the Indenture with respect to Global Notes or Regulation S Global Subordinated Notes held on their behalf by the Trustee as custodian for DTC, and DTC may be treated by the Co-Issuers, the Trustee and any agent of the Co-Issuers or the Trustee as the holder of Global Notes or Regulation S Global Subordinated Notes for all purposes whatsoever. Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to have Notes or Composite Notes registered in their names, will not receive or be entitled to receive definitive physical Notes or Composite Notes and will not be considered “holders” of Notes or Composite Notes under the Indenture or the Notes. If DTC notifies the Co-Issuers that it is unwilling or unable to continue as depositary for Global Notes of any Class or Classes or ceases to be a "clearing agency" registered under the Exchange Act and a successor depositary or custodian is not appointed by the Co-Issuers within 90 days after receiving such notice (a "Depository Event"), the Issuer will issue or cause to be issued, Notes or Composite Notes of such Class or Classes in the form of definitive physical certificates in exchange for the applicable Global Notes to the beneficial owners of such Global Notes in the manner set forth in the Indenture. In addition, the owner of a beneficial interest in a Global Note will be entitled to receive a definitive physical Note or Composite Note in exchange for such interest if an Event of Default has occurred and is continuing. In the event that definitive physical Notes or Composite Notes are not so issued by the Issuer to such beneficial owners of interests in Global Notes, the Issuer expressly acknowledges that such beneficial owners shall be entitled to pursue any remedy that the holders of a Global Note would be entitled to pursue in accordance with the Indenture (but only to the extent of such beneficial owner's interest in the Global Note) as if definitive physical Notes or Composite Notes had been issued. In the event that definitive physical Notes or Composite Notes are issued in exchange for Global Notes as described above, the applicable Global Note will be surrendered to the Trustee by DTC and the Issuer or the Co-Issuers, as applicable, will execute and the Trustee will authenticate and deliver an equal aggregate outstanding principal amount of definitive physical Notes or Composite Notes. Owners of beneficial interests in Regulation S Global Subordinated Notes will receive definitive Subordinated Notes registered in their names in connection with a Depository Event, and may also 73 exchange such beneficial interests for Certificated Subordinated Notes in accordance with the procedures described under "Transfer Restrictions." For so long as any Offered Securities are listed on the Irish Stock Exchange and the guidelines of such exchange shall so require, the Issuer or the Co-Issuers, as applicable, will have a paying agent and transfer agent for such Offered Securities and payments on and transfers or exchanges of interests in such Offered Securities may be effected through the Paying Agent; provided, that all transfers and exchanges must be effected in accordance with the Indenture. In the event that the Paying Agent is replaced at any time during such period, notice of the appointment of any replacement will be published with the Announcement Office of the Irish Stock Exchange. Certificated Notes and interests in Global Notes and Regulation S Global Subordinated Notes will be subject to certain restrictions on transfer set forth therein and in the Indenture and the Notes and the Composite Notes will bear the restrictive legend set forth under “Transfer Restrictions.” The Senior Notes will be issued in minimum denominations of $250,000 and integral multiples of $1.00 in excess thereof, the Composite Notes will be issued in minimum denominations of $600,000 and integral multiples of $1.00 in excess thereof and the Subordinated Notes will be issued in minimum denominations of $100,000 and integral multiples of $1.00 in excess thereof. The Subordinated Notes The Subordinated Notes will be issued pursuant to the Indenture, but will not be secured obligations thereunder. The following summary, together with the preceding summary of certain principal terms of the Indenture, describes certain provisions of the Subordinated Notes, but does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the Indenture. Status and Ranking. The Subordinated Notes will be fully subordinated to the Senior Notes and to the payment of all other amounts payable in accordance with the priority of payments. The Subordinated Notes will not be secured by the Assets or any pledge of the Assets but, under the terms of the Indenture, the Trustee will pay to the holders of the Subordinated Notes amounts available pursuant to the priority of payments. To the extent that following realization of the Assets, these amounts are insufficient to repay the principal amount of the Subordinated Notes or distributions thereon, no other funds will be available to make such payments. Distributions on the Subordinated Notes. The Stated Maturity of the Subordinated Notes will be July 14, 2021. To the extent funds are available for such purpose under the Indenture as described above, payments will be made to the holders of the Subordinated Notes on each Payment Date, commencing in January 2008, and in connection with any redemption of the Subordinated Notes. Payments on the Subordinated Notes will be made to the person in whose name the Subordinated Note is registered on the applicable Record Date in the same manner as payments are made to the holders of the Senior Notes as described under "—the Senior Notes—Entitlements to Payments" and any unclaimed payments will be subject to the terms described under "—the Indenture and the Senior Notes— Prescription." Mandatory Redemption. The Subordinated Notes will be fully redeemed on the Stated Maturity indicated in "Summary of Terms—Principal Terms of the Offered Securities" unless previously redeemed as described herein. The average life of the Subordinated Notes is expected to be less than the 74 number of years until their Stated Maturity. See "Risk Factors—Relating to the Offered Securities—The Weighted Average Lives of the Notes May Vary." Optional Redemption. The Subordinated Notes will be redeemed by the Issuer, in whole but not in part, on any Payment Date on or after the date on which all of the Senior Notes have been redeemed or repaid, from the proceeds of the Assets remaining after giving effect to redemption or repayment of the Senior Notes and payment in full of all expenses of the Co-Issuers, at the direction of the holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes (which direction may be given in connection with a direction to redeem the Senior Notes or at any time after the Senior Notes have been redeemed or repaid in full). The Redemption Price payable to each holder of the Subordinated Notes will be its proportionate share of the proceeds of the Assets remaining after the payments described above. Voting. Holders of the Subordinated Notes will have no voting rights except as set forth in the Indenture, the Portfolio Management Agreement or the other transaction documents, as described herein. The holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes will be able to direct a redemption of the Senior Notes and/or the Subordinated Notes pursuant to the Indenture, and to direct the issuance of additional Notes of any Class, as described herein. In addition, holders of at least 66⅔% of the aggregate outstanding principal amount of the Subordinated Notes will be able to direct the issuance of additional notes of one or more new classes. See "—The Indenture and the Senior Notes—The Indenture—Additional Issuance" above. Cancellation. All Subordinated Notes that are redeemed and surrendered for cancellation will forthwith be canceled and may not be reissued or resold. The Issuer will not reissue or resell any such Subordinated Notes. The Composite Notes General. Concurrently with the issuance of the Notes, the Issuer will issue the Composite Notes. All references to any Class of Notes in this Offering Memorandum relating to payments (including redemptions) to be made with respect to, or amounts to be deferred with respect to, or to votes or consents to be given by the holders of, such Class of Notes include a reference to a proportional amount of such payments, distributions, amounts, votes or consents, as applicable, with respect to any related Component (whether or not explicitly mentioned). Status and Ranking. The Composite Notes are limited recourse obligations of the Issuer. For purposes of subordination, the Composite Notes shall not be treated as a separate Class; rather, a Component will be treated as part of the underlying Class of Notes related to such Component. The Components of the Composite Notes will be secured by the Assets of the Issuer. See "Security for the Senior Notes." Payments on the Composite Notes. On each Payment Date on which payments, whether from Principal Proceeds or Interest Proceeds or upon redemption or other payments, are made on any Class of Notes to which the Components relate, a portion of such payment will be allocated to each related Component of the Composite Notes in the proportion that the principal amount of such Component bears to the principal amount of the underlying Class of Notes as a whole (including the related Component). If and to the extent that such payments are in repayment of the principal amount of the underlying Class of Senior Notes, the principal amount of the related Component of the Composite Notes shall be deemed to have been repaid to the extent of any such payment. No other payments will be made on the Composite Notes. 75 Exchange of Components. The Components of the Composite Notes are not separately transferable. However, a holder of a beneficial interest in a Composite Note may exchange all or a proportionate amount of each Component of such interest for proportional interests in the underlying Class of Notes by exchanging such interest for proportional interests in the Global Notes representing the underlying Class of Notes, subject to the minimum denomination requirements applicable to such Class and in accordance with the procedures set forth in the Indenture. Any holder of any Class of Notes (including a holder that received such Note upon exchange of a Composite Note) will not have the right to exchange such Notes for a Composite Note. Redemption of the Composite Notes. The Composite Notes will be subject to mandatory redemption, Special Redemption and Optional Redemption to the extent the underlying Classes of Notes are so redeemed. Upon any such redemption of the underlying Classes of Notes, the related Components of the Composite Notes will be redeemed by allocation of payments in respect of the underlying Classes of Notes to the related Components. Voting. The holders of Composite Notes are not entitled to any rights to vote as a single Class, but are entitled to voting rights in the underlying Classes of Notes in the proportion that the Components bear to the principal amount of the underlying Classes of Notes (including the related Components). The holders of the Composite Notes, like any investors who hold securities of multiple Classes, may be influenced in their vote cast in one class of securities by their interest in another class of securities. RATINGS OF THE SENIOR NOTES AND THE COMPOSITE NOTES The Senior Notes It is a condition of the issuance of the Offered Securities that the Senior Notes of each Class receive from each of Moody's and S&P (each, a "Rating Agency") the minimum rating indicated under "Summary of Terms— Principal Terms of the Offered Securities." A security rating is not a recommendation to buy, sell or hold securities and is subject to withdrawal at any time. There is no assurance that a rating will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by the assigning Rating Agency if in its judgment circumstances in the future so warrant. The ratings of the Senior Notes address the likelihood of full and ultimate payment to holders of the Senior Notes of all distributions of stated interest (or, in the case of the S&P rating of the Class A Notes and the Class B Notes, timely payment of distributions of stated interest) and the ultimate payment in full of the principal amount of each such Class not later than its respective Stated Maturity date. The ratings assigned to the Senior Notes of each Class by each Rating Agency are based upon its assessment of the probability that the Collateral Obligations will provide sufficient funds to pay the Senior Notes of such Class (based upon the Interest Rate and principal balance or face amount, as applicable, of such Class), based largely upon such Rating Agency's statistical analysis of historical default rates on debt securities with various ratings, the terms of the Indenture, the asset and interest coverage required for the Senior Notes (which is achieved through the subordination of the Subordinated Notes and certain Classes of Senior Notes as described herein), and the Concentration Limitations and the Collateral Quality Test, each of which must be satisfied, maintained or improved in order to reinvest in additional Collateral Obligations. In addition to their respective quantitative tests, the ratings of each Rating Agency take into account qualitative features of a transaction, including the legal structure and the risks associated with 76 such structure, such Rating Agency's view as to the quality of the participants in the transaction and other factors that it deems relevant. The Composite Notes It is a condition to the issuance of the Composite Notes that the Composite Notes be rated at least "Baa2" by Moody's solely with respect to the ultimate receipt of payments equal to the Rated Amount of the Composite Notes. A security rating is not a recommendation to buy, sell or hold securities and is subject to withdrawal at any time. There is no assurance that a rating will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by Moody's if in its judgment circumstances in the future so warrant. The rating assigned to the Composite Notes by Moody's is based largely upon Moody's statistical analysis of historical default rates on debt securities with various ratings, the terms of the Indenture, the asset and interest coverage required for the Senior Notes (which is achieved through the subordination of the Subordinated Notes and certain Classes of Senior Notes as described in this Offering Memorandum), and the Concentration Limitations and the Collateral Quality Test, each of which must be satisfied, maintained or improved in order to reinvest in additional Collateral Obligations. In addition to its quantitative tests, the ratings of Moody's take into account qualitative features of a transaction, including the legal structure and the risks associated with such structure, Moody's view as to the quality of the participants in the transaction and other factors that it deems relevant. "Rated Amount" means, with respect to the Moody's rating of the Composite Notes on any date of determination, an amount equal to the greater of (1) zero and (2)(x) the initial face amount of the Composite Notes plus (y) the aggregate amount, if any, of Rated Amount Unpaid Notional Interest in respect of the Composite Notes on all prior Payment Dates minus (z) the aggregate amount, if any, of Rated Amount Notional Principal Payments in respect of the Composite Notes on all prior Payment Dates. "Rated Amount Unpaid Notional Interest" means, with respect to the Composite Notes and any Payment Date, an amount equal to the positive difference, if any, between (x) the Rated Amount Notional Interest Amount for the Composite Notes on such Payment Date and (y) all distributions of interest, principal or other amounts paid to the holders of the Composite Notes in respect of the Components on such Payment Date. "Rated Amount Notional Interest Amount" means, with respect to the Composite Notes and each Interest Accrual Period, an amount of notional interest at a per annum rate of 1.00% on the Rated Amount of the Composite Notes as of the first day of such Interest Accrual Period (calculated on the basis of a 360-day year consisting of twelve 30 day months). "Rated Amount Notional Principal Payments" means, with respect to the Composite Notes and any Payment Date, an amount equal to the positive difference, if any, between (x) all distributions of interest, principal or other amounts paid to the holders of the Composite Notes in respect of its Components on such Payment Date and (y) the Rated Amount Notional Interest Amount for the Composite Notes on such Payment Date. SECURITY FOR THE SENIOR NOTES The "Assets" will consist of, and the Issuer will grant to the Trustee a perfected security interest for the benefit of the Secured Parties in: 77 (a) the Collateral Obligations that the Issuer causes to be delivered to the Trustee (directly or through an intermediary or bailee) pursuant to the Indenture and all payments thereon or with respect thereto, and all Collateral Obligations which are delivered to the Trustee in the future pursuant to the terms of the Indenture and all payments thereon or with respect thereto; (b) the Issuer's interest in (i) the Payment Account, (ii) the Collection Account, (iii) the Ramp-Up Account, (iv) the Delayed Funding Obligation Account, (v) each Synthetic Security Issuer Account and Synthetic Security Counterparty Account (to the extent permitted under the related Synthetic Security) and Class A-2R Purchaser Collateral Account (but only to the extent that the Issuer is entitled to amounts on deposit in such account and subject to the rights of the applicable holder of the Class A-2R Notes set forth in the Class A-2R Note Purchase Agreement), (vi) the Expense Reserve Account, (vii) the Custodial Account, (viii) the Subordinated Note Collateral Delayed Funding Obligation Account, (ix) the Excess CCC/Caa Reserve Account and (x) each Securities Lending Account (subject to any senior liens created by the related Securities Lending Agreement), any Eligible Investments purchased with funds on deposit therein, and all income from the investment of funds therein; (c) the Issuer's rights under the Portfolio Management Agreement, the Hedge Agreements (provided, that there is no such grant to the Trustee on behalf of any Hedge Counterparty in respect of its related Hedge Agreement), the Collateral Administration Agreement, the Class A2R Note Purchase Agreement, the Securities Lending Agreements, the Administration Agreement and any documentation related to a Synthetic Security (to the extent permitted under the related Synthetic Security); (d) all cash or money delivered to the Trustee (or its bailee); (e) all accounts, chattel paper, deposit accounts, financial assets, general intangibles, instruments, investment property, letter-of-credit rights and other supporting obligations relating to the foregoing; (f) any other property otherwise delivered to the Trustee by or on behalf of the Issuer (whether or not constituting Collateral Obligations or Eligible Investments); (g) the Issuer's rights in all assets owned by any ETB/897 Subsidiary and the Issuer's rights under any agreement with any ETB/897 Subsidiary; and (h) all proceeds with respect to the foregoing; provided, that such grants shall not include the $250 transaction fee paid to the Issuer in consideration of the issuance of the Notes, the funds attributable to the issue and allotment of the Issuer's ordinary shares or the bank account in the Cayman Islands in which such funds are deposited (or any interest thereon) (or any funds deposited or credited thereto) or the Co-Issuer's common shares. Collateral Obligations It is anticipated that the Issuer will have completed the purchase of, or entered into binding agreements to purchase, at least 60% (by principal amount) of the Target Initial Par Amount on the Closing Date. It is expected (but there can be no assurance) that the Concentration Limitations, the 78 Collateral Quality Test and the Overcollateralization Ratio Tests will be satisfied not later than the end of the Ramp-Up Period. The composition of the Collateral Obligations will change over time as a result of (i) the acquisition of additional Collateral Obligations during the Ramp-Up Period, (ii) scheduled and unscheduled principal payments on the Collateral Obligations, and (iii) sales of Assets and reinvestment of Sale Proceeds and other Principal Proceeds during the Reinvestment Period, subject to the limitations described under "—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria" below. The Concentration Limitations By the end of the Ramp-Up Period, and in connection with any reinvestment thereafter in additional Collateral Obligations, the Collateral Obligations in the aggregate are expected to comply with all of the requirements of the Concentration Limitations set forth under "Summary of Terms— Concentration Limitations" or, if not in compliance at the time of reinvestment, the relevant requirements must be maintained or improved. Measurement of the degree of compliance with the Concentration Limitations will be required on (i) any day on which a sale, a purchase or a default of a Collateral Obligation occurs, (ii) any Determination Date, (iii) the date as of which the information in any monthly report prepared under the Indenture is calculated, (iv) with five Business Days prior notice, any Business Day requested by either Rating Agency and (v) the last day of the Ramp-Up Period (each such date, a "Measurement Date"). See "—Collateral Assumptions" below for a description of the assumptions applicable to the determination of satisfaction of the Concentration Limitations. The Collateral Quality Test By the end of the Ramp-Up Period, and in connection with any reinvestment in additional Collateral Obligations thereafter, the Collateral Obligations in the aggregate are expected to comply with all of the requirements of the Collateral Quality Test set forth under "Summary of Terms—Collateral Quality Test" or, if not in compliance at the time of reinvestment, the relevant requirements must be maintained or improved. Measurement of the degree of compliance with the Collateral Quality Test will be required on every Measurement Date. See "—Collateral Assumptions" below for a description of the assumptions applicable to the determination of satisfaction of the Collateral Quality Test. Minimum Fixed Coupon Test. "Weighted Average Fixed Coupon" means, as of any date of determination, the number, expressed as a percentage, obtained by summing for each fixed rate Collateral Obligation (excluding Deferring Securities) the following product obtained with respect to each such Collateral Obligation (each result rounded up to the nearest 0.01%): The interest coupon of such Collateral Obligation X The Principal Balance of such Collateral Obligation The Aggregate Principal Balance of all fixed rate Collateral Obligations (excluding Deferring Obligations) "Excess Weighted Average Floating Spread" means an amount equal as of any date of determination to: 79 The excess, if any, of the Weighted Average Floating Spread over the Minimum Floating Spread The Aggregate Principal Balance of all floating rate Collateral Obligations X The Aggregate Principal Balance of all fixed rate Collateral Obligations Minimum Floating Spread Test. "Weighted Average Floating Spread" means, as of any date of determination, the number, expressed as a percentage, obtained by (a) summing the products obtained by multiplying, in the case of each floating rate Collateral Obligation (excluding Deferring Securities and Short Positions, but including any other floating rate Synthetic Security), the cash interest coupon of such Collateral Obligation over LIBOR (multiplied in the case of any Revolving Collateral Obligation or Delayed Drawdown Collateral Obligation by the percentage of the outstanding principal balance thereof that is drawn), excluding commitment, letter of credit and all other fees, by the outstanding Principal Balance of such Collateral Obligation (or in case of any Revolving Collateral Obligation or Delayed Drawdown Collateral Obligation, by the total amount of such facility), and (b) dividing such sum by the aggregate of the outstanding Principal Balance of all such floating rate Collateral Obligations (except that, with respect to any Revolving Collateral Obligation or Delayed Drawdown Collateral Obligation, the amount included for purposes of clause (b) will be the outstanding Principal Balance thereof that is drawn) and rounding the result up to the nearest 0.01% and subtracting from such percentage the Weighted Average Annualized Short Premium; provided, however, for purposes of determining a sum for clause (a), if the aggregate amount of unfunded commitments of Revolving Collateral Obligations and Delayed Drawdown Collateral Obligations, on the applicable Measurement Date, is greater than 10% of the Collateral Principal Amount, an amount equal to the excess of such unfunded commitments over 10% of the Collateral Principal Amount multiplied by the applicable commitment fee for the relevant Revolving Collateral Obligations and Delayed Drawdown Collateral Obligations shall be included in the sum calculated for clause (a) and, for purposes of determining the amount of clause (b) an amount equal to the excess of such unfunded commitments over 10% of the Collateral Principal Amount shall be added to clause (b). For purposes of determining which unfunded commitments will comprise the excess of unfunded commitments over 10% of the Collateral Principal Amount in the foregoing calculation, those unfunded commitments with the lowest commitment fee will be used. For purposes of the foregoing, (1) LIBOR with respect to any floating rate Collateral Obligation that does not bear interest based on a spread over LIBOR shall be calculated using the same LIBOR calculated for payments on the Floating Rate Notes, (2) LIBOR with respect to any floating rate Collateral Obligation that bears interest based on a spread over LIBOR shall be calculated in the same manner as it is calculated for payments on such Collateral Obligation and (3) the interest coupon of any Step-Up Security shall be based on its thencurrent coupon (and not a future stepped-up coupon rate). "Excess Weighted Average Fixed Coupon" means an amount equal as of any date of determination to: The excess, if any, of the Weighted Average Fixed Coupon over the Minimum Fixed Coupon The Aggregate Principal Balance of all fixed rate Collateral Obligations X The Aggregate Principal Balance of all floating rate Collateral Obligations 80 "Annualized Short Premium" means, as of any Measurement Date and with respect to any Short Position, the aggregate periodic payments payable by the Issuer under such Short Position during the immediately succeeding 365 day period, as determined by the Portfolio Manager. "Weighted Average Annualized Short Premium" means, as of any date of determination, the following number, expressed as a percentage (rounding the result up to the nearest 0.01%): The Annualized Short Premium of each Short Position The Aggregate Principal Balance of all floating rate Collateral Obligations Maximum Moody's Rating Factor Test. The "Weighted Average Moody's Rating Factor" is the number (rounded up to the nearest whole number) determined by: The Principal Balance of each Collateral Obligation (excluding Equity Securities) X The Moody's Rating Factor of such Collateral Obligation (or, in the case of a Structured Finance Obligation, the Adjusted Moody's Rating Factor of such Collateral Obligation) (in each case, as described below) The Aggregate Principal Balance of all such Collateral Obligations The "Moody's Rating Factor" relating to any Collateral Obligation is the number set forth in the table below opposite the Moody's Default Probability Rating (as described below) of such Collateral Obligation. Moody's Default Probability Rating Moody's Rating Factor Moody's Default Probability Rating Moody's Rating Factor Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 1 10 20 40 70 120 180 260 360 610 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca or lower 940 1,350 1,766 2,220 2,720 3,490 4,770 6,500 8,070 10,000 For purposes of the Maximum Moody's Rating Factor Test, any Collateral Obligation issued or guaranteed by the United States government or any agency or instrumentality thereof is assigned a Moody's Rating Factor of 1. The "Adjusted Moody's Rating Factor" relating to any Structured Finance Obligation as of any Measurement Date is equal to (a) (1) the Moody's Rating Factor for such Structured Finance Obligation 81 multiplied by (2) 0.55 divided by (b) (1) one minus (2) the Moody's Recovery Rate for such Structured Finance Obligation. Moody's Diversity Test. For purposes of the "Moody's Diversity Test", the Diversity Score (the "Diversity Score") is a single number that indicates collateral concentration in terms of both issuer and industry concentration. A higher Diversity Score reflects a more diverse portfolio in terms of issuer and industry concentration. The Diversity Score is calculated as follows: (i) An "Issuer Par Amount" is calculated for each issuer of a Collateral Obligation, and is equal to the aggregate outstanding principal balance of all Collateral Obligations issued by that issuer and all affiliates. (ii) An "Average Par Amount" is calculated by summing the Issuer Par Amounts for all issuers, and dividing by the number of issuers. (iii) An "Equivalent Unit Score" is calculated for each issuer, and is equal to the lesser of (x) one and (y) the Issuer Par Amount for such issuer divided by the Average Par Amount. (iv) An "Aggregate Industry Equivalent Unit Score" is then calculated for each of the Moody's industry classification groups (as defined in the Indenture) and is equal to the sum of the Equivalent Unit Scores for each issuer in such industry classification group. (v) An "Industry Diversity Score" is then established for each Moody's industry classification group by reference to the following table for the related Aggregate Industry Equivalent Unit Score; provided, that if any Aggregate Industry Equivalent Unit Score falls between any two such scores, the applicable Industry Diversity Score will be the lower of the two Industry Diversity Scores: 82 Aggregate Industry Equivalent Unit Score 0.0000 0.0500 0.1500 0.2500 0.3500 0.4500 0.5500 0.6500 0.7500 0.8500 0.9500 1.0500 1.1500 1.2500 1.3500 1.4500 1.5500 1.6500 1.7500 1.8500 1.9500 2.0500 2.1500 2.2500 2.3500 2.4500 2.5500 2.6500 2.7500 2.8500 2.9500 3.0500 3.1500 3.2500 3.3500 3.4500 3.5500 3.6500 3.7500 3.8500 3.9500 4.0500 4.1500 4.2500 4.3500 4.4500 4.5500 4.6500 4.7500 4.8500 4.9500 Industry Diversity Score 0.0000 0.1000 0.2000 0.3000 0.4000 0.5000 0.6000 0.7000 0.8000 0.9000 1.0000 1.0500 1.1000 1.1500 1.2000 1.2500 1.3000 1.3500 1.4000 1.4500 1.5000 1.5500 1.6000 1.6500 1.7000 1.7500 1.8000 1.8500 1.9000 1.9500 2.0000 2.0333 2.0667 2.1000 2.1333 2.1667 2.2000 2.2333 2.2667 2.3000 2.3333 2.3667 2.4000 2.4333 2.4667 2.5000 2.5333 2.5667 2.6000 2.6333 2.6667 Aggregate Industry Equivalent Unit Score 5.0500 5.1500 5.2500 5.3500 5.4500 5.5500 5.6500 5.7500 5.8500 5.9500 6.0500 6.1500 6.2500 6.3500 6.4500 6.5500 6.6500 6.7500 6.8500 6.9500 7.0500 7.1500 7.2500 7.3500 7.4500 7.5500 7.6500 7.7500 7.8500 7.9500 8.0500 8.1500 8.2500 8.3500 8.4500 8.5500 8.6500 8.7500 8.8500 8.9500 9.0500 9.1500 9.2500 9.3500 9.4500 9.5500 9.6500 9.7500 9.8500 9.9500 10.0500 Industry Diversity Score 2.7000 2.7333 2.7667 2.8000 2.8333 2.8667 2.9000 2.9333 2.9667 3.0000 3.0250 3.0500 3.0750 3.1000 3.1250 3.1500 3.1750 3.2000 3.2250 3.2500 3.2750 3.3000 3.3250 3.3500 3.3750 3.4000 3.4250 3.4500 3.4750 3.5000 3.5250 3.5500 3.5750 3.6000 3.6250 3.6500 3.6750 3.7000 3.7250 3.7500 3.7750 3.8000 3.8250 3.8500 3.8750 3.9000 3.9250 3.9500 3.9750 4.0000 4.0100 Aggregate Industry Equivalent Unit Score Industry Diversity Score 10.1500 10.2500 10.3500 10.4500 10.5500 10.6500 10.7500 10.8500 10.9500 11.0500 11.1500 11.2500 11.3500 11.4500 11.5500 11.6500 11.7500 11.8500 11.9500 12.0500 12.1500 12.2500 12.3500 12.4500 12.5500 12.6500 12.7500 12.8500 12.9500 13.0500 13.1500 13.2500 13.3500 13.4500 13.5500 13.6500 13.7500 13.8500 13.9500 14.0500 14.1500 14.2500 14.3500 14.4500 14.5500 14.6500 14.7500 14.8500 14.9500 15.0500 15.1500 4.0200 4.0300 4.0400 4.0500 4.0600 4.0700 4.0800 4.0900 4.1000 4.1100 4.1200 4.1300 4.1400 4.1500 4.1600 4.1700 4.1800 4.1900 4.2000 4.2100 4.2200 4.2300 4.2400 4.2500 4.2600 4.2700 4.2800 4.2900 4.3000 4.3100 4.3200 4.3300 4.3400 4.3500 4.3600 4.3700 4.3800 4.3900 4.4000 4.4100 4.4200 4.4300 4.4400 4.4500 4.4600 4.4700 4.4800 4.4900 4.5000 4.5100 4.5200 Aggregate Industry Equivalent Unit Score Industry Diversity Score 15.2500 15.3500 15.4500 15.5500 15.6500 15.7500 15.8500 15.9500 16.0500 16.1500 16.2500 16.3500 16.4500 16.5500 16.6500 16.7500 16.8500 16.9500 17.0500 17.1500 17.2500 17.3500 17.4500 17.5500 17.6500 17.7500 17.8500 17.9500 18.0500 18.1500 18.2500 18.3500 18.4500 18.5500 18.6500 18.7500 18.8500 18.9500 19.0500 19.1500 19.2500 19.3500 19.4500 19.5500 19.6500 19.7500 19.8500 19.9500 4.5300 4.5400 4.5500 4.5600 4.5700 4.5800 4.5900 4.6000 4.6100 4.6200 4.6300 4.6400 4.6500 4.6600 4.6700 4.6800 4.6900 4.7000 4.7100 4.7200 4.7300 4.7400 4.7500 4.7600 4.7700 4.7800 4.7900 4.8000 4.8100 4.8200 4.8300 4.8400 4.8500 4.8600 4.8700 4.8800 4.8900 4.9000 4.9100 4.9200 4.9300 4.9400 4.9500 4.9600 4.9700 4.9800 4.9900 5.0000 (vi) The Diversity Score is then calculated by summing each of the Industry Diversity Scores for each Moody's industry classification group. 83 For purposes of calculating the Diversity Score, affiliated issuers in the same industry are deemed to be a single issuer, except as otherwise agreed to by Moody's and collateralized loan obligations will not be included. S&P CDO Monitor Test. The S&P CDO Monitor Test will be satisfied on any date of determination if, after giving effect to the sale of a Collateral Obligation or the purchase of an additional Collateral Obligation, each Class Default Differential of the Proposed Portfolio is positive. The S&P CDO Monitor Test will be considered to be improved if each Class Default Differential of the Proposed Portfolio is greater than the corresponding Class Default Differential of the Current Portfolio. S&P provide shall nine S&P CDO Monitors for each case in the definition of Minimum Weighted Average S&P Recovery Rate Test to the Issuer, the Portfolio Manager, and the Trustee. The Portfolio Manager will identify the applicable model based on the S&P CDO Monitor Test Matrix in Section 2 of Annex A-4 to be used for the purpose of determining compliance with the S&P CDO Monitor Test (the “Applicable S&P CDO Monitor”). Compliance with the S&P CDO Monitor Test will be measured by the Portfolio Manager on each Measurement Date. There can be no assurance that actual defaults of the Collateral Obligations will not exceed those assumed in the application of the S&P CDO Monitor or that recovery rates with respect thereto will not differ from those assumed in the S&P CDO Monitor. None of the Portfolio Manager, the Initial Purchaser or the Co-Issuers makes any representation as to the expected rate of defaults of the Collateral Obligations or the timing of defaults or as to the expected recovery rate or the timing of recoveries. Minimum Weighted Average Moody's Recovery Rate Test. "Weighted Average Moody's Recovery Rate" means, as of any date of determination, the number, expressed as a percentage, obtained by summing the product of the Moody's Recovery Rate on such Measurement Date of each Collateral Obligation and the Principal Balance of such Collateral Obligation, dividing such sum by the Aggregate Principal Balance of all such Collateral Obligations and rounding up to the first decimal place. "Moody's Recovery Rate" means, with respect to any loan, Bond or Synthetic Security, as of any date of determination, will be the recovery rate determined in accordance with the following, in the following order of priority: (a) if the loan, Bond (including, for the avoidance of doubt, a Structured Finance Obligation) or Synthetic Security has been specifically assigned a recovery rate by Moody's (for example, in connection with the assignment by Moody's of an estimated rating), such recovery rate; (b) if the preceding clause does not apply to the Bond or loan, as the case may be, and the loan is a Moody's Senior Secured Loan or a Moody's Non-Senior Secured Loan, (except in the case of a Structured Finance Obligation or a DIP Collateral Obligation) the rate determined pursuant to the table below based on the number of rating subcategories difference between the Bond's or loan's Moody's Rating and its Moody's Default Probability Rating (for purposes of clarification, if the Moody's Rating is 84 higher than the Moody's Default Probability Rating, the rating subcategories difference will be positive and if it is lower, negative): Number of Moody's Ratings Subcategories Difference Between the Moody's Rating and the Moody's Default Probability Rating +2 or more +1 0 -1 -2 -3 or less Moody's Non-Senior Secured Loans Moody's Senior Secured Loans 60.0% 50.0% 45.0% 40.0% 30.0% 20.0% 45.0% 42.5% 40.0% 30.0% 15.0% 10.0% Bonds* 40.0% 35.0% 30.0% 15.0% 10.0% 2.0% * The recovery rate for a subordinated Bond will be 15% if its Moody's Rating has been determined with reference to the definition of "Moody's Derived Rating." or (c) if no recovery rate has been assigned with respect to a loan pursuant to clause (a) above, and the loan is a DIP Collateral Obligation, 50%; or (d) if the Bond is a Structured Finance Obligation (other than a Structured Finance Obligation which has been specifically assigned a recovery rate by Moody's), the rate determined in accordance with Schedule 6 to the Indenture. Minimum Weighted Average S&P Recovery Rate Test. "Weighted Average S&P Recovery Rate" means, as of any date of determination, the number, expressed as a percentage and determined separately for each Class of Senior Notes, obtained by summing the products obtained by multiplying the outstanding principal balance of each Collateral Obligation by its corresponding S&P Recovery Rate as determined in accordance with Section 1 of Annex A-4 hereto, dividing such sum by the aggregate principal balance of all Collateral Obligations, and rounding to the nearest tenth of a percent. Weighted Average Life Date. The "Weighted Average Life Date" is, as of any Measurement Date, the date that is the following number of days after such Measurement Date: The sum of the remaining Principal Balances of each Collateral Obligation X The number of days to the date of maturity or amortization of such Collateral Obligation (as reasonably determined by the Portfolio Manager in good faith) as of such Measurement Date The aggregate remaining Principal Balance of all Collateral Obligations as of such 85 Measurement Date Collateral Assumptions Unless otherwise specified, the assumptions described in this section will be applied to the determination of the Concentration Limitations, the Collateral Quality Test and the Coverage Tests. For purposes of calculating all Concentration Limitations, in both the numerator and the denominator of any component of the Concentration Limitations, Defaulted Obligations will be treated as having a Principal Balance equal to zero. For purposes of calculating compliance with the Investment Criteria, upon the direction of the Portfolio Manager by notice to the Trustee and the Collateral Administrator, any Eligible Investment representing Principal Proceeds received upon the maturity, redemption, sale or other disposition of a Collateral Obligation shall be deemed to have the characteristics of such Collateral Obligation until reinvested in an additional Collateral Obligation. Such calculations shall be based upon the principal amount of such Collateral Obligation, except in the case of Defaulted Obligations and Credit Risk Obligations, in which case the calculations will be based upon the Principal Proceeds received on the disposition or sale of such Defaulted Obligation or Credit Risk Obligation. For all purposes (including calculation of the Coverage Tests), the Principal Balance of a Revolving Collateral Obligation or a Delayed Drawdown Collateral Obligation will include all unfunded commitments that have not been irrevocably reduced or withdrawn. For purposes of calculating the sale proceeds of a Collateral Obligation in purchase and sale transactions, sales proceeds will include any Principal Financed Accrued Interest received in respect of such sale. For purposes of calculating the Coverage Tests, except as otherwise specified in the Coverage Tests, such calculations will not include scheduled interest and principal payments on Defaulted Obligations or payments (including under any Hedge Agreement) as to which the Portfolio Manager or the Issuer has actual knowledge that such payments will not be made unless or until such payments are actually made. For each Collection Period and as of any date of determination, the scheduled payment of principal and/or interest on any pledged obligation (other than a Defaulted Obligation, which, except as otherwise provided herein, shall be assumed to have scheduled distributions of zero) shall be the sum of (i) the total amount of payments and collections to be received during such Collection Period in respect of such pledged obligation (including the proceeds of the sale of such pledged obligation received and, in the case of sales which have not yet settled, to be received during the Collection Period and not reinvested in additional Collateral Obligations or Eligible Investments or retained in the Collection Account for subsequent reinvestment) that, if paid as scheduled, will be available in the Collection Account at the end of the Collection Period and (ii) any such amounts received in prior Collection Periods that were not disbursed on a previous Payment Date. Each scheduled payment of principal and/or interest receivable with respect to a Collateral Obligation shall be assumed to be received on the applicable due date thereof, and each such scheduled payment of principal and/or interest shall be assumed to be immediately deposited in the Collection Account to earn interest at an assumed reinvestment rate. All such funds shall be assumed to continue to 86 earn interest until the date on which they are required to be available in the Collection Account for application, in accordance with the terms of the Indenture, to payments of principal of or interest on the Notes or other amounts payable pursuant to the Indenture. For all purposes under the Indenture, a Synthetic Security (i) will be treated as having the S&P industry classification, Moody's industry classification and geographic location of the issuer of the Reference Obligation; (ii) will be treated as being an obligation of the issuer of the Reference Obligation for purposes of clause (xv) of the definition of Concentration Limitations; (iii) (a) in the case of Moody's and any Form Approved Synthetic Security, will be treated as having (x) a Moody's Rating Factor equal to the sum of the Moody's Rating Factor of the related Reference Obligation and the Moody's Rating Factor associated with the senior unsecured rating of the related Synthetic Security Counterparty, unless otherwise determined by Moody's and (y) the Moody's Recovery Rate assigned to the related Reference Obligation, unless otherwise determined by Moody's, (b) in the case of Moody's and any other type of Synthetic Security, will be treated as having a Moody's Rating Factor and a Moody's Recovery Rate as determined by Moody's and (c) in the case of S&P, will be treated as having an S&P Recovery Rate equal to that of the related Reference Obligation unless otherwise determined by S&P and, in the case of a Form Approved Synthetic Security, the S&P Rating of the related Reference Obligation; (iv) will be treated as having the interest rate and other payment characteristics, Stated Maturity and tax characteristics of such Synthetic Security; (v) will be treated as having a Moody's Rating and Moody's Default Probability Rating equal to the rating in the "Moody's Default Probability Rating" column included in the definition of "Moody's Rating Factor" opposite the Moody's Rating Factor of such Synthetic Security determined in accordance with clause (iii)(b) above (for such purpose, such Moody's Rating Factor shall be rounded to the nearest whole number included in the "Moody's Rating Factor" column); and (vi) (a) if the related Reference Obligation would constitute a "Discount Obligation," will be treated as a "Discount Obligation" and (b) will be treated as a bank loan for the purposes of the definition of "Discount Obligation" if its Moody's Recovery Rate is greater than or equal to 40%. For purposes of calculating the Weighted Average Floating Spread, the spread for a Synthetic Security will be deemed to be the interest rate on the related Synthetic Security Collateral plus the premium rate received from such Synthetic Security less LIBOR (as determined for the Senior Notes). If a Collateral Obligation included in the Assets would be deemed a Current Pay Obligation but for the applicable percentage limitation in the definition thereof, the Portfolio Manager may determine in its sole discretion which such Current Pay Obligations will be deemed Defaulted Obligations. Each such Defaulted Obligation will be treated as a Defaulted Obligation for all purposes until such time as the Aggregate Principal Balance of Current Pay Obligations would not exceed, on a pro forma basis including such Defaulted Obligation, the applicable percentage of the Collateral Principal Amount. References under "Summary of Terms—Priority of Payments" to calculations made on a "pro forma basis" shall mean such calculations after giving effect to all payments, in accordance with the priority of payments described herein, that precede (in priority of payment) or include the clause in which such calculation is made. Except in connection with the S&P CDO Monitor Test and as otherwise provided herein, Defaulted Obligations will not be included in the calculation of the Collateral Quality Test. For purposes of calculating compliance with the Investment Criteria, at the election of the Portfolio Manager in its sole discretion, any proposed investment may be evaluated after giving effect to all sales and reinvestments proposed to be entered into within the three Business Days following the date of determination of such compliance. 87 For purposes of calculating clauses (v) and (vi) of the Concentration Limitations, without duplication, the amounts on deposit in the Collection Account and the Ramp-Up Account (including Eligible Investments therein) representing Principal Proceeds, from and after a default under a Securities Lending Agreement, amounts on deposit in the related Securities Lending Account (including Eligible Investments therein) and the Class A-2R Aggregate Undrawn Amount shall each be deemed to be a floating rate Collateral Obligation that is a Senior Secured Loan. For all purposes of the Indenture, a Collateral Obligation lent pursuant to a Securities Lending Agreement will be treated as a Collateral Obligation, including for purposes of determining the Fee Basis Amount, compliance with the Concentration Limitations, the Collateral Quality Test and the Coverage Tests and for purposes of the definitions of Interest Proceeds and Principal Proceeds, unless and until a default occurs and is continuing under the applicable Securities Lending Agreement. Upon a default under the related Securities Lending Agreement, such Collateral Obligation will cease to be treated as a Collateral Obligation and in lieu thereof, amounts held in the applicable Securities Lending Account will be treated as Eligible Investments (whether or not such amounts satisfy the definition of Eligible Investment), characterized as Principal Proceeds for all purposes unless and until such loaned Collateral Obligation is delivered to the Issuer. All monetary calculations under the Indenture will be in U.S. dollars. The Coverage Tests See "—Collateral Assumptions" above for a description of the assumptions applicable to the determination of satisfaction of the Coverage Tests. Overcollateralization Ratio. See "Summary of Terms—Coverage Tests" for a description of the calculation of the Overcollateralization Ratio. Interest Coverage Ratio. See "Summary of Terms—Coverage Tests" for a description of the calculation of the Interest Coverage Ratio. Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria Subject to the other requirements set forth in the Indenture; and provided, that no Event of Default has occurred and is continuing (except for a sale pursuant to clauses (a), (c), (d) and (g) below), the Portfolio Manager on behalf of the Issuer may in writing direct the Trustee to sell and the Trustee shall sell in the manner directed by the Portfolio Manager any Collateral Obligation or Equity Security if such sale meets any one of the following requirements: (a) The Portfolio Manager may direct the Trustee to sell any Credit Risk Obligation at any time without restriction; (b) The Portfolio Manager may direct the Trustee to sell any Credit Improved Obligation either: (i) at any time if (A) the Sale Proceeds from such sale are at least equal to the Investment Criteria Adjusted Balance of such Credit Improved Obligation, or (B) the Overcollateralization Ratio Threshold Test would be satisfied after giving effect to such sale; or 88 (ii) during the Reinvestment Period if the Portfolio Manager reasonably believes prior to such sale that either (A) after such sale and subsequent reinvestment of the proceeds of such sale, the Overcollateralization Ratio Threshold Test will be satisfied, or (B) it will be able to enter into binding commitments to reinvest all or a portion of the proceeds of such sale, in compliance with the Investment Criteria, in one or more additional Collateral Obligations with an Aggregate Principal Balance at least equal to the Investment Criteria Adjusted Balance of such Credit Improved Obligation within twenty Business Days of such sale; (c) The Portfolio Manager may direct the Trustee to sell any Defaulted Obligation at any time during or after the Reinvestment Period without restriction; provided, that the Portfolio Manager shall use its commercially reasonable efforts to effect the sale of any Defaulted Obligation within three years after it becomes a Defaulted Obligation, regardless of price; (d) The Portfolio Manager may direct the Trustee to sell any Equity Security at any time during or after the Reinvestment Period without restriction, and shall use its commercially reasonable efforts to effect the sale of any Equity Security (not including any Defaulted Obligation), regardless of price: (i) within twenty Business Days of receipt in the case of Equity Securities received on the exercise of a conversion option relating to any Collateral Obligation (or within three years of receipt (unless otherwise acceptable to the Rating Agencies), if such Equity Security is (A) received upon the conversion of a Defaulted Obligation, or (B) received in an exchange initiated by the obligor to avoid bankruptcy); (ii) within 45 days of receipt if such Equity Security constitutes Margin Stock other than a Subordinated Note Collateral Obligation, unless such sale is prohibited by applicable law, in which case such Equity Security shall be sold as soon as such sale is permitted by applicable law; (iii) within 18 months of receipt or of such security becoming an Equity Security, if neither (i) nor (ii) above applies (unless such sale is prohibited by applicable law); (e) After the Issuer has notified the Trustee of an Optional Redemption utilizing a Redemption by Liquidation of the Notes and all requirements set forth in the Indenture are met, the Portfolio Manager shall direct the Trustee to sell all or a portion of the Collateral Obligations; or (f) The Portfolio Manager may direct the Trustee to sell any Collateral Obligation at any time other than a Restricted Trading Period if (i) after giving effect to such sale, the Aggregate Principal Balance of all Collateral Obligations sold as described in this paragraph during the same calendar year is not greater than 20% of the Collateral Principal Amount as of the beginning of such calendar year (or, in the case of the year 2007, the Aggregate Principal Balance of all Collateral Obligations sold during such calendar year is not greater than $50,462,728); and (ii) either: (A) during or after the Reinvestment Period, the Sale Proceeds from such sale are at least equal to the Investment Criteria Adjusted Balance of such Collateral Obligation, or (B) during the Reinvestment Period, the Portfolio Manager reasonably believes prior to such sale that it will be able to enter into binding commitments to reinvest all or a portion of the proceeds of such sale, in compliance with the Investment Criteria, in one or more additional Collateral Obligations with an Aggregate Principal Balance at least equal to the Investment 89 Criteria Adjusted Balance of such Collateral Obligation within twenty Business Days of such sale. (g) The Portfolio Manager shall use its commercially reasonable efforts to effect the sale (regardless of price) of any Collateral Obligation that (i) no longer meets the criteria described in clause (viii) or (x) of the definition of "Collateral Obligation", within 18 months of the failure of such Collateral Obligation to meet any such criteria (unless the Global Rating Agency Condition is satisfied) and (ii) no longer meets the criteria described in clause (vi) or (vii) of the definition of "Collateral Obligation" within 45 days of the failure of such Collateral Obligation to meet either such criteria. Notwithstanding the other requirements set forth in the Indenture and described above, the Issuer shall have the right to effect the sale of any Pledged Obligation or purchase of any Collateral Obligation (provided, in the case of a purchase of a Collateral Obligation, such purchase must comply with the applicable tax requirements set forth in the Indenture) (x) that has been consented to by holders of Notes evidencing 75% of the aggregate outstanding principal amount of each Class of Notes and (y) of which each Rating Agency and the Trustee has been notified. Investment Criteria. On any date during the Reinvestment Period (and after the Reinvestment Period, subject to certain limitations described below, with respect to Principal Proceeds received from Prepaid Collateral Obligations), pursuant to and subject to the other requirements of the Indenture the Portfolio Manager may, but will not be required to, direct the Trustee to invest Principal Proceeds (together with accrued interest received with respect to any Collateral Obligation to the extent used to pay for accrued interest on such Collateral Obligations) in additional Collateral Obligations. Such proceeds may be used to purchase additional Collateral Obligations subject to the requirement that each of the following conditions are satisfied as of the date the Portfolio Manager commits on behalf of the Issuer to make such purchase, in each case after giving effect to such purchase and all other sales or purchases previously or simultaneously committed to; provided, that the conditions set forth in clauses (e) and (f) below need only be satisfied with respect to purchases of Collateral Obligations occurring after the end of the Ramp-Up Period (the "Investment Criteria"): (a) such obligation is a Collateral Obligation; (b) such obligation is not as of such date a Credit Risk Obligation as determined by the Portfolio Manager; (c) such obligation is not convertible into or exchangeable for Equity Securities, or attached with a warrant to purchase Equity Securities, unless (A) the value of such conversion option, exchange option or warrant is not, in the reasonable commercial judgment of the Portfolio Manager, a significant portion of the purchase price (it being understood that the value of such conversion option, exchange option or warrant exceeding 2% of the purchase price will be deemed to be a significant portion, unless such portion that exceeds 2% of the purchase price is acquired using Interest Proceeds reasonably expected by the Portfolio Manager to remain after all payments prior to payments to the Subordinated Notes have been made in accordance with the priority of payments on the succeeding Payment Date) and (B) such obligation is convertible into or exchangeable for Equity Securities only at the option of the Issuer, unless such exchange is an exchange of a unit security; (d) (A) each Coverage Test will be satisfied, or if not satisfied such Coverage Test will be maintained or improved (except with respect to the proceeds of any sale of a Credit Risk Obligation) and (B) the proceeds of any sale of a Defaulted Obligation will not be reinvested in additional Collateral Obligations if each Coverage Test is not satisfied (both without giving effect to the sale of such Defaulted 90 Obligation and after giving effect to the purchase of additional Collateral Obligations to be acquired with the proceeds of such sale); (e) (A) in the case of an additional Collateral Obligation purchased with the proceeds from the sale of a Credit Risk Obligation or a Defaulted Obligation, either (1) the Aggregate Principal Balance of all additional Collateral Obligations purchased with the proceeds from such sale will at least equal the Sale Proceeds from such sale, (2) the Aggregate Principal Balance of the Collateral Obligations will be maintained or increased, or (3) the Overcollateralization Ratio Threshold Test is satisfied and (B) in the case of any other purchase of additional Collateral Obligations, either (1) the Aggregate Principal Balance of the Collateral Obligations will be maintained or increased, or (2) the Overcollateralization Ratio Threshold Test is satisfied; and (f) either (A) each requirement or test, as the case may be, of the Concentration Limitations and the Collateral Quality Test (except, in the case of an additional Collateral Obligation purchased with the proceeds from the sale of a Credit Risk Obligation or a Defaulted Obligation, the S&P CDO Monitor Test) will be satisfied or (B) if any such requirement or test was not satisfied immediately prior to such reinvestment, such requirement or test will be maintained or improved after giving effect to the reinvestment. Following the sale of any Credit Improved Obligation or any discretionary sale of a Collateral Obligation, the Portfolio Manager shall use its commercially reasonable efforts to purchase additional Collateral Obligations within 20 Business Days after such sale or prepay the Class A-2R Notes using the proceeds of such sale. Investment After the Reinvestment Period. After the Reinvestment Period and within 20 days of receipt, the Portfolio Manager may, but shall not be required to, invest Principal Proceeds received with respect to a Prepaid Collateral Obligation in Collateral Obligations; provided, that such Collateral Obligations shall have a par value at least equal to the par value of the Prepaid Collateral Obligation and no such Collateral Obligation shall have a Moody’s Default Probability Rating of “Caal” or lower; provided, further, that the Portfolio Manager may not reinvest such Principal Proceeds if any of the Class A Notes, Class B Notes, Class C Notes or Class D Notes have been downgraded below their initial ratings by Moody’s and unless the Portfolio Manager reasonably believes that, after giving effect to any such reinvestment (i) the Collateral Quality Test (other than the S&P CDO Monitor Test) will be satisfied (and not, in the case of the Weighted Average Life Test and the Weighted Average Rating Factor Test, merely maintained or improved), (ii) the Class E Coverage Test will be satisfied, (iii) the Aggregate Principal Balance of all Collateral Obligations having a Moody’s Default Probability Rating of “Caal” or below shall not exceed an amount, determined as of the end of the Reinvestment Period, equal to 10% of the Aggregate Principal Balance of all Collateral Obligations (excluding all Collateral Obligations that are Defaulted Obligations) and (iv) the additional Collateral Obligations purchased will have (x) the same or higher S&P Ratings and (y) the same or earlier maturity, in each case, as such Prepaid Collateral Obligation. The Collection and Payment Accounts All distributions on the Collateral Obligations and any proceeds received from the disposition of any Collateral Obligations will be remitted to a single, segregated trust account held in the name of the Issuer (the "Collection Account") and subject to the lien of the Trustee for the benefit of the Secured Parties, and will be available, together with reinvestment earnings thereon, for application to the payment of the amounts set forth under "Summary of Terms—Priority of Payments" and for the acquisition of additional Collateral Obligations under the circumstances and pursuant to the requirements described 91 herein and in the Indenture. Three segregated subaccounts will be established within the Collection Account, one of which will be designated the "Interest Collection Subaccount", one of which will be designated the "Principal Collection Subaccount" and one of which will be designated the "Subordinated Note Collateral Obligation Subaccount". All Interest Proceeds received by the Trustee after the Closing Date (except for income earned on amounts deposited in the Ramp-Up Account) will be deposited in the Interest Collection Subaccount. All other amounts remitted to the Collection Account will be deposited in the Principal Collection Subaccount, other than Principal Proceeds received from Subordinated Note Collateral Obligations, which will be deposited in the Subordinated Note Collateral Obligation Subaccount. The Portfolio Manager on behalf of the Issuer may direct the Trustee to pay from amounts on deposit in the Collection Account on any Business Day during any Interest Accrual Period (i) any amount required to exercise a warrant or right to acquire securities held in the Assets in accordance with the requirements of "Security for the Senior Notes—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria", (ii) from Interest Proceeds only, any Administrative Expenses; provided, that the aggregate Administrative Expenses paid during any Collection Period shall not exceed the Administrative Expense Cap for the related Payment Date and (iii) any amounts required to effect a Class A-2R Prepayment. In addition, the Portfolio Manager on behalf of the Issuer may direct the Trustee to pay from the Principal Collection Subaccount amounts required to meet funding requirements with respect to Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations, or to make required payments in connection with the sale, assignment or termination of Short Positions. Amounts received in the Collection Account during a Collection Period will be invested in Eligible Investments with stated maturities no later than the Business Day prior to the Payment Date next succeeding the acquisition of such securities or instruments. All proceeds from the Eligible Investments will be retained in the Collection Account unless used to purchase additional Collateral Obligations in accordance with the Investment Criteria, or used as otherwise permitted under the Indenture. See "— Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria," and "Summary of Terms—Priority of Payments." On the Business Day preceding each Payment Date, the Trustee will deposit into a segregated trust account held in the name of the Issuer (the "Payment Account") and subject to the lien of the Trustee for the benefit of the Secured Parties all funds in the Collection Account (other than amounts that the Issuer is entitled to reinvest in accordance with the Investment Criteria described herein, which may be retained in the Collection Account for subsequent reinvestment) required for payments to holders of the Senior Notes and distributions on the Subordinated Notes and payments of fees and expenses in accordance with the priorities described under "Summary of Terms—Priority of Payments." The Portfolio Manager on behalf of the Issuer shall direct the Trustee in writing to, and upon receipt of such written instructions, the Trustee shall, cause the transfer to the Payment Account, on the Business Day preceding each date of payment of principal of the Class A-2R Notes that does not fall on a Payment Date, from the Collection Account an amount equal to the principal amount of Class A-2R Notes that will be repaid on such date. The Ramp-Up Account The net proceeds of the issuance of the Offered Securities remaining after payment of fees and expenses will be deposited on the Closing Date into a segregated trust account held in the name of the Issuer (the "Ramp-Up Account") and subject to the lien of the Trustee for the benefit of the Secured Parties, which will consist of a principal sub-account, an interest sub-account and a subordinated note sub-account. Of the proceeds of the issuance of the Offered Securities which are not applied to pay for 92 the purchase of Collateral Obligations purchased by the Issuer on or before the Closing Date (including, without limitation, repayment of any amounts borrowed by the Issuer in connection with the purchase of Collateral Obligations prior to the Closing Date), approximately $144 million will be deposited in the principal subaccount of the Ramp-Up Account on the Closing Date; approximately $35.2 million (representing proceeds of the issuance of the Subordinated Notes) will be deposited in the subordinated note subaccount of the Ramp-Up Account on the Closing Date; and approximately $3.2 million will be deposited in the interest subaccount of the Ramp-Up Account on the Closing Date. On behalf of the Issuer, the Portfolio Manager will direct the Trustee to, from time to time during the Ramp-Up Period, purchase additional Collateral Obligations and invest in Eligible Investments any amounts not used to purchase such additional Collateral Obligations. Only proceeds from the sale of the Subordinated Notes will be used, before or after the Closing Date, by the Issuer to purchase Subordinated Note Collateral Obligations. In connection with any purchase of an additional Collateral Obligation that is not a Subordinated Note Collateral Obligation, the Trustee will apply amounts held in the principal sub-account of the Ramp-Up Account to pay for the principal portion of such Collateral Obligation and apply amounts held in the interest sub-account of the Ramp-Up Account to pay for any accrued interest on such Collateral Obligation; provided, however, that the Trustee may use amounts held in the principal subaccount to pay for any accrued interest on such Collateral Obligation to the extent the amounts held in the interest sub-account are insufficient for such purpose and may use amounts held in the interest subaccount to pay for any principal and accrued interest portions of such Collateral Obligation to the extent the amounts held in the principal sub-account are insufficient for such purpose. In connection with any purchase of an additional Subordinated Note Collateral Obligation, the Trustee will apply amounts held in the subordinated note sub-account of the Ramp-Up Account to pay for the principal and interest portions of such Subordinated Note Collateral Obligation. On the Determination Date prior to the end of the Ramp-Up Period, unless the Trustee is otherwise directed by the Portfolio Manager, the Trustee will deposit from the interest subaccount of the Ramp-Up Account an amount up to $3.2 million into the Interest Collection Subaccount as Interest Proceeds. On the first day after the end of the Ramp-Up Period or upon the occurrence of an Event of Default (and excluding any proceeds that will be used to settle binding commitments entered into prior to that date), any remaining amounts in the principal sub-account of the Ramp-Up Account will be deposited into the Collection Account as Principal Proceeds, any remaining amounts in the interest sub-account of the Ramp-Up Account will be deposited in the Collection Account as Interest Proceeds, or at the Portfolio Manager's discretion, the Collection Account as Principal Proceeds, and any remaining amounts in the subordinated note sub-account of the Ramp-Up Account will be deposited in the Subordinated Note Collateral Obligation Subaccount as Principal Proceeds. Any income earned on amounts deposited in the Ramp-Up Account will be deposited as it is paid into the Interest Collection Subaccount as Interest Proceeds. The Custodial Account The Issuer will, on or prior to the Closing Date, establish a segregated trust account in the name of the Issuer and subject to the lien of the Trustee for the benefit of the Secured Parties which will be designated as the "Custodial Account". The only permitted withdrawals from the Custodial Account shall be in accordance with the provisions of the Indenture. The Trustee agrees to give the Co-Issuers prompt notice if (to the Trustee's actual knowledge) the Custodial Account or any assets or securities on deposit therein, or otherwise to the credit of the Custodial Account, shall become subject to any writ, order, judgment, warrant of attachment, execution or similar process. The Co-Issuers shall not have any legal, equitable or beneficial interest in the Custodial Account other than in accordance with the Indenture and the priority of payments. 93 The Delayed Funding Obligation Account Upon the purchase of any Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation that is not a Subordinated Note Collateral Obligation, funds may be withdrawn first from the Ramp-up Account and then from the Collection Account and deposited in a single, segregated trust account established in the name of the Issuer (the "Delayed Funding Obligation Account") and subject to the lien of the Trustee for the benefit of the Secured Parties. Upon initial purchase, funds deposited in the Delayed Funding Obligation Account in respect of any Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation will be treated as part of the purchase price therefor. Amounts in the Delayed Funding Obligation Account will be invested in overnight funds that are Eligible Investments and earnings from all such investments will be deposited in the Interest Collection Subaccount as Interest Proceeds. With respect to any Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation that is not a Subordinated Note Collateral Obligation, upon the purchase of any such Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation, funds will be deposited in the Delayed Funding Obligation Account such that the sum of the amount of funds on deposit in such account and the Class A2R Undrawn Permitted Amount shall be equal to or greater than the sum of the unfunded funding obligations under all such Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations then included in the Assets. In addition, the Trustee shall deposit funds into the Delayed Funding Obligation Account as provided in the Class A Note Payment Sequence. Any funds in the Delayed Funding Obligation Account will be available solely to cover any drawdowns on the Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations that are not Subordinated Note Collateral Obligations; provided that, if there is any excess of (A) the amounts on deposit in the Delayed Funding Obligation Account plus the Class A-2R Undrawn Permitted Amount over (B) the sum of the unfunded funding obligations under all such Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations that are included in the Assets, then amounts in the Delayed Funding Obligation Account up to the amount of such excess may be transferred by the Trustee (at the direction of the Portfolio Manager) from time to time as Principal Proceeds to the Principal Collection Subaccount. Upon (a) the sale or maturity of a Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation denominated or (b) the occurrence of an event of default with respect to any such Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation or any other event or circumstance which results in the irrevocable reduction of the undrawn commitments under such Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation, if there is any excess of (A) the amounts on deposit in the Delayed Funding Obligation Account plus the Class A-2R Undrawn Permitted Amount over (B) the sum of the unfunded amounts of all Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations that are not Subordinated Note Collateral Obligations and are included in the Assets, then amounts in the Delayed Funding Obligation Account up to the amount of such excess will be transferred by the Trustee as Principal Proceeds to the Principal Collection Subaccount. The Subordinated Note Collateral Delayed Funding Obligation Account Upon the purchase of any Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation that is a Margin Loan or is designated as a Subordinated Note Collateral Obligation by the Issuer (at the direction of the Portfolio Manager), funds will be withdrawn first from the subordinated note subaccount of the Ramp-Up Account and then from the Subordinated Note Collateral Obligation Subaccount, and deposited into a single, segregated trust account in the name of the Issuer (the 94 "Subordinated Note Collateral Delayed Funding Obligation Account") and subject to the lien of the Trustee for the benefit of the Secured Parties, in an amount equal to (and at all times the amount of funds on deposit in the Subordinated Note Collateral Delayed Funding Obligation Account will be equal to) the aggregate principal amounts of the undrawn commitments under such Delayed Drawdown Collateral Obligations or Revolving Collateral Obligations. Upon initial purchase, funds deposited in the Subordinated Note Collateral Delayed Funding Obligation Account in respect of any Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation will be treated as part of the purchase price therefor. All principal payments received on any Revolving Collateral Obligation that is a Subordinated Note Collateral Obligation will be deposited directly into the Subordinated Note Collateral Delayed Funding Obligation Account (and will not be available for distribution as Principal Proceeds) to the extent the amount of such principal payments may be re-borrowed under such Revolving Collateral Obligation. Amounts in the Subordinated Note Collateral Obligation Subaccount will be invested in overnight funds that are Eligible Investments and earnings from such investments will be deposited in the Interest Collection Subaccount as Interest Proceeds. Any funds in the Subordinated Note Collateral Delayed Funding Obligation Account will be available solely to cover any drawdowns on Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations that are Subordinated Note Collateral Obligations; provided, that if the amounts on deposit in the Subordinated Note Collateral Delayed Funding Obligation Account exceed the aggregate principal amounts of the undrawn commitments under such Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations, such excess will be transferred to the Subordinated Note Collateral Obligation Subaccount of the Collection Account by the Trustee (upon the direction of the Portfolio Manager) from time to time as Principal Proceeds. Upon (a) the sale or maturity of a Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation that is a Subordinated Note Collateral Obligation or (b) the occurrence of an event of default with respect to such Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation or any other event or circumstance which results in the irrevocable reduction of the undrawn commitments under such Delayed Drawdown Collateral Obligation or Revolving Collateral Obligation, any excess of the amounts on deposit in the Subordinated Note Collateral Delayed Funding Obligation Account over the combined aggregate principal amounts of the undrawn commitments under the Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations that are Subordinated Note Collateral Obligations will be transferred to the Subordinated Note Collateral Obligation Subaccount of the Collection Account as Principal Proceeds. The Synthetic Security Counterparty Accounts If and to the extent that any Synthetic Security requires the Issuer to secure its obligations to the Synthetic Security Counterparty, the Issuer shall either (x) direct the Trustee and the Trustee shall establish a segregated trust account in respect of each such Synthetic Security (each such account, a "Synthetic Security Counterparty Account") which shall be held in trust for the benefit of the related Synthetic Security Counterparty and over which the Trustee as agent for the related Synthetic Security Counterparty or the related Synthetic Security Counterparty shall have exclusive control and the sole right of withdrawal in accordance with the applicable Synthetic Security and the Indenture or (y) cause the establishment of a segregated trust account in respect of any Synthetic Security at an organization or entity (other than the Trustee) 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 "Baa1" by Moody's and at least "BBB+" by S&P and having an office within the United States. Any such account set forth in clause (y) shall also constitute a Synthetic Security Counterparty Account and the related Synthetic Security Counterparty shall have exclusive control over, and the sole right of withdrawal from, such account in accordance with the applicable 95 Synthetic Security. However, the Issuer may, in lieu of establishing a Synthetic Security Counterparty Account, provide cash or Synthetic Security Collateral to the Synthetic Security Counterparty to be held and distributed in accordance with the applicable Synthetic Security. As directed by the Portfolio Manager, the Trustee will be required to deposit into each Synthetic Security Counterparty Account or provide to the Synthetic Security Counterparty all amounts or Synthetic Security Collateral which are required to secure the obligations of the Issuer in accordance with the terms of the related Synthetic Security. The Portfolio Manager may direct any such deposit only during the Reinvestment Period and only to the extent that monies are available for the purchase of Collateral Obligations in accordance with the "Summary of Terms—Priority of Payments—Application of Principal Proceeds." As directed by the Portfolio Manager in writing and in accordance with the applicable Synthetic Security, amounts on deposit in a Synthetic Security Counterparty Account will be invested in Eligible Investments or Synthetic Security Collateral. Income received on amounts or Synthetic Security Collateral on deposit in each Synthetic Security Counterparty Account will be applied, as directed by the Portfolio Manager, to the payment of any periodic amounts owed by the Issuer to such Synthetic Security Counterparty on the date any such amounts are due. After application of any such amounts, any income then contained in such Synthetic Security Counterparty Account will (to the extent permitted by the applicable Synthetic Security) be withdrawn from such account and deposited in the Collection Account as Interest Proceeds. Upon the occurrence of any "credit event", "event of default" or "termination event" (each as defined in the applicable Synthetic Security) under the related Synthetic Security, amounts contained in the related Synthetic Security Counterparty Account shall, as directed in writing by the Portfolio Manager, be withdrawn by the Trustee (or the related Synthetic Security Counterparty, as applicable) and applied toward the payment of any amounts payable by the Issuer to the related Synthetic Security Counterparty in accordance with the terms of such Synthetic Security. Any excess amounts held in a Synthetic Security Counterparty Account after payment of all amounts owing from the Issuer to the related Synthetic Security Counterparty in accordance with the terms of the related Synthetic Security will be withdrawn from such Synthetic Security Counterparty Account and deposited in the Collection Account as Principal Proceeds. In the event that the Issuer provides cash or Synthetic Security Collateral directly to the Synthetic Security Counterparty, the related Synthetic Security shall provide that such cash or Synthetic Security Collateral shall be applied to amounts owing to the Synthetic Security Counterparty and that the remainder shall be returned to the Issuer. Upon receipt thereof, the Issuer shall place any such amounts or Synthetic Security Collateral in the Collection Account for distribution as Principal Proceeds. Amounts contained in any Synthetic Security Counterparty Account or provided to a Synthetic Security Counterparty shall not be considered to be an asset of the Issuer for purposes of any of the Investment Criteria or the Coverage Tests, but the Synthetic Security which relates to such Synthetic Security Counterparty Account shall be an asset of the Issuer for such purposes. The Synthetic Security Issuer Accounts If and to the extent that any Synthetic Security requires the Synthetic Security Counterparty to secure its obligations to the Issuer with respect to such Synthetic Security, the Issuer will be required to establish a segregated, non-interest bearing account (each such account, a "Synthetic Security Issuer Account"). The Trustee (as directed by the Portfolio Manager on behalf of the Issuer) will be required to deposit into each Synthetic Security Issuer Account all amounts or Synthetic Security Collateral which are required to secure the obligations of the Synthetic Security Counterparty in accordance with the terms of the related Synthetic Security. Amounts or Synthetic Security Collateral in any Synthetic Security 96 Issuer Account will be released to the Issuer or the related Synthetic Security Counterparty only in accordance with the Indenture, the applicable Synthetic Security and applicable law. As directed by the Portfolio Manager in writing and in accordance with the applicable Synthetic Security, amounts on deposit in a Synthetic Security Issuer Account shall be invested in Eligible Investments or Synthetic Security Collateral. Income received on amounts or Synthetic Security Collateral on deposit in each Synthetic Security Issuer Account shall be applied, as directed by the Portfolio Manager, to the payment of any periodic amounts owed by such Synthetic Security Counterparty to the Issuer on the date any such amounts are due. After application of any such amounts, any income then contained in such Synthetic Security Issuer Account shall be withdrawn from such account and paid to the related Synthetic Security Counterparty in accordance with the applicable Synthetic Security as directed by the Portfolio Manager on behalf of the Issuer. Upon the occurrence of any "credit event", "event of default", or "termination event" (each as defined in the applicable Synthetic Security) under the related Synthetic Security, amounts contained in the related Synthetic Security Issuer Account shall, as directed by the Portfolio Manager in writing, be withdrawn by the Trustee and applied toward the payment of any amounts payable by the related Synthetic Security Counterparty to the Issuer in accordance with the terms of such Synthetic Security. Any excess amounts held in a Synthetic Security Issuer Account after payment of all amounts owing from the related Synthetic Security Counterparty to the Issuer shall be withdrawn from such Synthetic Security Issuer Account and paid to the related Synthetic Security Counterparty in accordance with the applicable Synthetic Security, as directed by the Portfolio Manager on behalf of the Issuer. Class A-2R Purchaser Collateral Accounts If and to the extent that any holder of Class A-2R Notes is required to secure its obligations with respect to its Class A-2R Commitment, the Trustee shall establish a segregated, non-interest bearing account which shall be designated as a Class A-2R Purchaser Collateral Account (each, a "Class A-2R Purchaser Collateral Account"). The Trustee (as directed by the Portfolio Manager on behalf of the Issuer) will deposit into each Class A-2R Purchaser Collateral Account all amounts which are required to secure the obligations of the holder in accordance with the terms of the Class A-2R Note Purchase Agreement. Amounts in the Class A-2R Purchaser Collateral Account will be released to the Issuer or the related holder only in accordance with the Indenture, the Class A-2R Note Purchase Agreement and applicable law. As directed by the Portfolio Manager in writing, in accordance with the Class A-2R Note Purchase Agreement, amounts on deposit in a Class A-2R Purchaser Collateral Account will be invested in Eligible Investments. Income received on amounts on deposit in each Class A-2R Purchaser Collateral Account shall be applied, as directed by the Portfolio Manager, to the applicable holder on a monthly basis without giving effect to the priority of payments described under "Summary of Terms—Priority of Payments." The amounts in each Class A-2R Purchaser Collateral Account will be held solely for the benefit of the Issuer and the related holder and no person other than the Trustee, the Issuer and such holder will have any legal or beneficial interest therein. Amounts in each such account will not constitute Interest Proceeds or Principal Proceeds and the Indenture will provide that such amounts (including any investment earnings thereon) will be applied solely as provided in the Class A-2R Note Purchase Agreement and will be remitted to the related holder if and to the extent provided for therein regardless of the occurrence of an Event of Default under the Indenture. Such amounts will be returned to the 97 applicable holder if its Class A-2R Commitment terminates or it again satisfies the Class A-2R Purchaser Rating Criteria. The Expense Reserve Account The Trustee will, prior to the Closing Date, establish a segregated trust account held in the name of the Issuer which will be designated as the "Expense Reserve Account" and will be subject to the lien of the Trustee for the benefit of the Secured Parties. Approximately $9.03 million will be deposited in the Expense Reserve Account as Interest Proceeds on the Closing Date for the payment of certain expenses of the Issuer incurred in connection with the issuance of the Offered Securities. On any Business Day from the Closing Date to and including the Determination Date relating to the second Payment Date, the Trustee will apply funds from the Expense Reserve Account, as directed by the Portfolio Manager, to pay expenses of the Co-Issuers incurred in connection with the establishment of the Co-Issuers, the structuring and consummation of the Offering and the issuance of the Offered Securities or to the Collection Account as Principal Proceeds. By the Determination Date relating to the second Payment Date following the Closing Date, all funds in the Expense Reserve Account (after deducting any expenses paid on such Determination Date) will be deposited in the Collection Account as Interest Proceeds and/or Principal Proceeds (in the respective amounts directed by the Portfolio Manager in its discretion) and the Expense Reserve Account will be closed. Any income earned on amounts deposited in the Expense Reserve Account will be deposited in the Interest Collection Subaccount as Interest Proceeds as it is paid. The Excess CCC/Caa Reserve Account The Trustee will, prior to the Closing Date, establish a segregated trust account held in the name of the Issuer which will be designated as the "Excess CCC/Caa Reserve Account" and will be subject to the lien of the Trustee for the benefit of the Secured Parties. On each Payment Date, the Trustee shall deposit the Excess CCC/Caa Reserve Amount, if any, into the Excess CCC/Caa Reserve Account to the extent funds are available therefor in accordance with the priorities described under "Summary of Terms—Priority of Payments—Application of Interest Proceeds." On the Determination Date relating to the next succeeding Payment Date, the Trustee shall deposit all funds in the Excess CCC/Caa Reserve Account in the Interest Collection Subaccount as Interest Proceeds. Any income earned on amounts deposited in the Excess CCC/Caa Reserve Account will be deposited in the Interest Collection Subaccount as Interest Proceeds as it is paid. The Securities Lending Account At the time any Securities Lending Agreement is entered into, the Issuer will cause the establishment of a segregated trust or custodial account with a securities intermediary in the name of the Securities Lending Counterparty, for the benefit of such Securities Lending Counterparty, as pledgor, subject to the lien of the Trustee for the benefit of the Secured Parties (each, a "Securities Lending Account"). Securities Lending Collateral pledged pursuant to a Securities Lending Agreement shall be deposited into the related Securities Lending Account to secure the related Securities Lending Counterparty's obligations under such Securities Lending Agreement. At all times, each Securities Lending Account shall remain at an institution with a combined capital and surplus equal to or in excess of $100,000,000 and having a long term debt rating of at least "Baa2" by Moody's and a short-term debt rating of at least "A-1" by S&P. Upon any default by any Securities Lending Counterparty under the related Securities Lending Agreement, the Issuer or the Trustee shall, acting at the written direction of the Portfolio Manager, exercise its and/or the Issuer's remedies under such Securities Lending Agreement, including liquidating the related Securities Lending Collateral. Proceeds of any such liquidation shall be deposited in the Principal Collection Subaccount as Principal Proceeds. The Issuer shall not have any 98 right to cause the Trustee to withdraw money from any of the Securities Lending Accounts other than in accordance with the Indenture, the applicable Securities Lending Agreement and applicable law. Hedge Agreements On the Closing Date, the Issuer will enter into the Initial Hedge Agreement. The Issuer is permitted to enter into one or more additional interest rate cap, interest rate floor, basis swap, timing, cashflow or other interest rate swap agreements (each, together with the Initial Hedge Agreement, a "Hedge Agreement"). Each Hedge Agreement will be documented as one or more confirmations under a master swap agreement in the form published by the International Swaps and Derivatives Association, Inc. ("ISDA"). Each Hedge Agreement will be governed by New York law (or, at the option of the Issuer, English law). Any Hedge Agreement entered into by the Issuer after the Closing Date will be substantially in the form set forth in the Indenture or another form that satisfies the Global Rating Agency Condition. Under the terms of the Hedge Agreements, upon the failure of the related Hedge Counterparty to have the minimum debt or counterparty rating specified in the Hedge Agreement, the related Hedge Counterparty (at its own expense) will be required to transfer, within the applicable minimum time period specified in such Hedge Agreement all of its rights and obligations to a replacement Hedge Counterparty that has the minimum debt or counterparty rating specified in such Hedge Agreement. In the event the related Hedge Counterparty is not able to transfer all of its rights and obligations to a replacement Hedge Counterparty within such specified time period, for the period beginning on the first business day after the end of the specified time period and until the related Hedge Counterparty has transferred all of its rights and obligations to a replacement Hedge Counterparty, the related Hedge Counterparty will be required to post eligible collateral in an amount specified in the applicable Hedge Agreement. The failure by any Hedge Counterparty to comply with the requirements described in the preceding paragraph will be an "additional termination event" under the related Hedge Agreement. Each Hedge Agreement may be terminated pursuant to its terms upon a Redemption by Liquidation (once notice of such Redemption by Liquidation can no longer be withdrawn) or an acceleration of maturity of the Notes after an Event of Default. The Hedge Agreements will not be permitted to be terminated as the result of a Default or an Event of Default unless any acceleration of maturity of the Notes resulting from the Event of Default is no longer permitted to be rescinded pursuant to the Indenture. The Indenture requires that if at any time any Hedge Agreement becomes subject to early termination due to the occurrence of an event of default or a termination event, the Issuer and the Trustee (acting at the written direction of the Issuer) shall take such actions (following the expiration of any applicable grace period) to enforce the rights of the Issuer under such Hedge Agreement as may be permitted by the terms of such 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 the Hedge Counterparty thereunder) to enter into a replacement Hedge Agreement on such terms as satisfy the Global Rating Agency Condition (unless such early termination is due to an additional termination event caused by an Optional Redemption). Any costs attributable to entering into a replacement Hedge Agreement which exceed the sum of the proceeds of the liquidation of any such Hedge Agreement shall be borne by the Hedge Counterparty to the extent set forth in the related Hedge Agreement. 99 The Trustee will agree to any reduction in the notional amount of any Hedge Agreement proposed by the related Hedge Counterparty and agreed to by the Portfolio Manager, or any termination, replacement and/or other modification of any such Hedge Agreement or any additional Hedge Agreement proposed by the Portfolio Manager; provided, that the Global Rating Agency Condition shall have been satisfied. Each Hedge Agreement will contain limited recourse and non-petition provisions substantially similar to the applicable provisions of the Indenture. Short Positions The Issuer may from time to time enter into a credit default swap transaction with a counterparty having a stated notional amount under which the Issuer is the purchaser of credit protection and with a term no longer than five years; provided, that (i) the terms thereof provide for cash settlement and may only provide for physical settlement at the option of the Issuer, (ii) the obligor of the Reference Obligation is organized in a country rated at least "Aa2" by Moody's and (iii) the Global Rating Agency Condition has been satisfied; provided, that if the proposed Short Position is a Form-Approved Synthetic Security, the Global Rating Agency Condition shall be deemed to have been satisfied when the Issuer provides a copy of the documentation to the Rating Agencies (a "Short Position"). The Issuer shall not acquire any Short Position unless (i) after giving effect to such acquisition, the Minimum Floating Spread Test is satisfied (and not merely maintained or improved), (ii) the Coverage Tests, the S&P CDO Monitor Test and the Maximum Moody's Rating Factor Test are satisfied and (iii) the Issuer is only required to make payments under such Short Positions on Payment Dates. The Issuer may sell, assign or terminate a Short Position on any Payment Date. If such sale, assignment or termination would result in a payment by the Issuer and either (x) the Overcollateralization Ratio Threshold Test is not satisfied or (y) interest would not be paid on any Class A Notes or Class B Notes on such Payment Date (calculated on a pro forma basis) at the time of such sale, assignment or termination, a Terminated Loss Short Position Payment will result. If the Issuer (or the Portfolio Manager on its behalf) concludes that amounts available on the next Payment Date will be insufficient to pay interest on the Class A Notes and the Class B Notes in full, the Issuer shall sell, assign, terminate or enter into offsetting positions with respect to any Short Position if such transactions would result in a payment being made to the Issuer until (i) the amount received in connection therewith, together with amounts available on the next Payment Date, will be sufficient to pay interest on the Class A Notes and the Class B Notes or (ii) all such Short Positions have been sold, assigned, terminated or offset. Margin Loans Subject to certain limitations, the Issuer may purchase certain assets that are Margin Loans. Regulation U of the FRB governs certain extensions of credit by Regulation U Lenders. Under current interpretations of Regulation U by the FRB and its staff, the purchase of a debt security in a private placement may constitute an extension of credit. Among other things, Regulation U generally imposes certain limits on the amount of credit that Regulation U Lenders may extend which is Purpose Credit. The provisions of the Indenture and the Portfolio Management Agreement are intended to ensure that any credit extended by the purchasers of the Notes is not Purpose Credit. Regulation U Lenders generally are not subject to the Regulation U credit limits with respect to extensions of credit that are not Purpose Credit. Regulation U also generally requires Regulation U Lenders (other than persons that are banks within the meaning of Regulation U) to register with the FRB. Under an interpretation of Regulation U by the FRB staff, qualified institutional buyers purchasing debt securities secured by Margin Loans in a 100 transaction in compliance with Rule 144A should not be required to register with the FRB where the proceeds of the securities are not used in a manner that would constitute Purpose Credit. Non-U.S. persons purchasing Notes in reliance on Regulation S who do not have their principal place of business in a Federal Reserve District of the FRB are also not required to register with the FRB. However, other purchasers of Offered Securities, including investors (if any) purchasing Offered Securities in reliance on an exemption from registration under the Securities Act other than Rule 144A, should consider (i) whether they are required to register with the FRB and (ii) on an ongoing basis, whether they are required to register with the FRB as a result of changes to the composition of the Collateral Obligations after such purchase. Regulation U Lenders (other than those non-bank lenders not required to register with the FRB) generally must obtain from any person to whom they extend credit secured by Margin Stock a Federal Reserve Form U-1 (for bank lenders) or Form G-3 (for non-bank lenders). Initial purchasers of the Offered Securities may obtain a Form U-1 or G-3, as applicable, executed by the Issuer or Co-Issuers, as applicable, from the Issuer, for execution and retention by such purchasers on the Closing Date. Forms U-1 or G-3, as applicable, will also be made available by the Trustee upon request to any investors in the Offered Securities after the Closing Date. Each purchaser of Offered Securities will be responsible for its own compliance with Regulation U, including the filing by the purchaser of any required registration or annual filings under Regulation U, and purchasers of Offered Securities should consult with their own legal advisers as to Regulation U and its applicability to them. Purchasers of Offered Securities not otherwise exempt from registering with the FRB will be deemed to have covenanted and agreed that if such purchaser is not registered with the FRB on or prior to the date of their purchase, such purchaser will, within the required time period, register with the FRB. Each such purchaser and any bank purchaser shall also be deemed to have represented that it has complied or will comply, as applicable, with any related requirements of Regulation U applicable to it. The accounts established by, and the maintenance of funds and securities under, the Indenture has been structured to prevent any credit extended by purchasers of the Notes from being Purpose Credit. The Trustee will be required to segregate on its books and records Subordinated Note Collateral Obligations that (i) were purchased on or prior to the Closing Date and which were designated by the Portfolio Manager as Collateral Obligations the distributions on which, and the proceeds received in respect of which, are to be deposited in the Subordinated Note Collection Account; provided, however, that the sum of the Issuer's acquisition cost of Collateral Obligations to be designated as Subordinated Note Collateral Obligations by the Portfolio Manager on the Closing Date, plus any amount deposited in the subordinated note subaccount of the Ramp-Up Account on the Closing Date, may not exceed the net proceeds of the offering of the Subordinated Notes (the "Subordinated Note Reinvestment Ceiling") and (ii) are purchased after the Closing Date with funds from the subordinated note subaccount of the Ramp-Up Account or the Subordinated Note Collection Account. All other Collateral Obligations and unused proceeds (and the proceeds thereof) will be segregated from the Subordinated Note Collateral Obligations, the subordinated note subaccount of the Ramp-Up Account and the Subordinated Note Collection Account and may not be used to purchase or carry Margin Loans. The Indenture will also provide that, in the event that any nonMargin Loan Collateral Obligation that is not acquired with funds in the subordinated note subaccount of the Ramp-Up Account or the Subordinated Note Collection Account becomes a Margin Loan or Margin Stock, the Portfolio Manager will, within 45 days and otherwise in accordance with the Indenture, sell such Collateral Obligation. Otherwise, only Subordinated Note Collateral Obligations may constitute Margin Loans or Margin Stock. Securities Lending Unless an Event of Default has occurred, the Issuer (at the direction of the Portfolio Manager) may from time to time lend Collateral Obligations (other than any Synthetic Security that is not a "security" within the meaning of Section 1236(c) of the Code) to a Securities Lending Counterparty pursuant to a Securities Lending Agreement; provided, that the requirements set forth in the Indenture are 101 satisfied. Such Securities Lending Counterparties may be affiliates of the Initial Purchaser and/or affiliates of the Portfolio Manager, notwithstanding conflicts of interest. Each Securities Lending Agreement shall be entered into subject to receipt by the Trustee of written certification from the Issuer or the Portfolio Manager on behalf of the Issuer that the following conditions have been satisfied: (i) the duration of loans pursuant to the Securities Lending Agreement shall not exceed the Stated Maturity of the Notes; (ii) no more than 20% of the Collateral Principal Amount has been (or may be) loaned pursuant to Securities Lending Agreements regardless of duration; (iii) no more than 20% of the Collateral Principal Amount has been (or may be) loaned pursuant to Securities Lending Agreements, the duration of which exceeds one year; and (iv) no more than 10% of the Collateral Principal Amount has been (or may be) loaned pursuant to Securities Lending Agreements, the duration of which exceeds two years. Each Securities Lending Agreement shall be on market terms as determined by the Portfolio Manager in good faith (except as required below) and shall: (i) require that the Securities Lending Counterparty return to the Issuer debt obligations that are identical (in terms of issue and class) to the loaned Collateral Obligations; (ii) (A) require that the Securities Lending Counterparty pay to the Issuer such amounts as are equivalent to all interest and other payments that the owner of the loaned Collateral Obligation is entitled to for the period during which the Collateral Obligation is loaned, and (B) require that such payments (other than any payments that are a substitute for commitment fees payable on the loaned Collateral Obligation) not be subject to withholding tax imposed by any jurisdiction unless the Securities Lending Counterparty is required under the Securities Lending Agreement to make "gross-up" payments to the Issuer that cover the full amount of such withholding on an after-tax basis; (iii) satisfy any other requirements of Section 1058 of the Code and Treasury regulations promulgated thereunder; (iv) require that the Global Rating Agency Condition be satisfied as a condition to the effectiveness of such Securities Lending Agreement (unless the Global Rating Agency Condition is satisfied independently with respect to such Securities Lending Agreement); (v) (vi) Indenture; be governed by the laws of the State of New York; and permit the Issuer to assign its rights thereunder to the Trustee pursuant to the provided, that clause (i) and clause (iii) above shall not apply if the Issuer and the Trustee shall have received an opinion of tax counsel of nationally recognized standing in the United States experienced in such matters to the effect that the absence of such requirement in such Securities Lending Agreement will not cause the Issuer to be engaged, or deemed to be engaged, in a trade or business in the United States 102 for United States federal income tax purposes or otherwise to be subject to United States federal income tax on a net basis. Each Securities Lending Agreement shall provide that (A) the Issuer may terminate such Securities Lending Agreement if (i) the credit ratings of the Securities Lending Counterparty are withdrawn or downgraded below the requirements relating to the credit ratings of such Securities Lending Counterparty set forth in such Securities Lending Agreement, (ii) an Optional Redemption occurs, (iii) the Securities Lending Counterparty is the subject of an insolvency or similar proceeding or (iv) the Securities Lending Counterparty defaults in the performance of any of its obligations under the related Securities Lending Agreement and/or (B) the Issuer may terminate such Securities Lending Agreement upon prior written notice. Each Securities Lending Counterparty shall be required to post Securities Lending Collateral with the Trustee or a Securities Intermediary to secure its obligation to return the loaned Collateral Obligations. Such Securities Lending Collateral shall be maintained at all times with the Trustee or such Securities Intermediary in an amount equal to 102% of the current market value (determined daily in accordance with standard market practice and monitored by the Portfolio Manager) of the loaned Collateral Obligations. The Issuer (at the direction of the Portfolio Manager) is expected to negotiate with the related Securities Lending Counterparty a rate for the loan fee to be paid to the Issuer for lending the loaned Collateral Obligations. For the avoidance of doubt, no loan fee paid to the Issuer for lending the loaned Collateral Obligations shall be subject to the withholding tax requirement contained in clause (ii)(B) above. If a Securities Lending Counterparty deposits cash as collateral in the related Securities Lending Account, prior to an Event of Default, the Trustee (as directed by the Portfolio Manager) may invest such cash collateral in Eligible Investments to the extent permitted by the applicable Securities Lending Agreement and, if required by the terms of the applicable Securities Lending Agreement, the Issuer may be responsible to the related Securities Lending Counterparty for any related investment losses. Collateral deposited in a Securities Lending Account will not constitute Collateral Obligations for purposes of the Indenture and will not be available to make payments on the Notes unless the related Securities Lending Counterparty defaults on its obligations under the related Securities Lending Agreement, including its obligation to return the loaned Collateral Obligations to the Issuer. If either of the Rating Agencies downgrades a Securities Lending Counterparty so that each Securities Lending Agreement to which the Securities Lending Counterparty is a party is no longer in compliance with the requirements relating to credit ratings of the Securities Lending Counterparties, then the Issuer shall (at the direction of the Portfolio Manager), or in the case of clause (ii), the Securities Lending Counterparty shall, within ten days thereof: (i) terminate any Securities Lending Agreement or Agreements with such Securities Lending Counterparty; (ii) obtain a guarantor that has the ratings required of a Securities Lending Counterparty to guarantee the Securities Lending Counterparty's obligations under the applicable Securities Lending Agreement or Agreements; (iii) reduce the percentage of the Collateral Obligations loaned to such downgraded Securities Lending Counterparty so that the applicable Securities Lending Agreement or Agreement are in compliance with the requirements relating to the credit ratings of Securities Lending Counterparties; or 103 (iv) take such other steps as the Rating Agencies may require to cause such Securities Lending Counterparty's obligations under the applicable Securities Lending Agreement or Agreements to be treated by the Rating Agencies as if such obligations were those of a counterparty having the ratings required of a Securities Lending Counterparty. USE OF PROCEEDS General The net proceeds from the issuance of the Offered Securities, after payment of applicable fees and expenses in connection with the structuring and placement of the Offered Securities (including the Structuring Fee paid to the Portfolio Manager and by making a deposit to the Expense Reserve Account of funds to be used to pay expenses following the Closing Date), are expected to be approximately $415,967,000. Prior to the Closing Date, affiliates of the Initial Purchaser provided a warehouse facility to the Issuer to finance the acquisition of certain Collateral Obligations. Approximately $233,435,000 will be used to repay the participations entered into to purchase Collateral Obligations under the warehouse facility (including interest and fees thereon). Approximately $182,533,000 will be deposited into the Ramp-Up Account on the Closing Date for the purchase of additional Collateral Obligations during the Ramp-Up Period and for deposit into the Collection Account as described herein upon completion of the Ramp-Up Period and approximately $9,030,000 will be deposited into the Expense Reserve Account on the Closing Date for use as described herein. Ramp-Up Period The additional Collateral Obligations referred to in the preceding paragraph, together with the Collateral Obligations purchased on or before the Closing Date, must satisfy, as of the end of the RampUp Period, the Concentration Limitations, the Collateral Quality Test and the Overcollateralization Ratio Tests. If the expected Collateral Obligations are purchased by the end of the Ramp-Up Period, any excess funds reserved for that purpose will be available for investment in additional Collateral Obligations during the Reinvestment Period. Following the Closing Date (and, in no event, later than 15 Business Days after 90 calendar days following the Closing Date) (the "Interim Report Date"), the Issuer (or the Portfolio Manager on its behalf) will obtain and deliver to the Trustee and each Rating Agency a report, determined as of the Interim Report Date, calculating the tests included in the Interim Targets. If, as of the Interim Report Date, the Interim Targets are not satisfied, the Portfolio Manager will, until such time as each such Interim Target will be satisfied, provide to each Rating Agency a plan as to how the Issuer will satisfy the Collateral Quality Test (excluding the S&P CDO Monitor Test). "Interim Targets" means target levels of the Target Initial Par Amount, the Weighted Average Floating Spread, the Weighted Average Fixed Coupon, the Diversity Score, the Weighted Average Moody's Recovery Rate and the Moody's Rating Factor established for the Interim Report Date. If, following the end of the Ramp-Up Period, (x) (i) the additional Collateral Obligations, together with the Collateral Obligations purchased on or before the Closing Date and still held as Collateral Obligations and amounts on deposit in the Principal Collection Subaccount and the principal 104 subaccount of the Ramp-Up Account, fail to satisfy the Collateral Quality Test, the Target Initial Par Amount, the Concentration Limitations or the Overcollateralization Ratio Tests as of the end of the Ramp-Up Period and Moody's has not provided written confirmation of its initial ratings of the Senior Notes or (ii) neither the Issuer nor the Portfolio Manager has provided Moody's with the certifications required under the Indenture and Moody's has not provided written confirmation of its initial ratings of the Senior Notes or (y) S&P has not provided written confirmation of its initial ratings of the Senior Notes within 60 Business Days following the end of the Ramp-Up Period and has advised the Portfolio Manager, on behalf of the Issuer, that it will not reaffirm such initial ratings without the occurrence of a Special Redemption or the diversion of Interest Proceeds for use as Principal Proceeds as described below (any such event, a "Ramp-Up Failure"), then a Special Redemption will occur on the next succeeding Payment Date and each successive Payment Date in accordance with the Priority of Payments until the Senior Notes are repaid in full or the Issuer (or the Portfolio Manager on its behalf) has obtained from each applicable Rating Agency written confirmation of its initial rating of the Senior Notes; provided that, prior to such first succeeding Payment Date and between any additional Payment Date(s) on which such Special Redemption is ongoing, the Portfolio Manager may transfer amounts from the Interest Collection Subaccount to the Principal Collection Subaccount for purposes of acquiring additional Collateral Obligations (in an amount that, in any case, will not result in deferral of interest with respect to the Class A Notes or the Class B Notes)) in order to cause each applicable Rating Agency to confirm its initial rating of the Senior Notes and, upon receipt of such confirmation from each applicable Rating Agency, the Issuer shall cease (or, if applicable, not commence) the related Special Redemption. THE PORTFOLIO MANAGER The information appearing in this section has been prepared by Kingsland Capital Management, LLC, and has not been independently verified by the Co-Issuers or the Initial Purchaser. Accordingly, notwithstanding anything to the contrary herein, the Co-Issuers and the Initial Purchaser do not assume any responsibility for the accuracy, completeness or applicability of such information. General Certain advisory and administrative functions with respect to the Issuer will be performed by the Portfolio Manager under the Portfolio Management Agreement. Pursuant to the terms of the Portfolio Management Agreement, the Portfolio Manager will select the portfolio of Collateral Obligations, instruct the Trustee with respect to any acquisition, disposition or tender of a Collateral Obligation or Eligible Investment and monitor the Collateral Obligations and will provide the Issuer with certain information with respect to the composition and characteristics of the Collateral Obligations, any disposition of Collateral Obligations and with respect to the retention of the proceeds of any such disposition or the application thereof toward the purchase of additional Collateral Obligations. Kingsland Capital Kingsland Capital Management LLC ("Kingsland Capital" or the "Portfolio Manager") is an asset management firm founded in January 2005 by Joyce C. DeLucca for the purpose of providing portfolio management services to alternative investment vehicles such as collateralized debt and loan obligation funds, managed accounts and other leveraged fund vehicles. Kingsland Capital's investment focus is below investment grade securities, primarily loans and bonds. Kingsland Capital is whollyowned by Joyce C. DeLucca. On the Closing Date, the Portfolio Manager will be managing four investment vehicles in addition to the Issuer: Kingsland I, Ltd., a collateralized loan obligation vehicle that closed in May 2005 105 and has approximately $388 million of assets under management, Kingsland II, Ltd., a collateralized loan obligation vehicle that closed in April 2006 and has approximately $414 million under management, Kingsland III, Ltd., a collateralized loan obligation vehicle that closed in August 2006 and has approximately $418 million under management and Kingsland IV, Ltd., a collateralized loan obligation vehicle that closed in February 2007 and has approximately $411 million under management. Four of the Portfolio Manager's investment professionals previously worked together as a portfolio management team at Katonah Capital L.L.C. ("Katonah Capital"), where they were responsible for the management of six separate collateralized loan obligation vehicles constituting approximately $2.25 billon of leveraged loan and high yield bond assets under management. Investment Philosophy The Portfolio Manager believes that superior investment performance in the leveraged loan and high-yield securities markets results from disciplined credit selection and active portfolio management. The Portfolio Manager's objectives include investing in a diversified pool of debt obligations of companies whose credit profile is improving and a clear capability to deleverage exists. The Portfolio Manager will seek to maximize total return by earning high current income and preserving principal and will select investments according to their assessed ability to withstand multiple business cycles. On an on-going basis, the Portfolio Manager will proactively monitor companies in the portfolio to optimize investment decisions. The fundamental credit analysis approach of the Portfolio Manager is intended to identify attractive investments from a risk-adjusted return standpoint. The Portfolio Manager's ideal target investments will be larger, more liquid leveraged loans and high-yield securities that have an ability to deliver an attractive return over a three-year period. Credit Philosophy The Portfolio Manager uses fundamental credit analysis to create portfolios that are intended to minimize losses and maximize cash flows and employs seasoned investment professionals who are industry specialists. Each of the Portfolio Manager's analysts focuses on one or more particular industries using a top-down approach. The analyst reviews the economy, the industry and the individual company in an effort to identify relative value opportunities within their respective industries. The Portfolio Manager's investment professionals generally meet daily to review potential market opportunities. The investment decision making process involves review of several factors including: industry dynamics and competitive environment; projected cash flows and deleveraging profile; the management and/or sponsor of the company; sensitivity analysis (specifically the ability to withstand a downturn in the business cycle); the relative value of the investment; and the market liquidity of the investment. In addition to the regularly scheduled meetings, the Portfolio Manager's investment professionals meets as necessary to review and discuss investment opportunities. The Portfolio Manager intends to actively manage the portfolio, subject to the investment and sale restrictions applicable under the Indenture. Investments will be monitored continuously, and the portfolio will be reviewed quarterly, with additional reviews as necessary. The Portfolio Manager will continue financial forecasting for each of the companies in the portfolio and will institute stop loss procedures for companies with deteriorating credit profiles. 106 Biographies of Certain Key Individuals Set forth below is information regarding the background, principal occupations and other affiliations of the principal officers and certain other employees of the Portfolio Manager, including those personnel who will be primarily responsible for managing the Assets and for performing the advisory and administrative functions related thereto. Although these individuals are currently employed by the Portfolio Manager and hold the offices indicated below with the Portfolio Manager, such persons may not necessarily continue to be so employed during the entire term of the Portfolio Management Agreement. Joyce C. DeLucca, CFA, Managing Principal Ms. DeLucca is the Managing Principal of Kingsland Capital. Prior to establishing Kingsland Capital in January 2005, Ms. DeLucca was the Managing Principal of Katonah Capital, LLC, an asset manager focusing on leveraged loans and high yield bonds. Prior to joining Katonah Capital in January 2000, Ms. DeLucca was a portfolio manager and founding member of Octagon Credit Investors. Ms. DeLucca served as portfolio manager and investment advisor at Fisher Brothers from 1989 to 1995, and held positions as a trader and analyst with Bernstein Macaulay’s high yield bond and mortgage-backed securities divisions from 1986 to 1989. Ms. DeLucca received a B.S. from Ithaca College and received her CFA Charter in 1993. Richard Bliss, Principal & Senior Trader Mr. Bliss is a Principal and Senior Trader at Kingsland Capital responsible for all loan and bond trading. Prior to joining Kingsland, Mr. Bliss was the Senior Loan Trader at Societe Generale focused on both par and distressed loans. Mr. Bliss graduated from Hamilton College with a B.A. in History. Robert Perry, Principal & Senior Analyst Mr. Perry is a Principal and Senior Analyst at Kingsland Capital. His industry responsibilities include Automotive, Broadcasting, Electronics, Equipment Leasing, Industrials, Publishing and Utilities. Prior to joining Kingsland, Mr. Perry spent five years as a Principal and Senior Analyst at Katonah Capital, LLC, an asset manager focusing on leveraged loans and high yield bonds. Prior work experience also includes two years as an Analyst with Octagon Credit Investors and one year with Chase Manhattan Asia on the capital markets desk. Mr. Perry’s educational background includes a B.S. in Business Administration from Georgetown University. Steve Segretta, Principal & Head of Business Development Mr. Segretta is Principal and Head of Business Development at Kingsland Capital. His responsibilities include CDO origination and distribution, product/business development and investor relations. Mr. Segretta has been in structured credit for 18 years and has originated, structured and distributed a variety of innovative transactions. Prior to joining Kingsland Capital, he spent four years as Director in credit derivatives at Barclays Capital and Citigroup and was responsible for marketing and structuring managed and bespoke synthetic CDOs. Prior to joining Citigroup, he spent four years as Executive Director at CIBC structuring and marketing cash flow CDOs involving performing, distressed, and middle market leveraged loans. Prior to joining CIBC, he spent 10 years in the Global ABS group at Citigroup and was responsible for the origination and structuring of asset-backed securitizations across asset classes including: credit cards, auto loans, film copyrights, home equity loans, timeshare loans, future revenue securitizations, equipment leases and trade receivables. Mr. Segretta received a B.A. in 107 Business Administration/Information Systems from State University of New York at Albany and an M.B.A. in Finance from New York University. Robert Snyder, Principal & Senior Analyst Mr. Snyder is a Principal and Senior Analyst at Kingsland Capital. His industry responsibilities include Business Services, Chemicals, Consumer Products, Environmental Services, Metals & Mining and Oil & Gas. Prior to joining Kingsland Capital, Mr. Snyder was a Senior Analyst at Katonah Capital, an asset manager focusing on leveraged loans and high yield bonds. He was also responsible for creating the Katonah Capital financial modeling template and other systems-related portfolio management tools. Prior to joining Katonah Capital, Mr. Snyder worked for Chase Manhattan Bank in the Securities Lending Department and was responsible for net interest management. Prior to that, Mr. Snyder worked in Cash Management at Morgan Stanley Trust Company, supporting the cash reinvestment desk. Mr. Snyder received credit training while at Chase Manhattan Bank and graduated from Cornell University in 1997 with a B.A. in Economics. Andrew Stern, Principal & Senior Analyst Mr. Stern is a Principal and Senior Analyst at Kingsland Capital, and is responsible for coverage of the Aerospace and Defense, Transportation, Paper and Forest Products, Containers & Packaging, Healthcare, Gaming & Lodging, Car Rental Companies and Leisure industries. Mr. Stern has also created Kingsland’s financial model and credit monitoring and approval procedures. Prior to joining Kingsland, Mr. Stern was an Analyst at Katonah Capital, an asset manager focused on leveraged loans and high yield bonds. Prior to Katonah, Mr. Stern was an Associate in JP Morgan’s Global Telecommunications and Media Investment Banking Group, where he structured public and private equity and debt financings as well as advised on merger and acquisition transactions. At JP Morgan, Mr. Stern focused on the Emerging Telecom, Wireless Services and Cable industries. Mr. Stern graduated with a B. B. A. from The Goizuetta Business School at Emory University. Pieter Van Schaick, CFA, Principal and Senior Analyst Mr. Van Schaick is a Principal and Senior Analyst at Kingsland Capital. His industry responsibilities include Cable and Satellite, Food, Beverage & Tobacco, Homebuilding & Building Materials, Real Estate and Retailers. Prior to joining Kingsland, Mr. Van Schaick was a Managing Director at The Bank of Nova Scotia, where he focused on credit risk and portfolio management in both the investment and non-investment grade bank debt market. Mr. Van Schaick also spent five years in the work-out group of The Bank of Nova Scotia, responsible for the recovery of a significant distressed debt portfolio. Prior to joining The Bank of Nova Scotia, Mr. Van Schaick was a forensic accountant whose assignments included a two year secondment to the commercial crime unit of the Royal Canadian Mounted Police. Mr. Van Schaick holds a Bachelor of Commerce from Saint Mary’s University in Halifax, Nova Scotia, Canada. Mr. Van Schaick is a Chartered Accountant (Canada) and received his Chartered Financial Analyst designation in 2001. Pinar Onur, Analyst Ms. Onur is an Analyst at Kingsland Capital responsible for CDO origination, distribution and for supporting initiatives in other areas of Structured Credit. Prior to joining Kingsland, Ms. Onur was an Associate at Morgan Stanley’s Structured Credit Strategy team, where she published trade recommendations on single name CDS, CDX, iTraxx and TABX tranches, and cash and synthetic CDOs. Prior to her role as a strategist, Ms. Onur spent two years as an analyst at Morgan Stanley’s Investment 108 Banking Division, advising on merger and acquisition transactions as well as public debt offerings. Ms. Onur holds a B.S. degree in Business Administration and Finance from Bilkent University in Turkey and an MBA in Finance and Economics from Columbia Business School. Anita Kallicharran, Senior Portfolio Administrator Ms. Kallicharran is a Senior Portfolio Administrator at Kingsland Capital. Prior to joining Kingsland Capital, Ms. Kallicharran was a Portfolio Administrator at Bayerische Hypo-und Vereinsbank AG (HVB Group) in the Acquisition and Leveraged Finance Department, and a Fund Administrator with HVB Credit Advisors LLC. Prior to joining HBV Group, Ms. Kallicharran was a Portfolio Administrator in the Leveraged and Structured Finance Department of The Dai-Ichi Kangyo Bank. Ms. Kallicharran graduated from Queens College. Oneal Bhambani, Associate Mr. Bhambani is an Associate at Kingsland Capital and is responsible for supporting the Senior Analysts across a range of industries. Prior to joining Kingsland Capital, Mr. Bhambani was an Associate in the Investment Banking Division of Libra Securities, where he focused primarily on raising senior and subordinated debt for middle-market companies often in special or distressed situations. Prior to joining Libra, Mr. Bhambani was an Analyst in Technology Investment Banking and Technology Mergers and Acquisitions at Wachovia Securities and UBS Investment Bank respectively. Mr. Bhambani graduated with a B.A. in Business-Economics from the University of California, Los Angeles in 2001. Joseph Choi, Associate Mr. Choi is an Associate at Kingsland Capital and is responsible for supporting the Senior Analysts across a range of industries. Prior to joining Kingsland, Mr. Choi was an Investment Banking Analyst in Bear Stearns’ Technology, Media and Telecom Group, where he advised on several mergers and acquisitions transactions, as well as various equity and debt offerings. Mr. Choi graduated from the University of Virginia with a B.S. in Commerce with concentrations in Finance and Accounting. Cherie Fuhrman, Associate Ms. Fuhrman is an Associate at Kingsland Capital, responsible for supporting the Senior Analysts across a range of industries. Prior to joining Kingsland, Ms. Fuhrman was an Analyst in Bear Stearns' Technology, Media and Telecom Investment Banking Group, where she advised on merger and acquisition transactions as well as several public and private equity and public debt offerings. Ms. Fuhrman graduated magna cum laude from Princeton University with an A.B. in Political Economics. Rehan Mohammad, Associate Mr. Mohammad is an Associate at Kingsland Capital and is responsible for supporting the Senior Analysts across a range of industries. Prior to joining Kingsland, Mr. Mohammad was an Investment Banking Analyst in Deutsche Bank’s Consumer, Retail and Business Services Group, where he advised on mergers and acquisitions transactions, as well as various equity and debt offerings. Mr. Mohammad graduated from the University of Texas at Austin with a B.B.A. in Finance and a minor in Accounting. David Schmookler, Associate 109 Mr. Schmookler is an Associate at Kingsland Capital, responsible for supporting the Senior Analysts across a range of industries. Prior to joining Kingsland, Mr. Schmookler was a Trading Desk Analyst at Miller Tabak Roberts Securities, LLC, covering high-yield and distressed companies across a wide range of industries. Mr. Schmookler graduated with a B.B.A. in Finance from the University of Wisconsin and received the CFA Charter in 2004. Vincent J. Siino, Principal & Director of Portfolio Administration Mr. Siino is a Principal and Director of Portfolio Administration at Kingsland Capital. Prior to joining Kingsland Capital, Mr. Siino was an Executive Director within the Asset Securitization Group at CIBC World Markets. Prior to joining CIBC World Markets, Mr. Siino served as a Second Vice President at Chase Manhattan Bank in the Global Client Management Division’s Loan and Agency Services Group. He holds a B.S. in Management with a minor in Economics from St. Francis College and an MBA from the Stern School of Business at New York University. Katherine Kim, Portfolio Administrator Ms. Kim is a Portfolio Administrator at Kingsland Capital. Prior to joining Kingsland Capital, Ms. Kim was an Operations Associate in the Corporate Credit Department at GSC Group. Prior to joining GSC Group, Ms. Kim was a Service Manager on various 401K institutional clients at MetLife, Inc. Ms. Kim graduated with a B.S. in Business Management from the College of Staten Island. THE PORTFOLIO MANAGEMENT AGREEMENT The Issuer and the Portfolio Manager will enter into the Portfolio Management Agreement pursuant to which the Portfolio Manager will perform certain administrative and advisory functions with respect to the Assets. Pursuant to the terms of the Portfolio Management Agreement, and in accordance with the requirements set forth in the Indenture, the Portfolio Manager will select the portfolio of Collateral Obligations and will instruct the Trustee with respect to any acquisition, disposition or sale of a Collateral Obligation, Eligible Investment or other Asset. The Portfolio Manager will, among other things, have the right, on behalf of the Issuer, to vote or refrain from voting any Collateral Obligation and to exercise any other rights or remedies with respect thereto consistent with the terms of the Indenture. Neither the Initial Purchaser nor any affiliate thereof will select any of the Collateral Obligations. Pursuant to the terms of the Portfolio Management Agreement, the Portfolio Manager will monitor the Collateral Obligations and provide the Issuer with certain information generated or accessible to it or received from The Bank of New York Trust Company, National Association, in its individual capacity and not as Trustee, as described below, with respect to the composition and characteristics of the Collateral Obligations, any disposition or tender of a Collateral Obligation, the reinvestment of the proceeds of any such disposition in Eligible Investments and with respect to the retention of the proceeds of any such disposition or the application thereof toward the purchase of an additional Collateral Obligation. As compensation for the performance of its obligations as Portfolio Manager, the Portfolio Manager will be entitled to receive a fee, which will accrue quarterly in arrears on each Payment Date (prorated for the related Interest Accrual Period), in an amount equal to the sum of (i) 0.15% per annum (calculated on the basis of a 360-day year and the actual number of days elapsed over the related Collection Period) of the Fee Basis Amount at the beginning of the Collection Period relating to such 110 Payment Date (the "Base Management Fee"), (ii) 0.45% per annum (calculated on the basis of a 360-day year and the actual number of days elapsed over the related Collection Period) of the Fee Basis Amount at the beginning of the Collection Period relating to such Payment Date (the "Subordinated Management Fee") and (iii) an amount equal to the sum of (x) 20% of any Interest Proceeds remaining after application pursuant to paragraphs (A) through (S) of "Summary of Terms—Priority of Payments—Application of Interest Proceeds" and (y) 20% of any Principal Proceeds remaining after application pursuant to paragraphs (A) through (F) of "Summary of Terms—Priority of Payments—Application of Principal Proceeds" (the "Contingent Management Fee" and, together with the Subordinated Management Fee and the Base Management Fee, the "Management Fee"), which accrued and unpaid amounts shall be payable on each Payment Date (but only, in the case of the Contingent Management Fee, if the Contingent Management Fee IRR Threshold has been met). The Management Fee is payable on each Payment Date only to the extent that sufficient Interest Proceeds or Principal Proceeds are available and, in the case of the Contingent Management Fee, only if the Contingent Management Fee IRR Threshold has been met. To the extent the Subordinated Management Fee is not paid on any Payment Date for any reason, it will be deferred and accrue interest at LIBOR, assuming an index maturity of three months from such Payment Date, compounded quarterly. Notwithstanding the foregoing, if a replacement Portfolio Manager is appointed in accordance with the Portfolio Management Agreement, the Base Management Fee payable to the replacement Portfolio Manager on any Payment Date following such appointment may be increased to an amount up to 0.25% per annum (calculated on the basis of a 360-day year and the actual number of days elapsed over the related Collection Period) of the Fee Basis Amount at the beginning of the Collection Period relating to each applicable Payment Date by vote of the holders of a majority of the Controlling Class. The "Contingent Management Fee IRR Threshold" will be satisfied on any Payment Date if the Subordinated Notes have received an annualized internal rate of return (computed using the "XIRR" function in Microsoft® Excel 2002 or an equivalent function in another software package and assuming for this purpose that all Subordinated Notes were purchased on the Closing Date at a price of 100%) of at least 10.0% on the outstanding investment in the Subordinated Notes as of the current Payment Date (after giving effect to all payments made or to be made on such Payment Date). "Fee Basis Amount" means, as of any date of determination, the sum of (a) the Collateral Principal Amount (including any Short Positions up to an aggregate amount of $10,000,000 (so long as the Issuer does not also hold the Reference Obligation of such Short Position as a Collateral Obligation)) and (b) the aggregate principal amount of all Defaulted Obligations. The Portfolio Manager will pay its own expenses and costs incurred by it in connection with its services under the Portfolio Management Agreement; provided that the Issuer will be responsible for the payment of (i) expenses and costs of legal advisors (including reasonable expenses and costs associated with the use of internal legal counsel to the Portfolio Manager), consultants and other professionals retained by the Issuer or the Portfolio Manager on its behalf in connection with services provided by the Portfolio Manager, (ii) the reasonable cost of asset pricing and asset rating services, and accounting, programming and data entry services that are retained in connection with services of the Portfolio Manager under the Portfolio Management Agreement (which amounts, if also incurred in connection with obligations owned by the Portfolio Manager or other funds it manages, will be allocated in a fair and equitable manner) and (iii) travel expenses (e.g. airfare, meals, lodging and other transportation) incurred by the Portfolio Manager as are reasonably necessary in connection with the default or restructuring of a Collateral Obligation. 111 The Portfolio Manager shall use reasonable care in rendering its services under the Portfolio Management Agreement, using a degree of skill and attention no less than that which the Portfolio Manager exercises with respect to comparable assets that it manages for itself and for others in accordance with its existing practices and procedures relating to assets of the nature and character of the Collateral Obligations, except as expressly provided otherwise in the Portfolio Management Agreement or the Indenture. Neither the Portfolio Manager nor its affiliates will be liable to the Issuer, the Trustee or the holders of the Offered Securities for any loss incurred as a result of the actions taken by or recommended by the Portfolio Manager (or omitted to be taken by or recommended by the Portfolio Manager) under the Portfolio Management Agreement or the Indenture, except by reason of (x) acts constituting bad faith, willful misfeasance or gross negligence in the performance, or reckless disregard, of its obligations thereunder and (y) any statements set forth in this Offering Memorandum under the headings "Risk Factors—Relating to the Portfolio Manager—Performance History of the Principals of the Portfolio Manager May Not Be Indicative of Future Results," "Risk Factors—Relating to Certain Conflicts of Interest—The Issuer Will Be Subject to Various Conflicts of Interest Involving the Portfolio Manager," and "The Portfolio Manager" containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading (collectively, a "Portfolio Manager Breach"); provided, however, that in no event shall such limitation constitute, directly or indirectly, a waiver of any legal rights or remedies that any holders of the Offered Securities or the Issuer may otherwise have against the Portfolio Manager under any applicable law. Except in connection with a Portfolio Manager Breach, the Portfolio Manager, its shareholders, directors, officers, employees and affiliates will be entitled to indemnification by the Issuer for any losses or liabilities, including legal or other expenses, relating to the issuance of the Offered Securities, the transactions contemplated by the Indenture or the performance of the Portfolio Manager's obligations under the Portfolio Management Agreement, which will be payable as Administrative Expenses in and is payable as described under "Summary of Terms—Priority of Payments." The Portfolio Manager will not be liable for consequential damages under the Portfolio Management Agreement. The Portfolio Manager may assign its rights or responsibilities under the Portfolio Management Agreement (even where such assignment would be deemed an "assignment" for purposes of Section 205(a)(2) of the Investment Advisers Act of 1940, as amended) with, (i) so long as any Offered Securities rated by S&P are outstanding, the S&P Rating Condition is satisfied and (ii) the consent of the Issuer and (except with respect to an assignment to an affiliate) consent of the holders of at least two-thirds of the aggregate outstanding principal amount of the Subordinated Notes (excluding any Offered Securities owned by the Portfolio Manager, its employees or its affiliates). The Portfolio Manager may delegate to an agent selected with reasonable care any or all of the duties (other than its asset selection or trade execution duties) assigned to the Portfolio Manager under the Portfolio Management Agreement; provided that no delegation by the Portfolio Manager of any of its duties under the Portfolio Management Agreement shall relieve the Portfolio Manager of any of its duties under the Portfolio Management Agreement nor relieve the Portfolio Manager of any liability with respect to the performance of such duties. The Portfolio Manager may resign upon 90 days' prior written notice to the Issuer, the Trustee, each Hedge Counterparty and each Rating Agency. Notwithstanding the foregoing, the Portfolio Manager may assign any or all of its rights and delegate any or all of its duties under the Portfolio Management Agreement to an affiliate without obtaining the consents and written confirmation described in the preceding paragraph (but with prior written notice to the Issuer, the Trustee, each Hedge Counterparty and each Rating Agency) so long as such affiliate (A) has demonstrated an ability to professionally and competently perform duties similar to those imposed on the Portfolio Manager under the Portfolio Management Agreement, (B) is legally qualified and has the capacity to act as Portfolio Manager under the Portfolio Management Agreement 112 and (C) employs principal personnel performing the duties required thereunder who are the same individuals who would have performed such duties had the delegation not occurred; provided that no such assignment shall constitute a Change of Control. The Portfolio Manager may be removed for cause by the Issuer, acting upon the direction of the holders of (1) in the case of clauses (a) through (f) below, a majority of the aggregate outstanding principal amount of the Offered Securities (voting together as a single class) or (2) in the case of clause (g) below, a majority of the aggregate outstanding principal amount of the Subordinated Notes or a majority of the aggregate outstanding principal amount of the Notes of the Controlling Class (excluding, in each case under clauses (1) or (2) above, any Offered Securities owned by the Portfolio Manager, its employees or its affiliates) upon 10 days' prior written notice. For purposes of the Portfolio Management Agreement, "cause" will mean: (a) the Portfolio Manager breaches in any respect any provision of the Portfolio Management Agreement or the Indenture applicable to it that could reasonably be expected to have a material adverse effect on any Class of Offered Securities or either of the Co-Issuers and fails to cure such breach within 30 days of becoming aware of, or receiving notice of, the occurrence of such breach; (b) the Portfolio Manager intentionally breaches any material provision of the Portfolio Management Agreement or the Indenture applicable to it; (c) certain events of bankruptcy, insolvency, conservatorship, or receivership in respect of the Portfolio Manager; (d) the occurrence of any Event of Default that results from a breach by the Portfolio Manager of its duties under the Indenture or the Portfolio Management Agreement; (e) the occurrence of an Event of Default described in clause (a), (b) or (f) under "Description of the Offered Securities—The Indenture and the Senior Notes—Events of Default"; (f) the occurrence of an act by the Portfolio Manager or its principals that constitutes fraud or criminal activity in the performance of its obligations under the Portfolio Management Agreement or the indictment of the Portfolio Manager or its principals for a criminal offense materially related to the Portfolio Manager's business of providing asset management services; and (g) the occurrence of a Change of Control with respect to Kingsland Capital. "Change of Control" means that Joyce C. DeLucca fails to own at least 51% of the outstanding voting limited liability company interests of Kingsland Capital, without restriction on voting rights or any lien or encumbrance (other than a lien or encumbrance granted by Joyce C. DeLucca to obtain financing for Kingsland Capital or otherwise (in compliance with the organizational documents of Kingsland Capital)); provided, however, that any transaction constituting an "assignment" within the meaning of Section 205(a)(2) of the Investment Advisers Act of 1940, as amended, which has been approved by the holders of the Subordinated Notes in accordance with the Portfolio Management Agreement will not constitute a Change of Control within the meaning of this definition. If any such event occurs, the Portfolio Manager shall give written notice thereof to the Issuer, the Trustee, each Hedge Counterparty and the holders of all outstanding Offered Securities promptly upon the Portfolio Manager's becoming aware of the occurrence of such event. In addition, so long as Kingsland Capital or any of its affiliates is Portfolio Manager, the Portfolio Manager shall, within 5 days of such event, give written notice to the Issuer, each Hedge Counterparty and the Trustee, and shall request the Trustee to forward copies of such notice to each holder of Subordinated Notes, if Joyce C. DeLucca either is no longer employed by the Portfolio Manager or is no longer primarily responsible for managing the Assets. The Portfolio Manager shall (within 45 days of the date on which Joyce C. DeLucca either is no longer employed by the Portfolio Manager or is no longer primarily responsible for managing the Assets) provide notice to the Issuer and the Trustee, and shall request the Trustee to forward copies of such notice to each holder of Subordinated Notes, of its proposal for a replacement portfolio manager and background information regarding the designated replacement portfolio manager, including, without limitation, his or her relevant employment history, management 113 experience and related performance information. At the direction of the holders of a majority of the aggregate outstanding principal amount of the Subordinated Notes, the Issuer shall remove the Portfolio Manager in the event that the Portfolio Manager has not made such a proposal within the timeframe required above or the holders of a majority of the aggregate outstanding principal amount of the Subordinated Notes (excluding any Offered Securities owned by the Portfolio Manager, its employees or any affiliate) object to the designated replacement portfolio manager (which objection shall not be unreasonable) within 15 days following receipt of notice of such designated replacement portfolio manager. Notwithstanding anything to the contrary set forth above, no resignation or termination of the Portfolio Management Agreement shall become effective until the Global Rating Agency Condition is satisfied with respect to a successor Portfolio Manager selected by the Issuer at the direction of the holders of a majority of the aggregate outstanding principal amount of the Subordinated Notes; provided that the holders of two-thirds of the aggregate outstanding principal amount of the Senior Notes (voting together as a single class) do not object within 15 days after notice of such proposed action (in each case, excluding in the event of a removal for cause or with respect to the appointment of an affiliate as successor, any Offered Securities owned by the Portfolio Manager, its employees or its affiliates). In the event that a successor Portfolio Manager has not been appointed (and accepted such appointment) within 120 days of the date of resignation or termination of the Portfolio Manager, the holders of a majority of the aggregate outstanding principal amount of the Controlling Class may petition a court of competent jurisdiction to appoint a successor Portfolio Manager. In addition, the Portfolio Management Agreement will be automatically terminated if (i) the Issuer determines in good faith that it, the Co-Issuer or the pool of Assets is required to be registered under the Investment Company Act or (ii) the existence of the Portfolio Management Agreement, in the opinion of counsel to the Issuer, causes the Issuer to be engaged in the conduct of a trade or business in the United States for U.S. federal income tax purposes or otherwise causes material adverse tax consequences to the Issuer and the Issuer so notifies the Portfolio Manager; provided that a termination described in clause (ii) above will not be effective until the time specified in the immediately preceding paragraph. Under the Portfolio Management Agreement, the Portfolio Manager is permitted to recommend or effect direct trades between the Issuer and the Portfolio Manager or an affiliate, acting as principal, or trades between the Issuer and another investor vehicle with respect to which the Portfolio Manager or its affiliates acts as investment adviser, subject to applicable legal requirements (including, without limitation, all requirements of the Investment Advisers Act of 1940, as amended) and with the consent of the holders of a majority of the aggregate outstanding principal amount of the Subordinated Notes. The Portfolio Manager, its affiliates, and their respective clients may invest in obligations that would be appropriate as Assets. Such investments may be different from those made on behalf of the Issuer. The Portfolio Manager and its affiliates may also have ongoing relationships with, render services to or engage in transactions with, companies whose obligations are included in the Assets and may own equity or debt securities issued by issuers of and other obligors of Collateral Obligations. As a result, officers or affiliates of the Portfolio Manager may possess information relating to obligors of Collateral Obligations which is not known to the individuals at the Portfolio Manager responsible for monitoring the Assets and performing the other obligations under the Portfolio Management Agreement. In addition, affiliates and clients of the Portfolio Manager may invest in obligations that are senior to, or have interests different from or adverse to, the Collateral Obligations. The Portfolio Manager and/or its affiliates may at certain times be simultaneously seeking to purchase or dispose of investments for its respective account, the Issuer, any similar entity for which it serves as manager or advisor and for its clients or affiliates. All Collateral Obligations will be purchased and sold by the Issuer on terms prevailing in the market. Neither 114 the Portfolio Manager nor any of its affiliates is under any obligation to offer investment opportunities of which they become aware to the Issuer or to account to the Issuer (or share with the Issuer or inform the Issuer of) any such transaction or any benefit received by them from any such transaction. Furthermore, the Portfolio Manager and/or its affiliates have no affirmative obligation to offer any investments to the Issuer or to inform the Issuer of any investments before offering any investments to other funds or accounts that the Portfolio Manager and/or its affiliates manager or advise. Furthermore, affiliates of the Portfolio Manager may make an investment on their own behalf without offering the investment opportunity to the Issuer. Affiliates of the Portfolio Manager have no affirmative obligations to offer those investments to the Issuer or to inform the Issuer of any investments before engaging in any investments for themselves. The Portfolio Manager will endeavor to resolve conflicts with respect to investment opportunities in a manner that it deems equitable to the extent possible under the prevailing facts and circumstances. Although the professional staff of the Portfolio Manager will devote as much time to the Issuer as the Portfolio Manager deems appropriate, the staff may have conflicts in allocating its time and services among the issuer and the Portfolio Manager's other accounts. There is no limitation or restriction on Kingsland Capital or any of its affiliates with regard to acting as Portfolio Manager (or in a similar role) to other parties or persons. This and other future activities of the Portfolio Manager and/or their affiliates may give rise to additional conflicts of interest. The Portfolio Manager and its affiliates expect to serve as Portfolio Manager for, invest in or be affiliated with, other entities organized to issue collateralized debt obligations secured by high yield loans and bonds in the future. THE CO-ISSUERS General Kingsland V, Ltd. is an exempted company incorporated under the laws of the Cayman Islands for the sole purpose of acquiring the Collateral Obligations, issuing the Offered Securities and engaging in certain related transactions. The Issuer was incorporated on April 28, 2005 in the Cayman Islands under the name WB Loan Funding X with registered number 148276 and has an indefinite existence. The Issuer's name was changed to Kingsland V, Ltd. on December 27, 2006. The Issuer's registered office is at the offices of Maples Finance Limited, PO Box 1093GT, Queensgate House, South Church Street, George Town, Grand Cayman, Cayman Islands. The Issuer’s telephone number is 345-945-7099. The directors of the Issuer are Phillip Hinds and Richard Ellison. The principal outside function of the directors of the Issuer consists of serving as officers for Maples Finance Limited, a licensed trust company incorporated in the Cayman Islands, and they may be contacted at the offices of Maples Finance Limited. The directors of the Issuer serve as directors of and provide services to other special purpose entities that issue collateralized obligations and perform other duties for the Administrator. The Issuer has no prior operating history (except for the acquisition of Collateral Obligations in anticipation of the closing of the transactions contemplated by this Offering Memorandum pursuant to the warehousing facility described herein). The Issuer does not publish any financial statements and operates under the Companies Law (2004 Revision) of the Cayman Islands. Subject to the contracting restrictions imposed upon the Issuer by the Indenture, the directors of the Issuer have the power to borrow on behalf of the Issuer. A director of the Issuer is not required to own any shares in the Issuer in order to qualify as a director. A director of the Issuer (or his alternate director in his absence) is at liberty to vote in respect of any contract or transaction in which he is interested; provided, that the nature of the interest of any 115 director or alternate director in any such contract or transaction is disclosed by him or the alternate director appointed by him at or prior to its consideration and any vote on it. The directors (and their alternates) are not entitled to any remuneration. Any director may act by himself or his firm in a professional capacity for the Issuer and he or his firm is entitled to remuneration for professional services as if he were not a director. A director is at liberty to vote in respect of any matter relating to his remuneration; provided, that the nature of his interest is disclosed prior to the matter being considered and voted upon by the board of directors. As of the Closing Date, the authorized share capital of the Issuer will consist of 50,000 ordinary voting shares, $1.00 par value per share, 250 of which (the "Issuer Ordinary Shares") have been issued and are outstanding. All of the Issuer Ordinary Shares of the Issuer are held by Maples Finance Limited (in such capacity, the "Share Trustee"), under the terms of a declaration of trust in favor of charitable purposes. The Issuer will not have any material assets other than the Collateral Obligations and certain other eligible assets. The Collateral Obligations and such other eligible assets will be pledged to the Trustee as security for the Issuer's obligations under the Senior Notes and the Indenture. Kingsland V, Corp. was incorporated under the laws of the State of Delaware for the sole purpose of co-issuing the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes (the "CoIssued Notes"). The Co-Issuer was incorporated on April 4, 2007 in the State of Delaware with registered number 4329452 and has an indefinite existence. The Co-Issuer's registered office is at 850 Library Avenue, Newark, Delaware (Newcastle County). The Co-Issuer’s telephone number is 302-7386680. The Co-Issuer has no substantial assets and will not pledge any assets to secure the Notes. The sole director and officer of the Co-Issuer is Donald J. Puglisi. The principal outside function of Donald J. Puglisi consists of being a finance professor emeritus at the University of Delaware and serving as a corporate director for a variety of entities. Donald J. Puglisi may be contacted at the office of the Co-Issuer. The Co-Issuer has no prior operating history other than the accumulation of assets through the warehousing facility described in this Offering Memorandum. Unless otherwise required pursuant to the Indenture, the Co-Issuer will not publish any financial statements and operates under the General Corporation Law of the State of Delaware. The Co-Issuer's authorized common stock consists of 1,000 shares of common stock, $0.01 par value (the "Co-Issuer Common Stock"). All of the Co-Issuer Common Stock is, or will be on the Closing Date, held by the Share Trustee, under the terms of a declaration of trust in favor of charitable purposes. The Offered Securities are not obligations of the Trustee, the Portfolio Manager, the Initial Purchaser or any of their respective affiliates, the Administrator, the Share Trustee or any directors or officers of the Co-Issuers. 116 Capitalization of the Issuer The Issuer's initial proposed capitalization and indebtedness as of the Closing Date after giving effect to the issuance of the Offered Securities and the Issuer Ordinary Shares (before deducting expenses of the offering) is set forth below: Amount1 Class A-1 Notes ................................. $295,975,000 Class A-2R Notes............................... $60,000,0002 Class A-2B Notes............................... $12,125,000 Class B Notes..................................... $22,900,000 Class C Notes..................................... $25,000,000 Class D-1 Notes ................................. $13,000,000 Class D-2 Notes ................................. $5,000,000 Class E Notes..................................... $14,900,000 Subordinated Notes ............................ $36,100,000 Total Debt............................. Issuer Ordinary Shares....................... Retained Earnings Total Equity .......................... Total Capitalization .............. $485,000,000 $250 $250 $500 $485,000,5003 1. Includes the face amount of each Component of the Composite Notes. 2. Includes all unfunded Class A-2R Commitments. On the Closing Date, $0 in Class A-2R Borrowings will be made under the Class A-2R Notes. 3. Unaudited. The Co-Issuer has no other liabilities other than the Co-Issued Notes. Business of the Co-Issuers The Issuer's Memorandum of Association describes the objects of the Issuer which are unrestricted and which include the business to be carried out by the Issuer in connection with the Offered Securities. The Co-Issuer's certificate of incorporation describes the objects of the Co-Issuer, which include the business to be carried out by the Co-Issuer in connection with the Notes. The Co-Issuers have not issued securities, other than ordinary or common shares, prior to the date of Offering Memorandum and have not listed any securities on any exchange. The Co-Issuers will not undertake any business other than the issuance of the Co-Issued Notes and, in the case of the Issuer, the issuance of the Class E Notes, the Composite Notes and Subordinated Notes and the management of the Assets and other related transactions. Neither of the Co-Issuers will have any subsidiaries (except, in the case of the Issuer, any subsidiary formed for the sole purpose of holding (I) stock of one or more corporations that are or may be treated as United States real property interests for purposes of Section 897 of the Code or (II) equity interests in "partnerships" (within the meaning of Section 7701(a)(2) of the Code) that are or may be engaged or deemed to be engaged in a trade or business in the United States, in each case received in a workout of a Defaulted Obligation (each, an "ETB/897 Subsidiary"). In general, subject to the credit quality and diversity of the Collateral Obligations and general market conditions and the need (in the judgment of the Portfolio Manager) to satisfy the Coverage Tests, the Concentration Limitations and the Collateral Quality Test or to obtain funds for the redemption or payment of the Offered Securities, the Issuer will own the Assets and will receive payments of interest and principal on the Collateral Obligations and Eligible Investments as the principal source of its income. The ability to purchase additional Collateral Obligations and sell Collateral Obligations prior to maturity is subject to significant 117 restrictions under the Indenture. See "Security for the Senior Notes—Sales of Collateral Obligations; Additional Collateral Obligations and Investment Criteria." Maples Finance Limited (the "Administrator"), a Cayman Islands licensed trust company, will act as the administrator of the Issuer. The office of the Administrator will serve as the general business office of the Issuer. Through this office and pursuant to the terms of an agreement between the Administrator and the Issuer (the "Administration Agreement"), the Administrator will perform various administrative functions on behalf of the Issuer, including communications with shareholders and the general public, and the provision of certain clerical, administrative and other services in the Cayman Islands until termination of the Administration Agreement. In consideration of the foregoing, the Administrator will receive various fees and other charges payable by the Issuer at rates agreed upon from time to time plus expenses. The activities of the Administrator under the Administration Agreement will be subject to the overview of the Issuer's Board of Directors. The Administration Agreement may be terminated by either the Issuer or the Administrator upon three months' written notice, in which case a replacement Administrator will be appointed. The Administrator's principal office is Maples Finance Limited, P.O. Box 1093GT, Queensgate House, South Church Street, George Town, Grand Cayman, Cayman Islands. WACHOVIA Wachovia Corporation, a national investment and commercial bank headquartered in Charlotte, North Carolina, was created when First Union Corporation and Wachovia Corporation formally merged in September 2001. Wachovia Corporation operates full service banking offices in 21 states and Washington D.C. and full service brokerage offices in 49 states and international offices worldwide. As a bank-holding company, it maintains three principle business concentrations including general banking, investments and money management, and corporate and investment banking. These businesses are conducted through three wholly owned subsidiaries - Wachovia Bank, National Association, Wachovia Capital Management Group, and Wachovia Capital Markets, LLC, respectively. Wachovia Corporation is publicly held and trades on the New York Stock Exchange under the ticker ‘WB”. It is the 4th largest bank holding company in the U.S. with approximately $707 billion in total assets and is the 5th largest financial services company by market capitalization with an approximate value of $108 billion. Wachovia employs approximately 108,000 people worldwide and serves more than 15 million households and businesses, and 12.3 million online product and service enrollments through the nation’s third largest branch network. Wachovia Bank, National Association's principal mailing address is 301 South College Street, NC0602, Charlotte, North Carolina 28288. 118 INCOME TAX CONSIDERATIONS General The following summary describes the principal U.S. federal income tax and Cayman Islands tax consequences of the purchase, ownership and disposition of the Notes and the Composite Notes to investors that acquire the Notes and the Composite Notes at original issuance and, in the case of the Senior Notes, for an amount equal to the Issue Price of the relevant Class of Senior Notes (for purposes of this section, with respect to each such Class of Senior Notes, the first price at which a substantial amount of Senior Notes of such Class are sold to investors (excluding bond houses, brokers, underwriters, placement agents and wholesalers) is referred to herein as the “Issue Price”). This summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a particular investor's decision to purchase the Notes or the Composite Notes. In addition, this summary does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than the United States federal income tax laws and Cayman Islands tax laws. In general, the summary assumes that a holder holds an Offered Security as a capital asset and not as part of a hedge, straddle or conversion transaction, within the meaning of Section 1258 of the Code. For purposes of this summary, the Composite Notes will not be treated as single units, but rather each of the Components of the Composite Notes will be treated as part of the Class of Senior Notes to which they relate. Therefore, in the following discussions, any reference in the summary applicable to the Senior Notes also applies to the applicable Component. ______________________________________ The advice below was not written and is not intended to be used and cannot be used by any taxpayer for purposes of avoiding United States federal income tax penalties that may be imposed. The advice is written to support the promotion or marketing of the transaction. Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. The foregoing disclaimer is provided to satisfy obligations under Circular 230 governing standards of practice before the Internal Revenue Service. _______________________________________ This summary is based on the U.S. and Cayman Islands tax laws, regulations (final, temporary and proposed), administrative rulings and practice and judicial decisions in effect or available on the date of this Offering Memorandum. All of the foregoing are subject to change or differing interpretation at any time, which change or interpretation may apply retroactively and could affect the continued validity of this summary. This summary is included herein for general information only, and there can be no assurance that the U.S. Internal Revenue Service (the "IRS") will take a similar view of the U.S. federal income tax consequences of an investment in the Offered Securities as described herein. ACCORDINGLY, PROSPECTIVE PURCHASERS OF THE OFFERED SECURITIES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO U.S. FEDERAL INCOME TAX AND CAYMAN ISLANDS TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE OFFERED SECURITIES, AND THE POSSIBLE APPLICATION OF STATE, LOCAL, FOREIGN OR OTHER TAX LAWS. 119 As used in this section, the term "U.S. Holder" includes a beneficial owner of an Offered Security that is, for U.S. federal income tax purposes, a citizen or individual resident of the United States of America, an entity treated for United States federal income tax purposes as a corporation or a partnership created or organized in or under the laws of the United States of America or any state thereof or the District of Columbia, an estate the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source, or a trust if, in general, a court within the United States of America is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of such trust, and certain eligible trusts that have elected to be treated as United States persons. This summary also does not address the rules applicable to certain types of investors that are subject to special U.S. federal income tax rules, including but not limited to, dealers in securities or currencies, traders in securities, financial institutions, U.S. expatriates, tax-exempt entities (except with respect to specific issues discussed herein), charitable remainder trusts and their beneficiaries, insurance companies, persons or their qualified business units whose functional currency is not the U.S. Dollar, persons that own (directly or indirectly) equity interests in holders of Offered Securities and subsequent purchasers of the Offered Securities. United States Federal Income Taxation Tax Treatment of the Issuer The Code and the Treasury Regulations promulgated thereunder provide a specific exemption from U.S. federal income tax to non-U.S. corporations which restrict their activities in the United States to trading in stocks and securities (and any other activity closely related thereto) for their own account, whether such trading (or such other activity) is conducted by the corporation or its employees or through a resident broker, commission agent, custodian or other agent. This particular exemption does not apply to non-U.S. corporations that are engaged in activities in the United States other than trading in stocks and securities (and any other activity closely related thereto) for their own account or that are dealers in stocks and securities. The Issuer intends to rely on the above exemption and does not intend to operate so as to be subject to U.S. federal income taxes on its net income. In this regard, on the Closing Date, the Issuer will receive an opinion from McKee Nelson LLP, special U.S. tax counsel to the Issuer (“Special U.S. Tax Counsel”) to the effect that, although no activity closely comparable to that contemplated by the Issuer has been the subject of any Treasury Regulation, revenue ruling or judicial decision, under current law and assuming compliance with the Indenture, the Portfolio Management Agreement, and other related documents (the “Documents”) by all parties thereto, the Issuer's contemplated activities will not cause it to be engaged in a trade or business in the United States under the Code and, consequently, the Issuer's profits will not be subject to U.S. federal income tax on a net income basis (or the branch profits tax described below). The opinion of Special U.S. Tax Counsel will be based on the Code, the Treasury Regulations (final, temporary and proposed) thereunder, the existing authorities, and Special U.S. Tax Counsel’s interpretation thereof, and on certain factual assumptions and representations as to the Issuer's contemplated activities. The Issuer intends to conduct its affairs in accordance with such assumptions and representations, and the remainder of this summary assumes such result. In addition, in interpreting and complying with the Documents and such assumptions and representations, the Issuer and the Portfolio Manager are entitled to rely upon the advice and/or opinions of their selected counsel, and the opinion of Special U.S. Tax Counsel will assume that any such advice and/or opinions are correct and complete. However, the opinion of Special U.S. Tax Counsel and any such other advice or opinions are not binding on the IRS or the courts, and no ruling will be sought from the IRS regarding this, or any other, aspect of the U.S. federal income tax treatment of the Issuer. Accordingly, in the absence of authority on point, the U.S. federal income tax treatment of the Issuer is not entirely free from doubt, and there can be no 120 assurance that positions contrary to those stated in the opinion of Special U.S. Tax Counsel or any such other advice or opinions may not be asserted successfully by the IRS. If, notwithstanding the aforementioned opinion of Special U.S. Tax Counsel, it were determined that the Issuer (or any ETB/897 Subsidiary) were engaged in a trade or business in the United States (as defined in the Code), and the Issuer had taxable income that was effectively connected with such U.S. trade or business, the Issuer (or any ETB/897 Subsidiary) would be subject under the Code to the regular U.S. corporate income tax on such effectively connected taxable income (and possibly to the 30% branch profits tax as well). The imposition of such taxes would materially affect the Issuer's financial ability to make payments with respect to the Offered Securities and could materially affect the yield of the Senior Notes and the return on the Subordinated Notes. United States Withholding Taxes. Although, based on the foregoing, the Issuer is not expected to be subject to U.S. federal income tax on a net income basis, income derived by the Issuer may be subject to withholding taxes imposed by the United States or other countries. Generally, U.S. source interest income received by a foreign corporation not engaged in a trade or business within the United States is subject to U.S. withholding tax at the rate of 30% of the amount thereof. The Code provides an exemption (the “portfolio interest exemption”) from such withholding tax for interest paid with respect to certain debt obligations issued after July 18, 1984, unless the interest constitutes a certain type of contingent interest or is paid to a 10% shareholder of the payor, to a controlled foreign corporation related to the payor, or to a bank with respect to a loan entered into in the ordinary course of its business. In this regard, the Issuer is permitted to acquire a particular Collateral Obligation only if the payments thereon are exempt from U.S. withholding taxes at the time of purchase (with the exception of commitment fees associated with Collateral Obligations constituting Revolving Collateral Obligations or Delayed Drawdown Collateral Obligations) or the obligor is required to make “gross-up” payments that offset fully any such tax on any such payments. In addition, payments with respect to commitment and other similar fees (including, without limitation, certain payments on obligations or securities that include a participation in or that support a letter of credit) may be subject to withholding tax. Accordingly, assuming compliance with the foregoing restrictions and subject to the foregoing qualifications, income derived by the Issuer will be free of or fully "grossed up" for any material amount of U.S. withholding tax. However, there can be no assurance that income derived by the Issuer will not generally become subject to U.S. withholding tax as a result of a change in U.S. tax law or administrative practice, procedure, or interpretations thereof. It is also anticipated that the Issuer will acquire Collateral Obligations that consist of obligations of non-U.S. issuers. In this regard, the Issuer may only acquire a particular Collateral Obligation if either the payments thereon are not subject to foreign withholding tax or the obligor of the Collateral Obligation is required to make "gross-up" payments. 121 Prospective investors should be aware that, under certain Treasury Regulations, the IRS may disregard the participation of an intermediary in a “conduit” financing arrangement and the conclusions reached in the immediately preceding paragraph assume that such Treasury Regulations do not apply. Those Treasury Regulations could require withholding of U.S. federal income tax from payments to the Issuer of interest on the Assets. In order to prevent “conduit” classification, each holder and beneficial owner of a Class A-2R Note, Class E Note or Subordinated Note that is not a “United States person” (as defined in Section 7701(a)(30) of the Code) will be required to provide to the Issuer and the Trustee written certification in a form of certification acceptable to the Issuer as to whether it is an Affected Bank (or, in the case of transferees of Class E Notes, Composite Notes or Subordinated Notes in global form, will be deemed to represent that they are not Affected Banks). No transfer of any Class A-2R Note, Class E Note, Composite Note or Subordinated Note to an Affected Bank will be effective, and the Trustee will not recognize any such transfer, unless such transfer is specifically authorized by the Issuer in writing; provided, however, that the Issuer shall authorize any such transfer if (x) such transfer would not cause more than 33 1/3% of the aggregate outstanding principal amount of the Class A-2R Notes, Class E Notes (including the Class E Note Component) or Subordinated Notes to be owned by Affected Banks or (y) the transferor is an Affected Bank previously approved by the Issuer. “Affected Bank” means a “bank” for purposes of Section 881 of the Code or an entity affiliated with such a bank that neither (x) meets the definition of a U.S. Holder or (y) is entitled to the benefits of an income tax treaty with the United States under which withholding taxes on interest payments made by obligors resident in the United States to such bank are reduced to 0%. Tax Treatment of U.S. Holders of the Senior Notes Treatment of the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes. In the opinion of Special U.S. Tax Counsel, the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes will be treated as debt for U.S. federal income tax purposes when issued and this summary assumes such treatment. Further, the Issuer will treat, and each holder and beneficial owner of a Senior Note (by acquiring such Senior Note or an interest in such Senior Note) will agree to treat, such Senior Note as debt for U.S. federal income tax purposes, except (x) as otherwise required by applicable law, (y) to the extent a holder makes a protective QEF election (as described below under "—Tax Treatment of U.S. Holders of Subordinated Notes—Investment in a Passive Foreign Investment Company"), or (z) to the extent that a holder files certain United States tax information returns required of only certain equity owners with respect to various reporting requirements under the Code (as described below under "— Transfer Reporting Requirements" and "—Tax Return Disclosure and Investor List Requirements"). With regard to the characterization for U.S. federal income tax purposes of the Senior Notes issued after the Closing Date, prospective investors should note that the characterization of an instrument as debt or equity for U.S. federal income tax purposes is highly factual and must be based on the applicable law and the facts and circumstances existing at the time such instrument is issued (which, in the case of the Class A-2R Notes, would include the time of each draw on such Notes) and material changes from those existing on the Closing Date (e.g. a material decline in the value of the Issuer's assets, a material adverse change in the Issuer's ability to repay the Senior Notes previously issued, and/or a material decline in the proportion of the Subordinated Notes) could affect the characterization of the Senior Notes issued after (but not before) such changes. However, the opinion of Special U.S. Tax Counsel is based on current law and certain representations and assumptions (which, in the case of the Class A-2R Notes, includes the assumption that, at the time of any draw, repayment of such Notes will not be speculative) and is not binding on the IRS or the courts, and no ruling will be sought from the IRS regarding this, or any other, aspect of the U.S. federal income tax treatment of the Senior Notes. Accordingly, there can be no assurance that the IRS will not contend, and that a court will not ultimately hold, that for U.S. federal income tax purposes one or more Classes of the Senior Notes are properly treated as equity in the Issuer. Recharacterization of a Class of Notes, particularly the Class D Notes because of their place in the capital 122 structure, may be more likely if a single investor or a group of investors that holds all of the Subordinated Notes also holds all of the more senior Class of Notes in the same proportion as the Subordinated Notes are held. In that case, the U.S. federal income tax consequences to U.S. Holders of the Senior Notes would be substantially the same as those set forth under “Tax Treatment of U.S Holders of Subordinated Notes” and there might be adverse U.S. federal income tax consequences to a U.S. Holder of Senior Notes upon the sale, redemption, retirement or other disposition of, or the receipt of certain types of distributions on, the Senior Notes. The following discussion assumes that the Senior Notes will be treated as debt of the Issuer for U.S. federal income tax purposes. Treatment of the Class E Notes. In the opinion of Special U.S. Tax Counsel, the Class E Notes should be treated as debt for U.S. federal income tax purposes. In addition, the Issuer and each holder and beneficial owner of a Class E Note, by acquiring such Note or an interest therein, will agree to treat the Class E Note as debt for U.S. federal income tax purposes, except (x) as otherwise required by applicable law, (y) to the extent a holder makes a protective QEF election (as described below under "— Tax Treatment of U.S. Holders of Subordinated Notes—Investment in a Passive Foreign Investment Company"), or (z) to the extent that a holder files certain United States tax information returns required of only certain equity owners with respect to various reporting requirements under the Code (as described below under "—Transfer Reporting Requirements" and "—Tax Return Disclosure and Investor List Requirements"). However, the treatment of the Class E Notes as debt for U.S. federal income tax purposes is not free from doubt. Furthermore, as noted above, the opinion of Special U.S. Tax Counsel is not binding on the IRS or the courts, and no ruling will be sought from the IRS regarding this, or any other, aspect of the U.S. federal income tax treatment of the Class E Notes. Accordingly, there can be no assurance that the IRS will not contend, and that a court will not ultimately hold, that for U.S. federal income tax purposes the Class E Notes are properly treated as equity in the Issuer. Recharacterization of a Class of Notes, particularly the Class E Notes because of their place in the capital structure, may be more likely if a single investor or a group of investors that holds all of the Subordinated Notes also holds all of the more senior Class of Notes in the same proportion as the Subordinated Notes are held. In that case, the U.S. federal income tax consequences to U.S. Holders of the Class E Notes would be substantially the same as those set forth under "Tax Treatment of U.S Holders of Subordinated Notes" and there might be adverse U.S. federal income tax consequences to a U.S. Holder of Class E Notes upon the sale, redemption, retirement or other disposition of, or the receipt of certain types of distributions on, the Class E Notes. The following discussion assumes that the Class E Notes will be treated as debt of the Issuer for U.S. federal income tax purposes. Interest or Discount on the Senior Notes. U.S. Holders of the Senior Notes generally will include in gross income payments of stated interest treated as qualified stated interest (as defined below) as received in accordance with their usual method of tax accounting, as ordinary interest income from sources outside the United States. The Class A-2R Commitment Fee with respect to the Class A-2R Notes should also be included in income in accordance with the holder's normal method of accounting, although it is not interest income. If the Issue Price of a Class of Senior Notes is less than the "stated redemption price at maturity" of such Class of Senior Notes by more than a de minimis amount, U.S. Holders of Senior Notes of such Class will be considered to have purchased such Senior Notes with original issue discount ("OID"). The stated redemption price at maturity of a Class of Senior Notes will be the sum of all payments to be received on Senior Notes of such Class, other than payments of "qualified stated interest" (i.e., generally, stated interest which is unconditionally payable in money at least annually during the entire term of a debt instrument). Interest is unconditionally payable if reasonable remedies exist to compel payment or the terms of the instrument make late payment or non-payment remote. Prospective U.S. Holders of the Class C Notes, the Class D Notes and the Class E Notes should note that, because interest 123 on these Notes may not qualify as unconditionally payable on each Payment Date (and, therefore, may not be "qualified stated interest"), all of the stated interest payments on one or both of these Classes of Senior Notes may be included in the stated redemption prices at maturity, and required to be accrued by U.S. Holders pursuant to the OID rules described below. Such OID inclusion on such Senior Notes generally will be treated as income from sources outside the United States. A U.S. Holder of such Class of Senior Notes issued with OID will be required to accrue and include in gross income the sum of the "daily portions" of total OID on such Senior Notes for each day during the taxable year on which the U.S. Holder held such Senior Notes, generally under a constant yield method, regardless of such U.S. Holder's usual method of accounting for U.S. federal income tax purposes. If a Senior Note is issued at a discount from its stated principal balance and that discount is considered to represent only a de minimis amount of OID, such discount is not subject to accrual under the OID rules and should be included in gross income proportionately as stated principal payments are received. Such de minimis OID should be treated as gain from the sale or exchange of property and may be eligible as capital gain if the Senior Note is a capital asset in the hands of the U.S. Holder. In the case of such Class of Senior Notes that provides for a floating rate of interest, the amount of OID to be accrued over the term of such Senior Notes will be based initially on the assumption that the floating rate in effect for the first accrual period of such Senior Notes will remain constant throughout their term. To the extent such rate varies with respect to any accrual period, such variation will be reflected in an increase or decrease of the amount of OID accrued for such period. Under the foregoing method, U.S. Holders of the Senior Notes may be required to include in gross income increasingly greater amounts of OID and may be required to include OID in advance of the receipt of cash attributable to such income. The Issuer intends to treat Classes of Senior Notes issued with more than de minimis OID as being subject to rules prescribed by Section 1272(a)(6) of the Code using an assumption as to the prepayments on such Class of Senior Notes, as discussed below under "—OID on the Senior Notes." A prepayment assumption applies to debt instruments if payments under such debt instruments may be accelerated by reason of prepayments of other obligations securing such debt instruments. OID on the Senior Notes. The following discussion will apply to a Class of Senior Notes if it is issued with more than de minimis OID. Because principal repayments on the Senior Notes are subject to acceleration, the method by which OID on the Senior Notes is required to be accrued is uncertain. For purposes of accruing OID on these Senior Notes under such circumstances, the Issuer intends to treat these Senior Notes as being subject to the "prepayment assumption method". These rules require that the amount and rate of accrual of OID be calculated based on a prepayment assumption and the anticipated reinvestment rate, if any, relating to the Senior Notes and prescribe a method for adjusting the amount and rate of accrual of the discount where the actual prepayment rate differs from the prepayment assumption. Under the Code, the prepayment assumption must be determined in the manner prescribed by the Treasury Regulations, which have not yet been issued. The legislative history provides, however, that Congress intended the Treasury Regulations to require that the prepayment assumption be the prepayment assumption that is used in determining the initial offering price of the Senior Notes. Solely for purposes of determining OID, market discount and bond premium, the Issuer intends to assume that the Collateral Obligations will either not prepay or any prepayments will be reinvested. No representation is made that the Senior Notes will prepay at the prepayment assumption or at any other rate. It is possible the IRS could contend that another method of accruing OID with respect to these Senior Notes is appropriate that may result in adverse or more favorable U.S. federal income tax consequences to a U.S. Holder of such Senior Notes. One such alternative method of accruing OID may 124 be the noncontingent bond method that governs contingent payment debt obligations. Such method could affect the amount and character of the gain or loss recognized upon a disposition of a Senior Note. A purchaser of a Senior Note issued with OID who purchases such Senior Note at a cost greater than the adjusted issue price but less than the stated redemption price at maturity will also be required to include in gross income the sum of the daily portions of OID on such Senior Note. In computing the daily portions of OID, however, the daily portion is equal to the amount that would be the daily portion for the day (computed in accordance with the rules set forth above) multiplied by a fraction, the numerator of which is the amount, if any, by which the price paid by the U.S. Holder for such Senior Note exceeds the following amount: • The sum of the Issue Price plus the aggregate amount of OID that would have been includible in the gross income of an original U.S. Holder (who purchased the Note at the Issue Price); less • Any prior payments included in the stated redemption price at maturity, and the denominator of which is the sum of the daily portions for such Senior Note for all days beginning on the date after the purchase date and ending on the maturity date computed under the prepayment assumption. A U.S. Holder who purchases a Senior Note at a cost greater than its stated redemption price at maturity may elect to amortize such premium under a constant yield method over the life of such Senior Note. The amortizable amount for any accrual period would offset the amount of interest that must be included in the gross income of a U.S. Holder in such accrual period. The U.S. Holder's basis in such Senior Note would be reduced by the amount of amortization. It is not clear whether the prepayment assumption would be taken into account in determining the life of such Senior Note for this purpose. If the holder acquires a Senior Note at a discount to the adjusted issue price of such Senior Note that is greater than a specified de minimis amount, such discount is treated as market discount. Absent an election to accrue into income currently, the amount of accrued market discount on a Senior Note is included in income as ordinary income when principal payments are received or the holder disposes of the Senior Note. Market discount is included ratably unless a holder elects to use a constant yield method for accrual. For this purpose, ratable may be the term of the Senior Note, or a holder may be permitted to accrue market discount in proportion to interest on Senior Notes issued without OID or in proportion to OID on Senior Notes issued with OID. As a result of the complexity of the OID rules, each U.S. Holder of a Senior Note should consult its own tax advisor regarding the impact of the OID rules on its investment in such Senior Note. Election to Treat All Interest as OID. The OID rules permit a U.S. Holder of a Senior Note to elect to accrue all interest, discount (including de minimis market or original issue discount) and premium in income, based on a constant yield method. If an election to treat all interest as OID were to be made with respect to a Senior Note with market discount, the U.S. Holder of such Senior Note would be deemed to have made an election to include in income currently market discount with respect to all other debt instruments having market discount that such U.S. Holder acquires during the taxable year of the election or thereafter. A U.S. Holder that makes this election for a Senior Note that is acquired at a premium will be deemed to have made an election to amortize bond premium with respect to all debt instruments having amortizable bond premium that such U.S. Holder owns or acquires. The election to 125 accrue interest, discount and premium on a constant yield method with respect to a Senior Note cannot be revoked without the consent of the IRS. Disposition of the Senior Notes. In general, a U.S. Holder of a Senior Note initially will have a basis in such Senior Note equal to the cost of such Senior Note to such U.S. Holder, (i) increased by any amount includable in income by such U.S. Holder as OID and by any accrued market discount the holder previously included in income with respect to such Senior Note, and (ii) reduced by any amortized premium and by payments on such Senior Note, other than payments of qualified stated interest. Upon a sale, exchange, redemption, retirement or other taxable disposition of a Senior Note, a U.S. Holder will generally recognize gain or loss equal to the difference between the amount realized on the disposition (other than amounts attributable to accrued qualified stated interest, which will be taxable as described above) and the U.S. Holder's tax basis in such Senior Note. Except to the extent of any accrued interest or accrued market discount not previously included in income, gain or loss from the disposition of a Senior Note generally will be long term capital gain or loss if the U.S. Holder held the Senior Note for more than one year at the time of disposition, provided, that such Senior Note is held as a "capital asset" (generally, property held for investment) within the meaning of Section 1221 of the Code. In certain circumstances, U.S. Holders that are individuals may be entitled to preferential treatment for net long-term capital gains; however, the ability of U.S. Holders to offset capital losses against ordinary income is limited. Gain recognized by a U.S. Holder on the sale, exchange, redemption, retirement or other taxable disposition of a Senior Note generally will be treated as from sources within the United States and loss so recognized generally will offset income from sources within the United States. Alternative Characterization of the Senior Notes. Notwithstanding special U.S. tax counsel's opinion, U.S. Holders should recognize that there is some uncertainty regarding the appropriate classification of instruments such as the Senior Notes. It is possible, for example, that the IRS may contend that a Class of Senior Notes should be treated as equity interests (or as part debt, part equity) in the Issuer. Such a recharacterization might result in material adverse U.S. federal income tax consequences to U.S. Holders. If U.S. Holders of a Class of the Senior Notes were treated as owning equity interests in the Issuer, the U.S. federal income tax consequences to U.S. Holders of such recharacterized Senior Notes would be as described under "—Tax Treatment of U.S. Holders of Subordinated Notes", "—Transfer Reporting Requirements" and "—Tax Return Disclosure and Investor List Requirements." In order to avoid the application of the PFIC rules, each U.S. Holder of a Note should consider making a qualified electing fund election provided in Section 1295 of the Code on a "protective" basis (although such protective election may not be respected by the IRS because current regulations do not specifically authorize that particular election). See "—Tax Treatment of U.S. Holders of Subordinated Notes—Investment in a Passive Foreign Investment Company". Further, U.S. Holders of any Class of Senior Notes that may be recharacterized as equity in the Issuer should consult with their own tax advisors with respect to whether, if they owned equity in the Issuer, they would be required to file information returns in accordance with sections 6038, 6038B, and 6046 of the Code (and, if so, whether they should file such returns on a protective basis. Tax Treatment of U.S. Holders of Composite Notes Although each Composite Note will be evidenced as a single instrument, under U.S. federal income tax principles, a strong likelihood exists that a U.S. Holder of Composite Notes will be treated as if it directly owned the Classes of Senior Notes corresponding to the Components of such Composite Notes. The Issuer will treat, and each U.S. Holder and beneficial owner of Composite Notes (by 126 acquiring such Composite Notes or interests therein) will agree to treat, the Composite Notes as consisting of a separate Class of Senior Notes corresponding to the Components of such Composite Notes for U.S. federal income tax purposes. In accordance with such treatment of the Composite Notes, in calculating its tax basis in the Components comprising a Composite Note, a U.S. Holder will allocate the purchase price paid for such Composite Notes among the Components in proportion to their relative fair market values at the time of purchase. A similar principle will apply in determining the amount allocable to the Components upon a sale of a Composite Note. The exchange of Composite Notes for the separate Classes of Notes corresponding to the Components of the Composite Notes should not be a taxable event. A U.S. Holder of Composite Notes should review the applicable discussion in this Offering Memorandum with respect to the Classes of Senior Notes relating to the U.S. federal income tax consequences of the purchase, ownership and disposition of such Classes of Senior Notes. Tax Treatment of U.S. Holders of Subordinated Notes Investment in a Passive Foreign Investment Company. The Issuer will constitute a “passive foreign investment company” ("PFIC") and the Subordinated Notes will be treated as equity in the Issuer for U.S. tax purposes. Accordingly, U.S. Holders of Subordinated Notes (other than certain U.S. Holders that are subject to the rules pertaining to a “controlled foreign corporation” with respect to the Issuer, described below) will be considered U.S. shareholders in a PFIC. In general, a U.S. Holder of a PFIC may desire to make an election to treat the Issuer as a “qualified electing fund” ("QEF") with respect to such U.S. Holder. Generally, a QEF election should be made with the filing of a U.S. Holder's federal income tax return for the first taxable year for which it held the Subordinated Notes. If a timely QEF election is made for the Issuer, an electing U.S. Holder will be required in each taxable year to include in gross income (i) as ordinary income, such holder's pro rata share of the Issuer's ordinary earnings and (ii) as long-term capital gain, such holder's pro rata share of the Issuer's net capital gain, whether or not distributed. A U.S. Holder will not be eligible for the dividends received deduction in respect of such income or gain. In addition, any losses of the Issuer in a taxable year will not be available to such U.S. Holder and may not be carried back or forward in computing the Issuer's ordinary earnings and net capital gain in other taxable years. An amount included in an electing U.S. Holder's gross income should be treated as income from sources outside the United States for U.S. foreign tax credit limitation purposes. However, if U.S. Holders collectively own (directly or constructively) 50% or more (measured by vote or value) of the Subordinated Notes, such amount will be treated as income from sources within the United States for such purposes to the extent that such amount is attributable to income of the Issuer from sources within the United States. If applicable to a U.S. Holder of Subordinated Notes, the rules pertaining to a "controlled foreign corporation", discussed below, generally override those pertaining to a PFIC with respect to which a QEF election is in effect. In certain cases in which a QEF does not distribute all of its earnings in a taxable year, U.S. shareholders may also be permitted to elect to defer payment of some or all of the taxes on the QEF's undistributed income subject to an interest charge on the deferred amount. In this respect, prospective purchasers of Subordinated Notes should be aware that it is expected that the Collateral Obligations may be purchased by the Issuer with substantial OID the cash payment of which may be deferred, perhaps for a substantial period of time, and the Issuer may use interest and other income from the Collateral Obligations to purchase additional Collateral Obligations or to retire the Senior Notes. As a result, the Issuer may have in any given year substantial amounts of earnings for U.S. federal income tax purposes that are not distributed on the Subordinated Notes. Thus, absent an election to defer payment of taxes, U.S. Holders that make a QEF election with respect to the Issuer may owe tax on significant "phantom" income. 127 In addition, it should be noted that if the Issuer invests in obligations that are not in registered form, a U.S. Holder making a QEF election (i) may not be permitted to take a deduction for any loss attributable to such obligations when calculating its share of the Issuer's earnings and (ii) may be required to treat income attributable to such obligations as ordinary income even though the income would otherwise constitute capital gains. It is possible that some portion of the investments of the Issuer will constitute obligations that are not in registered form. The Issuer will provide, upon request, all information and documentation that a U.S. Holder making a QEF election is required to obtain for U.S. federal income tax purposes. A U.S. Holder of Subordinated Notes (other than certain U.S. Holders that are subject to the rules pertaining to a "controlled foreign corporation," described below) that does not make a timely QEF election will be required to report any gain on disposition of any Subordinated Notes as if it were an excess distribution, rather than capital gain, and to compute the tax liability on such gain and other "excess distributions" received in respect of the Subordinated Notes as if such items had been earned ratably over each day in the U.S. Holder's holding period (or a certain portion thereof) for the Subordinated Notes. The U.S. Holder will be subject to tax on such items at the highest ordinary income tax rate for each taxable year, other than the current year of the U.S. Holder, in which the items were treated as having been earned, regardless of the rate otherwise applicable to the U.S. Holder. Further, such U.S. Holder will also be liable for an additional tax equal to interest on the tax liability attributable to income allocated to prior years as if such liability had been due with respect to each such prior year. For purposes of these rules, gifts, exchanges pursuant to corporate reorganizations and use of the Subordinated Notes as security for a loan may be treated as a taxable disposition of the Subordinated Notes. Very generally, an "excess distribution" is the amount by which distributions during a taxable year in respect of a Subordinated Notes exceed 125 percent of the average amount of distributions in respect thereof during the three preceding taxable years (or, if shorter, the U.S. Holder's holding period for the Subordinated Note). In addition, a stepped-up basis in the Subordinated Notes upon the death of an individual U.S. Holder may not be available. In many cases, application of the tax on gain on disposition and receipt of excess distributions will be substantially more onerous than the treatment applicable if a timely QEF election is made. ACCORDINGLY, U.S. HOLDERS OF SUBORDINATED NOTES SHOULD CONSIDER CAREFULLY WHETHER TO MAKE A QEF ELECTION WITH RESPECT TO THE SUBORDINATED NOTES AND THE CONSEQUENCES OF NOT MAKING SUCH AN ELECTION. Investment in a Controlled Foreign Corporation. The Issuer may be classified as a controlled foreign corporation ("CFC"). In general, a foreign corporation will be classified as a CFC if more than 50% of the shares of the corporation, measured by reference to combined voting power or value, is owned (actually or constructively) by "U.S. Shareholders." A U.S. Shareholder, for this purpose, is in general any U.S. Holder that possesses (actually or constructively) 10% or more of the combined voting power (generally the right to vote for directors of the corporation) of all classes of shares of a corporation. Although the Subordinated Notes do not vote for directors of the Issuer, it is possible that the IRS would assert that the Subordinated Notes are de facto voting securities and that U.S. Holders possessing (actually or constructively) 10% or more of the total stated amount of Outstanding Subordinated Notes are U.S. Shareholders. If this argument were successful and more than 50% of the Subordinated Notes (determined with respect to aggregate value or vote) are owned (actually or constructively) by such U.S. Shareholders, the Issuer would be treated as a CFC. If the Issuer were treated as a CFC, a U.S. Shareholder of the Issuer (at the end of the taxable year of the Issuer) would be treated, subject to certain exceptions, as receiving a deemed dividend in an 128 amount equal to that person's pro rata share of the "subpart F income" of the Issuer. Such deemed dividend normally would be treated as income from sources within the United States for U.S. foreign tax credit limitation purposes to the extent that it is attributable to income of the Issuer from sources within the United States. Among other items, and subject to certain exceptions, "subpart F income" includes dividends, interest, annuities, gains from the sale of shares and securities, certain gains from commodities transactions, income from certain notional principal contracts, certain types of insurance income and income from certain transactions with related parties. It is likely that, if the Issuer were to constitute a CFC, all or most of its income would be subpart F income. In general, if the subpart F income exceeds 70% of the Issuer's gross income, the entire amount of the Issuer's income will be subpart F income. U.S. Holders should consult their tax advisors regarding these special rules. If the Issuer were treated as a CFC, a U.S. Shareholder of the Issuer which made a QEF election with respect to the Issuer would be taxable on the subpart F income of the Issuer under rules described in the preceding paragraph and not under the QEF rules previously described. As a result, to the extent subpart F income of the Issuer includes net capital gains, such gains would be treated as ordinary income of the U.S. Shareholder under the CFC rules, notwithstanding the fact that the character of such gains generally would otherwise be preserved under the QEF rules. Furthermore, if the Issuer were treated as a CFC and a U.S. Holder were treated as a U.S. Shareholder therein, the Issuer would not be treated as a PFIC or a QEF with respect to such U.S. Holder for the period during which the Issuer remained a CFC and such U.S. Holder remained a U.S. Shareholder therein (the "qualified portion" of the U.S. Holder's holding period for the Subordinated Notes). If the qualified portion of such U.S. Holder's holding period for the Subordinated Notes subsequently ceased (either because the Issuer ceased to be a CFC or the U.S. Holder ceased to be a U.S. Shareholder), then solely for purposes of the PFIC rules, such U.S. Holder's holding period for the Subordinated Notes would be treated as beginning on the first day following the end of such qualified portion, unless the U.S. Holder had owned any Subordinated Notes for any period of time prior to such qualified portion and had not made a QEF election with respect to the Issuer. In that case, the Issuer would again be treated as a PFIC which is not a QEF with respect to such U.S. Holder and the beginning of such U.S. Holder's holding period for the Subordinated Notes would continue to be the date upon which such U.S. Holder acquired the Subordinated Notes, unless the U.S. Holder made an election to recognize gain with respect to the Subordinated Notes and a QEF election with respect to the Issuer. Indirect Interests in PFICs and CFCs. If the Issuer owns a Collateral Obligation or an Equity Security issued by a non-U.S. corporation that is treated as equity for U.S. federal income tax purposes, U.S. Holders of Subordinated Notes could be treated as owning an indirect equity interest in a PFIC or a CFC and could be subject to certain adverse tax consequences. In particular, if the Issuer owns equity interests in PFICs ("Lower-Tier PFICs"), a U.S. Holder of Subordinated Notes would be treated as owning directly the U.S. Holder's proportionate amount (by value) of the Issuer's equity interests in the Lower-Tier PFICs. A U.S. Holder's QEF election with respect to the Issuer would not be effective with respect to such Lower-Tier PFICs. However, a U.S. Holder would be able to make QEF elections with respect to such Lower-Tier PFICs if the Lower-Tier PFICs provide certain information and documentation to the Issuer in accordance with applicable Treasury Regulations. However, there can be no assurance that the Issuer would be able to obtain such information and documentation from any Lower-Tier PFIC, and thus there can be no assurance that a U.S. Holder would be able to make or maintain a QEF election with respect to any Lower-Tier PFIC. If a U.S. Holder does not have a QEF election in effect with respect to a Lower-Tier PFIC, as a general matter, the U.S. Holder would be subject to the adverse consequences described above under "—Investment in a Passive Foreign Investment Company" with respect to any excess distributions made by such Lower-Tier PFIC to 129 the Issuer, any gain on the disposition by the Issuer of its equity interest in such Lower-Tier PFIC treated as indirectly realized by such U.S. Holder, and any gain treated as indirectly realized by such U.S. Holder on the disposition of its equity in the Issuer (which may arise even if the U.S. Holder realizes a loss on such disposition). Such amount would not be reduced by expenses or losses of the Issuer, but any income recognized may increase a U.S. Holder's tax basis in its Subordinated Notes. Moreover, if the U.S. Holder has a QEF election in effect with respect to a Lower-Tier PFIC, the U.S. Holder would be required to include in income the U.S. Holder's pro rata share of the Lower-Tier PFIC's ordinary earnings and net capital gain as if the U.S. Holder's indirect equity interest in the Lower-Tier PFIC were directly owned, and it appears that the U.S. Holder would not be permitted to use any losses or other expenses of the Issuer to offset such ordinary earnings and/or net capital gains but recognition of such income may increase a U.S. Holder's tax basis in its Subordinated Notes. Accordingly, if any of the Collateral Obligations or Equity Securities are treated as equity interests in a PFIC, such U.S. Holders could experience significant amounts of phantom income with respect to such interests. Other adverse tax consequences may arise for such U.S. Holders that are treated as owning indirect interests in CFCs. U.S. Holders should consult their own tax advisors regarding the tax issues associated with such investments in light of their own individual circumstances. The Issuer intends to form any ETB/897 Subsidiary as a corporation for U.S. federal income tax purposes. If such entities hold certain assets, U.S. Holders of Subordinated Notes could be treated as owning an indirect interest in a PFIC. Distributions on the Subordinated Notes. The treatment of actual distributions of cash on the Subordinated Notes, in very general terms, will vary depending on whether a U.S. Holder has made a timely QEF election as described above. See "—Investment in a Passive Foreign Investment Company." If a timely QEF election has been made, distributions should be allocated first to amounts previously taxed pursuant to the QEF election (or pursuant to the CFC rules, if applicable) and to this extent will not be taxable to U.S. Holders. Distributions in excess of such previously taxed amounts pursuant to a QEF election (or pursuant to the CFC rules, if applicable) will be taxable to U.S. Holders as ordinary income upon receipt to the extent of any remaining amounts of untaxed current and accumulated earnings and profits of the Issuer. Distributions in excess of any current and accumulated earnings and profits will be treated first as a nontaxable reduction to the U.S. Holder's tax basis for the Subordinated Notes to the extent thereof and then as capital gain. In the event that a U.S. Holder does not make a timely QEF election, then except to the extent that distributions may be attributable to amounts previously taxed pursuant to the CFC rules, some or all of any distributions with respect to the Subordinated Notes may constitute "excess distributions," taxable as previously described. See "—Investment in a Passive Foreign Investment Company." In that event, except to the extent that distributions may be attributable to amounts previously taxed to the U.S. Holder pursuant to the CFC rules or are treated as "excess distributions," distributions on the Subordinated Notes generally would be treated as dividends to the extent paid out of the Issuer's current or accumulated earnings and profits not allocated to any "excess distributions," then as a nontaxable reduction to the U.S. Holder's tax basis for the Subordinated Notes to the extent thereof and then as capital gain. Dividends received from a foreign corporation generally will be treated as income from sources outside the United States for U.S. foreign tax credit limitation purposes. However, if U.S. Holders collectively own (directly or constructively) 50% or more (measured by vote or value) of the Subordinated Notes, a percentage of the dividend income equal to the proportion of the Issuer's earnings and profits from sources within the United States generally will be treated as income from sources within the United States for such purposes. 130 Purchase or Disposition of the Subordinated Notes. In general, a U.S. Holder of a Subordinated Note will recognize a gain or loss upon the sale, exchange, redemption or other taxable disposition of a Subordinated Note equal to the difference between the amount realized and such U.S. Holder's adjusted tax basis in the Subordinated Note. Except as discussed below, such gain or loss will be a capital gain or loss and will be a long-term capital gain or loss if the U.S. Holder held the Subordinated Notes for more than one year at the time of the disposition. In certain circumstances, U.S. Holders who are individuals may be entitled to preferential treatment for net long-term capital gains; however, the ability of U.S. Holders to offset capital losses against ordinary income is limited. Any gain recognized by a U.S. Holder on the sale, exchange, redemption or other taxable disposition of a Subordinated Note (other than, in the case of a U.S. Holder treated as a "U.S. Shareholder," any such gain characterized as a dividend, as discussed below) generally will be treated as from sources within the United States and loss so recognized generally will offset income from sources within the United States. Initially, a U.S. Holder's tax basis for a Subordinated Note will equal the cost of such Subordinated Note to such U.S. Holder. Such basis will be increased by amounts taxable to such U.S. Holder by virtue of a QEF election, or by virtue of the CFC rules, as applicable, and decreased by actual distributions from the Issuer that are deemed to consist of such previously taxed amounts or are treated as a nontaxable reduction to the U.S. Holder's tax basis for the Subordinated Note (as described above). If a U.S. Holder does not make a timely QEF election as described above, any gain realized on the sale, exchange, redemption or other taxable disposition of a Subordinated Note (or any gain deemed to accrue prior to the time a non-timely QEF election is made) will be taxed as ordinary income and subject to an additional tax reflecting a deemed interest charge under the special tax rules described above. See "—Investment in a Passive Foreign Investment Company." If the Issuer were treated as a CFC and a U.S. Holder were treated as a "U.S. Shareholder" therein, then any gain realized by such U.S. Holder upon the disposition of Subordinated Notes, other than gain constituting an excess distribution under the PFIC rules, if applicable, would be treated as ordinary income to the extent of the U.S. Holder's share of the current or accumulated earnings and profits of the Issuer. In this regard, earnings and profits would not include any amounts previously taxed pursuant to a timely QEF election or pursuant to the CFC rules. Tax Treatment of Tax-Exempt U.S. Holders U.S. Holders which are tax-exempt entities ("Tax-Exempt U.S. Holders") will not be subject to the tax on unrelated business taxable income ("UBTI") with respect to interest and capital gains income derived from an investment in the Senior Notes (assuming the Class E Notes are characterized as debt of the Issuer). However, a Tax-Exempt U.S. Holder that also acquires the Subordinated Notes (or, any Senior Note recharacterized as equity in the Issuer) should consider whether interest it receives in respect of the Senior Notes may be treated as UBTI under rules governing certain payments received from controlled entities. A Tax-Exempt U.S. Holder generally will not be subject to the tax on UBTI with respect to regular distributions or "excess distributions" (defined above under "Tax Treatment of U.S. Holders of Subordinated Notes—Investment in a Passive Foreign Investment Company") on the Subordinated Notes (or, any Senior Note recharacterized as equity in the Issuer). A Tax-Exempt U.S. Holder which is not subject to tax on UBTI with respect to "excess distributions" may not make a QEF election. In addition, a Tax-Exempt U.S. Holder which is subject to the rules relating to "controlled foreign corporations" with respect to the Subordinated Notes (or, any Senior Note recharacterized as equity in the Issuer) generally 131 should not be subject to the tax on UBTI with respect to income from such Subordinated Notes (or, any Senior Note recharacterized as equity in the Issuer). Notwithstanding the discussion in the preceding two paragraphs, a Tax-Exempt U.S. Holder which incurs "acquisition indebtedness" (as defined in Section 514(c) of the Code) with respect to the Offered Securities may be subject to the tax on UBTI with respect to income from the Offered Securities to the extent that the Offered Securities constitute "debt-financed property" (as defined in Section 514(b) of the Code) of the Tax-Exempt U.S. Holder. A Tax-Exempt U.S. Holder subject to the tax on UBTI with respect to income from the Subordinated Notes (or, any Senior Note recharacterized as equity in the Issuer) will be taxed on "excess distributions" in the manner discussed above under "Tax Treatment of U.S. Holders of Subordinated Notes—Investment in a Passive Foreign Investment Company". Such a Tax-Exempt U.S. Holder will be permitted, and should consider whether, to make a QEF election with respect to the Issuer as discussed above. Tax-Exempt U.S. Holders should consult their own tax advisors regarding an investment in the Offered Securities. Transfer Reporting Requirements A U.S. Holder of Subordinated Notes (and, any Senior Note recharacterized as equity in the Issuer) that owns (actually or constructively) at least 10% by vote or value of the Issuer (and each officer or director of the Issuer that is a U.S citizen or resident) may be required to file an information return on IRS Form 5471. A U.S. Holder of Subordinated Notes (and, any Senior Note recharacterized as equity in the Issuer) generally is required to provide additional information regarding the Issuer annually on IRS Form 5471 if it owns (actually or constructively) more than 50% by vote or value of the Issuer. U.S. Holders should consult their own tax advisors regarding whether they are required to file IRS Form 5471. A U.S. person (including a Tax-Exempt U.S. Holder) that purchases the Subordinated Notes for cash will be required to file a Form 926 or similar form with the IRS if (i) such person owned, directly or by attribution, immediately after the transfer at least 10% by vote or value of the Issuer or (ii) if the transfer, when aggregated with all transfers made by such person (or any related person) within the preceding 12 month period, exceeds $100,000. In the event a U.S. Holder fails to file any such required form, the U.S. Holder could be required to pay a penalty equal to 10% of the gross amount paid for such Subordinated Notes (subject to a maximum penalty of $100,000, except in cases involving intentional disregard). U.S. persons should consult their tax advisors with respect to this or any other reporting requirement which may apply with respect to their acquisition of the Subordinated Notes. Tax Return Disclosure and Investor List Requirements Any person that files a U.S. federal income tax return or U.S. federal information return and participates in a "reportable transaction" in a taxable year is required to disclose certain information on IRS Form 8886 (or its successor form) attached to such person's U.S. tax return for such taxable year (and also file a copy of such form with the IRS's Office of Tax Shelter Analysis) and to retain certain documents related to the transaction. In addition, under certain circumstances, certain organizers and sellers and advisors of a "reportable transaction" are required to file reports with the IRS and also will be required to maintain lists of participants in the transaction containing identifying information, retain certain documents related to the transaction, and furnish those lists and documents to the IRS upon request. Recently enacted legislation imposes significant penalties for failure to comply with these disclosure and list keeping requirements. The definition of "reportable transaction" is highly technical. However, in very general terms, a transaction may be a "reportable transaction" if, among other things, it 132 is offered under conditions of confidentiality or it results in the claiming of a loss or losses for U.S. federal income tax purposes in excess of certain threshold amounts. In this regard, in order to prevent the investors' purchase of the Offered Securities in this offering from being treated as offered under conditions of confidentiality, the Portfolio Manager, the Issuer and the holders and beneficial owners of the Offered Securities (and each of their respective employees, representatives or other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions described herein (including the ownership and disposition of the Offered Securities) and all materials of any kind (including opinions or other tax analyses) that are provided to them relating to such tax treatment and tax structure. For this purpose, the tax treatment of a transaction is the purported or claimed U.S. federal income or state and local tax treatment of the transaction, and the tax structure of a transaction is any fact that may be relevant to understanding the purported or claimed U.S. federal income tax treatment of the transaction. In addition, under these Treasury Regulations, if the Issuer participates in a "reportable transaction", a U.S. Holder of Subordinated Notes that is a "reporting shareholder" of the Issuer will be treated as participating in the transaction and will be subject to the rules described above. Although most of the Issuer's activities generally are not expected to give rise to "reportable transactions", the Issuer nevertheless may participate in certain types of transactions that could be treated as "reportable transactions." A U.S. Holder of Subordinated Notes will be treated as a "reporting shareholder" of the Issuer if (i) such U.S. Holder owns 10% or more of the Subordinated Notes and makes a QEF election with respect to the Issuer or (ii) the Issuer is treated as a CFC and such U.S. Holder is a "U.S. Shareholder" (as defined above) of the Issuer. The Issuer will make reasonable efforts to make such information available. Prospective investors in the Offered Securities should consult their own tax advisors concerning any possible disclosure obligations under these Treasury Regulations with respect to their ownership or disposition of the Offered Securities in light of their particular circumstances. Tax Treatment of Non-U.S. Holders of Offered Securities In general, payments on the Offered Securities to a holder that is not, for U.S. federal income tax purposes, a U.S. Holder (a "non-U.S. Holder") and gain realized on the sale, exchange, redemption, retirement or other disposition of the Offered Securities by a non-U.S. Holder, will not be subject to U.S. federal income or withholding tax, unless (i) such income is effectively connected with a trade or business conducted by such non-U.S. Holder in the United States, or (ii) in the case of gain, such non-U.S. Holder is a nonresident alien individual who holds the Offered Securities as a capital asset and is present in the United States for more than 182 days in the taxable year of the sale, exchange, redemption, retirement or other disposition and certain other conditions are satisfied. Information Reporting and Backup Withholding Under certain circumstances, the Code requires "information reporting," and may require "backup withholding" with respect to certain payments made on the Offered Securities and the payment of the proceeds from the disposition of the Offered Securities. Backup withholding generally will not apply to corporations, tax-exempt organizations, qualified pension and profit sharing trusts, and individual retirement accounts. Backup withholding will apply to a U.S. Holder if the U.S. Holder fails to provide certain identifying information (such as the U.S. Holder's taxpayer identification number) or otherwise comply with the applicable requirements of the backup withholding rules. The application for exemption 133 from backup withholding for a U.S. Holder is available by providing a properly completed IRS Form W-9. A non-U.S. Holder of the Offered Securities generally will not be subject to these information reporting requirements or backup withholding with respect to payments of interest or distributions on the Offered Securities if (1) it certifies to the Trustee its status as a non-U.S. Holder under penalties of perjury on the appropriate IRS Form W-8, and (2) in the case of a non-U.S. Holder that is a "nonwithholding foreign partnership," "foreign simple trust" or "foreign grantor trust" as defined in the applicable Treasury Regulations, the beneficial owners of such non-U.S. Holder also certify to the Trustee their status as nonU.S. persons under penalties of perjury on the appropriate IRS Form W-8 or as U.S. persons under penalties of perjury on IRS Form W-9. The payments of the proceeds from the disposition of an Offered Security by a non-U.S. Holder to or through the U.S. office of a broker generally will not be subject to information reporting and backup withholding if the non-U.S. Holder certifies its status as a non-U.S. Holder (and, if applicable, its beneficial owners also certify their status as non-U.S. Holders) under penalties of perjury on the appropriate IRS Form W-8, satisfies certain documentary evidence requirements for establishing that it is a non-U.S. Holder or otherwise establishes an exemption. The payment of the proceeds from the disposition of an Offered Security by a non-U.S. Holder to or through a non-U.S. office of a non-U.S. broker will not be subject to backup withholding or information reporting unless the non-U.S. broker has certain specific types of relationships to the United States, in which case the treatment of such payment for such purposes will be as described in the following sentence. The payment of proceeds from the disposition of an Offered Security by a non-U.S. Holder to or through a non-U.S. office of a U.S. broker or to or through a non-U.S. broker with certain specific types of relationships to the United States generally will not be subject to backup withholding but will be subject to information reporting unless the non-U.S. Holder certifies its status as a non-U.S. Holder (and, if applicable, its beneficial owners also certify their status as non-U.S. Holders) under penalties of perjury or the broker has certain documentary evidence in its files as to the non-U.S. Holder's foreign status and the broker has no actual knowledge to the contrary. Backup withholding is not an additional tax and may be refunded (or credited against the U.S. Holder's or non-U.S. Holder's U.S. federal income tax liability, if any); provided, that certain required information is furnished to the U.S. Internal Revenue Service. The information reporting requirements may apply regardless of whether withholding is required. Cayman Islands Taxation The following is a discussion of certain Cayman Islands tax consequences of an investment in the Offered Securities. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor's particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law. Under existing Cayman Islands Laws: (i) Payments of interest, principal and other amounts on the Senior Notes and amounts in respect of the Subordinated Notes will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of interest and principal and other amounts on the Senior Notes or a distribution to any holder of the Subordinated Notes, nor will gains derived from the disposal of the Offered Securities be subject to Cayman Islands income or 134 corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax; (ii) no stamp duty is payable in respect of the issue or transfer of the Offered Securities although duty may be payable if Offered Securities are executed in or brought into the Cayman Islands; and (iii) Certificates evidencing the Offered Securities, in registered form, to which title is not transferable by delivery, should not attract Cayman Islands stamp duty. However, an instrument transferring title to an Offered Security, if brought to or executed in the Cayman Islands, would be subject to Cayman Islands stamp duty. The Issuer has been incorporated under the laws of the Cayman Islands as an exempted company and, as such, obtained on May 24, 2005 an undertaking from the Governor in Cabinet of the Cayman Islands in the following form: "The Tax Concessions Law 1999 Revision Undertaking as to Tax Concessions In accordance with the provision of Section 6 of The Tax Concession Law (1999 Revision), the Governor in Cabinet undertakes with: Kingsland V, Ltd. "the Company" (a) that no law which is hereafter enacted in the Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the Company or its operations; and (b) in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable: (i) on or in respect of the shares, debentures or other obligations of the Company; or (ii) by way of the withholding in whole or part, of any relevant payment as defined in Section 6(3) of the Tax Concessions Law (1999 Revision). These concessions shall be for a period of thirty years from the 24th day of May, 2005. GOVERNOR IN CABINET" The Cayman Islands does not have an income tax treaty arrangement with the United States or any other country; however, the Cayman Islands has entered into a tax disclosure agreement with the United States. 135 ERISA AND LEGAL INVESTMENT CONSIDERATIONS ______________________________________ The advice below was not written and is not intended to be used and cannot be used by any taxpayer for purposes of avoiding United States federal income tax penalties that may be imposed. The advice is written to support the promotion or marketing of the transaction. Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. The foregoing disclaimer is provided to satisfy obligations under Circular 230 governing standards of practice before the Internal Revenue Service. _______________________________________ The United States Employee Retirement Income Security Act of 1974, as amended ("ERISA") imposes certain requirements on "employee benefit plans" (as defined in Section 3(3) of ERISA and subject to Title I of ERISA), including entities such as collective investment funds and separate accounts whose underlying assets include the assets of such plans (collectively, "ERISA Plans") and on those persons who are fiduciaries with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA's general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that an ERISA Plan's investments be made in accordance with the documents governing the ERISA Plan. The prudence of a particular investment must be determined by the responsible fiduciary of an ERISA Plan by taking into account the ERISA Plan's particular circumstances and all of the facts and circumstances of the investment including, but not limited to, the matters discussed above under "Risk Factors" and the fact that in the future there may be no market in which such fiduciary will be able to sell or otherwise dispose of the Offered Securities. Section 406 of ERISA and Section 4975 of the Code prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA but which are subject to Section 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, "Plans") and certain persons (referred to as "parties in interest" or "disqualified persons") having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and Section 4975 of the Code. The U.S. Department of Labor has promulgated a regulation, 29 C.F.R. Section 2510.3-101 (the "Plan Asset Regulations"), describing what constitutes the assets of a Plan with respect to the Plan's investment in an entity for purposes of certain provisions of ERISA and Section 4975 of the Code, including the fiduciary responsibility provisions of Title I of ERISA and Section 4975 of the Code. Under the Plan Asset Regulations, if a Plan invests in an "equity interest" of an entity that is neither a "publicly offered security" nor a security issued by an investment company registered under the Investment Company Act, the Plan's assets include both the equity interest and an undivided interest in each of the entity's underlying assets, unless it is established that the entity is an "operating company" or, as further discussed below, that equity participation in the entity by "benefit plan investors" is not "significant." Prohibited transactions within the meaning of Section 406 of ERISA or Section 4975 of the Code may arise if Offered Securities are acquired with the assets of a Plan with respect to which the Issuer, the Initial Purchaser, the Trustee, the Portfolio Manager, any seller of Collateral Obligations to the Issuer or any of their respective affiliates, is a party in interest or a disqualified person. Certain exemptions from the prohibited transaction provisions of Section 406 of ERISA and Section 4975 of the Code may be applicable, however, depending in part on the type of Plan fiduciary making the decision to acquire an 136 Offered Security and the circumstances under which such decision is made. Included among these exemptions are Prohibited Transaction Class Exemption ("PTCE") 91-38 (relating to investments by bank collective investment funds), PTCE 84-14 (relating to transactions effected by a "qualified professional asset manager"), PTCE 90-1 (relating to investments by insurance company pooled separate accounts), PTCE 95-60 (relating to investments by insurance company general accounts), and PTCE 9623 (relating to transactions effected by in-house asset managers), ("Investor-Based Exemptions"). There is also a statutory exemption that may be available under Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code to a party in interest that is a service provider to a Plan investing in the Offered Securities, provided that such service provider is not (i) not the fiduciary with respect to the Plan’s assets used to acquire the Notes or an affiliate of such fiduciary or (ii) an affiliate of the employer sponsoring the Plan (the "Service Provider Exemption"). There can be no assurance that any of these InvestorBased Exemptions or the Service Provider Exemption or any other administrative or statutory exemption will be available with respect to any particular transaction involving the Offered Securities. Governmental plans and certain church plans, while not subject to the fiduciary responsibility provisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to state, local or other federal laws that are substantially similar to the foregoing provisions of ERISA and the Code. Fiduciaries of any such plans should consult with their counsel before purchasing any Offered Securities. Any insurance company proposing to invest assets of its general account in Offered Securities should consider the extent to which such investment would be subject to the requirements of Title I of ERISA and Section 4975 of the Code in light of the U.S. Supreme Court's decision in John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 510 U.S. 86 (1993), and the enactment of Section 401(c) of ERISA on August 20, 1996. In particular, such an insurance company should consider (i) the exemptive relief granted by the U.S. Department of Labor for transactions involving insurance company general accounts in PTCE 95-60 and (ii) if such exemptive relief is not available, whether its purchase of Offered Securities will be permissible under the final regulations issued under Section 401(c) of ERISA. The final regulations provide guidance on which assets held by an insurance company constitute "plan assets" for purposes of the fiduciary responsibility provisions of ERISA and Section 4975 of the Code. The regulations do not exempt the assets of insurance company general accounts from treatment as "plan assets" to the extent they support certain participating annuities issued to Plans after December 31, 1998. The Class A Notes, the Class B Notes, the Class C Notes and Class D Notes The Plan Asset Regulations define an "equity interest" as any interest in an entity other than an instrument that is treated as indebtedness under applicable local law and which has no substantial equity features. As noted above in Income Tax Considerations, it is the opinion of tax counsel to the Issuer that the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes will be treated as debt for U.S. income tax purposes. Because of this, and the traditional debt features of the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes, as well as the absence of conversion rights, warrants and other typical equity features, the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes should not be considered to be "equity interests" in the Issuer. Nevertheless, without regard to whether the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes are considered equity interests, prohibited transactions within the meaning of Section 406 of ERISA or Section 4975 of the Code may arise if Class A Notes, Class B Notes, Class C Notes and Class D Notes are acquired with the assets of an ERISA Plan with respect to which the Issuer, the Initial Purchaser or the Trustee or in certain circumstances, any of their respective affiliates, is a party in interest or a disqualified 137 person. The Investor-Based Exemptions or the Service Provider Exemption may be available to cover such prohibited transactions. By its purchase of any Class A Notes, Class B Notes, Class C Notes or Class D Notes, each purchaser and subsequent transferee thereof will be deemed to have represented and warranted either that (a) it is neither a Plan nor any entity whose underlying assets include "plan assets" by reason of such Plan's investment in the entity, nor a governmental, church or other plan which is subject to any federal, state, local or foreign law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code or (b) its purchase, holding and disposition of a Class A Note, Class B Note, Class C Notes or Class D Note 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 governmental, church or other plan, a non-exempt violation under any substantially similar law). The Class E Notes and the Subordinated Notes Equity participation in an issuer of Offered Securities by "benefit plan investors" is "significant" and will cause the assets of the Issuer to be deemed the assets of an investing Plan (in the absence of another applicable Plan Asset Regulation exception) if 25% or more of the value of any class of equity interest in the Issuer is held by "benefit plan investors". Recently, the Pension Protection Act of 2006 effectively amended, by statute, the definition of "benefit plan investors" in the Plan Asset Regulation. Employee benefit plans that are not subject to Title I of ERISA and plans that are not subject to Section 4975 of the Code, such as U.S. governmental and church plans or foreign plans, are no longer considered "benefit plan investors." Accordingly, only employee benefit plans subject to Title I of ERISA or Section 4975 of the Code or an entity whose underlying assets include plan assets by reason of such plan’s investment in the entity are considered in determining whether investment by "benefit plan investors" represent 25% or more of any class of equity of the Issuer. Therefore, the term "benefit plan investor" includes (a) an "employee benefit plan" (as defined in Section 3(3) of Title I of ERISA) that is subject to the fiduciary responsibilities provisions of ERISA, (b) a "plan" as defined in Section 4975(e)(1) of the Code that is subject to Section 4975 of the Code, (c) any entity whose underlying assets include "plan assets" by reason of any such employee benefit plan's or plan's investment in the entity or (d) a "benefit plan investor" as such term is otherwise defined in any regulations promulgated by the U.S. Department of Labor under Section 3(42) of ERISA (collectively, "Benefit Plan Investors"). For purposes of making the 25% determination, the value of any equity interests held by a person (other than a Benefit Plan Investor) who has discretionary authority or control with respect to the assets of the Issuer or any person who provides investment advice for a fee (direct or indirect) with respect to such assets, or any affiliate of such a person ("Controlling Person"), is disregarded. Under the Plan Asset Regulation, an "affiliate" of a person includes any person, directly or indirectly through one or more intermediaries, controlling, controlled by or under common control with the person, and "control" with respect to a person other than an individual, means the power to exercise a controlling influence over the management or policies of such person. The Class E Notes and the Subordinated Notes will likely be considered equity investments for the purposes of applying Title I of ERISA and Section 4975 of the Code. Accordingly, purchases of Class E Notes and Subordinated Notes by Benefit Plan Investors will be limited to less than 25% of the value of all outstanding Class E Notes and 25% of the value of all outstanding Subordinated Notes by requiring each purchaser and subsequent transferee to make (or each such purchaser and transferee will be deemed to make), certain representations and/or to agree to certain transfer restrictions regarding their status as Benefit Plan Investors or Controlling Persons. Class E Notes and Subordinated Notes (i) held as principal by the Portfolio Manager, the Trustee, any of their respective 138 affiliates, employees of the Portfolio Manager, the Trustee or any of their affiliates and any charitable foundation of any such employees (other than any of such interests held as a Benefit Plan Investor) or (ii) held by persons that have represented that they are Controlling Persons will be disregarded (to the extent that such a Controlling Person is not a Benefit Plan Investor) and will not be treated as outstanding for purposes of determining compliance with such 25% limitation. With respect to the Class E Notes, (x) each initial investor therein acquiring its interest from the Initial Purchaser will be required to represent and warrant (1) whether or not the purchaser is a Benefit Plan Investor and (2) whether or not the purchaser is a Controlling Person, without regard to whether such Offered Securities are represented by interests in Regulation S Global Notes or Rule 144A Global Notes and (y) each subsequent transferee will be deemed to represent and warrant that such purchaser is not a Benefit Plan Investor or a Controlling Person. No Class E Notes may be acquired by Benefit Plan Investors or Controlling Persons if it would cause the above 25% limitation to be exceeded. By its purchase of any Class E Notes, each initial investor therein acquiring its interest from an Initial Purchaser will be required to represent and warrant either that (1) it is neither a Benefit Plan Investor nor a governmental, church or other plan which is subject to any federal, state, local or foreign law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the Code or (2) its purchase, holding and disposition of Class E Notes will not constitute or result in a non-exempt prohibited transaction under Title I of ERISA or Section 4975 of the Code (or, in the case of a governmental, church or other plan, a non-exempt violation under any substantially similar law). In addition, each subsequent transferee of Class E Notes will be deemed to represent that (x) it is not a Benefit Plan Investor or a Controlling Person and (y) if it is a governmental, church or other plan which is subject to any federal, state, local or foreign law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the Code, its purchase, holding and disposition of Class E Notes will not constitute or result in a non-exempt violation under any such substantially similar law. With respect to the Subordinated Notes or any beneficial interest therein, each purchaser and subsequent transferee will be required to represent and warrant (1) whether or not the purchaser is a Benefit Plan Investor and (2) whether or not the purchaser is a Controlling Person, without regard to whether such Offered Securities are in certificated form or are represented by interests in Regulation S Global Subordinated Notes; provided, however, that a purchaser of a beneficial interest in a Regulation S Global Subordinated Note, other than an initial purchaser thereof from the Issuer or the Initial Purchaser, will be deemed to represent and warrant that such purchaser is not a Benefit Plan Investor or a Controlling Person. No Subordinated Notes may be acquired by Benefit Plan Investors or Controlling Persons if it would cause the above 25% limitation to be exceeded. By its purchase of any Subordinated Notes, each purchaser and subsequent transferee thereof will be required to represent and warrant (in the case of Certificated Subordinated Notes) and will be deemed to have represented and warranted (in the case of Regulation S Global Subordinated Notes) either that (1) it is neither a Benefit Plan Investor nor a governmental, church or other plan which is subject to any federal, state, local or foreign law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the Code or (2) its purchase, holding and disposition of Subordinated Notes will not constitute or result in a non-exempt prohibited transaction under Title I of ERISA or Section 4975 of the Code (or, in the case of a governmental, church or other plan, a non-exempt violation under any substantially similar law); provided, however, that each transferee of an interest in a Regulation S Global Subordinated Note other than the initial purchasers thereof from the Issuer or the Initial Purchaser will be deemed to have represented and warranted that such transferee (x) is not a Benefit Plan Investor or a Controlling Person and (y) if it is a governmental, church or other plan which is subject to any federal, state, local or foreign law that is substantially similar to the provisions of Title I of ERISA or Section 139 4975 of the Code, its purchase, holding and disposition of Subordinated Notes will not constitute or result in a non-exempt violation under any such substantially similar law. The Composite Notes In order to maintain the ownership of the Class E Notes by Benefit Plan Investors to less than 25% of the value of all outstanding Class E Notes, neither Benefit Plan Investors nor Controlling Persons will be permitted to acquire Composite Notes. However, in the event the holder of a beneficial interest in a Composite Note exchanges the Components thereof for a proportionate interest in the underlying Classes of Senior Notes, the transfer restrictions applicable to such underlying Classes of Senior Notes as described herein will be applicable. Each purchaser and subsequent transferee of a Composite Note will be deemed to have represented and warranted (and each initial investor in the Composite Notes will be required to represent and warrant) that it (a) is neither a Benefit Plan Investor nor a Controlling Person and (b) if it is a governmental, church or other plan which is subject to any federal, state, local or foreign law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the Code, its purchase, holding and disposition of Composite Notes will not constitute or result in a non-exempt violation under any such substantially similar law. There can be no assurance that, despite the transfer restrictions relating to purchases by Benefit Plan Investors and Controlling Persons and the procedures to be employed by the Trustee to attempt to limit ownership of the Class E Notes and Subordinated Notes to less than 25%, Benefit Plan Investors will not in actuality own 25% or more of the outstanding Class E Notes or Subordinated Notes, respectively. If for any reason the assets of the Issuer are deemed to be "plan assets" of a Plan because one or more Plans is an owner of Subordinated Notes, certain transactions that the Issuer might enter into, or may also have entered into, in the ordinary course of its business transactions that might constitute nonexempt "prohibited transactions" under Title I of ERISA or Section 4975 of the Code and might have to be rescinded at significant cost to the Issuer. The Portfolio Manager may be deemed as an ERISA fiduciary and may be prevented from engaging in certain investments (as not being deemed consistent with the ERISA prudent investment standards) or engaging in certain transactions or arrangements because they might be deemed to cause non-exempt prohibited transactions. It also is not clear that Section 403(a) of ERISA, which generally requires that all of the assets of an ERISA Plan be held in trust and limits delegation of investment management responsibilities by fiduciaries of ERISA Plans, would be satisfied. In addition, it is unclear whether Section 404(b) of ERISA, which generally provides that no fiduciary may maintain the indicia of ownership of any assets of a plan outside the jurisdiction of the district courts of the United States, would be satisfied or any of the exceptions to the requirement set forth in 29 C.F.R. Section 2550.404b-1 would be available. Any Plan fiduciary or other person who proposes to use assets of any Plan to purchase any Offered Securities should consult with its counsel regarding representations required to be made or deemed to have been made the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such an investment, and to confirm that such investment will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA. Legal Investment Considerations None of the Issuer, the Co-Issuer, the Portfolio Manager and the Initial Purchaser make any representation as to the proper characterization of the Subordinated Notes or any Class of Senior Notes for legal investment or other purposes, as to the ability of particular investors to purchase Subordinated 140 Notes or any Class of Senior Notes for legal investment or other purposes or as to the ability of particular investors to purchase Subordinated Notes or any Class of Senior Notes under applicable investment restrictions. All institutions the activities of which are subject to legal investment laws and regulations, regulatory capital requirements or review by regulatory authorities should consult their own legal advisors in determining whether and to what extent the Subordinated Notes or any Class of Senior Notes are subject to investment, capital or other restrictions. Without limiting the generality of the foregoing, none of the Issuer, the Co-Issuer, the Portfolio Manager and the Initial Purchaser makes any representation as to the characterization of the Subordinated Notes or any Class of Senior Notes as a U.S.-domestic or foreign (non-U.S.) investment under any state insurance code or related regulations, and they are not aware of any published precedent that addresses such characterization. Although they are not making any such representation, the Co-Issuers understand that the New York State Insurance Department, in response to a request for guidance, has been considering the characterization (as U.S.-domestic or foreign (non-U.S.)) of certain collateralized debt obligation securities co-issued by a non-U.S. issuer and a U.S. co-issuer. There can be no assurance as to the nature of any advice or other action that may result from such consideration. The uncertainties described above (and any unfavorable future determinations concerning legal investment or financial institution regulatory characteristics of the Subordinated Notes or any Class of Senior Notes) may affect the liquidity of the Subordinated Notes or any Class of Senior Notes. PLAN OF DISTRIBUTION Under the terms and subject to the conditions of a Purchase and Placement Agreement (the "Purchase Agreement"), among the Co-Issuers and the Initial Purchaser, Wachovia Securities is expected to purchase 100% of the Senior Notes (other than the Class A-2R Notes and the Class E Notes) from the Co-Issuers, and 100% of the Class E Notes and the Subordinated Notes from the Issuer (including, in each case, the Composite Notes), subject, in each case, to certain conditions, and except as stated below. Investors in the Class A-2R Notes and, in certain circumstances, certain other investors may purchase Notes directly from the Co-Issuers or the Issuer, as the case may be, in transactions arranged by Wachovia Securities acting as placement agent (directly or through one or more dealers). The Initial Purchaser will act as sole manager and bookrunner with respect to the Offered Securities. Wachovia Corporation conducts its investment banking, institutional and capital markets businesses through its various bank, broker-dealer and non-bank subsidiaries (including Wachovia Securities). The Offered Securities have not been and will not be registered under the Securities Act for offer or sale as part of their distribution and may not be offered or sold within the United States or to, or for the account or benefit of, a U.S. Person or a U.S. resident (as determined for purposes of the 1940 Act, a "U.S. Resident") except in certain transactions exempt from, or not subject to, the registration requirements of the Securities Act. In connection with the offering, the Initial Purchaser may purchase and sell the Offered Securities purchased by it in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover short positions created by the Initial Purchaser in connection with the offering. Stabilizing transactions consist of certain bids or purchases for the purpose of preventing or retarding a decline in the market price of the Offered Securities; and short positions created by the Initial Purchaser involve the sale by the Initial Purchaser of a greater number of Offered Securities than they are required to purchase from the Co-Issuers in the offering. The Initial Purchaser also may impose a penalty bid, where selling concessions allowed to broker-dealers in respect of the securities sold in the offering may be reclaimed by the Initial Purchaser if such Offered Securities are repurchased by the Initial Purchaser in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the Offered Securities purchased by the Initial Purchaser, which may be higher 141 than the price that might otherwise prevail in the open market; and these activities, if commenced, may be discontinued at any time. These transactions may be effected in the over-the-counter market or otherwise by Wachovia Securities. CERTAIN SECURITIES LAW CONSIDERATIONS The Co-Issuers have been advised by the Initial Purchaser that the Initial Purchaser proposes to resell the Offered Securities (or, in certain circumstances, place Notes (directly or through one or more dealers) on behalf of the Co-Issuers or the Issuer, as applicable) (a) outside the United States in offshore transactions in reliance on Regulation S and in accordance with applicable law and (b) in the United States only to Qualified Institutional Buyers in reliance on Rule 144A and, solely in the case of the Class E Notes and the Subordinated Notes, certain Accredited Investors in reliance on an exemption from the registration requirements of the Securities Act, in each case, purchasing for their own accounts or for the accounts of Qualified Institutional Buyers or Accredited Investors, as the case may be, each of which purchasers or accounts is a Qualified Purchaser or, solely in the case of the Subordinated Notes, a Knowledgeable Employee or a company owned exclusively by Knowledgeable Employees and/or Qualified Purchasers, or a Person that acquires the Subordinated Notes from a Knowledgeable Employee or a Qualified Purchaser in a transaction satisfying the applicable requirements of Rule 3c-6(b) under the 1940 Act and, if applicable, of Rule 3c-5(b)(3) under the 1940 Act. The Senior Notes will be issued in minimum denominations of $250,000 and integral multiples of $1 in excess thereof, the Composite Notes will be issued in minimum denominations of $600,000 and integral multiples of $1 in excess thereof and the Subordinated Notes will be issued in minimum denominations of $100,000 and integral multiples of $1 in excess thereof. Any offer or sale of Offered Securities in reliance on Rule 144A of the Securities Act will be made by broker-dealers who are registered as such under the Exchange Act. After the Offered Securities are released for sale, the offering price and other selling terms may from time to time be varied by the Initial Purchaser. The Initial Purchaser has acknowledged and agreed that it will not offer, sell or deliver any Offered Securities sold pursuant to Regulation S to, or for the account or benefit of, any U.S. person or U.S. Resident (as determined for purposes of the 1940 Act) as part of their distribution at any time and that they will send to each distributor, dealer or person receiving a selling concession, fee or other remuneration to which they sell Offered Securities pursuant to Regulation S a confirmation or other notice setting forth the prohibition on offers and sales of the Offered Securities sold pursuant to Regulation S within the United States or to, or for the account or benefit of, any U.S. person or U.S. Resident. With respect to the Offered Securities initially sold pursuant to Regulation S, until the expiration of the applicable distribution compliance period, an offer or sale of the Offered Securities within the United States by a dealer that is not participating in the offering may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A or pursuant to another exemption from registration under the Securities Act. The Initial Purchaser has agreed that (i) it has not offered or sold and prior to the expiration of 180 days from the Closing Date will not offer or sell any Offered Securities to persons in the United Kingdom 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 businesses or otherwise in circumstances that 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 (the Regulations); (ii) it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 and the Regulations with respect to anything done by it in relation to the Offered Securities in, 142 from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the proposed issue of the Offered Securities to a person that is of a kind described in Article 11(3) of the Financial Services and Markets Act 2000 (Investment Advertisement) (Exemptions), or is a person to whom the document may otherwise lawfully be issued or passed on. The Initial Purchaser has agreed that they have not made and will not make any invitation to the public in the Cayman Islands to purchase any of the Offered Securities. Buyers of Regulation S Global Notes and Regulation S Global Subordinated Notes sold by the Initial Purchaser may be required to pay stamp taxes and other charges in accordance with the laws and practice of the country of purchase in addition to the offering price set forth on the cover page hereof. Except for obtaining the approval of the Prospectus by the Irish Stock Exchange with respect to the Offered Securities, no action has been or will be taken in any jurisdiction that would permit a public offering of the Offered Securities, or the possession, circulation or distribution of this Offering Memorandum or any other material relating to the Co-Issuers or the Offered Securities, in any jurisdiction where action for such purpose is required. Accordingly, the Offered Securities may not be offered or sold, directly or indirectly, and neither this Offering Memorandum nor any other offering material or advertisements in connection with the Offered Securities may be distributed or published, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. The Offered Securities are a new issue of securities with no established trading market. The Co-Issuers have been advised by the Initial Purchaser that the Initial Purchaser may undertake to make a market in the Offered Securities but is not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Offered Securities. Application has been made to list each Class of Offered Securities on the Irish Stock Exchange. There can be no assurance that any such listing can be obtained or will be maintained. The Co-Issuers have agreed to indemnify Wachovia Securities, the Portfolio Manager, the Administrator and the Trustee against certain liabilities, including liabilities under the Securities Act, or to contribute to payments they may be required to make in respect thereof. In addition, the Co-Issuers have agreed to reimburse Wachovia Securities for certain expenses incurred in connection with the closing of the transactions contemplated hereby. In connection with its activities as Initial Purchaser and placement agent, the Initial Purchaser will receive compensation from the Issuer (including placement fees and structuring fees). The Offered Securities are offered by Wachovia Securities through privately negotiated transactions at varying prices. Each prospective investor should note that its account representative at the Initial Purchaser will receive compensation in connection with the sale of an Offered Security to such investor. Furthermore, certain persons (including brokers, dealers, solicitors, and agents) may introduce and act as continuing liaison with certain investors of the Issuer. In such instances, the Initial Purchaser generally will pay a portion of the compensation it receives from the Issuer to the persons providing the introduction and liaison services. 143 TRANSFER RESTRICTIONS Because of the following restrictions, as well as the possible application of Regulation U to certain purchasers of the Offered Securities (see "Security for the Senior Notes—Margin Loans"), purchasers are advised to consult legal counsel prior to making any offer, resale, pledge or transfer of the Offered Securities. The Initial Purchaser will receive notice of any transfer of Offered Securities. The Offered Securities have not been registered under the Securities Act or any state securities or "Blue Sky" laws or the securities laws of any other jurisdiction and, accordingly, may not be reoffered, resold, pledged or otherwise transferred except in accordance with the restrictions described herein and set forth in the Indenture. Without limiting the foregoing, by holding an Offered Security, each holder will acknowledge and agree, among other things, that such holder understands that neither of the Co-Issuers is registered as an investment company under the Investment Company Act, and that the Co-Issuers are exempt from registration as such by virtue of Section 3(c)(7) of the Investment Company Act. Section 3(c)(7) excepts from the provisions of the Investment Company Act those issuers who privately place their securities solely to persons who at the time of purchase are "qualified purchasers" or "knowledgeable employees." In general terms, "qualified purchaser" is defined to mean, among other things, any natural person who owns not less than $5,000,000 in investments; any person who in the aggregate owns and invests on a discretionary basis, not less than $25,000,000 in investments; and trusts as to which both the settlor and the decision-making trustee are qualified purchasers (but only if such trust was not formed for the specific purpose of making such investment). In general terms, "knowledgeable employees" is defined to mean, among other things, executive officers, directors and certain investment professionals and employees of an issuer and its related investment manager. Global Notes and Regulation S Global Subordinated Notes Each initial purchaser and each transferee of Senior Notes, Composite Notes or Subordinated Notes represented by an interest in a Global Note or Regulation S Global Subordinated Note will be deemed to have represented and agreed as follows (except as may be expressly agreed in writing between the Co-Issuers and any initial purchasers): (i) In connection with the purchase of such Offered Securities: (A) none of the CoIssuers, the Portfolio Manager, the Initial Purchaser or any of their respective affiliates is acting as a fiduciary or financial or investment advisor for such beneficial owner; (B) such beneficial 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 Co-Issuers, the Portfolio Manager, the Trustee or the Initial Purchaser or any of their respective affiliates other than any statements in the final offering memorandum for such Offered Securities, and such beneficial owner has read and understands such final offering memorandum; (C) such beneficial owner has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent it has deemed necessary and 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 advisors as it has deemed necessary and not upon any view expressed by the Co-Issuers, the Portfolio Manager, the Trustee or the Initial Purchaser or any of their respective affiliates; (D) such beneficial owner is either (1) (in the case of a beneficial owner of an interest in a Rule 144A Global Note) both (a) except for Institutional 144 Accredited Investors purchasing Class E Notes from the Initial Purchasers on the Closing Date, a qualified institutional buyer (as defined under Rule 144A under the Securities Act) that is not a broker-dealer which owns and invests on a discretionary basis less than U.S.$25 million in securities of issuers that are not affiliated persons of the dealer and is not a plan referred to in paragraph (a)(1)(d) or (a)(1)(e) of Rule 144A under the Securities Act or a trust fund referred to in paragraph (a)(1)(f) of Rule 144A under the Securities Act that holds the assets of such a plan, if investment decisions with respect to the plan are made by beneficiaries of the plan and (b) a "qualified purchaser" for purposes of Section 3(c)(7) of the Investment Company Act or (2) not a "U.S. person" as defined in Regulation S and is acquiring the Offered Securities in an offshore transaction (as defined in Regulation S) in reliance on the exemption from registration provided by Regulation S; (E) such beneficial owner is acquiring its interest in such Offered Securities for its own account; (F) such beneficial owner was not formed for the purpose of investing in such Offered Securities; (G) such beneficial owner understands that the Issuer may receive a list of participants holding interests in the Offered Securities from one or more book-entry depositories; (H) such beneficial owner will hold and transfer at least the minimum denomination of such Offered Securities; (I) (in the case of the Subordinated Notes) such beneficial owner is a sophisticated investor and is purchasing the Offered Securities with a full understanding of all of the terms, conditions and risks thereof, and is capable of and willing to assume those risks; and (J) such beneficial owner will provide notice of the relevant transfer restrictions to subsequent transferees. (ii) (A) in the case of initial investors in and subsequent transferees of Global Notes (other than Class E Global Notes), on each day from the date on which such beneficial owner acquires its interest in such Offered Securities through and including the date on which such beneficial owner disposes of its interest in such Offered Securities either that (x) it is neither a Plan nor any entity whose underlying assets include "plan assets" by reason of such plan's investment in the entity, nor a governmental, church or other plan which is subject to any federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of the Code or (y) its purchase, holding and disposition of an Offered Security 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 governmental, church or other plan, a violation under any substantially similar law), (B) in the case of initial investors in Class E Global Notes acquiring their interests therein from the Initial Purchaser and initial purchasers of interests in the Regulation S Global Subordinated Notes from the Issuer, on each day from the date on which such beneficial owner acquires its interest in such Offered Securities through and including the date on which such beneficial owner disposes of its interest in such Offered Securities either that (x) it is not a Benefit Plan Investor or a governmental, church or other plan which is subject to any federal, state, local or foreign law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the Code or (y) its purchase, holding and disposition of an Offered Security will not constitute or result in a non-exempt prohibited transaction under Title I of ERISA or Section 4975 of the Code (or, in the case of a governmental, church or other plan, a non-exempt violation under any substantially similar law), (C) in the case of transferees of interests in a Regulation S Global Subordinated Note or a Class E Global Note other than initial investors therein referred to in clause (B) above, on each day from the date on which such beneficial owner acquires its interest in such Offered Securities through and including the date on which such beneficial owner disposes of its interest in such Offered Securities that (x) it is not a Benefit Plan Investor or a 145 Controlling Person and (y) if it is a governmental, church or other plan which is subject to any federal, state, local or foreign law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the Code, its purchase, holding and disposition of Class E Notes or Subordinated Notes will not constitute or result in a non-exempt violation under any such substantially similar law, and (D) in the case of the Composite Notes, on each day from the date on which such beneficial owner acquires its interest in such Offered Securities through and including the date on which such beneficial owner disposes of its interest in such Offered Securities that (x) it is not a Benefit Plan Investor or a Controlling Person and (y) if it is a governmental, church or other plan which is subject to any federal, state, local or foreign law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the Code, its purchase, holding and disposition of Composite Notes will not constitute or result in a non-exempt violation under any such substantially similar law. (iii) Such beneficial owner understands that such Offered Securities are being offered only in a transaction not involving any public offering in the United States within the meaning of the Securities Act, such Offered Securities have not been and will not be registered under the Securities Act, and, if in the future such beneficial owner decides to offer, resell, pledge or otherwise transfer such Offered Securities, such Offered Securities may be offered, resold, pledged or otherwise transferred only in accordance with the provisions of the Indenture and the legend on such Offered Securities. Such beneficial owner acknowledges that no representation has been made as to the availability of any exemption under the Securities Act or any state securities laws for resale of such Offered Securities. Such beneficial owner understands that neither of the Co-Issuers has been registered under the Investment Company Act, and that the CoIssuers are exempt from registration as such by virtue of Section 3(c)(7) of the Investment Company Act. (iv) It is aware that, except as otherwise provided in the Indenture, any Offered Securities being sold to it in reliance on Regulation S will be represented by one or more Regulation S Global Notes or Regulation S Global Subordinated Notes, as applicable, and that in each case beneficial interests therein may be held only through DTC for the respective accounts of Euroclear or Clearstream. (v) It will provide notice to each person to whom it proposes to transfer any interest in the Offered Securities of the transfer restrictions and representations set forth in the Indenture. In addition, each person who purchases a Global Note or Regulation S Global Subordinated Note representing an interest in a Class E Note or a Subordinated Note on the Closing Date will be required to provide the Issuer and the Trustee with a certificate substantially in the form of Annex A-1 hereto and will be required to indemnify and hold harmless the Issuer, the Co-Issuer, the Trustee, the Collateral Administrator, the Initial Purchaser and the Portfolio Manager and their respective affiliates from any cost, damage, or loss incurred by them as a result of the representations given by it in such certificate being incorrect. Each person who purchases a Global Note representing an interest in a Composite Note on the Closing Date will be required to provide the Issuer and the Trustee with a certificate substantially in the form of Annex A-2 hereto and will be required to indemnify and hold harmless the Issuer, the CoIssuer, the Trustee, the Collateral Administrator, the Initial Purchaser and the Portfolio Manager and their respective affiliates from any cost, damage, or loss incurred by them as a result of the representations given by it in such certificate being incorrect. 146 Certificated Subordinated Notes No purchase or transfer of a Subordinated Note in certificated form (including a transfer of an interest in a Regulation S Global Subordinated Note to a transferee acquiring a Subordinated Note in certificated form) will be recorded or otherwise recognized unless the purchaser thereof has provided the Trustee with a certificate substantially in the form of Annex A-1 hereto and a certificate containing substantially the following representations (which, in the case of initial purchasers of the Subordinated Notes, may be delivered in the form of a representation letter or subscription agreement delivered to the Initial Purchaser containing substantially such representations): In connection with its acquisition of Certificated Subordinated Notes, the transferee does hereby certify that the Certificated Subordinated Notes are being transferred (i) in accordance with the transfer restrictions set forth in the Indenture and (ii) pursuant to an exemption from registration under the United States Securities Act of 1933, as amended (the “Securities Act”) and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. In addition, the transferee hereby represents, warrants and covenants for the benefit of the Issuer and their counsel that we are: (i)(a) (PLEASE CHECK ONLY ONE) _____ a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and are acquiring the Subordinated Notes in reliance on the exemption from Securities Act registration provided by Rule 144A thereunder; _____ an institutional "accredited investor" as defined in Rule 501(a)(1), (2), (3), or (7) under the Securities Act; _____ an "accredited investor" as defined in Rule 501(a)(5), (6), or (8) under the Securities Act; or _____ a person that is not a "U.S. person" as defined in Regulation S under the Securities Act, and are acquiring the Subordinated Notes in an offshore transaction (as defined in Regulation S) in reliance on the exemption from Securities Act registration provided by Regulation S; and (b) acquiring the Certificated Subordinated Notes for our own account (and not for the account of any other Person) in a minimum denomination of $100,000 (or in such other minimum denominations as the Issuer may agree on a case-by-case basis) and in integral multiples of $1.00 in excess thereof. (ii) It understands that the Certificated Subordinated Notes have not been and will not be registered under the Securities Act, and, if in the future it decides to offer, resell, pledge or otherwise transfer the Certificated Subordinated Notes, such Certificated Subordinated Notes may be offered, resold, pledged or otherwise transferred only in accordance with the provisions of the Indenture and the legends on such Certificated Subordinated Notes, including the requirement for written certifications. In particular, it understands that the Certificated Subordinated Notes may only be transferred to a person (an "Eligible Holder") that is either (a) a "qualified purchaser" (as defined in the Investment Company Act of 1940, as amended (the "Investment Company Act")), (b) a "Knowledgeable Employee," as defined in Rule 3c-5 promulgated under the Investment Company Act, of the Issuer or (c) a corporation, partnership, limited liability company or other entity (other than a trust) each shareholder, partner, member or 147 other equity owner of which is either a Knowledgeable Employee or a Qualified Purchaser; and in the case of (a), (b) and (c) above that is either (i) a "qualified institutional buyer" as defined in Rule 144A under the Securities Act who purchases such Certificated Subordinated Notes in reliance on the exemption from Securities Act registration provided by Rule 144A thereunder or (ii) an "accredited investor" as defined in Rule 501(a)(1), (2), (3), (5), (6), (7) or (8) under the Securities Act or (d) a person that is not a "U.S. person" as defined in Regulation S under the Securities Act, and is acquiring the Certificated Subordinated Notes in an offshore transaction (as defined in Regulation S thereunder) in reliance on the exemption from registration provided by Regulation S thereunder. It acknowledges that no representation is made as to the availability of any exemption under the Securities Act or any state securities laws for resale of the Certificated Subordinated Notes. (iii) In connection with its purchase of the Certificated Subordinated Notes: (i) none of the Co-Issuers, the Initial Purchaser, the Trustee, the Collateral Administrator, the Portfolio Manager or any of their respective affiliates is acting as a fiduciary or financial or investment adviser for it; (ii) it is not relying (for purposes of making any investment decision or otherwise) upon any written or oral advice, counsel or representations of the Co-Issuers, the Initial Purchaser, the Portfolio Manager, the Trustee, the Collateral Administrator or any of their respective affiliates other than any statements in the final offering memorandum for such Subordinated Notes; (iii) it has read and understands the final offering memorandum for such Subordinated Notes (including, without limitation, the descriptions therein of the structure of the transaction in which the Certificated Subordinated Notes are being issued and the risks to purchasers of the Certificated Subordinated Notes); (iv) it has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisers to the extent it has deemed necessary, and 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 Co-Issuers, the Initial Purchaser, the Portfolio Manager, the Trustee, the Collateral Administrator or any of their respective affiliates; (v) it will hold and transfer at least the minimum denomination of such Subordinated Notes; (vi) it was not formed for the purpose of investing in the Subordinated Notes; (vii) it is a sophisticated investor and is purchasing the Certificated Subordinated Notes with a full understanding of all of the terms, conditions and risks thereof, and it is capable of assuming and willing to assume those risks; and (viii) if it is the Portfolio Manager or an employee or Affiliate thereof, it is acquiring the Certificated Subordinated Notes directly from the Issuer and not through the Initial Purchaser. (iv) (i) It is an Eligible Holder; (ii) it is acquiring the Certificated Subordinated Notes as principal solely for its own account for investment and not with a view to the resale, distribution or other disposition thereof in violation of the Securities Act; (iii) it is not a (A) partnership, (B) common trust fund, or (C) special trust, pension, profit sharing or other retirement trust fund or plan in which the partners, beneficiaries or participants may designate the particular investments to be made; (iv) it agrees that it shall not hold any Certificated Subordinated Notes for the benefit of any other person, that it shall at all times be the sole beneficial owner thereof for purposes of the Investment Company Act and all other purposes and that it shall not sell participation interests in the Certificated Subordinated Notes or enter into any other arrangement pursuant to which any other person shall be entitled to a beneficial interest in the distributions on the Certificated Subordinated Notes (unless, in each case, such other person is an Eligible Holder); (v) it is acquiring its interest in the Certificated Subordinated Notes for its own account; and (vi) it will hold and transfer at least the minimum denomination of the 148 Certificated Subordinated Notes and provide notice of the relevant transfer restrictions to subsequent transferees. (v) It has completed Exhibit B-2 to the Indenture and acknowledges and agrees that all of the representations given by it therein as to its status under ERISA or as to its status as an Affected Bank are true and correct and are for the benefit of the Issuer, the Trustee, the Initial Purchaser and the Portfolio Manager. It agrees to indemnify and hold harmless the Issuer, the Co-Issuer, the Trustee, the Collateral Administrator, the Initial Purchaser and the Portfolio Manager and their respective affiliates from any cost, damage, or loss incurred by them as a result of the representations given by it in such Exhibit B-2 being incorrect. (vi) It will treat its Certificated Subordinated Notes as equity of the Issuer for United States federal income tax purposes. (vii) It agrees not to seek to commence in respect of the Issuer or the CoIssuer, or cause the Issuer or Co-Issuer to commence, a bankruptcy proceeding before a year and a day has elapsed since the payment in full to the holders of the Notes issued pursuant to the Indenture or, if longer, the applicable preference period then in effect. (viii) It is not a member of the public in the Cayman Islands. (ix) It understands that the Issuer, the Trustee, the Initial Purchaser and their respective counsel will rely upon the accuracy and truth of the foregoing representations, and it hereby consents to such reliance. Class A-2R Notes No purchase or transfer of a Class A-2R Note will be recorded or otherwise recognized unless the purchaser thereof has executed a Class A-2R Note Purchase Agreement or an assignment and assumption in the form provided therein containing representations and warranties substantially similar to the representations and warranties which the holders of other Classes of Senior Notes are deemed to have made. Additional Restrictions Transferors of interests in Global Notes and Regulation S Global Subordinated Notes will be required to deliver written certifications in the form prescribed in the Indenture with respect to the matters described under "Transfer Restrictions" above. No transfer of any Class E Note, Composite Note or Subordinated Note will be effective, and the Trustee will not recognize any such transfer known to it, if it may result in 25% or more of the value of the Class E Notes (including the Class E Note Component) or the Subordinated Notes, respectively, being held by Benefit Plan Investors (the "25% Limitation"). For purposes of this determination, the value of equity interests held by the Trustee, the Portfolio Manager and certain of their affiliates (other than those interests held by a Benefit Plan Investor) or a person (other than a Benefit Plan Investor) that has discretionary authority or control with respect to the assets of the Co-Issuers or that provides investment advice for a fee (direct or indirect) with respect to such assets (or any affiliate of such a person) is disregarded. See "ERISA and Legal Investment Considerations." 149 Each purchaser or subsequent transferee of Class A-2R Notes, Class E Notes, Composite Notes and Subordinated Notes (other than subsequent transferees of interests in a Regulation S Global Subordinated Note or interests in a Global Note representing Class E Notes or Composite Notes) will be required to provide the Issuer and the Trustee written certification as to whether it is an Affected Bank by delivery of a certificate in the form of Annex A-1 or Annex A-2 hereto (or another form of certification acceptable to the Issuer). Subsequent transferees of interests in a Regulation S Global Subordinated Note, a Composite Note or a Class E Global Note will be deemed to have represented and warranted that such persons are not Affected Banks. No transfer of any Class A-2R Note, Class E Note, Composite Note or Subordinated Note to an Affected Bank will be effective, and the Trustee will not recognize any such transfer known to it, unless such transfer is specifically authorized by the Issuer in writing; provided, however, that the Issuer shall authorize any such transfer if (x) such transfer would not cause more than 33⅓% of the aggregate outstanding principal amount of the Class A-2R Notes, the Class E Notes (including the Class E Note Component of the Composite Notes) or the Subordinated Notes to be owned by Affected Banks or (y) the transferor is an Affected Bank previously approved by the Issuer. To the extent required by the Issuer, as determined by the Issuer or the Portfolio Manager on behalf of the Issuer, the Issuer may, upon notice to the Trustee, impose additional transfer restrictions on the Subordinated Notes to comply with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 and other similar laws or regulations, including, without limitation, requiring each transferee of a Subordinated Note to make representations to the Issuer in connection with such compliance. Legends The Class A-1 Notes, the Class A-2B Notes, the Class B Notes, the Class C Notes and the Class D Notes in the form of a Global Note will bear a legend substantially to the following effect unless the Issuer determines otherwise in compliance with applicable law: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO A "QUALIFIED PURCHASER" (AS DEFINED FOR PURPOSES OF SECTION 3(C)(7) OF THE INVESTMENT COMPANY ACT) THAT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY SUCH RULE THAT IS NOT A BROKER-DEALER WHICH OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN U.S $25 MILLION IN SECURITIES OF ISSUERS THAT ARE NOT AFFILIATED PERSONS OF THE DEALER AND IS NOT A PLAN REFERRED TO IN PARAGRAPH (A)(1)(D) OR (A)(1)(E) OF RULE 144A OR A TRUST FUND REFERRED TO IN PARAGRAPH (A)(1)(F) OF RULE 144A THAT HOLDS THE ASSETS OF SUCH A PLAN, IF INVESTMENT DECISIONS WITH RESPECT TO THE PLAN ARE MADE BY THE BENEFICIARIES OF THE PLAN OR (B) TO A PERSON THAT IS NOT A "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) AND IS ACQUIRING THIS NOTE IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY SUCH REGULATION, AND IN EACH 150 CASE IN COMPLIANCE WITH THE CERTIFICATION AND OTHER REQUIREMENTS SPECIFIED IN THE INDENTURE REFERRED TO HEREIN AND IN COMPLIANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY APPLICABLE JURISDICTION. THE ACQUISITION OF THE NOTES BY, OR ON BEHALF OF, OR WITH THE ASSETS OF ANY "EMPLOYEE BENEFIT PLAN" SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, ("ERISA") OR ANY "PLAN" SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR ANY ENTITY PART OR ALL OF THE ASSETS OF WHICH CONSTITUTE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN OR PLAN BY REASON OF DEPARTMENT OF LABOR REGULATION SECTION 2510.3101 OR OTHERWISE, OR ANY GOVERNMENTAL, CHURCH OR OTHER PLAN SUBJECT TO FEDERAL, STATE, LOCAL OR NON-U.S. LAW SUBSTANTIALLY SIMILAR TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA OR SECTION 4975 OF THE CODE IS PROHIBITED UNLESS SUCH PURCHASE, HOLDING AND SUBSEQUENT DISPOSITION OF THE NOTES WOULD NOT RESULT IN ANY NONEXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR UNDER SECTION 4975 OF THE CODE (OR IN THE CASE OF A GOVERNMENTAL, CHURCH OR OTHER PLAN, A NON-EXEMPT VIOLATION UNDER ANY SUBSTANTIALLY SIMILAR FEDERAL, STATE, LOCAL OR NON-U.S. LAW). EACH BENEFICIAL OWNER OF THIS NOTE WILL BE DEEMED TO HAVE MADE THE REPRESENTATIONS AND AGREEMENTS SET FORTH IN SECTION 2.6 OF THE INDENTURE. THE ISSUER HAS THE RIGHT, UNDER THE INDENTURE, TO COMPEL ANY BENEFICIAL OWNER OF AN INTEREST IN A GLOBAL NOTE (AS DEFINED IN THE INDENTURE) THAT IS A U.S. PERSON AND IS NOT A QUALIFIED PURCHASER AND A QUALIFIED INSTITUTIONAL BUYER TO SELL ITS INTEREST IN THE NOTES, OR MAY SELL SUCH INTEREST ON BEHALF OF SUCH OWNER. ANY TRANSFER, PLEDGE OR OTHER USE OF THIS NOTE FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN, UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), NEW YORK, NEW YORK, TO THE CO-ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR OF SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.). TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS NOTE SHALL BE LIMITED TO 151 TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO HEREIN. PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. ANY PERSON ACQUIRING THIS NOTE MAY ASCERTAIN ITS CURRENT PRINCIPAL AMOUNT BY INQUIRY OF THE TRUSTEE. THE FAILURE TO PROVIDE THE ISSUER, THE TRUSTEE AND ANY PAYING AGENT WITH THE APPLICABLE U.S. FEDERAL INCOME TAX CERTIFICATIONS (GENERALLY, AN INTERNAL REVENUE SERVICE FORM W-9 (OR SUCCESSOR APPLICABLE 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 AN APPROPRIATE INTERNAL REVENUE SERVICE FORM W-8 (OR SUCCESSOR APPLICABLE 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 MAY RESULT IN THE IMPOSITION OF U.S. FEDERAL BACK-UP WITHHOLDING UPON PAYMENTS TO THE HOLDER IN RESPECT OF THIS NOTE. The Class A-2R Notes will bear a legend substantially to the following effect unless the Issuer determines otherwise in compliance with applicable law: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO A "QUALIFIED PURCHASER" (AS DEFINED FOR PURPOSES OF SECTION 3(C)(7) OF THE INVESTMENT COMPANY ACT) THAT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY SUCH RULE THAT IS NOT A BROKER-DEALER WHICH OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN U.S $25 MILLION IN SECURITIES OF ISSUERS THAT ARE NOT AFFILIATED PERSONS OF THE DEALER AND IS NOT A PLAN REFERRED TO IN PARAGRAPH (A)(1)(D) OR (A)(1)(E) OF RULE 144A OR A TRUST FUND REFERRED TO IN PARAGRAPH (A)(1)(F) OF RULE 144A THAT HOLDS THE ASSETS OF SUCH A PLAN, IF INVESTMENT DECISIONS WITH RESPECT TO THE PLAN ARE MADE BY THE BENEFICIARIES OF THE PLAN OR (B) TO A PERSON THAT IS NOT A "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) AND IS ACQUIRING THIS NOTE IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY SUCH REGULATION, AND IN EACH CASE IN COMPLIANCE WITH THE CERTIFICATION AND OTHER REQUIREMENTS SPECIFIED IN THE INDENTURE REFERRED TO 152 HEREIN AND IN COMPLIANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY APPLICABLE JURISDICTION. THE ACQUISITION OF THE NOTES BY, OR ON BEHALF OF, OR WITH THE ASSETS OF ANY "EMPLOYEE BENEFIT PLAN" SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, ("ERISA") OR ANY "PLAN" SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR ANY ENTITY PART OR ALL OF THE ASSETS OF WHICH CONSTITUTE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN OR PLAN BY REASON OF DEPARTMENT OF LABOR REGULATION SECTION 2510.3101 OR OTHERWISE, OR ANY GOVERNMENTAL, CHURCH OR OTHER PLAN SUBJECT TO FEDERAL, STATE, LOCAL OR NON-U.S. LAW SUBSTANTIALLY SIMILAR TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA OR SECTION 4975 OF THE CODE IS PROHIBITED UNLESS SUCH PURCHASE, HOLDING AND SUBSEQUENT DISPOSITION OF THE NOTES WOULD NOT RESULT IN ANY NONEXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR UNDER SECTION 4975 OF THE CODE (OR IN THE CASE OF A GOVERNMENTAL, CHURCH OR OTHER PLAN, A NON-EXEMPT VIOLATION UNDER ANY SUBSTANTIALLY SIMILAR FEDERAL, STATE, LOCAL OR NON-U.S. LAW). EACH BENEFICIAL OWNER OF THIS NOTE WILL BE DEEMED TO HAVE MADE THE REPRESENTATIONS AND AGREEMENTS SET FORTH IN SECTION 2.6 OF THE INDENTURE. THE ISSUER HAS THE RIGHT, UNDER THE INDENTURE, TO COMPEL ANY BENEFICIAL OWNER OF AN INTEREST IN A GLOBAL NOTE (AS DEFINED IN THE INDENTURE) THAT IS A U.S. PERSON AND IS NOT A QUALIFIED PURCHASER AND A QUALIFIED INSTITUTIONAL BUYER TO SELL ITS INTEREST IN THE NOTES, OR MAY SELL SUCH INTEREST ON BEHALF OF SUCH OWNER. PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. ANY PERSON ACQUIRING THIS NOTE MAY ASCERTAIN ITS CURRENT PRINCIPAL AMOUNT BY INQUIRY OF THE TRUSTEE. THE FAILURE TO PROVIDE THE ISSUER, THE TRUSTEE AND ANY PAYING AGENT WITH THE APPLICABLE U.S. FEDERAL INCOME TAX CERTIFICATIONS (GENERALLY, AN INTERNAL REVENUE SERVICE FORM W-9 (OR SUCCESSOR APPLICABLE 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 AN APPROPRIATE INTERNAL REVENUE SERVICE FORM W-8 (OR SUCCESSOR APPLICABLE 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 MAY RESULT IN THE IMPOSITION OF U.S. FEDERAL BACK-UP WITHHOLDING UPON PAYMENTS TO THE HOLDER IN RESPECT OF THIS NOTE. 153 The Class E Notes in the form of a Global Note will bear a legend substantially to the following effect unless the Issuer determines otherwise in compliance with applicable law: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO A "QUALIFIED PURCHASER" (AS DEFINED FOR PURPOSES OF SECTION 3(C)(7) OF THE INVESTMENT COMPANY ACT) THAT IS (1) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY SUCH RULE THAT IS NOT A BROKER-DEALER WHICH OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN U.S $25 MILLION IN SECURITIES OF ISSUERS THAT ARE NOT AFFILIATED PERSONS OF THE DEALER AND IS NOT A PLAN REFERRED TO IN PARAGRAPH (A)(1)(D) OR (A)(1)(E) OF RULE 144A OR A TRUST FUND REFERRED TO IN PARAGRAPH (A)(1)(F) OF RULE 144A THAT HOLDS THE ASSETS OF SUCH A PLAN, IF INVESTMENT DECISIONS WITH RESPECT TO THE PLAN ARE MADE BY THE BENEFICIARIES OF THE PLAN OR (2) OR, AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) PURCHASING CLASS E NOTES ON THE CLOSING DATE OR (B) TO A PERSON THAT IS NOT A "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) AND IS ACQUIRING THIS NOTE IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY SUCH REGULATION, AND IN EACH CASE IN COMPLIANCE WITH THE CERTIFICATION AND OTHER REQUIREMENTS SPECIFIED IN THE INDENTURE REFERRED TO HEREIN AND IN COMPLIANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY APPLICABLE JURISDICTION. THE ACQUISITION OF THE NOTES BY A PURCHASER FROM THE INITIAL PURCHASER, OR ON BEHALF OF, OR WITH THE ASSETS OF ANY BENEFIT PLAN INVESTOR OR ANY GOVERNMENTAL, CHURCH OR OTHER PLAN SUBJECT TO FEDERAL, STATE, LOCAL OR NON-U.S. LAW SUBSTANTIALLY SIMILAR TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA OR SECTION 4975 OF THE CODE IS PROHIBITED UNLESS SUCH PURCHASE, HOLDING AND SUBSEQUENT DISPOSITION OF THE NOTES WOULD NOT RESULT IN ANY PROHIBITED TRANSACTION UNDER TITLE I OF ERISA OR UNDER SECTION 4975 OF THE CODE (OR IN THE CASE OF A GOVERNMENTAL, CHURCH OR OTHER PLAN, A NON-EXEMPT VIOLATION UNDER ANY SUBSTANTIALLY SIMILAR FEDERAL, STATE, LOCAL OR NON-U.S. LAW). EACH BENEFICIAL OWNER OF THIS NOTE WILL BE DEEMED TO HAVE MADE THE REPRESENTATIONS AND AGREEMENTS SET FORTH IN SECTION 2.6 OF THE INDENTURE. ANY INITIAL HOLDER OF AN INTEREST IN THIS NOTE ACQUIRING ITS INTEREST FROM THE INITIAL PURCHASER IS REQUIRED TO PROVIDE THE TRUSTEE WRITTEN CERTIFICATION OF 154 AS TO WHETHER OR NOT IT IS A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON IN THE FORM SET FORTH IN THE INDENTURE. NO TRANSFER OF ANY INTEREST IN THIS NOTE WILL BE EFFECTIVE, AND THE TRUSTEE WILL NOT RECOGNIZE ANY SUCH TRANSFER, IF IT WOULD RESULT IN 25% OR MORE OF THE VALUE OF THE CLASS E NOTES BEING HELD BY BENEFIT PLAN INVESTORS. EXCEPT FOR THE INITIAL INVESTORS IN THIS NOTE ACQUIRING INTERESTS FROM THE INITIAL PURCHASER, EACH TRANSFEREE OF AN INTEREST IN THIS NOTE WILL BE DEEMED TO HAVE REPRESENTED AND AGREED THAT IT (A) IS NEITHER A BENEFIT PLAN INVESTOR NOR A CONTROLLING PERSON AND (B) IF IT IS A GOVERNMENTAL, CHURCH OR OTHER PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR FOREIGN LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF TITLE I OF ERISA OR SECTION 4975 OF THE CODE, ITS PURCHASE, HOLDING AND DISPOSITION OF THIS NOTE WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER ANY SUCH SUBSTANTIALLY SIMILAR LAW. A BENEFIT PLAN INVESTOR IS (I) ANY EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF ERISA) THAT IS SUBJECT TO TITLE I OF ERISA, (II) ANY PLAN THAT IS SUBJECT TO SECTION 4975 OF THE CODE, (III) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY SUCH PLAN'S INVESTMENT IN SUCH ENTITY OR (IV) A "BENEFIT PLAN INVESTOR" AS SUCH TERM IS OTHERWISE DEFINED IN ANY REGULATIONS PROMULGATED BY THE U.S. DEPARTMENT OF LABOR UNDER SECTION 3(42) OF ERISA. A CONTROLLING PERSON IS ANY PERSON (OTHER THAN A BENEFIT PLAN INVESTOR) WHO HAS DISCRETIONARY AUTHORITY OR CONTROL WITH RESPECT TO THE ASSETS OF THE ISSUER OR ANY PERSON WHO PROVIDES INVESTMENT ADVICE FOR A FEE (DIRECT OR INDIRECT) WITH RESPECT TO SUCH ASSETS, OR ANY AFFILIATE OF SUCH A PERSON. THE ISSUER HAS THE RIGHT, UNDER THE INDENTURE, TO COMPEL ANY BENEFICIAL OWNER OF AN INTEREST IN A GLOBAL NOTE (AS DEFINED IN THE INDENTURE) THAT IS A U.S. PERSON AND IS NOT A QUALIFIED PURCHASER AND A QUALIFIED INSTITUTIONAL BUYER TO SELL ITS INTEREST IN THE NOTES, OR MAY SELL SUCH INTEREST ON BEHALF OF SUCH OWNER. ANY TRANSFER, PLEDGE OR OTHER USE OF THIS NOTE FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN, UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), NEW YORK, NEW YORK, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR OF SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.). 155 TRANSFERS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO HEREIN. PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. ANY PERSON ACQUIRING THIS NOTE MAY ASCERTAIN ITS CURRENT PRINCIPAL AMOUNT BY INQUIRY OF THE TRUSTEE. THE FAILURE TO PROVIDE THE ISSUER, THE TRUSTEE AND ANY PAYING AGENT WITH THE APPLICABLE U.S. FEDERAL INCOME TAX CERTIFICATIONS (GENERALLY, AN INTERNAL REVENUE SERVICE FORM W-9 (OR SUCCESSOR APPLICABLE 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 AN APPROPRIATE INTERNAL REVENUE SERVICE FORM W-8 (OR SUCCESSOR APPLICABLE 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) MAY RESULT IN THE IMPOSITION OF U.S. FEDERAL BACK-UP WITHHOLDING UPON PAYMENTS TO THE HOLDER IN RESPECT OF THIS NOTE. The Composite Note in the form of a Global Note will bear a legend substantially to the following effect unless the Issuer determines otherwise in compliance with applicable law: THIS COMPOSITE NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO A "QUALIFIED PURCHASER" (AS DEFINED FOR PURPOSES OF SECTION 3(C)(7) OF THE INVESTMENT COMPANY ACT) THAT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY SUCH RULE THAT IS NOT A BROKER-DEALER WHICH OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN U.S.$25 MILLION IN SECURITIES OF ISSUERS THAT ARE NOT AFFILIATED PERSONS OF THE DEALER AND IS NOT A PLAN REFERRED TO IN PARAGRAPH (A)(1)(D) OR (A)(1)(E) OF RULE 144A OR A TRUST FUND REFERRED TO IN PARAGRAPH (A)(1)(F) OF RULE 144A THAT HOLDS THE ASSETS OF SUCH A PLAN, IF INVESTMENT DECISIONS WITH RESPECT TO THE PLAN ARE MADE BY THE BENEFICIARIES OF THE PLAN OR (B) TO A PERSON THAT IS NOT A "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) AND IS ACQUIRING THIS COMPOSITE NOTE IN RELIANCE ON THE EXEMPTION FROM 156 SECURITIES ACT REGISTRATION PROVIDED BY SUCH REGULATION, AND IN EACH CASE IN COMPLIANCE WITH THE CERTIFICATION AND OTHER REQUIREMENTS SPECIFIED IN THE INDENTURE REFERRED TO HEREIN AND IN COMPLIANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY APPLICABLE JURISDICTION. THE ACQUISITION OF THE COMPOSITE NOTES BY, OR ON BEHALF OF, OR WITH THE ASSETS OF ANY "EMPLOYEE BENEFIT PLAN" SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, ("ERISA") OR ANY "PLAN" SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR ANY ENTITY PART OR ALL OF THE ASSETS OF WHICH CONSTITUTE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN OR PLAN BY REASON OF DEPARTMENT OF LABOR REGULATION SECTION 2510.3-101 OR OTHERWISE IS PROHIBITED. EACH TRANSFEREE OF AN INTEREST IN THIS NOTE WILL BE DEEMED TO HAVE REPRESENTED AND AGREED THAT (A) IT IS NEITHER A BENEFIT PLAN INVESTOR NOR A CONTROLLING PERSON AND (B) IF IT IS A GOVERNMENTAL, CHURCH OR OTHER PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR FOREIGN LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF TITLE I OF ERISA OR SECTION 4975 OF THE CODE, ITS PURCHASE, HOLDING AND DISPOSITION OF THIS COMPOSITE NOTE WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER ANY SUCH SUBSTANTIALLY SIMILAR LAW. EACH BENEFICIAL OWNER OF THIS COMPOSITE NOTE WILL BE DEEMED TO HAVE MADE THE REPRESENTATIONS AND AGREEMENTS SET FORTH IN THE INDENTURE. THE ISSUER HAS THE RIGHT, UNDER THE INDENTURE, TO COMPEL ANY BENEFICIAL OWNER OF AN INTEREST IN A GLOBAL COMPOSITE NOTE (AS DEFINED IN THE INDENTURE) THAT IS A U.S. PERSON AND IS NOT A QUALIFIED PURCHASER AND A QUALIFIED INSTITUTIONAL BUYER TO SELL ITS INTEREST IN THE COMPOSITE NOTE, OR MAY SELL SUCH INTEREST ON BEHALF OF SUCH OWNER. ANY TRANSFER, PLEDGE OR OTHER USE OF THIS COMPOSITE NOTE FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN, UNLESS THIS COMPOSITE NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), NEW YORK, NEW YORK, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY COMPOSITE NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR OF SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.). TRANSFERS OF THIS COMPOSITE NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR 157 TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS COMPOSITE NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO HEREIN. THE FAILURE TO PROVIDE THE ISSUER, THE TRUSTEE AND ANY PAYING AGENT WITH THE APPLICABLE U.S. FEDERAL INCOME TAX CERTIFICATIONS (GENERALLY, AN INTERNAL REVENUE SERVICE FORM W-9 (OR SUCCESSOR APPLICABLE 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 AN APPROPRIATE INTERNAL REVENUE SERVICE FORM W-8 (OR SUCCESSOR APPLICABLE 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) MAY RESULT IN THE IMPOSITION OF U.S. FEDERAL BACK-UP WITHHOLDING UPON PAYMENTS TO THE HOLDER IN RESPECT OF THIS COMPOSITE NOTE. THE COMPONENTS OF THIS COMPOSITE NOTE ARE BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID"). THE ISSUE PRICE, ORIGINAL ISSUE DATE, TOTAL AMOUNT OF OID, YIELD TO MATURITY, AND, IF APPLICABLE, THE COMPARABLE YIELD AND PROJECTED PAYMENT SCHEDULE OF SUCH COMPONENTS MAY BE OBTAINED BY CONTACTING THE TRUSTEE AT 601 TRAVIS STREET, 16TH FLOOR, HOUSTON, TEXAS 77002. The Subordinated Notes in the form of a Regulation S Global Subordinated Note will bear a legend substantially to the following effect unless the Issuer determines otherwise in compliance with applicable law: THIS SUBORDINATED NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) (1) TO A "QUALIFIED PURCHASER", A "KNOWLEDGEABLE EMPLOYEE" WITH RESPECT TO THE ISSUER OR A CORPORATION, PARTNERSHIP, LIMITED LIABILITY COMPANY OR OTHER ENTITY (OTHER THAN A TRUST) EACH SHAREHOLDER, PARTNER, MEMBER OR OTHER EQUITY OWNER OF WHICH IS EITHER A KNOWLEDGEABLE EMPLOYEE OR A QUALIFIED PURCHASER (IN EACH CASE, AS DEFINED FOR PURPOSES OF SECTION 3(C)(7) OF THE INVESTMENT COMPANY ACT) THAT IS (2) (X) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY SUCH RULE THAT IS NOT A BROKERDEALER WHICH OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN U.S.$25 MILLION IN SECURITIES OF ISSUERS THAT ARE NOT AFFILIATED PERSONS OF THE DEALER AND IS NOT A PLAN 158 REFERRED TO IN PARAGRAPH (A)(1)(D) OR (A)(1)(E) OF RULE 144A OR A TRUST FUND REFERRED TO IN PARAGRAPH (A)(1)(F) OF RULE 144A THAT HOLDS THE ASSETS OF SUCH A PLAN, IF INVESTMENT DECISIONS WITH RESPECT TO THE PLAN ARE MADE BY THE BENEFICIARIES OF THE PLAN OR (Y) AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT) OR (B) TO A PERSON THAT IS NOT A "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) AND IS ACQUIRING THIS SUBORDINATED NOTE IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY SUCH REGULATION, AND IN EACH CASE IN COMPLIANCE WITH THE CERTIFICATION AND OTHER REQUIREMENTS SPECIFIED IN THE INDENTURE REFERRED TO HEREIN AND IN COMPLIANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY APPLICABLE JURISDICTION. EACH BENEFICIAL OWNER OF THIS SUBORDINATED NOTE WILL BE DEEMED TO HAVE MADE THE REPRESENTATIONS AND AGREEMENTS SET FORTH IN THE INDENTURE. THE ISSUER HAS THE RIGHT, UNDER THE INDENTURE, TO COMPEL ANY BENEFICIAL OWNER OF AN INTEREST IN A SUBORDINATED NOTE THAT IS A U.S. PERSON AND IS NOT A QUALIFIED PURCHASER OR A KNOWLEDGEABLE EMPLOYEE WITH RESPECT TO THE ISSUER OR A CORPORATION, PARTNERSHIP, LIMITED LIABILITY COMPANY OR OTHER ENTITY (OTHER THAN A TRUST) EACH SHAREHOLDER, PARTNER, MEMBER OR OTHER EQUITY OWNER OF WHICH IS EITHER A KNOWLEDGEABLE EMPLOYEE OR A QUALIFIED PURCHASER AND A QUALIFIED INSTITUTIONAL BUYER OR AN ACCREDITED INVESTOR TO SELL ITS INTEREST IN THE SUBORDINATED NOTES, OR MAY SELL SUCH INTEREST ON BEHALF OF SUCH OWNER. THE ACQUISITION OF THE SUBORDINATED NOTES BY THE PURCHASER FROM THE INITIAL PURCHASER BY, OR ON BEHALF OF, OR WITH THE ASSETS OF A BENEFIT PLAN INVESTOR OR ANY GOVERNMENTAL, CHURCH OR OTHER PLAN SUBJECT TO FEDERAL, STATE, LOCAL OR NON-U.S. LAW SUBSTANTIALLY SIMILAR TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA OR SECTION 4975 OF THE CODE IS PROHIBITED UNLESS SUCH PURCHASE, HOLDING AND SUBSEQUENT DISPOSITION OF THE SUBORDINATED NOTES WOULD NOT RESULT IN ANY NON-EXEMPT PROHIBITED TRANSACTION UNDER TITLE I OF ERISA OR UNDER SECTION 4975 OF THE CODE (OR IN THE CASE OF A GOVERNMENTAL, CHURCH OR OTHER PLAN, A NON-EXEMPT VIOLATION UNDER ANY SUBSTANTIALLY SIMILAR FEDERAL, STATE, LOCAL OR NON-U.S. LAW). ANY INITIAL HOLDER OF AN INTEREST IN THIS SUBORDINATED NOTE ACQUIRED FROM THE ISSUER OR THE INITIAL PURCHASER IS REQUIRED TO PROVIDE THE TRUSTEE WRITTEN CERTIFICATION OF AS TO WHETHER OR NOT IT IS A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON IN THE FORM SET FORTH IN THE INDENTURE. NO TRANSFER OF ANY INTEREST IN THIS SUBORDINATED NOTE WILL BE EFFECTIVE, AND 159 THE TRUSTEE WILL NOT RECOGNIZE ANY SUCH TRANSFER, IF IT WOULD RESULT IN 25% OR MORE OF THE VALUE OF THE SUBORDINATED NOTES BEING HELD BY BENEFIT PLAN INVESTORS. EXCEPT FOR THE INITIAL INVESTORS IN INTERESTS IN THIS SUBORDINATED NOTE FROM THE ISSUER OR THE INITIAL PURCHASER, EACH TRANSFEREE OF AN INTEREST IN THIS SUBORDINATED NOTE WILL BE DEEMED TO HAVE REPRESENTED AND AGREED THAT IT (A) IS NEITHER A BENEFIT PLAN INVESTOR NOR A CONTROLLING PERSON AND (B) IF IT IS A GOVERNMENTAL, CHURCH OR OTHER PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR FOREIGN LAW THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF TITLE I OF ERISA OR SECTION 4975 OF THE CODE, ITS PURCHASE, HOLDING AND DISPOSITION OF THIS SUBORDINATED NOTE WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER ANY SUCH SUBSTANTIALLY SIMILAR LAW. A BENEFIT PLAN INVESTOR IS (I) ANY EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF ERISA) THAT IS SUBJECT TO TITLE I OF ERISA, (II) ANY PLAN THAT IS SUBJECT TO SECTION 4975 OF THE CODE, (III) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY SUCH PLAN'S INVESTMENT IN SUCH ENTITY OR (IV) A "BENEFIT PLAN INVESTOR" AS SUCH TERM IS OTHERWISE DEFINED IN ANY REGULATIONS PROMULGATED BY THE U.S. DEPARTMENT OF LABOR UNDER SECTION 3(42) OF ERISA. A CONTROLLING PERSON IS ANY PERSON (OTHER THAN A BENEFIT PLAN INVESTOR) WHO HAS DISCRETIONARY AUTHORITY OR CONTROL WITH RESPECT TO THE ASSETS OF THE ISSUER OR ANY PERSON WHO PROVIDES INVESTMENT ADVICE FOR A FEE (DIRECT OR INDIRECT) WITH RESPECT TO SUCH ASSETS, OR ANY AFFILIATE OF SUCH A PERSON. ANY TRANSFER, PLEDGE OR OTHER USE OF THIS SUBORDINATED NOTE FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN, UNLESS THIS SUBORDINATED NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), NEW YORK, NEW YORK, TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY SUBORDINATED NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR OF SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.). TRANSFERS OF THIS SUBORDINATED NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO HEREIN. DISTRIBUTIONS OF PRINCIPAL PROCEEDS AND INTEREST PROCEEDS TO THE HOLDER OF THE SUBORDINATED NOTES REPRESENTED HEREBY ARE SUBORDINATE TO THE PAYMENT ON EACH PAYMENT DATE OF PRINCIPAL OF AND INTEREST ON THE SECURED NOTES OF 160 THE ISSUER AND THE PAYMENT OF CERTAIN OTHER AMOUNTS, TO THE EXTENT AND AS DESCRIBED IN THE INDENTURE GOVERNING SUCH SECURED NOTES. THE FAILURE TO PROVIDE THE ISSUER AND THE TRUSTEE WITH THE APPLICABLE U.S. FEDERAL INCOME TAX CERTIFICATIONS (GENERALLY, AN INTERNAL REVENUE SERVICE FORM W-9 (OR SUCCESSOR APPLICABLE 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 AN APPROPRIATE INTERNAL REVENUE SERVICE FORM W-8 (OR SUCCESSOR APPLICABLE 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) MAY RESULT IN THE IMPOSITION OF U.S. FEDERAL BACK-UP WITHHOLDING UPON PAYMENTS TO THE HOLDER IN RESPECT OF THIS SUBORDINATED NOTE. The Subordinated Notes in the form of a Certificated Subordinated Note will bear a legend substantially to the following effect unless the Issuer determines otherwise in compliance with applicable law: THIS SUBORDINATED NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) (1) TO A "QUALIFIED PURCHASER", A "KNOWLEDGEABLE EMPLOYEE" WITH RESPECT TO THE ISSUER OR A CORPORATION, PARTNERSHIP, LIMITED LIABILITY COMPANY OR OTHER ENTITY (OTHER THAN A TRUST) EACH SHAREHOLDER, PARTNER, MEMBER OR OTHER EQUITY OWNER OF WHICH IS EITHER A KNOWLEDGEABLE EMPLOYEE OR A QUALIFIED PURCHASER (IN EACH CASE, AS DEFINED FOR PURPOSES OF SECTION 3(C)(7) OF THE INVESTMENT COMPANY ACT) THAT IS (2) (X) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY SUCH RULE THAT IS NOT A BROKERDEALER WHICH OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN U.S.$25 MILLION IN SECURITIES OF ISSUERS THAT ARE NOT AFFILIATED PERSONS OF THE DEALER AND IS NOT A PLAN REFERRED TO IN PARAGRAPH (A)(1)(D) OR (A)(1)(E) OF RULE 144A OR A TRUST FUND REFERRED TO IN PARAGRAPH (A)(1)(F) OF RULE 144A THAT HOLDS THE ASSETS OF SUCH A PLAN, IF INVESTMENT DECISIONS WITH RESPECT TO THE PLAN ARE MADE BY THE BENEFICIARIES OF THE PLAN OR (Y) AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT) OR (B) TO A PERSON THAT IS NOT A "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) AND IS ACQUIRING THIS SUBORDINATED NOTE IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY SUCH REGULATION, 161 AND IN EACH CASE IN COMPLIANCE WITH THE CERTIFICATION AND OTHER REQUIREMENTS SPECIFIED IN THE INDENTURE REFERRED TO HEREIN AND IN COMPLIANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY APPLICABLE JURISDICTION. EACH BENEFICIAL OWNER OF THIS SUBORDINATED NOTE WILL BE REQUIRED TO MAKE THE REPRESENTATIONS AND AGREEMENTS SET FORTH IN THE INDENTURE. THE ISSUER HAS THE RIGHT, UNDER THE INDENTURE, TO COMPEL ANY BENEFICIAL OWNER OF AN INTEREST IN A SUBORDINATED NOTE THAT IS A U.S. PERSON AND IS NOT A QUALIFIED PURCHASER, A KNOWLEDGEABLE EMPLOYEE WITH RESPECT TO THE ISSUER OR A CORPORATION, PARTNERSHIP, LIMITED LIABILITY COMPANY OR OTHER ENTITY (OTHER THAN A TRUST) EACH SHAREHOLDER, PARTNER, MEMBER OR OTHER EQUITY OWNER OF WHICH IS EITHER A KNOWLEDGEABLE EMPLOYEE OR A QUALIFIED PURCHASER AND A QUALIFIED INSTITUTIONAL BUYER OR AN ACCREDITED INVESTOR TO SELL ITS INTEREST IN THE SUBORDINATED NOTES, OR MAY SELL SUCH INTEREST ON BEHALF OF SUCH OWNER. THE ACQUISITION OF THE SUBORDINATED NOTES BY, OR ON BEHALF OF, OR WITH THE ASSETS OF ANY BENEFIT PLAN INVESTOR OR ANY GOVERNMENTAL, CHURCH OR OTHER PLAN SUBJECT TO FEDERAL, STATE, LOCAL OR NON-U.S. LAW SUBSTANTIALLY SIMILAR TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA OR SECTION 4975 OF THE CODE IS PROHIBITED UNLESS SUCH PURCHASE, HOLDING AND SUBSEQUENT DISPOSITION OF THE SUBORDINATED NOTES WOULD NOT RESULT IN ANY PROHIBITED TRANSACTION UNDER TITLE I OF ERISA OR UNDER SECTION 4975 OF THE CODE (OR IN THE CASE OF A GOVERNMENTAL, CHURCH OR OTHER PLAN, A NON-EXEMPT VIOLATION UNDER ANY SUBSTANTIALLY SIMILAR FEDERAL, STATE, LOCAL OR NON-U.S. LAW). ANY PURCHASER OF FROM THE INITIAL PURCHASER OR ANY SUBSEQUENT TRANSFEREE OF AN INTEREST IN THIS SUBORDINATED NOTE IS REQUIRED TO PROVIDE THE TRUSTEE WRITTEN CERTIFICATION AS TO WHETHER OR NOT IT IS A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON IN THE FORM SET FORTH IN THE INDENTURE. NO TRANSFER OF ANY INTEREST IN THIS SUBORDINATED NOTE WILL BE EFFECTIVE, AND THE TRUSTEE WILL NOT RECOGNIZE ANY SUCH TRANSFER, IF IT WOULD RESULT IN 25% OR MORE OF THE VALUE OF THE SUBORDINATED NOTES BEING HELD BY BENEFIT PLAN INVESTORS. A BENEFIT PLAN INVESTOR IS (I) ANY EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF ERISA) THAT IS SUBJECT TO TITLE I OF ERISA, (II) ANY PLAN THAT IS SUBJECT TO SECTION 4975 OF THE CODE, (III) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF ANY SUCH PLAN'S INVESTMENT IN SUCH ENTITY OR (IV) A "BENEFIT PLAN INVESTOR" AS SUCH TERM IS OTHERWISE DEFINED IN ANY REGULATIONS PROMULGATED BY THE U.S. DEPARTMENT OF LABOR UNDER SECTION 3(42) OF ERISA. A 162 CONTROLLING PERSON IS ANY PERSON (OTHER THAN A BENEFIT PLAN INVESTOR) WHO HAS DISCRETIONARY AUTHORITY OR CONTROL WITH RESPECT TO THE ASSETS OF THE ISSUER OR ANY PERSON WHO PROVIDES INVESTMENT ADVICE FOR A FEE (DIRECT OR INDIRECT) WITH RESPECT TO SUCH ASSETS, OR ANY AFFILIATE OF SUCH A PERSON. DISTRIBUTIONS OF PRINCIPAL PROCEEDS AND INTEREST PROCEEDS TO THE HOLDER OF THE SUBORDINATED NOTES REPRESENTED HEREBY ARE SUBORDINATE TO THE PAYMENT ON EACH PAYMENT DATE OF PRINCIPAL OF AND INTEREST ON THE SECURED NOTES OF THE ISSUER AND THE PAYMENT OF CERTAIN OTHER AMOUNTS, TO THE EXTENT AND AS DESCRIBED IN THE INDENTURE GOVERNING SUCH SECURED NOTES. THE FAILURE TO PROVIDE THE ISSUER, THE TRUSTEE AND THE PAYING AGENT WITH THE APPLICABLE U.S. FEDERAL INCOME TAX CERTIFICATIONS (GENERALLY, AN INTERNAL REVENUE SERVICE FORM W-9 (OR SUCCESSOR APPLICABLE 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 AN APPROPRIATE INTERNAL REVENUE SERVICE FORM W-8 (OR SUCCESSOR APPLICABLE 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) MAY RESULT IN THE IMPOSITION OF U.S. FEDERAL BACK-UP WITHHOLDING UPON PAYMENTS TO THE HOLDER IN RESPECT OF THIS SUBORDINATED NOTE. Non-Permitted Holder/Non-Permitted ERISA Holder If any U.S. person that is not a QIB/QP (other than Institutional Accredited Investors purchasing Class E Notes from the Initial Purchaser on the Closing Date) shall become the beneficial owner of an interest in any Global Note or any U.S. person that is not a Qualified Purchaser, a Knowledgeable Employee or a corporation, partnership, limited liability company or other entity (other than a trust) each shareholder, partner, member or other equity owner of which is either a Knowledgeable Employee or a Qualified Purchaser or that does not have an exemption available under the Securities Act and the Investment Company Act shall become the holder or beneficial owner of a Subordinated Note (any such person a "Non-Permitted Holder"), the Issuer shall, promptly after discovery that such person is a NonPermitted Holder by the Issuer (or upon notice from the Trustee or the Co-Issuer to the Issuer, if either of them makes the discovery (who, in each case, agree to notify the Issuer of such discovery, if any)), send notice 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 NonPermitted Holder fails to so transfer its Notes or Composite Notes, the Issuer shall have the right, without further notice to the Non-Permitted Holder, to sell such Offered Securities or interest in such Offered Securities to a purchaser selected by the Issuer that is not a Non-Permitted Holder on such terms as the Issuer may choose. An investment bank selected by the Issuer, or the Trustee at the written direction of the Issuer, (and approved by the Portfolio Manager) shall 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 Offered Securities and selling such Offered Securities to the highest such bidder (in accordance with Section 9-610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to 163 securities that are sold on a recognized market or that may decline speedily in value). However, the Issuer or the Trustee at the written direction of the Issuer may select a purchaser by any other means determined by it in its sole discretion (in accordance with Section 9-610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to securities that are sold on a recognized market or that may decline speedily in value). The holder of each Offered Security, 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 Offered Securities 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 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 Offered Securities sold as a result of any such sale or the exercise of such discretion. If any person shall become the beneficial owner of an interest in a Class E Note, Composite Note or Subordinated Note who has made or is deemed to have made a Benefit Plan Investor or Controlling Person representation that is subsequently shown to be false or misleading or whose beneficial ownership otherwise causes a violation of the 25% Limitation (any such person a "Non-Permitted ERISA Holder"), the Issuer shall, promptly after discovery that such person is a Non-Permitted ERISA Holder by the Issuer (or upon notice from the Trustee if it makes the discovery (who agrees to notify the Issuer of such discovery, if any)), send notice to such Non-Permitted ERISA Holder demanding that such NonPermitted ERISA Holder transfer its interest to a person that is not a Non-Permitted ERISA Holder within 14 days of the date of such notice. If such Non-Permitted ERISA Holder fails to so transfer its Class E Notes, Composite Notes or Subordinated Notes, as applicable, the Issuer shall have the right, without further notice to the Non-Permitted ERISA Holder, to sell such Class E Notes, Composite Notes or Subordinated Notes, as applicable, or interest in such Class E Notes, Composite Notes or Subordinated Notes, as applicable, to a purchaser selected by the Issuer that is not a Non-Permitted ERISA Holder on such terms as the Issuer may choose. An investment bank selected by the Issuer, or the Trustee at the written direction of the Issuer, (and approved by the Portfolio Manager) shall 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 applicable Offered Securities, and selling such Offered Securities to the highest such bidder (in accordance with Section 9-610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to securities that are sold on a recognized market or that may decline speedily in value). However, the Issuer or the Trustee at the written direction of the Issuer may select a purchaser by any other means determined by it in its sole discretion (in accordance with Section 9-610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to securities that are sold on a recognized market or that may decline speedily in value). The holder of each Class E Note, Composite Note or Subordinated Note, as applicable, the Non-Permitted ERISA Holder and each other person in the chain of title from the holder to the Non-Permitted ERISA Holder, by its acceptance of an interest in the Class E Notes, the Composite Notes or Subordinated Notes, as applicable, agrees to cooperate with the Issuer 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 ERISA Holder. The terms and conditions of any sale under this subsection 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 Class E Notes, Composite Notes or Subordinated Notes, as applicable, sold as a result of any such sale or the exercise of such discretion. Cayman Islands Placement Provisions The Initial Purchaser has agreed that they have not made and will not make any invitation to the public in the Cayman Islands to subscribe for the Offered Securities. 164 LISTING AND GENERAL INFORMATION 1. Application has been made to the Irish Financial Services Regulatory Authority (the "Financial Regulator"), as competent authority under the Prospectus Directive for the Prospectus to be approved. Application has been made to the Irish Stock Exchange (the "Irish Stock Exchange") for the Offered Securities to be admitted to the Official List (the "Official List") and to trading on its regulated market. No assurance can be given that the application to admit the Offered Securities will be accepted. No assurances can be given that, following the Closing Date, the listing of the Offered Securities on the Irish Stock Exchange will be obtained or, if obtained, maintained for the entire period that the Offered Securities are outstanding. It is expected that the total expenses relating to the application for admission of Offered Securities to the Official List of the Irish Stock Exchange and to trading on its regulated market will be approximately €5,940. 2. For the life of the Offering Memorandum, copies of the Memorandum of Association and Articles of Association of the Issuer, the Certificate of Incorporation and By-laws of the Co-Issuer, the Indenture, will be available for inspection in electronic form and will be obtainable at the office of Trustee and copies thereof may be obtained upon request. 3. Since incorporation, neither the Issuer nor the Co-Issuer has commenced trading, nor published annual reports or accounts. 4. Neither of the Co-Issuers is, or has since incorporation been, involved in any governmental, litigation or arbitration proceedings relating to claims in amounts which may have or have had a significant effect on the financial position of the Co-Issuers in the context of the issue of the Notes, nor, so far as either Co-Issuer is aware, is any such governmental, litigation or arbitration involving it pending or threatened. 5. The issuance by the Issuer of the Notes is expected to be authorized by the Board of Directors of the Issuer by resolutions to be passed prior to the Closing Date and the issuance by the Co- Issuer of the Co-Issued Notes is expected to be authorized by the Board of Directors of the Co-Issuer by resolutions to be passed prior to the Closing Date. 6. The Issuer is not required by Cayman Islands law, and the Issuer does not intend, to publish annual reports and accounts. The Co-Issuer is not required by Delaware State law, and the Co-Issuer does not intend, to publish annual reports and accounts. The Indenture, however, requires the Issuer to provide the Trustee with written confirmation, on an annual basis, that to the best of its knowledge following review of the activities of the prior year, no Event of Default has occurred or, if one has, specifying the same. 7. The Co-Issuers have been established as special purpose vehicles for the purpose of issuing asset backed securities. 8. Maples and Calder Listing Services Limited, as the Irish Listing Agent, is acting solely in its capacity as listing agent for the Issuer in connection with the Offered Securities and is not itself seeking admission of the Offered Securities to the official list of the Irish Stock Exchange or to trading on the Irish Stock Exchange for the purposes of the Prospectus Directive. 165 9. The Notes sold in offshore transactions in reliance on Regulation S under the Securities Act and represented by the Regulation S Global Notes or the Regulation S Global Subordinated Notes, as applicable, have been accepted for clearance through Clearstream and Euroclear. The Notes sold to persons that are QIB/QPs in reliance on Rule 144A (or, in the case of all or a portion of the Class E Notes resold by the Initial Purchaser on the Closing Date to Institutional Accredited Investors, in reliance on an exemption from registration under the Securities Act) under the Securities Act and represented by Rule 144A Global Notes have been accepted for clearance through DTC. The CUSIP Numbers, Common Codes and International Securities Identification Numbers (ISIN) for the Notes and Composite Notes represented by Regulation S Global Notes and Rule 144A Global Notes and the Subordinated Notes represented by the Regulation S Global Subordinated Notes are as indicated below, as applicable. Regulation S Global Rule 144A Global Common Code CUSIP ISIN CUSIP ISIN Class A-1 Notes 030168208 G52827AA3 USG52827AA36 49636RAA7 US49636RAA77 Class A-2B Notes 030168356 G52827AF2 USG52827AF23 49636RAL3 US49636RAL33 Class B Notes 030168470 G52827AC9 USG52827AC91 49636RAE9 US49636RAE99 Class C Notes 030168585 G52827AD7 USG52827AD74 49636RAG4 US49636RAG48 Class D-1 Notes 030168666 G52827AE5 USG52827AE57 49636RAJ8 US49636RAJ86 Class D-2 Notes 030169123 G52827AG0 USG52827AG06 49636RAN9 US49636RAN98 Class E Notes 030169166 G52824AA0 USG52824AA05 49636MAA8 US49636MAA80 Composite Notes 030169352 G52824AC6 USG52824AC60 49636MAE0 US49636MAE03 Subordinated Notes 030169247 G52824AB8 USG52824AB87 N/A N/A 10. The Class A-2R Notes and the Subordinated Notes in certificated form will also bear the following identification numbers: Regulation S Class A-2R Notes Subordinated Notes Rule 144A Accredited Investor Common Code CUSIP ISIN CUSIP ISIN CUSIP ISIN 030168291 G52827AB1 USG52827AB19 49636RAC3 US49636RAC34 N/A N/A N/A N/A N/A 49636MAC4 US49636MAC47 49636MAD2 US49636MAD20 LEGAL MATTERS Certain legal matters with respect to the Offered Securities will be passed upon for the Co-Issuers and the Initial Purchaser by McKee Nelson LLP, New York, New York. Certain matters with respect to Cayman Islands law will be passed upon for the Issuer by Maples and Calder. 166 GLOSSARY OF DEFINED TERMS "Adjusted Collateral Principal Amount" means as of any date of determination: (a) the Aggregate Principal Balance of the Collateral Obligations (other than Defaulted Obligations, Deferring Securities and Discount Obligations); plus (b) without duplication, the amounts on deposit in the Collection Account and the Ramp-Up Account (including Eligible Investments therein) representing Principal Proceeds, amounts on deposit in the Excess CCC/Caa Reserve Account and, from and after a default under a Securities Lending Agreement, the amounts on deposit in the related Securities Lending Account (including Eligible Investments therein); plus (c) the lesser of the (i) S&P Collateral Value of all Defaulted Obligations and all Deferring Securities and (ii) Moody's Collateral Value of all Defaulted Obligations and all Deferring Securities; plus (d) the purchase price, excluding accrued interest, expressed as a dollar amount, of all Discount Obligations; plus (e) without duplication, the Class A-2R Undrawn Permitted Amount; minus (f) the Excess CCC/Caa Adjustment Amount; provided that, with respect to any Collateral Obligation that satisfies more than one of the definitions of Defaulted Obligation, Deferring Security or Discount Obligation, such Collateral Obligation shall, for the purposes of this definition, be treated as belonging to the category of Collateral Obligations which results in the lowest Adjusted Collateral Principal Amount on any date of determination. "Administrative Expenses" include fees, expenses (including indemnities) and other amounts due or accrued with respect to any Payment Date (including amounts due or accrued in prior Collection Periods that remain unpaid) and payable in the following order by the Issuer or the Co-Issuer first, to the Trustee pursuant to the Indenture, second, to the Collateral Administrator pursuant to the Collateral Administration Agreement and to the Class A-2R Note Agent pursuant to the Class A-2R Note Purchase Agreement (pro rata based on amounts owed) and then third, on a pro rata basis to: (i) the Independent accountants, agents (other than the Portfolio Manager) and counsel of the Issuer for fees and expenses; (ii) the Rating Agencies for fees and expenses (including surveillance fees) in connection with any rating of the Senior Notes or the Composite Notes or any Collateral Obligations; (iii) Agreement; the Administrator for fees and expenses pursuant to the Administration (iv) any Person in respect of fees, costs or expenses incurred in connection with any Securities Lending Agreement; 167 (v) any holder of Class A-2R Notes or related funding entity for any Prepayment Costs (including any such amounts that are accrued and unpaid from previous Collection Periods); (vi) the Portfolio Manager under the Indenture and the Portfolio Management Agreement, including without limitation reasonable expenses of the Portfolio Manager (including fees for its accountants, agents and counsel) incurred in connection with the purchase or sale of any Collateral Obligations, any other expenses incurred in connection with the Collateral Obligations and amounts payable pursuant to the Portfolio Management Agreement but excluding the Management Fee; and (vii) any other Person in respect of any other fees or expenses permitted under the Indenture and the documents delivered pursuant to or in connection with the Indenture (including the payment of facility rating fees and all legal and other fees and expenses incurred in connection with the purchase or sale of any Collateral Obligations and any other expenses incurred in connection with the Collateral Obligations) and the Offered Securities, including but not limited to, amounts owed to the Co-Issuer pursuant to the Indenture and any amounts due in respect of the listing of the Offered Securities on any stock exchange or trading system, any costs associated with producing definitive Offered Securities and expenses incurred in connection with the establishment and maintenance of any ETB/897 Subsidiary; provided that amounts due in respect of actions taken on or before the Closing Date shall not be payable as Administrative Expenses but shall be payable only from the Expense Reserve Account pursuant to the Indenture. "Aggregate Principal Balance" means, when used with respect to all or a portion of the Collateral Obligations or the Pledged Obligations, the sum of the Principal Balances of all or of such portion of the Collateral Obligations or Pledged Obligations, respectively. "Applicable Advance Rate" means, for each Collateral Obligation and for the applicable number of Business Days between the certification date for a sale as described in this section and the expected date of such sale, the percentage specified below: 1-2 days 3-5 days 6-15 days 90% or more 93% 92% 88% below 90% 80% 73% 60% Other Collateral Obligations with a Moody's Rating of at least "B3" and a Market Value of 90% or more 89% 85% 75% All other Collateral Obligations 75% 65% 45% Senior Secured Loans with a Market Value of: "Bond" means a debt security (that is not a loan) that is issued by a corporation, limited liability company, partnership or trust. 168 "Bond Yield Change" is the change in implied yield spread to an index based upon a nationally recognized index as calculated by the Portfolio Manager in its reasonable commercial judgment. "Bridge Security" means any Collateral Obligation (i) that is incurred in connection with a merger, acquisition, consolidation, sale of all or substantially all of the assets of a person, restructuring or similar transaction and (ii) that, by its terms is required to be repaid within one year of the incurrence thereof with proceeds from additional borrowings or other refinancings (other than any additional borrowing or refinancing if one or more financial institutions shall have provided the underlying borrower or other obligor of such debt obligation with a binding written commitment to provide the same). "Business Day" means any day other than (i) a Saturday or a Sunday or (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, London, England (or, for purposes of the Class A-2R Note Purchase Agreement, Amsterdam) or in the city in which the principal corporate trust office of the Trustee is located or, for any final payment of principal, in the relevant place of presentation. "Capital Lease" means any lease agreement pursuant to which the obligations of the lessee to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) personal property would be required under generally accepted accounting principles (as in effect in the United States) to be classified and accounted for as a capital lease on the balance sheet of such lessee; but only if (a) such lease provides for the unconditional obligation of the lessee to pay the economic equivalent of a stated amount of principal no later than a stated maturity date, together with interest thereon (which interest may be imputed), and the payment of such obligation is not subject to any material non-credit related risk, (b) the obligations of the lessee in respect of such lease are fully secured, directly or indirectly, by the property that is the subject of such lease and (c) the interest held in respect of such lease is treated as debt for United States federal income tax purposes. "CCC/Caa Collateral Obligation" means a Collateral Obligation (other than a Defaulted Obligation, a Discount Obligation or a Deferring Security) with an S&P Rating of "CCC+" or lower or a Moody's Default Probability Rating of "Caa1" or lower. "CCC/Caa Excess" means the excess, if any, by which (a) the Aggregate Principal Balance of all CCC/Caa Collateral Obligations exceeds (b) 10.0% of the Collateral Principal Amount as of the current Determination Date; provided that, in determining which of the CCC/Caa Collateral Obligations shall be included in the CCC/Caa Excess, the CCC/Caa Collateral Obligations with the lowest Market Value shall be deemed to constitute such CCC/Caa Excess. "CDO Security" means a Structured Finance Obligation that is a collateralized debt obligation. "Class A-2R Commitments" means the aggregate amount that the holders of the Class A-2R Notes have committed to advance to the Issuer pursuant to the Class A-2R Note Purchase Agreement from time to time during the Reinvestment Period to fund Class A-2R Borrowings. The commitments (whether or not utilized) of a holder of Class A-2R Notes to fund a portion of each Class A-2R Borrowing are referred to herein as the Class A-2R Commitments of such holder. 169 "Class A-2R Permitted Amount" means the maximum amount of the Class A-2R Notes permitted to be drawn, as determined by application of the current row/column combination of the applicable Collateral Quality Matrix, provided that such amount will, in connection with a redemption or repayment of the Class A Notes, be multiplied by a ratio, the numerator of which is the principal amount of the Class A-1 Notes immediately prior to such redemption or repayment minus the principal amount redeemed or repaid on such Payment Date and the denominator of which is the aggregate outstanding principal amount of the Class A-1 Notes as of the Closing Date. "Class A-2R Purchaser Rating Criteria" will be satisfied with respect to any Class A-2R Noteholder on each day during the Reinvestment Period if any of the foregoing criteria are satisfied: (i) the short-term debt, obligations of such Class A-2R Noteholder are rated at least (x) “P--1” (and not on credit watch for possible downgrade) by Moody’s and (y) “A-1” by S&P; (ii) such Class A-2R Noteholder’s obligations are guaranteed by an entity the short-term debt obligations of which are rated at least (x) “P-1” (and not on credit watch for possible downgrade) by Moody’s and (y) “A-1” by S&P; or (iii) such Class A-2 Noteholder’s Funding Entity’s (if any) short-term debt obligations are rated at least (x) “P-1” (and not on credit watch for possible downgrade) by Moody’s and (y) “A-1” by S&P; provided that if any such entity shall not have a short--term debt rating by S&P, the long--term debt, deposit or similar obligations of such entity are rated at least “A+” by S&P). The Class A-2R Purchaser Rating Criteria will not apply after the Reinvestment Period. "Class A-2R Required Reserve Amount" means, with respect to any Payment Date on which payments are made as a result of a redemption of the Class A-2R Notes, the excess, if any, of (x) all unfunded commitments in respect of all Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations that are not Subordinated Note Collateral Obligations that have not been irrevocably terminated and which are permitted hereunder to be funded from draws on the Class A-2R Notes over (y) amounts on deposit in the Delayed Funding Obligation Account with respect to such Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations. "Class A-2R Undrawn Permitted Amount" means, at any time, the Class A-2R Permitted Amount minus the amount of Class A-2R Notes then drawn. "Class Break-even Default Rate" with respect to each of the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes is the maximum percentage of defaults, at any time, that the Current Portfolio or the Proposed Portfolio, as applicable, can sustain, as determined by S&P, from time to time, through application of the S&P CDO Monitor, which, after giving effect to S&P's assumptions on recoveries, defaults and timing and to the priority of payments described in "Summary of Terms—Priority of Payments" herein, will result in sufficient funds remaining for the payment of such Class of Notes in full. "Class Default Differential" with respect to each of the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes, at any time, the rate calculated by subtracting the Class Scenario Default Rate for such Class of Notes at such time from the Class Break-even Default Rate for such Class of Notes at such time. "Class Scenario Default Rate" with respect to each of the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes, at any time, an estimate of the cumulative default rate for the Current Portfolio or the Proposed Portfolio, as applicable, consistent with S&P's initial rating of such Notes, determined by application by the Portfolio Manager and the Collateral Administrator of the S&P CDO Monitor at such time. 170 In calculating each Class Scenario Default Rate, the S&P CDO Monitor considers each obligor's most senior unsecured debt rating, the number of obligors in the portfolio, the obligor and industry concentrations in the portfolio and the remaining weighted average maturity of the Collateral Obligations and Eligible Investments and calculates a cumulative default rate based on the statistical probability of distributions or defaults on the Collateral Obligations and Eligible Investments. "Collateral Interest Amount" means, as of any date of determination, without duplication, an amount equal to: (a) the aggregate amount of Interest Proceeds in the Interest Collection Subaccount that have been received or that are expected to be received (other than Interest Proceeds expected to be received from Defaulted Obligations and Deferring Securities, but including Interest Proceeds actually received from Defaulted Obligations and Deferring Securities), in each case during the Collection Period (and, if such Collection Period does not end on a Business Day, the next succeeding Business Day) in which such date of determination occurs; plus (b) in the case of the Hedge Agreements, any net payments expected to be received by the Issuer after the end of the Collection Period (and, if such Collection Period does not end on a Business Day, the next succeeding Business Day) in which such date of determination occurs but on or before the immediately following Payment Date. "Collateralized Synthetic Security" means a Synthetic Security (x) that requires the Synthetic Security Counterparty to deposit into the Synthetic Security Issuer Account an amount equal to the Principal Balance of such Synthetic Security or (y) (i) that is in the form of a credit default swap, (ii) with respect to which the Issuer has caused an amount equal to the notional amount of such Synthetic Security to be deposited into a Synthetic Security Counterparty Account and (iii) pursuant to which no scheduled periodic payments are required to be made by the Issuer to the Synthetic Security Counterparty. "Credit Improved Criteria" means (i) in the case of a loan, the Loan Pricing Change since the date of purchase by the Issuer has been a percentage point increase of 0.50% or more and (ii) in the case of a bond, the Bond Yield Change since the date of purchase by the Issuer has been a percentage point decrease of 0.50% or more. "Credit Improved Obligation" means a Collateral Obligation which, in the Portfolio Manager's reasonable commercial judgment, has significantly improved in credit quality after it was acquired by the Issuer, which improvement may (but need not) be evidenced by one of the following: (a) such Collateral Obligation satisfies the Credit Improved Criteria, (b) such Collateral Obligation has been upgraded at least one rating sub-category by either Rating Agency or has been placed and remains on credit watch with positive implication by either Rating Agency, (c) the issuer of such Collateral Obligation has raised equity capital or other capital subordinated to the Collateral Obligation or (d) the issuer of such Collateral Obligation has, in the Portfolio Manager's reasonable commercial judgment, shown improved results or possesses less credit risk, in each case since such Collateral Obligation was acquired by the Issuer; provided, however, that during a Restricted Trading Period, a Collateral Obligation will qualify as a Credit Improved Obligation only if (i) it has been upgraded by any Rating Agency at least one rating sub-category or has been placed and remains on a credit watch with positive implication by Moody's since it was acquired by the Issuer, (ii) the Credit Improved Criteria are satisfied with respect to such Collateral Obligation or (iii) the holders of a majority of the aggregate outstanding principal amount of the Controlling Class vote to treat such Collateral Obligation as a Credit Improved Obligation. 171 "Credit Risk Obligation" means a Collateral Obligation that, in the Portfolio Manager's reasonable commercial judgment, has a significant risk of declining in credit quality unrelated to general market conditions; provided, however, that during a Restricted Trading Period, a Collateral Obligation will qualify as a Credit Risk Obligation only if, (i) such Collateral Obligation has been downgraded by any Rating Agency at least one rating sub-category or has been placed and remains on a credit watch with negative implication by Moody's since it was acquired by the Issuer, (ii) the Credit Risk Criteria are satisfied with respect to such Collateral Obligation or (iii) the holders of a majority of the aggregate outstanding principal amount of the Controlling Class vote to treat such Collateral Obligation as a Credit Risk Obligation. "Credit Risk Criteria" means (i) in the case of a loan, the Loan Pricing Change since the date of purchase by the Issuer has been a percentage point decrease of 0.50% or more and (ii) in the case of a bond, the Bond Yield Change since the date of purchase by the Issuer has been a percentage point increase of 0.50% or more. "Current Pay Obligation" means a Collateral Obligation that would otherwise be a Defaulted Obligation but as to which: (i) all prior cash principal and interest payments due have been paid in cash and the Portfolio Manager reasonably expects that all future cash interest payments due will be paid in cash; (ii) if the Moody's Rating of such Collateral Obligation is at least "Caa1", the Market Value of such Collateral Obligation is at least 80% of par, or if the Moody's Rating of such Collateral Obligation is at least "Caa2", the Market Value of such Collateral Obligation is at least 85% of par; provided that the Market Value of Collateral Obligations for purposes of this clause (ii) shall be determined without reference to clause (iii)(y) of the definition thereof; and (iii) if the issuer of such Collateral Obligation is subject to a bankruptcy proceeding, a bankruptcy court has authorized the payment of interest and principal due and payable on such Collateral Obligation. "Current Portfolio" is, at any time, the portfolio of Collateral Obligations and Eligible Investments, representing Principal Proceeds (determined in accordance with certain assumptions included in the Indenture), then held by the Issuer plus, for each Collateral Obligation, an amount equal to the pro rata portion (based on the Principal Balance such Collateral Obligation bears to the aggregate principle balance of all Collateral Obligations) of the Class A-2R Undrawn Permitted Amount (after adjusting for deposit of the Delayed Drawdown Funding Amount, if any) at such time. "Default" means 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 Obligation" means a debt obligation as to which: (a) a default as to the payment of principal and/or interest has occurred and is continuing with respect to such debt obligation (or, in the case of a Synthetic Security, a Reference Obligation) (or, in the case of a Synthetic Security, a Participation Interest or a Collateral Obligation subject to a Securities Lending Agreement, the Synthetic Security Counterparty, Selling Institution or Securities Lending Counterparty, as applicable, has failed to make any payment required by the terms of such Synthetic Security, Participation Interest or Securities Lending Agreement, as applicable) (without regard to any grace period applicable thereto, or waiver thereof, after the passage (in the case of a default that in the Portfolio Manager's judgment, as certified to the Trustee in writing, is not due to credit-related causes or fraud) of a three Business Day grace period); (b) a default as to the payment of principal and/or interest has occurred and is continuing on another debt obligation of the same issuer which is senior or pari passu in right of payment to such debt 172 obligation (provided, that, except in the case of a Structured Finance Obligation, both debt obligations are full recourse obligations); (c) the issuer or others have instituted proceedings to have the issuer adjudicated as bankrupt or insolvent or placed into receivership and such proceedings have not been stayed or dismissed or such issuer has filed for protection under Chapter 11 of the United States Bankruptcy Code; (d) such Collateral Obligation has an S&P Rating of "D" or "SD" (or had such rating before it was withdrawn) or, with respect to a Structured Finance Obligation, has a Moody's Rating of "Ca" or below or an S&P Rating of "CC" or below (or had such rating before it was withdrawn); (e) in the case of a Structured Finance Obligation, such Collateral Obligation is pari passu in right of payment as to the payment of principal and/or interest to another debt obligation of the same issuer which has an S&P Rating of "D" or "SD" (or had such rating before it was withdrawn); (f) Such Collateral Obligation is a Synthetic Security or a Participation Interest or is lent pursuant to a Securities Lending Agreement and the related Synthetic Security Counterparty, Selling Institution or Securities Lending Counterparty, as applicable, has an S&P Rating of "D" or "SD" (or had such rating before it was withdrawn); or (g) the Portfolio Manager has in its reasonable commercial judgment otherwise declared such debt obligation to be a "Defaulted Obligation;" Unless, (x) in the case of clauses (a), (b), (c), (d), (e) and (f), the debt obligation is a Current Pay Obligation, in which case it shall not be deemed a Defaulted Obligation (provided, that any Current Pay Obligation in excess of 5% of the Collateral Principal Amount will be deemed to be a Defaulted Obligation) or (y) in the case of clauses (b), (c) and (e), the debt obligation is a DIP Collateral Obligation, in which case it shall not be deemed a Defaulted Obligation. "Deferrable Security" means a Collateral Obligation which by its terms permits the deferral of payment of accrued, unpaid interest. "Deferring Security" means a Deferrable Security that is deferring the payment of interest due thereon and has been so deferring the payment of interest due thereon (i) with respect to Collateral Obligations that have a Moody's Rating of at least "Baa3", for the shorter of two consecutive accrual periods or one year, and (ii) with respect to Collateral Obligations that have a Moody's Rating of "Ba1" or below, for the shorter of one accrual period or six consecutive months, which deferred capitalized interest has not, as of the date of determination, been paid in cash. "Delayed Drawdown Collateral Obligation" means any Collateral Obligation that (a) requires the Issuer to make one or more future advances to the borrower under the underlying instruments relating thereto, (b) specifies a maximum amount that can be borrowed on one or more fixed borrowing dates, and (c) does not permit the re-borrowing of any amount previously repaid by the borrower thereunder; but any such Collateral Obligation will be a Delayed Drawdown Collateral Obligation only until all commitments by the Issuer to make advances to the borrower expire or are terminated or reduced to zero. "DIP Collateral Obligation" means a loan made to a debtor-in-possession pursuant to Section 364 of the U.S. Bankruptcy Code having the priority allowed by either Section 364(c) or 364(d) of the U.S. Bankruptcy Code and secured by senior liens. 173 "Discount Obligation" means a Collateral Obligation that: (i) in the case of a Collateral Obligation that is an interest in a bank loan or a Participation Interest, is acquired by the Issuer for a purchase price of less than 85% of the Principal Balance of such Collateral Obligation; provided, that such Collateral Obligation shall cease to be a Discount Obligation at such time as the Market Value of such Collateral Obligation for any period of 30 consecutive days since the acquisition by the Issuer of such Collateral Obligation equals or exceeds 90% of the Principal Balance of such Collateral Obligation; and (ii) in the case of any other Collateral Obligation, is acquired by the Issuer for a purchase price of less than 80% of the Principal Balance of such Collateral Obligation; provided, that such Collateral Obligation shall cease to be a Discount Obligation at such time as the Market Value of such Collateral Obligation for any period of 30 consecutive days since the acquisition by the Issuer of such Collateral Obligation equals or exceeds 90% of the Principal Balance of such Collateral Obligation. "Domicile" means with respect to any issuer of, or obligor with respect to, a Collateral Obligation, either (i) its country of organization or (ii) if it is organized in Bermuda, the Cayman Islands or the British Virgin Islands, the country in which a substantial portion of its operations are located or from which a substantial portion of its revenue is derived, in each case directly or through subsidiaries. "Eligible Investment" means any United States dollar denominated investment that, at the time it is delivered to the Trustee (directly or through an intermediary or bailee), is one or more of the following obligations or securities: (i) direct obligations of, and obligations the timely payment of principal and interest on which is fully and expressly guaranteed by, the United States of America or any agency or instrumentality of the United States of America the obligations of which are expressly backed by the full faith and credit of the United States of America; (ii) demand and time deposits in, certificates of deposit of, trust accounts with, bankers' acceptances issued by, or federal funds sold by any depository institution or trust company incorporated under the laws of the United States of America (including The Bank of New York Trust Company, National Association) or any state thereof 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 depository institution or trust company (or, in the case of the principal depository 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 the Eligible Investment Required Ratings; (iii) unleveraged repurchase 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 or entered into with an entity (acting as principal) with, or whose parent company has, the Eligible Investment Required Ratings; (iv) securities bearing interest or sold at a discount issued by any entity formed under the laws of the United States of America or any State thereof that have a credit rating of "Aaa" from Moody's and "AAA" from S&P at the time of such investment or contractual commitment providing for such investment; 174 (v) commercial paper or other short-term obligations with the Eligible Investment Required Ratings and that either bear interest or are sold at a discount from the face amount thereof and have a maturity of not more than 183 days from their date of issuance; (vi) subject to satisfaction of the S&P Rating Condition, a Reinvestment Agreement issued by any bank (if treated as a deposit by such bank), or a Reinvestment Agreement issued by any insurance company or other corporation or entity, in each case with the Eligible Investment Required Ratings; and (vii) off-shore money market funds which funds have, at all times, credit ratings of "Aaa" and "MR1+" by Moody's and "AAAm" or "AAAm-G" by S&P, respectively; provided, however, that Eligible Investments purchased with funds in the Collection Account shall be held until maturity except as otherwise specifically provided herein and shall include only such obligations or securities, other than those referred to in clause (vii) above, as mature (or are putable at par to the issuer thereof) no later than the Business Day prior to the next Payment Date, unless such Eligible Investments are issued by the Trustee in its capacity as a banking institution, in which event such Eligible Investments may mature on such Payment Date; and provided, further, that none of the foregoing obligations or securities shall constitute Eligible Investments if (a) such obligation or security has an "r", "p", "pi", "q" or "t" subscript assigned by S&P, (b) all, or substantially all, of the remaining amounts payable thereunder consist of interest and not principal payments, (c) such obligation or security is subject to U.S. withholding tax, (d) such obligation or security is subject to foreign withholding tax unless the issuer of the security is required to make "gross-up" payments for the full amount of such foreign withholding tax, (e) such obligation or security is secured by real property, (f) such obligation or security is purchased at a price greater than 100% of the principal or face amount thereof, (g) in the Portfolio Manager's judgment, such obligation or security is subject to material non-credit related risks or (h) such obligation is subject to an Offer. Eligible Investments may include, without limitation, those investments for which the Trustee or an affiliate of the Trustee provides services or receives compensation. "Eligible Investment Required Ratings" are short-term credit ratings of "P-1" from Moody's and "A-1+" from S&P or, in the case of any Eligible Investment with a maturity of longer than 91 days, long-term credit ratings of at least "Aa2" from Moody's and "AAA" from S&P. "Eligible Premium" means, for any Collection Period during the Reinvestment Period (without duplication) any amount received during such Collection Period on the sale, redemption or tender of, or exchange or conversion of, or as a prepayment premium for (each, an "Occurrence") a Collateral Obligation (other than accrued interest) in excess of the greater of (a) its Principal Balance, excluding, in the case of Delayed Drawdown Collateral Obligations and Revolving Collateral Obligations, undrawn commitments at the time of such Occurrence and (b) the original purchase price paid (not including accrued interest) by the Issuer in respect of such Collateral Obligation (or portion thereof) sold, redeemed, tendered, exchanged, converted or prepaid. "Eligible Premium Distribution Amount" means for any Collection Period which ends at least one calendar year after the end of the Ramp-Up Period, but prior to the end of the Reinvestment Period, equals (i) zero if (a) the Senior Notes of any Class have been downgraded below their initial ratings by either Rating Agency and such initial ratings have not been restored or the Notes of any Class have been placed on credit watch or similar status by either Rating Agency with negative implications, (b) the Collateral Quality Test is not satisfied as of the last day of such Collection Period, (c) Collateral Obligations with a Moody's Rating of "Caa1" or lower represent more than 10%, of the Collateral Principal Amount or (d) the Overcollateralization Ratio Threshold Test is not satisfied as of the last day 175 of such Collection Period and (ii) if none of clauses (i)(a)-(d) apply, the highest amount of Eligible Premium for such Collection Period that, if it were treated as Interest Proceeds, would permit the Overcollateralization Ratio Threshold Test to be satisfied. "Equity Security" means any security or debt obligation which at the time of acquisition, conversion or exchange does not satisfy the requirements of a Collateral Obligation and is not an Eligible Investment. "Excepted Advances" means customary advances made to protect or preserve rights against the borrower of or obligor under a Collateral Obligation or to indemnify an agent or representative for lenders pursuant to the underlying instrument. "Excess B Amount" means, on any date of determination, an amount equal to the greater of (a) zero and (b) the excess (if any) of (i) the aggregate outstanding par amount of all Collateral Obligations with an S&P Rating of "B+", "B" or "B-" on such date of determination over (ii) the aggregate outstanding par amount of all Collateral Obligations with an S&P Rating of "B+", "B" or "B-" on (A) if such date of determination occurs prior to the last day of the Ramp-Up Period, the Closing Date or (B) if such date of determination occurs on or after the last day of the Ramp-Up Period, the last day of the Ramp-Up Period. "Excess BB Amount" means, on any date of determination, an amount equal to the greater of (a) zero and (b) the excess (if any) of (i) the aggregate outstanding par amount of all Collateral Debt Obligations with an S&P Rating of "BB+", "BB" or "BB-" on such date of determination over (ii) the aggregate outstanding par amount of all Collateral Debt Obligations with an S&P Rating of "BB+", "BB" or "BB-" on (A) if such date of determination occurs prior to the last day of the Ramp-Up Period, the Closing Date or (B) if such date of determination occurs on or after the last day of the Ramp-Up Period, the last day of the Ramp-Up Period. "Excess CCC Amount" means, on any date of determination, an amount equal to the greater of (a) zero and (b) the excess (if any) of (i) the aggregate outstanding par amount of all Collateral Debt Obligations with an S&P Rating of below "B-" on such date of determination over (ii) the aggregate outstanding par amount of all Collateral Debt Obligations with an S&P Rating of below "B-" on (A) if such date of determination occurs prior to the last day of the Ramp-Up Period, the Closing Date or (B) if such date of determination occurs on or after the last day of the Ramp-Up Period, the last day of the Ramp-Up Period. "Excess CCC/Caa Adjustment Amount" means, as of any date of determination, an amount equal to: (a) the Aggregate Principal Balance of all Collateral Obligations included in the CCC/Caa Excess; minus (b) the sum of the Market Values of all Collateral Obligations included in the CCC/Caa Excess. "Excess CCC/Caa Reserve Amount" means, with respect to each Payment Date, an amount determined by the Portfolio Manager in its discretion up to all or the portion of the Excess CCC/Caa Adjustment Amount which, if deposited in the Excess CCC/Caa Reserve Account, will cause any Overcollateralization Ratio Test otherwise failing on the related Determination Date to pass on such Determination Date on a pro forma basis after giving effect to such deposit. 176 "Form Approved Synthetic Security" means a Synthetic Security (a) (i) the Reference Obligation of which, on the date that the Issuer acquires such Synthetic Security, if it were a Collateral Obligation, could be purchased by the Issuer without any required action by the Rating Agencies or with respect to which the Global Rating Agency Condition has been satisfied or (ii) the Reference Obligation of which would satisfy clause (i) but for the currency in which it is payable and such Synthetic Security is payable in U.S. Dollars and does not expose the Issuer to currency risk, (b) the documentation of which conforms (but for the amount and timing of periodic payments, the name of the Reference Obligation, the notional amount, the effective date, the termination date and other similarly necessary changes) to a form previously approved by the Rating Agencies and (c) for which the Issuer has provided S&P and Moody's notice of the purchase of such Synthetic Security and a copy of the documentation therefor within five Business Days after such purchase, and each of S&P and Moody's (in the case of Moody's, in writing signed by an authorized officer of Moody's) has responded within 10 Business Days from the date of such notice, which response shall include the S&P Recovery Rate or the Moody's Recovery Rate, as applicable, for such Synthetic Security; provided, however, that either Moody's or S&P may, prior to the settlement or the purchase of such Synthetic Security, revoke its consent to the documentation underlying a Form Approved Synthetic Security upon prior notice (and such revocation shall be effective upon receipt of such notice by the Portfolio Manager and the Trustee). "Global Rating Agency Condition" means, with respect to any action taken or to be taken by or on behalf of the Issuer, satisfaction of both the Moody's Rating Condition and the S&P Rating Condition. "Hedge Payment Amount" means, with respect to any Hedge Agreement or Short Position and any Payment Date, the amount, if any, payable to the Hedge Counterparty or Short Position counterparty by the Issuer (other than Specified Hedge Termination Payments). "Interest Proceeds" means, with respect to any Collection Period or Determination Date includes, without duplication, the sum of: (i) all payments of interest and other income received by the Issuer during the related Collection Period on the Collateral Obligations and Eligible Investments (other than Eligible Investments credited to any Class A-2R Purchaser Collateral Account), including the accrued interest received in connection with a sale thereof during the related Collection Period, (a) excluding, during the Ramp-Up Period, any such amount that represents Principal Financed Accrued Interest and is specified in writing by the Portfolio Manager to be so excluded (provided that the Portfolio Manager may only elect to retain an aggregate amount of $1,500,000 as Interest Proceeds under this subclause (a)), and (b) excluding, after the Ramp-Up Period, any such amount that represents Principal Financed Accrued Interest; provided, however, that any amounts received in respect of a Zero Coupon Security or a Short Position will constitute Principal Proceeds; (ii) all principal and interest payments on Eligible Investments purchased with Interest Proceeds; (iii) all amendment and waiver fees, late payment fees and other fees, except for those in connection with (a) the lengthening of the maturity of the related Collateral Obligation or (b) the reduction of the par of the related Collateral Obligation; (iv) any amounts deposited in the Collection Account from the Expense Reserve Account as described in "Security for the Senior Notes—The Expense Reserve Account" and any 177 amounts deposited in the Collection Account from any other Issuer account and designated as Interest Proceeds as permitted under the Indenture; (v) commitment fees and other similar fees actually received by the Issuer during such Collection Period in respect of Revolving Collateral Obligations and Delayed Drawdown Collateral Obligations; (vi) any payment received with respect to any Hedge Agreement other than an upfront payment received upon entering into such Hedge Agreement or a payment received as a result of the termination of such Hedge Agreement (for this purpose, any such payment received or to be received on a Payment Date will be deemed received in respect of the preceding Collection Period and included in the calculation of Interest Proceeds received in such Collection Period); (vii) any Liquidity Reserve Amount deposited in the Collection Account on the preceding Payment Date; (viii) at the written direction of the Portfolio Manager to the Trustee, all or a specified portion of any Eligible Premium Distribution Amount for such Collection Period; and (ix) all fees received pursuant to a Securities Lending Agreement (net of related administration fees paid in connection with securities lending) and all payments received from a Securities Lending Counterparty that relate to a loaned Collateral Obligation, if such payments would have constituted Interest Proceeds if made directly by the related obligor to the Issuer; provided that any amounts received in respect of any Defaulted Obligation will constitute Principal Proceeds (and not Interest Proceeds) until the aggregate of all collections in respect of such Defaulted Obligation since it became a Defaulted Obligation equals the outstanding Principal Balance of such Collateral Obligation when it became a Defaulted Obligation. "Investment Criteria Adjusted Balance" means, with respect to any Collateral Obligation or Eligible Investment, the Principal Balance of such Collateral Obligation or Eligible Investment; provided, that for all purposes the Investment Criteria Adjusted Balance of any: (i) Deferring Security shall be the lesser of (x) the S&P Collateral Value of such Deferring Security and (y) the Moody's Collateral Value of such Deferring Security; (ii) Discount Obligation shall be the purchase price of such Discount Obligation; and (iii) CCC/Caa Collateral Obligation included in the CCC/Caa Excess shall be the Market Value of such CCC/Caa Collateral Obligation. 178 "Liquidity Reserve Amount" with respect to the Payment Date in January 2008 means $0 and, with respect to any Payment Date thereafter, means an amount equal to the excess, if any, of: The sum of all payments of interest received during the related Collection Period (and, if such Collection Period does not end on a Business Day, the next succeeding Business Day) on floating rate Collateral Obligations and fixed rate Collateral Obligations (net of purchased accrued interest acquired with Interest Proceeds) which pay interest less frequently than quarterly Minus the sum of The Aggregate Principal Balance of fixed rate The Weighted Average Fixed Collateral Obligations Coupon on fixed rate Collateral which pay interest less Obligations which pay interest less X X 0.25 frequently than quarterly frequently than quarterly as of the as of the immediately immediately preceding preceding Determination Determination Date Date plus The actual number of days in the related Collection Period X 360 The sum of (I) LIBOR applicable to the related Interest Accrual Period beginning on the previous Payment Date and (II) the Weighted Average Floating Spread on floating rate Collateral Obligations which pay interest less frequently than quarterly as of the preceding Determination Date X The Aggregate Principal Balance of floating rate Collateral Obligations which pay interest less frequently than quarterly as of the preceding Determination Date "Loan Pricing Change" means, with respect to a loan, the change in price of such loan (expressed as a percentage of par) relative to a nationally recognized index as calculated by the Portfolio Manager in its reasonable commercial judgment. "Make-Whole Amount" means, with respect to any Optional Redemption of the Class D-2 Notes occurring prior to the Make-Whole End Date, the excess, if any of (1) the present value of the remaining interest and principal payments with respect to such Class (after giving effect to any payments of interest occurring on the applicable Payment Date) (A) assuming that the entire aggregate outstanding principal amount of such Class is paid in a single payment on the Make-Whole End Date and that each payment of interest will be made on its related Payment Date and (B) using a discount rate equal to the Reinvestment Yield for such Class of Notes over (2) the aggregate outstanding principal amount of such Class of Notes. "Make-Whole End Date" means the Payment Date scheduled to occur in July 2014. "Margin Stock" means "Margin Stock" as defined under Regulation U issued by the Board of Governors of the Federal Reserve System (the "FRB"), including any debt security which is by its terms convertible into "Margin Stock." "Margin Loan" means an extension of credit that is "purpose credit" within the meaning of FRB Regulation U. 179 "Market Value" means, with respect to any loans or other assets, the amount (determined by the Portfolio Manager) equal to the product of the principal amount thereof and the price determined in the following manner: (i) in the case of a loan only, the bid price determined by the Loan Pricing Corporation, Markit Partners Inc. or any other nationally recognized loan pricing service selected by the Portfolio Manager and approved by S&P and Moody's; or (ii) if a bid price described in clause (i) is not available (if applicable), the average of the bid prices determined by three Independent broker-dealers active in the trading of such asset; or (A) two bids; or (B) if only two such bids can be obtained, the lower of the bid prices of such if only one such bid can be obtained, such bid; or (iii) if such bid described in clause (i) or (ii) is not available, then the Market Value of an asset will be the lesser of (x) the lower of the S&P Recovery Rate for such Collateral Obligation and 70% of the principal amount of such Collateral Obligation and (y) the price at which the Portfolio Manager reasonably believes such asset could be sold in the market within 90 days, as certified by the Portfolio Manager and determined by the Portfolio Manager consistent with reasonable and customary market practice; provided that, with respect to any Collateral Obligation that (A) is a loan or an interest therein that is part of a facility with an Aggregate Principal Balance greater than U.S.$150,000,000 or (B) is publicly rated by Moody's, if the Portfolio Manager is not able to determine the Market Value of such Collateral Obligation by applying the methods set out in clause (i) or (ii) above within 30 calendar days of the initial Market Value determination pursuant to clause (iii), the Market Value of such Collateral Obligation shall be deemed equal to zero. For each Collateral Obligation for which a price is determined using subclause (y), the Portfolio Manager shall use the same market value for all market value determinations for itself and each of the funds it advises (so long as, for any such fund, the Portfolio Manager is entitled, in accordance with the terms and conditions set forth in the investment management agreement between the Portfolio Manager and such fund and any related indenture or analogous document, to make such market value determination in the same manner as it is required to make hereunder). "Moody's Collateral Value" means, of any date of determination, with respect to any Defaulted Obligation or Deferring Security, the lesser of (i) the Moody's Recovery Amount of such Defaulted Obligation or Deferring Security as of such date and (ii) the Market Value of such Defaulted Obligation or Deferring Security as of such date. "Moody's Counterparty Criteria" are, with respect to any Participation Interest or Synthetic Security (other than any Collateralized Synthetic Security) proposed to be acquired by the Issuer, criteria that will be met if immediately after giving effect to such acquisition, (x) the percentage of the Collateral Principal Amount that consists in the aggregate of Participation Interests with Selling Institutions that have the same or a lower Moody's credit rating and Synthetic Securities with Synthetic Security Counterparties that have the same or a lower Moody's credit rating does not exceed the "Aggregate Percentage Limit" set forth below for such Moody's credit rating and (y) the percentage of the Collateral Principal Amount that consists in the aggregate of Participation Interests with any single Selling Institution that has the Moody's credit rating set forth under "Individual Percentage Limit" below or a 180 lower credit rating and Synthetic Securities with any single Synthetic Security Counterparty that has the Moody's credit rating set forth under "Individual Percentage Limit" below or a lower credit rating does not exceed the "Individual Percentage Limit" set forth below for such Moody's credit rating: Moody's credit rating of Selling Institution or Synthetic Security Counterparty (at or below) Aaa Aggregate Percentage Limit 25.0% Individual Percentage Limit 25.0% Aa1 25.0% 20.0% Aa2 25.0% 20.0% Aa3 25.0% 15.0% A1 and "P-1" 12.5% 10.0% A2* and "P-1" 7.5% 5.0% 0% 0% * and not on watch for possible downgrade. A1 or A2 but not "P-1;" Less than A2; or A2 and "P-1," but on watch for possible downgrade "Moody's Default Probability Rating" means, with respect to any Collateral Obligation, as of any date of determination, the rating determined in accordance with the following methodology: (i) With respect to a Collateral Obligation that is a Moody's Senior Secured Loan or Participation Interest in a Moody's Senior Secured Loan, if the obligor of such Collateral Obligation has a corporate family rating by Moody's, then such corporate family rating; (ii) With respect to a Collateral Obligation that is a Moody's Senior Secured Loan or Participation Interest in a Moody's Senior Secured Loan, if not determined pursuant to clause (i) above, if such Collateral Obligation (A) is publicly rated by Moody's, such public rating, or (B) is not publicly rated by Moody's but for which a rating or rating estimate has been assigned by Moody's upon the request of the Issuer or the Portfolio Manager, such rating or the corporate family rating estimate, as applicable; (iii) With respect to a Collateral Obligation other than a Synthetic Security or a Structured Finance Obligation, if not determined pursuant to clause (i) or (ii) above, (A) if such Collateral Obligation is a DIP Collateral Obligation, the rating assigned by clause (iv)(F) of the Moody's Derived Rating, (B) if the obligor of such Collateral Obligation has one or more senior unsecured obligations publicly rated by Moody's, then in the case of a Moody's Senior Secured Loan, one rating sub-category above the Moody's public rating on any such obligation as selected by the Portfolio Manager or, in the case of all other Collateral Obligations, the Moody's public rating on any such obligations as selected by the Portfolio Manager, or, if no such rating is available, (C) if such Collateral Obligation is publicly rated by Moody's, such public rating or, if no such rating is available, (D) if a rating or rating estimate has been assigned to such Collateral 181 Obligation by Moody's upon the request of the Issuer or the Portfolio Manager, such rating or, in the case of a rating estimate, the applicable rating estimate for such obligation; (iv) With respect to a Collateral Obligation other than a Synthetic Security or a Structured Finance Obligation, if not determined pursuant to clause (i), (ii) or (iii) above, the Moody's Derived Rating; (v) With respect to a Synthetic Security, as determined as set forth in "Security for the Senior Notes—Collateral Assumptions"; and (vi) With respect to a Structured Finance Obligation, in the same manner as set forth in clause (ii) above. For purposes of calculating a Moody's Default Probability Rating, each applicable rating on credit watch by Moody's with positive or negative implication at the time of calculation will be treated as having been upgraded or downgraded by one rating subcategory, as the case may be. "Moody's Derived Rating" means, with respect to a Collateral Obligation whose Moody's Rating or Moody's Default Probability Rating cannot otherwise be determined pursuant to the definitions thereof, such Moody's Rating or Moody's Default Probability Rating shall be determined as set forth below. (i) If the obligor of such Collateral Obligation has a long-term issuer rating by Moody's, then such long-term issuer rating; (ii) If not determined pursuant to clause (i) above, if another obligation of the obligor is rated by Moody's, then by adjusting the rating of the related Moody's rated obligations of the related obligor by the number of rating sub-categories according to the table below: Rating of Rated Obligation Number of Subcategories Relative to Rated Obligation Rating Senior secured obligation greater than or equal to B2 -1 Senior secured obligation less than B2 -2 Subordinated obligation greater than or equal to B3 +1 Subordinated obligation less than B3 0 Obligation Category of Rated Obligation (iii) If not determined pursuant to clause (i) or (ii) above, if the obligor of such Collateral Obligation has a corporate family rating by Moody's, then one subcategory below such corporate family rating; (iv) If not determined pursuant to clause (i), (ii) or (iii) above, then by using any one of the methods provided below: 182 (A) Type of Collateral Obligation (1) S&P Rating Collateral Obligation Rated by S&P Number of Subcategories Relative to Moody's Equivalent of S&P Rating Not Structured Finance Obligation >BBB- Not a Loan or Participation Interest in Loan -1 Not Structured Finance Obligation

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