ACAS BUSINESS LOAN TRUST

Transcription

1 OFFERING MEMORANDUM [LOGO] ACAS BUSINESS LOAN TRUST U.S.$300,500,000 CLASS A FLOATING RATE ASSET BACKED NOTES DUE 2019 U.S.$37,500,000 CLASS B FLOATING RATE DEFERRABLE ASSET BACKED NOTES DUE 2019 U.S.$63,000,000 CLASS C FLOATING RATE DEFERRABLE ASSET BACKED NOTES DUE 2019 U.S.$31,500,000 CLASS D FLOATING RATE DEFERRABLE ASSET BACKED NOTES DUE 2019 ACAS Business Loan Trust , a Delaware statutory trust, as the issuer (the Issuer ), is governed by an Amended and Restated Trust Agreement, dated August 7, 2007 (the Trust Agreement ), between ACAS Master Business Loan LLC, as the trust depositor (the Trust Depositor ) and Wilmington Trust Company, as the owner trustee (the Owner Trustee ). The Issuer will issue the ACAS Business Loan Trust Asset Backed Notes (the Notes ), consisting of U.S.$300,500,000 Class A Floating Rate Asset Backed Notes (the Class A Notes ), U.S.$37,500,000 Class B Floating Rate Deferrable Asset Backed Notes (the Class B Notes ), U.S.$63,000,000 Class C Floating Rate Deferrable Asset Backed Notes (the Class C Notes ), U.S.$31,500,000 Class D Floating Rate Deferrable Asset Backed Notes (the Class D Notes and, together with the Class A Notes, the Class B Notes and the Class C Notes, the Offered Notes ), U.S.$42,500,000 Class E Principal Only Asset Backed Notes (the Class E Notes ) and the U.S.$25,000,000 Class F Principal Only Asset Backed Notes (the Class F Notes ). American Capital Strategies, Ltd. ( American Capital ) or an Affiliate will acquire the full $63,000,000 of the Class C Notes and the full $31,500,000 of the Class D Notes on the Closing Date. Application will be made to the Irish Financial Services Regulatory Authority (the IFSRA ), as competent authority under Directive 2003/71/EC, for the Offering Memorandum to be approved. Application will be made to the Irish Stock Exchange for the Offered Notes to be admitted to the Official List and trading on its regulated market. Approval of the IFSRA relates only to the Offered Notes that are admitted to trading on the regulated market of the Irish Stock Exchange or other regulated markets for purposes of Directive 2003/71/EC. No application will be made to list any other class of Notes on any stock exchange. Investing in the Offered Notes involves risks. See Risk Factors beginning on page 14. The Offered Notes represent non-recourse obligations of the Issuer payable solely from the pool of assets pledged by the Issuer to the Indenture Trustee. The Offered Notes do not represent an interest in or obligations of, and are not insured or guaranteed by, the Indenture Trustee, American Capital Strategies, Ltd., Citigroup Global Markets Inc. ( Citi ), J.P. Morgan Securities Inc. ( JPMorgan ), Banc of America Securities LLC ( Banc of America Securities ), Credit Suisse Securities (USA) LLC ( Credit Suisse Securities ), HSBC Securities (USA) Inc. ( HSBC Securities ), HVB Capital Markets, Inc., Wachovia Capital Markets, LLC ( Wachovia Capital Markets ) or any of their respective Affiliates. The Offered Notes have not been registered under the Securities Act of 1933, as amended (the Securities Act ), and are being offered only (1) to Qualified Institutional Buyers under Rule 144A under the Securities Act who are Qualified Purchasers ( Qualified Purchasers ) for purposes of Section 3(c)(7) under the Investment Company Act of 1940, as amended (the 1940 Act ), (2) to a limited number of institutional accredited investors ( Institutional Accredited Investors ) within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act ( Regulation D ) who are Qualified Purchasers and (3) to certain investors who are Qualified Purchasers outside of the United States in compliance with Regulation S under the Securities Act ( Regulation S ). Because the Offered Notes are not registered, they are subject to certain restrictions on resale that are described under Notice to Investors. The Issuer has not been registered as an investment company under the 1940 Act. Class of Offered Notes Principal Amount as of Closing Date Percentage Expected Ratings of all Notes Note Interest Rate (1) (S&P/Moody s/fitch) Weighted Average Life (2) Final Maturity Date A $300,500, % LIBOR % AAA/Aaa/AAA 2.99 years November 18, 2019 B $37,500, % LIBOR % AA/Aa2/AA 3.75 years November 18, 2019 C (3) $63,000, % LIBOR % A/A2/A 3.96 years November 18, 2019 D (3) $31,500, % LIBOR % BBB/Baa2/BBB 3.98 years November 18, 2019 (1) (2) (3) LIBOR on the Offered Notes is Three-Month LIBOR; provided that LIBOR with respect to the initial Interest Accrual Period will be determined though the use of a straight-line interpolation as described in Description of the Notes and Indenture Calculation of LIBOR. The weighted average life of the Offered Notes has been calculated assuming (i) certain collateral characteristics, including that the cash flow profile of any Additional Loans purchased during the Pre-Funding Period or the Replenishment Period will be similar to that of the Initial Loans, (ii) that the Replenishment Period will continue until the Business Day preceding the Payment Date in February 2008, (iii) that there will be no defaults or delinquencies, (iv) a constant prepayment rate of 21%, (v) the Class F Noteholder will cause an Optional Repurchase of the Notes at its earliest opportunity to do so, (vi) a Closing Date of August 7, 2007, (vii) that during the Replenishment Period all Principal Collections, including Scheduled Payments and Prepayments, will be immediately reinvested and no Special Redemption will occur, and (viii) on the Payment Date occurring in February 2008, the Weighted Average Life of the Loans is equal to the Maximum Weighted Average Life. There can be no assurance that these assumptions will be met. American Capital or an Affiliate will acquire the full $63,000,000 of the Class C Notes and the full $31,500,000 of the Class D Notes on the Closing Date. The issue price of the Offered Notes is 100% of their principal amount. The Initial Purchasers expect to deliver the Offered Notes to purchasers on or about August 7, CITI BANC OF AMERICA SECURITIES LLC CREDIT SUISSE HSBC The date of this Offering Memorandum is February21, HVB CAPITAL MARKETS, INC. JPMORGAN WACHOVIA SECURITIES

2 The Offered Notes are being offered by the Initial Purchasers from time to time in one or more negotiated transactions or otherwise at varying prices to be determined, in each case, at the time of sale. The Offered Notes are offered when, as and if issued, subject to prior sale or withdrawal, cancellation or modification of the offer without notice and subject to approval of certain legal matters by counsel and certain other conditions. The Notes will be issued pursuant to an Indenture, dated as of the Closing Date (as amended, modified, restated, waived or supplemented from time to time, the Indenture ), between the Issuer and Wells Fargo Bank, National Association, as the indenture trustee (together with its successors and assigns, the Indenture Trustee ). The Notes issued by the Issuer evidence the right to receive payments of principal and interest in accordance with the terms of the Notes from amounts available therefor. The Notes will be secured by the assets of the Issuer. Additionally, pursuant to the Trust Agreement, the Issuer will issue a certificate representing a fractional undivided ownership interest in the Issuer (the Certificate ). Only the Offered Notes are being offered hereby. The Class B Notes will be subordinated to the Class A Notes to the extent described herein. The Class C Notes will be subordinated to the Class B Notes and the Class A Notes to the extent described herein. The Class D Notes will be subordinated to the Class C Notes, the Class B Notes and the Class A Notes to the extent described herein. The Class E Notes will be subordinated to the Class D Notes, the Class C Notes, the Class B Notes and the Class A Notes to the extent described herein. The Class F Notes will be subordinated to the Class E Notes and the Offered Notes to the extent described herein. The assets of the Issuer will include (a) a pool of loans or portions thereof (including additional loans and substitute loans), or interests therein, but excluding the Retained Interest and the Excluded Amounts, that satisfy certain representations and warranties described in this Offering Memorandum (the Offering Memorandum ) and that arise under certain note purchase agreements, commercial loan agreements or facilities (the Designated Loan Agreements ) originated or purchased by American Capital (in its capacity as originator, together with its successors and assigns in such capacity, the Originator ) from time to time, and include First Lien Loans, Second Lien Loans and Subordinated Loans (collectively, the Loans ), (b) the right to receive payments of principal and interest (the Payment Obligations ) due on, and other proceeds of, such Loans, (c) net hedge receipts, (d) all monies on deposit in certain bank accounts of the Issuer and (e) the Issuer s interest in the related collateral, if any, securing such Loans. The Designated Loan Agreements will generally include multi-lender agented facilities and direct (bilateral) loans to borrowers of American Capital. There will be no revolving loans or partially funded term loans in the Loan Pool. The Loans will be serviced by American Capital, as servicer (together with its successors and assigns in such capacity, the Servicer ). Interest will accrue on the Outstanding Principal Balance of each class of Offered Notes at the applicable Note Interest Rate from the Closing Date. Interest with respect to the Offered Notes for each Interest Accrual Period will be distributed, to the extent funds are available therefor, quarterly in arrears on each Payment Date, commencing on November 16, The Class E Notes and the Class F Notes are principal only Notes and will not bear any interest. Principal on the Notes will be distributed, to the extent funds are available therefor, on each Payment Date. On any Pro Rata Payment Date, principal payments on the Notes will be made to the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Class F Notes, pro rata until the Outstanding Principal Balance of each such class of Notes is reduced to zero. On any Sequential Payment Date, principal payments on the Notes will be made to the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Class F Notes sequentially until the Outstanding Principal Balance of each class of Notes is reduced to zero and no principal payments will be made to any subordinated class of Notes until the Outstanding Principal Balance of the immediately senior class of Notes is reduced to zero. See Description of the Notes and Indenture Principal Allocations. The principal of the Offered Notes is required to be paid on November 18, 2019 (the Legal Final Maturity Date ), unless redeemed or repaid prior thereto. Payments on the Notes will be made in U.S. dollars. The Notes are subject to full or partial redemption under the circumstances described under Description of the Notes and Indenture Optional Repurchase of Notes, Mandatory Redemption of Notes, Priority of Payments Interest Allocations and Priority of Payments Principal Allocations. -i-

3 No Offered Notes may be sold without delivery of this Offering Memorandum. It is a condition of their offering that each class of Offered Notes receives the respective ratings set forth under Rating of the Notes herein and that certain other legal conditions are met. The Offered Notes sold within the United States or to U.S. persons in reliance on Rule 144A under the Securities Act will initially be issued in the form of one or more global notes in fully registered form without coupons (each, a Rule 144A Global Note ) to be deposited with the Indenture Trustee as custodian for, and registered in the name of a nominee of, The Depository Trust Company ( DTC ). The Offered Notes sold within the United States or to U.S. persons who are Institutional Accredited Investors and also Qualified Purchasers will be issued in the form of definitive physical certificates in fully registered form without coupons. The Offered Notes sold in offshore transactions in reliance on Regulation S under the Securities Act to Persons that are not U.S. persons (as defined in Regulation S) will initially be issued in the form of one or more temporary global notes in fully registered form without coupons (each, a Regulation S Global Note ) to be deposited with the Indenture Trustee as custodian for, and registered in the name of a nominee of, DTC, for the accounts of Euroclear Bank S.A./N.V. ( Euroclear ) as operator of the Euroclear system (the Euroclear System ) and Clearstream Banking, société anonyme ( Clearstream ). During the Distribution Compliance Period, beneficial interests in a Regulation S Global Note may be held only through Euroclear or Clearstream. The Initial Purchasers will deliver the Offered Notes, in the case of Global Notes, through the facilities of the DTC, Clearstream and Euroclear, and in the case of individual, certificated Notes, if any, at the offices of Citi, New York, New York, against payment therefor in immediately available funds. Interests in a Regulation S Global Note may not be held at any time by a U.S. person (as defined in Regulation S under the Securities Act), and re-offers or resales of such Offered Notes offered outside the United States in reliance on Regulation S under the Securities Act may be effected only in a transaction exempt from the registration requirements of the Securities Act and not involving directly or indirectly the Issuer or its agents, affiliates or intermediaries. In addition, until the expiration of 40 days after the later of the Closing Date and the commencement of the offering of the Offered Notes, a re-offer or resale of any Offered Note originally sold pursuant to Regulation S to, or for the account or benefit of, a U.S. person by a dealer or Person receiving a concession, fee or remuneration in respect of the Offered Note may violate the registration requirements of the Securities Act, unless such offer and sale is made in compliance with an exemption from such registration requirements. Each purchaser of an interest in an Offered Note in the initial offering thereof and each subsequent transferee will be required to make or will be deemed to have made certain representations and agreements. See Certain Federal Income Tax and Benefit Plan Considerations Benefit Plan Considerations and Notice to Investors. The Initial Purchasers do not make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this Offering Memorandum. The Offering Memorandum is personal to each offeree to whom it has been delivered and does not constitute an offer to any other Person or to the public generally to subscribe for or otherwise acquire the Offered Notes. Distribution of this Offering Memorandum to any persons other than the offeree and those persons, if any, retained to advise such offeree with respect thereto is unauthorized and any disclosure of its contents, without the prior consent of the Trust Depositor or the Initial Purchasers, is prohibited. Any reproduction or distribution of this Offering Memorandum, in whole or in part, and any disclosure of its contents or the use of any information in this Offering Memorandum for any purpose other than considering any investment in the Offered Notes is prohibited. Each offeree of the Offered Notes, by accepting delivery of this Offering Memorandum, agrees to the foregoing. Market data used in this Offering Memorandum, including information relating to American Capital, or any Obligors, is based on American Capital s estimates, which estimates were formulated with commercially reasonable care and based on American Capital s review of internal surveys, independent industry reports and publications and other publicly available information. None of American Capital, Citi, JPMorgan, Banc of America Securities, Credit Suisse Securities, HSBC Securities, HVB Capital Markets, Inc., Wachovia Capital Markets or any of their respective Affiliates has independently verified such data. The Issuer accepts responsibility for the information contained in this Offering Memorandum. To the best knowledge and belief of the Issuer, the information contained in this Offering Memorandum is in accordance with the facts and does not omit anything likely to affect the import of such information.

4 THE DISTRIBUTION OF THIS OFFERING MEMORANDUM AND THE OFFER OR SALE OF THE OFFERED NOTES MAY BE RESTRICTED BY LAW IN CERTAIN JURISDICTIONS. PERSONS INTO WHOSE POSSESSION THIS OFFERING MEMORANDUM OR ANY OF THE SECURITIES COME MUST INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. INVESTORS SHOULD ASSUME THE INFORMATION APPEARING IN THIS OFFERING MEMORANDUM IS ACCURATE ONLY AS OF THE DATE ON THE FRONT COVER OF THIS OFFERING MEMORANDUM. EACH PROSPECTIVE PURCHASER OF ANY OF THE OFFERED NOTES MUST COMPLY WITH ALL APPLICABLE LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION IN WHICH IT PURCHASES, OFFERS OR SELLS SUCH OFFERED NOTES 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 NOTES 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 NEITHER THE ISSUER NOR ANY OF THE INITIAL PURCHASERS SHALL HAVE ANY RESPONSIBILITY THEREFOR. THE OFFERED NOTES DESCRIBED HEREIN HAVE NOT BEEN REGISTERED WITH, RECOMMENDED BY OR APPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER SECURITIES COMMISSION OR REGULATORY AUTHORITY, NOR HAS ANY SUCH COMMISSION OR REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 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 ATTORNEY GENERAL OR 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 ATTORNEY GENERAL OR THE 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 CALIFORNIA RESIDENTS THE OFFERED NOTES MAY NOT BE PURCHASED BY A CORPORATION IN THE STATE OF CALIFORNIA UNLESS IT HAS A NET WORTH OF AT LEAST $14,000,000 ACCORDING TO ITS MOST RECENT AUDITED FINANCIAL STATEMENTS. NOTICE TO CONNECTICUT RESIDENTS THE OFFERED NOTES HAVE NOT BEEN REGISTERED UNDER THE CONNECTICUT SECURITIES LAW. THE OFFERED NOTES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND SALE.

5 NOTICE TO FLORIDA RESIDENTS THE OFFERED NOTES ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION UNDER SECTION 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 AS DESCRIBED IN SECTION (7) OF THE FLORIDA ACT HAVE THE RIGHT TO VOID THEIR PURCHASES OF THE OFFERED NOTES WITHOUT PENALTY WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION. NOTICE TO GEORGIA RESIDENTS THE OFFERED NOTES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION THAT IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT. NOTICE TO REGULATION S INVESTORS THIS OFFERING MEMORANDUM HAS BEEN PREPARED BY THE ISSUER, THE ORIGINATOR AND THE TRUST DEPOSITOR FOR USE BY THE INITIAL PURCHASERS IN MAKING OFFERS AND SALES OF THE OFFERED NOTES OUTSIDE THE UNITED STATES TO NON-U.S. PERSONS IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT. THIS OFFERING MEMORANDUM IS ALSO BEING USED BY THE INITIAL PURCHASERS IN CONNECTION WITH OFFERS AND SALES OF OFFERED NOTES MADE IN THE UNITED STATES IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT AND TO INSTITUTIONAL ACCREDITED INVESTORS WITHIN THE MEANING OF RULE 501 OF THE SECURITIES ACT WHO ARE QUALIFIED PURCHASERS FOR PURPOSES OF SECTION 3(c)(7) UNDER THE 1940 ACT. THE OFFERED NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND MAY NOT BE OFFERED, SOLD OR DELIVERED IN THE UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS THE OFFERED NOTES ARE REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE. THE OFFERED NOTES WILL BEAR A LEGEND TO THE EFFECT OF THE PRECEDING SENTENCE, UNLESS THE ORIGINATOR DETERMINES OTHERWISE IN COMPLIANCE WITH REQUIREMENTS OF LAW. THE DISTRIBUTION OF THIS OFFERING MEMORANDUM AND THE OFFER AND SALE OF THE OFFERED NOTES IN CERTAIN JURISDICTIONS MAY BE RESTRICTED BY LAW. YOU ARE REQUIRED BY THE ORIGINATOR AND THE INITIAL PURCHASERS TO INFORM YOURSELF ABOUT AND TO OBSERVE ANY SUCH RESTRICTIONS. NOTICE TO RESIDENTS OF THE UNITED KINGDOM THIS DOCUMENT IS ONLY BEING DISTRIBUTED TO AND IS ONLY DIRECTED AT (A) PERSONS WHO ARE OUTSIDE THE UNITED KINGDOM, (B) TO INVESTMENT PROFESSIONALS FALLING WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 ( FSMA ) (FINANCIAL PROMOTION) ORDER 2005 (THE ORDER ) OR (C) HIGH NET WORTH ENTITIES, AND OTHER PERSONS TO WHO IT MAY LAWFULLY BE COMMUNICATED, FALLING WITHIN ARTICLE 49(2)(a) TO (d) OF THE ORDER (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS RELEVANT PERSONS ). THE OFFERED NOTES ARE AVAILABLE ONLY TO, AND ANY INVITATION, OFFER OR AGREEMENT TO SUBSCRIBE, PURCHASE OR OTHERWISE ACQUIRE SUCH OFFERED NOTES WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. ANY PERSON WHO IS NOT A RELEVANT PERSON SHOULD NOT ACT OR RELY ON THIS DOCUMENT OR ANY OF ITS CONTENTS.

6 IMPORTANT NOTICE REGARDING THE NOTES THE OFFERED NOTES REFERRED TO IN THIS OFFERING MEMORANDUM, AND THE ASSETS BACKING THEM, ARE SUBJECT TO MODIFICATION OR REVISION (INCLUDING THE POSSIBILITY THAT ONE OR MORE CLASSES OF OFFERED 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 OFFERED NOTES, A CONTRACT OF SALE WILL COME INTO BEING NO SOONER THAN THE DATE ON WHICH THE RELEVANT CLASS OF OFFERED NOTES HAS BEEN PRICED AND THE INITIAL PURCHASERS HAVE CONFIRMED THE ALLOCATION OF THE OFFERED 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 PURCHASERS, THE SERVICER, THE 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 PURCHASERS, THE SERVICER, THE 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 OFFERED NOTES THAT HAVE CHARACTERISTICS THAT MAY CHANGE, AND EACH PROSPECTIVE INVESTOR IS ADVISED THAT ALL OR A PORTION OF THE OFFERED NOTES MAY NOT BE ISSUED WITH THE CHARACTERISTICS DESCRIBED IN THIS OFFERING MEMORANDUM. THE INITIAL PURCHASERS OBLIGATION TO SELL ANY OFFERED NOTES TO, AND THE PLACEMENT AGENTS OBLIGATION TO PLACE ANY OFFERED NOTES WITH, ANY PROSPECTIVE INVESTOR IS CONDITIONED ON THE OFFERED NOTES HAVING THE CHARACTERISTICS DESCRIBED IN THIS OFFERING MEMORANDUM. IF THE INITIAL PURCHASERS DETERMINE THAT THE FOREGOING CONDITION IS NOT SATISFIED IN ANY MATERIAL RESPECT, SUCH PROSPECTIVE INVESTOR WILL BE NOTIFIED, AND NEITHER THE ISSUER NOR THE INITIAL PURCHASERS WILL HAVE ANY OBLIGATION TO SUCH PROSPECTIVE INVESTOR TO DELIVER ANY PORTION OF THE OFFERED NOTES THAT SUCH PROSPECTIVE INVESTOR HAS COMMITTED TO PURCHASE, AND THERE WILL BE NO LIABILITY BETWEEN THE INITIAL PURCHASERS, THE SERVICER, THE 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 NON-DELIVERY. EACH PROSPECTIVE INVESTOR IN THE OFFERED NOTES REQUESTED THAT THE INITIAL PURCHASER OR THE PLACEMENT AGENTS PROVIDE TO SUCH PROSPECTIVE INVESTOR INFORMATION IN CONNECTION WITH SUCH PROSPECTIVE INVESTOR S CONSIDERATION OF THE PURCHASE OF CERTAIN OFFERED NOTES DESCRIBED IN THIS OFFERING MEMORANDUM. THIS OFFERING MEMORANDUM IS BEING PROVIDED TO EACH PROSPECTIVE INVESTOR FOR INFORMATIVE PURPOSES ONLY IN RESPONSE TO SUCH PROSPECTIVE INVESTOR S SPECIFIC REQUEST. THE INITIAL PURCHASERS DESCRIBED IN THIS OFFERING MEMORANDUM MAY FROM TIME TO TIME PERFORM INVESTMENT BANKING SERVICES FOR, OR SOLICIT INVESTMENT BANKING BUSINESS FROM, ANY COMPANY NAMED IN THIS OFFERING MEMORANDUM. THE INITIAL PURCHASERS, AND/OR THEIR AFFILIATES AND EMPLOYEES MAY FROM TIME TO TIME HAVE A LONG OR SHORT POSITION IN ANY CONTRACT OR SECURITY DISCUSSED IN THIS OFFERING MEMORANDUM. 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. THE OFFERED NOTES WILL BEAR RESTRICTIVE LEGENDS AND WILL BE SUBJECT TO RESTRICTIONS ON TRANSFER AS DESCRIBED HEREIN, INCLUDING THE REQUIREMENT THAT

7 EACH INITIAL INVESTOR IN A GLOBAL SECURITY SHALL BE DEEMED TO HAVE MADE, AND EACH INITIAL INVESTOR IN THE OFFERED NOTES 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 NOTES THAT IS NOT MADE IN COMPLIANCE WITH THE APPLICABLE TRANSFER RESTRICTIONS WILL BE VOID. BECAUSE OF THE RESTRICTIONS ON TRANSFER, AN INVESTOR SHOULD BE PREPARED TO BEAR THE RISK OF ITS INVESTMENT IN THE OFFERED NOTES UNTIL MATURITY. THE OFFERED NOTES AND RELATED DOCUMENTATION (INCLUDING, WITHOUT LIMITATION, THE INDENTURE) MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, WITHOUT THE CONSENT OF, AND WITHOUT NOTICE TO, THE HOLDERS OF THE OFFERED NOTES, AMONG OTHER THINGS, TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THE OFFERED NOTES TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF). THE OFFERED NOTES AND RELATED DOCUMENTATION (INCLUDING, WITHOUT LIMITATION, THE INDENTURE) MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, EXISTING RESTRICTIONS UPON THE RESALE OR TRANSFER OF THE OFFERED NOTES MAY BE ALTERED, AND ANY OTHER ACTION MAY BE TAKEN, IN EACH CASE WITHOUT THE CONSENT OF THE REGISTERED HOLDERS, TO ENABLE THE ISSUER TO RELY UPON ANY EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR THE 1940 ACT (AND TO REMOVE CERTAIN EXISTING RESTRICTIONS TO THE EXTENT NOT REQUIRED UNDER SUCH EXEMPTION); PROVIDED THAT NO SUCH CHANGE WILL CAUSE THE RATING OF THE OFFERED NOTES THEN OUTSTANDING TO BE REDUCED OR WITHDRAWN. THE BENEFICIAL OWNER OF ANY OFFERED NOTE SHALL BE DEEMED, BY ACCEPTANCE THEREOF, DIRECTLY OR THROUGH A NOMINEE, TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT (EACH OF WHICH SHALL BE CONCLUSIVE AND BINDING ON SUCH BENEFICIAL OWNER AND ALL FUTURE BENEFICIAL OWNERS OF SUCH OFFERED NOTE AND ANY OFFERED NOTE ISSUED IN EXCHANGE OR SUBSTITUTION FOR SUCH OFFERED NOTE WHETHER OR NOT ANY NOTATION THEREOF IS MADE THEREON). SEE DESCRIPTION OF THE NOTES AND INDENTURE AMENDMENTS HEREIN. 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, AND, 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 SHALL, UNDER ANY CIRCUMSTANCE, IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS OFFERING MEMORANDUM. APPLICATION WILL BE MADE TO THE IFSRA FOR THIS OFFERING MEMORANDUM TO BE APPROVED AS A PROSPECTUS AND TO ADMIT THE OFFERED NOTES TO TRADING ON THE IRISH STOCK EXCHANGE. SUCH APPROVAL WILL RELATE ONLY TO THE OFFERED NOTES WHICH ARE TO BE ADMITTED TO TRADING ON THE REGULATED MARKET OF THE IRISH STOCK EXCHANGE OR OTHER REGULATED MARKETS FOR THE PURPOSES OF DIRECTIVE 2003/71/EC. IN CONNECTION WITH THE FOREGOING, THIS DOCUMENT COMPRISES A PROSPECTUS UNDER DIRECTIVE 2003/71/EC (THE PROSPECTUS ). THIS OFFERING MEMORANDUM CONTAINS SUMMARIES BELIEVED TO BE ACCURATE WITH RESPECT TO CERTAIN TERMS OF CERTAIN DOCUMENTS AND SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH DOCUMENTS. THE CONTENTS OF THIS OFFERING MEMORANDUM ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE OFFERED NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE

8 OFFERED NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. EACH INITIAL INVESTOR IN AND EACH SUBSEQUENT TRANSFEREE OF AN INTEREST IN AN OFFERED NOTE IN THE FORM OF A GLOBAL NOTE WILL BE DEEMED TO REPRESENT, AND EACH INITIAL INVESTOR AND EACH SUBSEQUENT TRANSFEREE OF AN OFFERED NOTE IN CERTIFICATED FORM WILL BE REQUIRED TO REPRESENT, WARRANT AND COVENANT, (A) THAT IT IS NOT, AND IS NOT DIRECTLY OR INDIRECTLY ACQUIRING SUCH OFFERED NOTE OR ANY INTEREST THEREIN FOR, ON BEHALF OF OR WITH ANY ASSETS OF, AN EMPLOYEE BENEFIT PLAN OR OTHER ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ( ERISA ), A PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE ), OR A PLAN OR OTHER ARRANGEMENT SUBJECT TO ANY PROVISIONS UNDER ANY FEDERAL, STATE OR LOCAL LAWS OR REGULATIONS THAT ARE SUBSTANTIVELY SIMILAR OR OF SIMILAR EFFECT TO THE FOREGOING PROVISIONS OF ERISA OR THE CODE ( SIMILAR LAW ) OR (B) EITHER (1) ITS ACQUISITION AND HOLDING OF THE OFFERED NOTE WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE BY REASON OF ANY OF SECTION 408(b)(17) OF ERISA OR SECTION 4975(d)(20) OF THE CODE, PTCE 96-23, PTCE 95-60, PTCE 91-38, PTCE 90-1, PTCE 84-14, EACH AS AMENDED, OR AN EXEMPTION SIMILAR TO THE FOREGOING EXEMPTIONS, OR (2) IN THE CASE OF A PLAN OR ARRANGEMENT SUBJECT TO SIMILAR LAW, WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT VIOLATION OF SIMILAR LAW. SUCH REPRESENTATION SHALL BE DEEMED MADE ON EACH DAY FROM THE DATE ON WHICH SUCH INVESTOR OR TRANSFEREE ACQUIRES ITS INTEREST IN THE OFFERED NOTES THROUGH AND INCLUDING THE DATE ON WHICH SUCH INVESTOR OR TRANSFEREE DISPOSES OF ITS INTEREST IN THE OFFERED NOTES. NEITHER THE INITIAL PURCHASERS NOR THE ISSUER MAKES ANY REPRESENTATION TO ANY OFFEREE OR PURCHASER OF THE OFFERED NOTES REGARDING THE LEGALITY OF INVESTMENT THEREIN BY SUCH OFFEREE OR PURCHASER UNDER APPLICABLE LEGAL INVESTMENT OR SIMILAR LAWS OR REGULATIONS OR THE PROPER CLASSIFICATION OF SUCH AN INVESTMENT THEREUNDER. 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 OR TAX ADVISOR AS TO LEGAL, BUSINESS AND TAX ADVICE. THERE MAY BE RESTRICTIONS ON THE ABILITY OF CERTAIN INVESTORS, INCLUDING DEPOSITORY INSTITUTIONS, EITHER TO PURCHASE OFFERED NOTES OR TO PURCHASE OFFERED NOTES REPRESENTING MORE THAN A SPECIFIED PERCENTAGE OF THE INVESTOR S ASSETS. INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS IN DETERMINING WHETHER AND TO WHAT EXTENT THE OFFERED NOTES CONSTITUTE LEGAL INVESTMENTS FOR SUCH INVESTORS. DISCLOSURE OF TAX STRUCTURE Notwithstanding anything herein to the contrary, each prospective investor (and each employee, representative, or other agent of such prospective investor) may disclose to any and all persons, without limitation of any kind, the United States federal income tax treatment and tax structure (in each case, within the meaning of Treasury Regulation Section ) of the transaction and the portions of all materials of any kind (including opinions or other tax analyses) that are provided to such prospective investor (or such prospective investor s representatives or agents) relating to such tax treatment or tax structure. Any such disclosure of the tax treatment, tax structure and other tax-related materials shall not be made for the purpose of offering to sell the Offered Notes or soliciting an offer to purchase any such Notes to the extent such disclosure for such purpose would be in violation of applicable securities laws.

9 AVAILABLE INFORMATION The Issuer is not currently required by law to publish financial statements. However, to permit compliance with Rule 144A under the Securities Act in connection with the sale of the Offered Notes, the Issuer under the Indenture will be required to furnish, upon written 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 144(d)(4) under the Securities Act if, at the time of the request, the Issuer is not a reporting company 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. It is not contemplated that the Issuer will be such a reporting company or so exempt. Any such request for information should be delivered in writing to ACAS Business Loan Trust , c/o American Capital Strategies, Ltd., as Servicer, 2 Bethesda Metro Center, 14 th Floor, Bethesda, Maryland 20814, Attention: Compliance Officer. The Indenture Trustee will provide or cause to be provided, without charge to each investor upon written request, a copy of the Indenture. Requests to the Indenture Trustee should be directed in writing to its corporate trust office located at Wells Fargo Bank, National Association, Attention: Corporate Trust Services Asset Backed Administration (ACAS Business Loan Trust ), 6 th and Marquette Streets, MAC N , Minneapolis, Minnesota In addition, so long as any Offered Notes are listed on the Irish Stock Exchange, certain information and documents, including, without limitation the Indenture, will be available at the office of The Bank of New York (in such capacity, the Ireland Listing Agent ), which is currently located at 1 Canada Square, London, E14 5AL, United Kingdom. Unless otherwise indicated, (a) references herein to dollars, U.S. dollars and $ shall be to the lawful currency of the United States of America; (b) the term Rating Agencies shall, except as otherwise provided herein, mean S&P, Moody s and Fitch; (c) references to a Rating Agency shall mean S&P, Moody s or Fitch; (d) references to a Rating Agency in connection with a rating of the Offered Notes shall be deemed to mean such Rating Agency with respect to the Offered Notes rated by it; (e) references to the term Holder shall mean the Person in whose name a security (i.e., a Note or the Certificate) is registered; except where the context otherwise requires, Holder shall include the beneficial owner of such security; and (f) references to U.S. and United States shall be to the United States of America, its territories and its possessions. MARKET STABILIZATION Certain persons participating in this offering (including the Initial Purchasers) may engage in transactions that stabilize, maintain or otherwise affect the price of the Offered Notes. Such transactions may include over-allotment and stabilizing and the purchase of any Offered Notes to cover short positions and, if commenced, may be discontinued at any time. FORWARD-LOOKING STATEMENTS Any projections, forecasts and estimates contained herein are forward-looking statements and are based upon certain assumptions. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. Accordingly, the projections are only an estimate. Actual results may vary from the projections, and the variations may be material. None of the Issuer, the Trust Depositor, the Originator, the Servicer, the Indenture Trustee, the Initial Purchasers, any of their respective Affiliates or any other Person has any obligation to update or otherwise revise any projections, forecasts or estimates, including any revisions to reflect changes in economic conditions or other circumstances arising after the date hereof or to reflect the occurrence of unanticipated events, even if the underlying assumptions do not come to fruition. If and when included in this Offering Memorandum, the words expects, intends, anticipates, estimates and analogous expressions are intended to identify forward-looking statements as defined in the Securities Act. Any such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, among others, general economic and business conditions, interest rate risk, prepayment, delinquency and default rates, competition, changes in political, social and economic conditions, regulatory initiatives and compliance with governmental regulations, customer preferences and various other matters, many of which are beyond the originator s control. These forward-looking statements

10 speak only as of the date of this Offering Memorandum. The Originator expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Originator s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

11 TABLE OF CONTENTS SUMMARY...1 Principal Parties...1 Description Of The Issuer s Assets...1 Description Of The Notes...1 Certain Key Dates...7 Payments On The Notes...8 Other Terms...10 RISK FACTORS...14 Asset Risks...14 Risks Relating to the Offered Notes...23 Structural Risks...27 Additional Risks Related to the Originator and the Offered Notes...33 USE OF PROCEEDS...35 THE PRE-FUNDING PERIOD...35 THE REPLENISHMENT PERIOD...36 THE PORTFOLIO CRITERIA...37 S&P CDO Monitor Test...38 DELINQUENCY AND LOSS INFORMATION FOR ORIGINATOR S PORTFOLIO OF LOANS...39 THE LOANS...40 Collateral...41 Loan Files...42 Collections...42 MATURITY AND PREPAYMENT CONSIDERATIONS...42 WEIGHTED AVERAGE LIFE...43 AMERICAN CAPITAL STRATEGIES, LTD...45 Public Manager of Funds of Alternative Assets...46 Corporate Information...46 Lending and Investment Decision Criteria...47 Operations...47 Portfolio Valuation...48 Loan Grading...48 Employees...49 Legal Proceedings...49 Management...49 THE ISSUER...49 Formation...49 Issuer s Limited Activities...49 Capitalization of the Issuer...50 Issuer Assets and Liabilities...50 Administration of the Issuer...50 The Owner Trustee...51 Termination of Issuer x-

12 THE TRUST DEPOSITOR...52 DESCRIPTION OF THE NOTES AND INDENTURE...52 General...52 Interest and Principal...53 Principal Payments on the Notes...53 Amounts Available for Payments on the Notes...54 Priority of Payments Interest Allocations...55 Priority of Payments Principal Allocations...56 Reserve Fund...58 Trust Accounts...58 Eligible Depository Institution or Trust Company...59 Eligible Investments...59 Calculation of LIBOR...61 Interest Rate Swap...61 Events of Default...63 Remedies After Events of Default...65 The Indenture Trustee...66 The Backup Servicer...66 Administration...67 Governing Law...67 Amendments...67 Optional Repurchase of Notes...68 Mandatory Redemption of Notes...69 Reports...69 List of Noteholders...71 Form, Denomination, Exchange, Registration and Title of the Offered Notes...71 THE CERTIFICATE...75 THE TRANSFER AND SERVICING AGREEMENT...76 Conveyance of the Loans...76 Representations and Warranties; Definition of Eligible Loans...77 Remedies for Breaches of Representations and Warranties; Definition of Ineligible Loans...81 Material Modifications to Loans...82 Loan Prepayments...82 Optional Repurchase or Substitution...82 Mandatory Repurchase...84 Definition of Defaulted Loans...84 Indemnification...84 Servicing Compensation and Payment of Expenses...85 Servicing Standard and Servicer Advances...86 Servicer Resignation...86 Servicer Default...86 Evidence as to Compliance; Obligor Financial Statements...88 Amendments...89 CERTAIN FEDERAL INCOME TAX AND BENEFIT PLAN CONSIDERATIONS...90 Holders Reliance on this Section...90 Federal Income Tax Considerations...90 Federal Tax Considerations with Respect to the Issuer...91 Federal Tax Considerations with Respect to the Offered Notes...92 Federal Tax Considerations with Respect to Foreign Investors...94 State and Local Tax Considerations...96 Benefit Plan Considerations...96

13 PLAN OF DISTRIBUTION...98 European Economic Area...99 Purchaser Inquiries NOTICE TO INVESTORS ANTI-MONEY LAUNDERING AND ANTI-TERRORISM REQUIREMENTS AND DISCLOSURES LISTING AND GENERAL INFORMATION RATING OF THE NOTES LEGAL MATTERS GLOSSARY INDEX OF TERMS...133

14 SUMMARY The following is only a summary of certain of the terms of the Offered Notes. This summary does not contain all the information that may be important to prospective investors. To understand all of the terms of this offering, prospective investors should read this entire Offering Memorandum. In addition, prospective investors may wish to read the documents governing the transfer of the Loans, the formation of the Issuer and the issuance of Notes. These documents are available from the Originator upon request. Certain capitalized terms used herein are defined in the Glossary. A listing of the pages on which such terms as well as other terms are defined is found in the Index of Terms. There are material risks associated with an investment in the Offered Notes. See Risk Factors for a discussion of some of the risks prospective investors should consider before making an investment in the Offered Notes. Principal Parties The Issuer ACAS Business Loan Trust The Originator and the Servicer The Trust Depositor The Backup Servicer The Indenture Trustee The Owner Trustee American Capital Strategies, Ltd. ACAS Master Business Loan LLC Wells Fargo Bank, National Association Wells Fargo Bank, National Association Wilmington Trust Company Description Of The Issuer s Assets The Loans The Issuer s assets will consist primarily of U.S. dollar denominated First Lien Loans, Second Lien Loans and Subordinated Loans of Obligors principally located in the United States that satisfy eligibility criteria and other criteria in the Transfer and Servicing Agreement, including guidelines concerning maturities, ratings and industry, geographic and Obligor concentrations as described herein. See The Transfer and Servicing Agreement Representations and Warranties; Definition of Eligible Loans, The Pre-Funding Period and The Replenishment Period. Loans representing up to 12% of the Aggregate Outstanding Loan Balance may be to primary Obligors organized under the laws of, or all or substantially all of the assets of which are located in, countries other than the United States. The Loans are subject to a number of risks, including credit, liquidity, interest rate and other risks. See Risk Factors Asset Risks. In addition, the Issuer expects to purchase Additional Loans during the Pre- Funding Period and may apply Principal Collections on the Loans to purchase Additional Loans during the Replenishment Period. The Servicer will determine and report to the Indenture Trustee on the Effective Date the extent of compliance of the Loans with the Portfolio Criteria as of the Effective Date. See The Pre-Funding Period and The Replenishment Period. Description Of The Notes Issued Notes The Notes will be issued on the Closing Date. The Issuer is issuing the following classes of Notes:

15 Original Margin Expected Rating 2 Class Principal Amount Class Size Added to LIBOR 1 S&P Moody s Fitch Final Maturity Date A $300,500, % 0.40% AAA Aaa AAA November 18, 2019 B $37,500, % 1.00% AA Aa2 AA November 18, 2019 C $63,000, % 1.25% A A2 A November 18, 2019 D $31,500, % 3.00% BBB Baa2 BBB November 18, 2019 E $42,500, % N/A NR NR BBB November 18, 2019 F $25,000, % N/A NR NR NR N/A 1 2 The Note Interest Rate for each class of Offered Notes will be calculated as the sum of the applicable margin and the then applicable LIBOR. LIBOR on the Offered Notes is Three-Month LIBOR (provided that LIBOR with respect to the initial Interest Accrual Period will be determined through the use of a straight-line interpolation as described in Description of the Notes and Indenture Calculation of LIBOR ). NR means the referenced Note is not rated. Offered Notes Pre-Funding Period Only the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes are being offered hereby. American Capital or an Affiliate will acquire the full $63,000,000 original principal balance of the Class C Notes and the full $31,500,000 original principal balance of the Class D Notes but will be under no obligation to retain such Notes. The basic terms of the Offered Notes are described in Description of the Notes and Indenture. The Issuer expects that, as of the Closing Date, it will have obtained greater than 85% of the Expected Aggregate Outstanding Loan Balance. The Issuer expects to obtain the remainder of the Expected Aggregate Outstanding Loan Balance during the period (the Pre-Funding Period ) beginning on and including the Closing Date and ending on the earlier of (a) the date that is 60 days following the Closing Date and (b) the date on which the Aggregate Outstanding Loan Balance equals the Expected Aggregate Outstanding Loan Balance (such date, the Effective Date ). During the Pre- Funding Period, the Issuer expects to purchase Additional Loans with Unused Proceeds in the Principal Collection Account and Principal Collections, subject in all cases to the Issuer s compliance with certain conditions set forth in the Transfer and Servicing Agreement, and summarized herein. See The Pre-Funding Period and The Portfolio Criteria. During the Pre-Funding Period, the Issuer may only purchase a Loan if the Servicer on behalf of the Issuer certifies to the Indenture Trustee that, after giving effect to the purchase of such Loan, (a) the Portfolio Acquisition and Disposition Requirements are satisfied, and (b) the Portfolio Criteria are satisfied; provided that if any component of the Portfolio Criteria is not satisfied prior to giving effect to the purchase of a Loan, the Portfolio Criteria shall be deemed satisfied with respect to such component if the component is maintained or improved by the purchase of such Loan. Within ten Business Days after the Effective Date, the Servicer will (a) engage a firm of nationally recognized independent certified public accountants (the Independent Accountants ) to determine the extent of compliance with the Portfolio Criteria of the Loans included in the Collateral as of the Effective Date, (b) deliver to the Indenture Trustee and the Rating Agencies an officer s certificate certifying (x) the extent of compliance with the Portfolio Criteria of the Loans included in the Collateral as of the Effective Date and (y) as to the Aggregate Outstanding -2-

16 Loan Balance and a comparison of the Aggregate Outstanding Loan Balance to the Expected Aggregate Outstanding Loan Balance, and appending thereto the Quarterly Report and (c) request that each Rating Agency confirm in writing, within 60 Business Days after the initial Payment Date (or such later date as each Rating Agency may determine) that such Rating Agency has not reduced or withdrawn any of the ratings assigned to the Offered Notes on the Closing Date (the Effective Date Ratings Confirmation ); provided that the Servicer shall not be required to request such confirmation from Moody s and Fitch if the Issuer is in compliance with the Portfolio Criteria as of the Effective Date. Within 60 Business Days after the initial Payment Date, the Servicer will deliver to the Indenture Trustee and the Rating Agencies a report of the Independent Accountants certifying the results of the determination referenced in clause (b) above. If (A) the Servicer fails to deliver the officer s certificate referenced in clause (b) above, (B) any Rating Agency notifies the Issuer or the Servicer on the Issuer s behalf within 60 Business Days after the initial Payment Date (or such later date as each Rating Agency may determine) that its rating on any class of Offered Notes will be reduced or withdrawn, or fails to respond to the request for an Effective Date Ratings Confirmation, or (C) the Servicer fails to deliver the report of the Independent Accountants referenced above (any of such events, an Effective Date Ratings Downgrade ), the Servicer on behalf of the Issuer shall present a Proposed Plan to the Rating Agencies to obtain an Effective Date Ratings Confirmation. If a Proposed Plan has not been presented and accepted by the Rating Agencies, resulting in an Effective Date Ratings Confirmation on or prior to the first Payment Date following the applicable Effective Date Ratings Downgrade (a Ratings Confirmation Failure ), such Payment Date and any succeeding Payment Date will be a Sequential Payment Date, until such date as each such Rating Agency has delivered an Effective Date Ratings Confirmation or until the Outstanding Principal Balance of each class of Notes is reduced to zero. See The Pre-Funding Period. Replenishment Period The Issuer will have the option to use Principal Collections to purchase Additional Loans during the Replenishment Period. The Replenishment Period will begin on the Effective Date and will terminate on the earlier to occur of (a) the Business Day preceding the Payment Date in February 2008 or (b) an Event of Default (the Replenishment Period ). During the Replenishment Period, Principal Collections received by the Issuer will be deposited in the Principal Collection Account and the Issuer expects to purchase Additional Loans with such Principal Collections. To the extent such Principal Collections are not reinvested within 90 days or otherwise applied as set forth under Special Redemption, such Principal Collections may be required to be paid to the Noteholders in a Special Redemption. In addition, if on any Payment Date during the Replenishment Period any Additional Principal Amount remains unpaid after applying Interest Collections on such Payment Date, Liquidation Proceeds (which shall, for such purpose, be allocated as if such Liquidation Proceeds were Interest Collections) shall be distributed up to the amount of any unpaid Additional Principal Amount prior to any Liquidation Proceeds being available to purchase Additional Loans; provided that following payment in full of any unpaid Additional Principal Amount on any Payment Date during the Replenishment Period, the Issuer shall be entitled to apply Liquidation Proceeds as either Interest Collections or Principal Collections, in its discretion. -3-

17 If terminated as described in clause (a) above, the Replenishment Period cannot be extended without the consent of the Servicer and the Required Holders and satisfaction of the Fitch Rating Condition and the S&P Rating Condition. If the Replenishment Period terminates as a result of the occurrence of an Event of Default, the Replenishment Period cannot be reinstated unless (a) the event giving rise to such termination has been cured or waived, (b) no other events that would terminate the Replenishment Period have occurred, (c) the Servicer and the Required Holders have consented to such reinstatement and (d) the Fitch Rating Condition and the S&P Rating Condition have been satisfied. The Servicer is required to give notice of any extension or reinstatement of the Replenishment Period to Moody s. An extension or reinstatement of the Replenishment Period could result in a Ratings Effect, as determined by each Rating Agency in its sole discretion. Portfolio Acquisition and Disposition Requirements Portfolio Criteria The Portfolio Acquisition and Disposition Requirements will apply to any acquisition (whether by purchase or substitution) or disposition of a Loan by the Issuer, and consist of the following conditions: (a) such Loan, if being acquired by the Issuer, is an Eligible Loan; (b) such Loan is being acquired or disposed of in accordance with the terms and conditions set forth in the Transfer and Servicing Agreement; (c) the acquisition or disposition of such Loan does not result in a reduction or withdrawal of the then-current rating issued by any Rating Agency on any class of Notes then outstanding; and (d) such Loan is not being acquired or disposed of for the primary purpose of recognizing gains or decreasing losses resulting from market value changes. The Portfolio Criteria must be satisfied after (a) any acquisition of Additional Loans during the Pre-Funding Period, (b) giving effect to any use of Principal Collections to acquire Additional Loans during the Replenishment Period and (c) giving effect to any substitution of a Substitute Loan at any time any Offered Notes are outstanding; provided that if any component thereof is not satisfied prior to giving effect to the purchase of an Additional Loan or substitution of a Substitute Loan, as the case may be, the Portfolio Criteria shall be deemed satisfied with respect to such component if the component is maintained or improved by the purchase of such Additional Loan or the substitution of such Substitute Loan, as applicable. Certain other criteria also apply to the inclusion of Substitute Loans in the Collateral. See Replenishment Period The Portfolio Criteria and The Transfer and Servicing Agreement Mandatory Repurchase and Optional Repurchase or Substitution. Following the Effective Date, the Servicer will report the extent of compliance with the Portfolio Criteria as of the most recent Determination Date in each Quarterly Report. The Portfolio Criteria are as follows: (a) the S&P CDO Monitor Test is satisfied; (b) the Moody s Weighted Average Rating Factor is less than or equal to the Maximum Moody s Weighted Average Rating Factor; (c) the Fitch Weighted Average Rating is less than or equal to 30%; (d) the Weighted Average Life Test is satisfied; -4-

18 (e) the Global Weighted Average Spread is greater than or equal to the Minimum Global Weighted Average Spread; (f) the Diversity Score is greater than or equal to the Minimum Diversity Score; (g) the Moody s Weighted Average Recovery Rate equals or exceeds 30%; (h) the S&P Weighted Average Recovery Rate equals or exceeds 40%; (i) not more than 5% of the Aggregate Outstanding Loan Balance may consist of Floating Prime Rate Loans; (j) not more than 20% of the Aggregate Outstanding Loan Balance may consist of Subordinated Loans; (k) not more than 75% of the Aggregate Outstanding Loan Balance may consist of Second Lien Loans and Subordinated Loans; (l) not more than 5% of the Aggregate Outstanding Loan Balance may consist of Loans that pay interest less frequently than quarterly but at least annually; (m) not more than 17% of the Aggregate Outstanding Loan Balance may consist of Loans (other than Defaulted Loans) with a Moody s Rating of Caa1 or lower; (n) not more than 15% of the Aggregate Outstanding Loan Balance may consist of Loans (other than Defaulted Loans) with an S&P Rating of CCC+ or lower; (o) not more than 20% of the Aggregate Outstanding Loan Balance may consist of Loans (other than Defaulted Loans) with a Fitch Rating of CCC+ or lower; (p) not more than 12% of the Aggregate Outstanding Loan Balance may consist of Loans to primary Obligors organized under the laws of, or all or substantially all of the assets of which are located in, any country other than the United States; provided that the full aforementioned 12% may consist of Loans to primary Obligors organized under the laws of, or all or substantially all of the assets of which are located in, Canada; (q) not more than 6% of the Aggregate Outstanding Loan Balance may consist of Loans to primary Obligors organized under the laws of, or all or substantially all of the assets of which are located in, Group I Countries, Group II Countries or Group III Countries; (r) not more than 3% of the Aggregate Outstanding Loan Balance may consist of Loans to a single primary Obligor organized under the laws of, or all or substantially all of the assets of which are located in, a Group II Country; (s) not more than 3% of the Aggregate Outstanding Loan Balance may consist of Loans to a single primary Obligor organized under the laws of, or all or substantially all of the assets of which are located in, a Group III Country; -5-

19 (t) not more than 10% of the Aggregate Outstanding Loan Balance may consist of Broadly Syndicated Loans; and (u) not more than 5% of the Aggregate Outstanding Loan Balance may consist of Loans to a single Obligor. Rating The Issuer will not issue the Offered Notes unless they receive ratings from the Rating Agencies not lower than those set forth below: Class of Notes S&P Moody s Fitch A AAA Aaa AAA B AA Aa2 AA C A A2 A D BBB Baa2 BBB A rating is not a recommendation to purchase, hold or sell Offered Notes since a rating does not address market price or suitability for a particular investor. A rating may be subject to revision or withdrawal at any time by the assigning Rating Agency. See Rating of the Notes. Denominations Listing Sequential Pool Condition Special Redemption Investors may purchase the Offered Notes in minimum denominations of $250,000, and in integral multiples of $1,000 in excess of the minimum denominations. Application will be made to admit the Offered Notes to trading on the Irish Stock Exchange. See Listing and General Information. There can be no assurance that any such admission can be obtained or maintained. No application has been made to list the Notes on any other securities market or exchange. As of the first Payment Date on or after the date on which the Aggregate Outstanding Loan Balance is less than 50% of the Expected Aggregate Outstanding Loan Balance (such condition, the Sequential Pool Condition ) and on each Payment Date thereafter, (a) amounts available for distributions to the Noteholders in payment of principal of the Notes will be made sequentially to the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Class F Notes until the Outstanding Principal Balance of each class of Notes is reduced to zero, and (b) the Additional Principal Amount, if any, will be paid sequentially to the Holders of the Offered Notes in the manner described in clause (a) above. The Issuer will make principal payments on the Notes on any Payment Date during the Replenishment Period (a Special Redemption ) if the Servicer notifies the Indenture Trustee on or before the related Determination Date that: (a) any Principal Collections have remained on deposit in the Principal Collection Account for at least 90 days from the date of their deposit to that account (or, in the case of Principal Collections received during the Pre-Funding Period, for 90 days after the Effective Date); or (b) any Unused Proceeds remain on deposit in the Principal Collection Account on the Effective Date; and (c) the amounts described in the preceding clause (a) equal or exceed $1,000,000 in the aggregate, or the amounts described in the -6-

20 preceding clause (b) are greater than zero (such amounts, Special Redemption Amounts ). Certain Key Dates Cut-Off Date Closing Date Collection Period Payment Date Pro Rata Payment Date Sequential Payment Date Record Date Determination Date Measurement Date Interest Accrual Period The Cut-Off Date with respect to the Initial Loans will be the Closing Date. The Closing Date and each date after the Closing Date on which an Additional Loan or Substitute Loan is transferred to the Issuer is referred to as a Cut-Off Date. August 7, 2007 (the Closing Date ). For the first Payment Date, the period from and including the Closing Date to and including the last day of the calendar month prior to the month in which the first Payment Date occurs, and for each Payment Date thereafter, the period from and including the first day of the calendar month in which the prior Payment Date occurred to and including the last day of the calendar month prior to the month in which such Payment Date occurs (each, a Collection Period ). Distributions of interest and principal will be made quarterly on the 16 th day of each November, February, May and August, or, if that day is not a Business Day, the next Business Day, commencing on November 16, 2007 (the Payment Date ). Any Payment Date other than a Sequential Payment Date (each, a Pro Rata Payment Date ). Any Payment Date (a) following the occurrence of a Servicer Default, an Event of Default, a Downgrade Event, the existence of any Class D Accrued Payable, the Sequential Pool Condition or a Ratings Confirmation Failure, (b) on which the Interest Distributable Test is not satisfied or (c) on which the CCC Excess Condition is not satisfied (each, a Sequential Payment Date ); provided that in the case of a Sequential Payment Date arising due to a Ratings Confirmation Failure, only the first Payment Date following such Ratings Confirmation Failure and each subsequent Payment Date prior to the earlier of (i) the date on which the Effective Date Ratings Confirmation is delivered and (ii) the date on which the Outstanding Principal Balance of each Class of Offered Notes has been reduced to zero shall be a Sequential Payment Date. For book-entry Notes, the calendar day immediately preceding the current Payment Date; for definitive Notes, the last Business Day of the calendar month preceding the current Payment Date (as applicable, the Record Date ). With respect to any Payment Date, the third Business Day prior to such Payment Date (the Determination Date ). (a) The Closing Date; (b) during the Replenishment Period, each Cut-Off Date with respect to an Additional Loan or a Substitute Loan and each Determination Date; and (c) following the Replenishment Period, each Cut- Off Date with respect to any Substitute Loan and each Determination Date (each, a Measurement Date ). For the first Payment Date, the period commencing on the Closing Date to but excluding the first Payment Date, and for each Payment Date thereafter, -7-

21 the period commencing on the Payment Date to but excluding the next Payment Date (each, an Interest Accrual Period ). Business Day Any day that is neither a Saturday nor a Sunday, nor another day on which banking institutions in the city of New York, New York or Minneapolis, Minnesota are authorized or obligated by law, executive order or governmental decree to be closed; provided that if any action is required of the Ireland Paying Agent, then, for purposes of determining when such action is required, Dublin, Ireland will be considered in determining Business Day (each, a Business Day ). Payments On The Notes Available Funds The Issuer will pay principal and interest due on the Notes from the following sources: Collections received on the Loans; earnings on amounts held in the Trust Accounts other than the Swap Counterparty Collateral Account; amounts on deposit in the Reserve Fund more specifically described in Description of the Notes and Indenture Reserve Fund ; Unused Proceeds to the extent they are not applied within 90 days of the Effective Date; and Net Trust Swap Receipts and Swap Breakage Receipts, if any. See Description of the Notes and Indenture Amounts Available for Payments on the Notes. Interest Calculation Interest Payments on the Notes Principal Payments on the Notes The Issuer will calculate interest on the Offered Notes on the basis of actual days elapsed over a year consisting of 360 days. Interest will accrue on the Outstanding Principal Balance of each class of Offered Notes during each Interest Accrual Period at the Note Interest Rate applicable to such class of Offered Notes. LIBOR with respect to the Offered Notes will be determined as described herein on the related LIBOR Determination Date with respect to each Interest Accrual Period. See Description of the Notes and Indenture Calculation of LIBOR. Interest with respect to the Offered Notes for each Interest Accrual Period will be distributed, to the extent funds are available therefor, quarterly in arrears on each Payment Date, commencing on November 16, During the Pre-Funding Period and the Replenishment Period, the Issuer may use Principal Collections to purchase Additional Loans and the Noteholders will not be entitled to repayment of principal of the Notes prior to the end of the Replenishment Period, except (a) to the extent that any Additional Principal Amount is payable pursuant to clause Ninth under Description of the Notes and Indenture Priority of Payments Interest Allocations or (b) to the extent described under Special Redemption. After the Replenishment Period, principal on the Notes will be distributed, to the extent funds are available therefor, on each Payment Date, commencing on February 18, The Notes will receive principal payments from Principal Collections and, in the case of the Offered Notes, -8-

22 from Interest Collections to the extent described in clause Ninth under Description of the Notes and Indenture Priority of Payments Interest Allocations. On any Pro Rata Payment Date and with respect to pro rata payments of principal of the Notes, such payments shall be made pro rata to the classes of Notes then outstanding based on the respective original Outstanding Principal Balances of each class of Notes with respect to which such payments are made. If, on any Pro Rata Payment Date, the Outstanding Principal Balance of any class of Notes shall be reduced to zero after application of any payments in respect of principal on such Payment Date, the amount remaining for distribution in respect of principal on such date shall be distributed pro rata to the classes of Notes which then remain outstanding based on their respective original Outstanding Principal Balances. On any Pro Rata Payment Date, principal payments on the Notes will be made to the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Class F Notes, pro rata until the Outstanding Principal Balance of each such class of Notes is reduced to zero. On any Sequential Payment Date, (a) principal payments on the Notes will be made to the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, Class E Notes and the Class F Notes sequentially until the Outstanding Principal Balance of each such class of Notes is reduced to zero and (b) no principal payments will be made to any subordinated class of Notes until the Outstanding Principal Balance of the immediately senior class of Notes is reduced to zero. Any unpaid Additional Principal Amount shall be paid sequentially to the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, Class E Notes and the Class F Notes regardless of whether the Payment Date is a Sequential Payment Date or a Pro Rata Payment Date. Reserve Fund Required Reserve Amount On the Closing Date, the Trust Depositor will establish a reserve fund in a bank account in the name of the Indenture Trustee (the Reserve Fund ). This fund is intended to provide investors with limited protection in the event Collections are insufficient to make payments on the Offered Notes. The Issuer cannot assure investors, however, that this protection will be adequate to prevent shortfalls in amounts available to make payments on the Offered Notes. On each Payment Date, deposits will be required to be made to the Reserve Fund out of available Interest Collections to cause the balance of the Reserve Fund to be an amount equal to the sum (as determined on the related Determination Date) of (a) the aggregate Outstanding Loan Balance of Delinquent Loans and (b) the Outstanding Loan Balance of any Loan that the Servicer has not submitted to be rated by the Rating Agencies within 60 days of the Loan s inclusion in the Loan Pool (the Required Reserve Amount ). On the Closing Date, the Issuer will deposit approximately $1,000,000 from the proceeds of the sale of the Offered Notes into the Reserve Fund and this amount will be applied as Interest Collections under the Priority of Payments on the first Payment Date. If, on any Payment Date, the amounts available for distribution exceed the amounts needed to pay amounts described in clauses First through Ninth under Description of the Notes and Indenture Priority of Payments Interest Allocations, the excess will be deposited into the Reserve Fund until the amount on deposit equals the Required Reserve Amount. -9-

23 The conditions under which the Issuer will withdraw amounts from the Reserve Fund are more specifically described in the Description of the Notes and Indenture Reserve Fund and Priority of Payments Interest Allocations. Other Terms Mandatory Repurchase of Loans Optional Repurchase or Substitution of Loans A Loan that is part of the Issuer s assets must be repurchased or, at the Trust Depositor s and the Originator s option, substituted for a Substitute Loan if the Issuer subsequently determines that such Loan was an Ineligible Loan. For further information regarding mandatory repurchases of Loans or substitutions of Substitute Loans, see The Transfer and Servicing Agreement Mandatory Repurchase. A Loan that is part of the Issuer s assets may (a) be substituted with a Substitute Loan that has been originated under the same credit criteria and policies as the Loan it replaces or (b) repurchased, subject to certain limitations as to amount and other matters, including compliance with the Portfolio Criteria. The Trust Depositor and Originator will have the option, subject to certain limitations and other requirements, to substitute for or repurchase a Loan if: (i) (ii) (iii) (iv) (v) (vi) such Loan becomes a Delinquent Loan; such Loan becomes a Defaulted Loan; such Loan has a covenant default; the terms of such Loan are to be subsequently amended in a manner not permitted by the Transfer and Servicing Agreement, including Loans that become Materially Modified Loans; Loans that are subject to a Specified Amendment; or such Loan is a Discretionary Repurchased Loan. For further information regarding the limitations regarding optional repurchase of loans or substitutions of Substitute Loans, see The Transfer and Servicing Agreement Optional Repurchase or Substitution. Optional Repurchase of Notes At any time during the period beginning on the date on which the Outstanding Principal Balance of the Offered Notes is less than or equal to 10% of the Outstanding Principal Balance of the Offered Notes on the Closing Date (the Call Period ), the Class F Noteholder may direct the Issuer to repurchase the Notes in whole, but not in part (an Optional Repurchase ), on the Payment Date following the date on which the Class F Noteholder provides notice of its election to cause the repurchase by the Issuer of the Notes (the Repurchase Date ). The Issuer will repurchase the Notes on the Repurchase Date by depositing in the Note Distribution Account an amount equal to the sum of (a) the then Outstanding Principal Balance of each class of Offered Notes, plus accrued and unpaid interest on each class of Offered Notes to but excluding the Repurchase Date, plus (b) all other amounts accrued and unpaid with respect thereto, together with all amounts then owing to each Swap Counterparty, including Swap Breakage Costs, plus (c) without duplication, all amounts payable to each Swap -10-

24 Counterparty upon termination of all Swap Transactions in connection with the repurchase of the Notes, including Swap Breakage Costs, plus (d) all administrative and other fees, expenses, advances and other amounts accrued and payable or reimbursable in accordance with the Priority of Payments (including fees and expenses, if any, incurred by the Indenture Trustee and the Servicer in connection with any sale of Loans in connection with a repurchase) (such sum, the Repurchase Price ). The Issuer shall furnish notice of an Optional Repurchase to the Indenture Trustee at least 10 days prior to the Repurchase Date and the Indenture Trustee will provide a corresponding notice to each Noteholder. All Swap Transactions then outstanding shall be terminated upon an Optional Repurchase (provided that the Issuer shall not permit any Swap Transaction to terminate until such time as the Optional Repurchase is irrevocable) and all amounts payable to the Swap Counterparties must thereupon be paid in full. Mandatory Redemption of Notes Interest Rate Swap Servicer Advances Servicing Fee Certain Federal Income Tax Considerations If, on any Payment Date, the aggregate amounts on deposit in the Collection Account and the Reserve Fund are greater than or equal to the sum of (a) the Aggregate Outstanding Principal Balance of the Notes, (b) the interest accrued thereon, (c) amounts owed to the Swap Counterparties, including Swap Breakage Costs, (d) any amounts owed to the Indenture Trustee, the Backup Servicer and the Owner Trustee, (e) any accrued and unpaid Servicing Fee and (f) unreimbursed Servicer Advances, the amounts on deposit in the Reserve Fund will be deposited in the Collection Account and all such amounts on deposit will be used to redeem the Notes in full. The redemption price will be equal to the Aggregate Outstanding Principal Balance of the Notes plus accrued and unpaid interest through the date of redemption. The Issuer shall be required to enter into one or more Swap Transactions as described in Description of the Notes and Indenture Interest Rate Swap. Any scheduled periodic payments required to be made by the Issuer under the Interest Rate Swaps will be made in accordance with the priority of payments described in the Description of the Notes and Indenture Priority of Payments Interest Allocations and will generally be senior to payments on the Offered Notes. The amounts due to the Swap Counterparties, including Swap Breakage Costs, will also be secured by the Loans and Collateral. American Capital, as swap guarantor, will guarantee the payment of the Swap Breakage Costs under the conditions and to the extent specifically described in Description of the Notes and Indenture Interest Rate Swap. The Servicer has the option to advance delinquent payments of interest and principal on the Loans if the Servicer reasonably believes that such advance would be recovered from the related Obligor. 1.0% per annum of the Loan Pool Balance as of the first day of the related Collection Period. The discussion under the heading Certain Federal Income Tax and Benefit Plan Considerations is for general information only and may not address all tax considerations that may be significant to a potential investor. The discussion was written on the understanding that it may be used in promoting, marketing, and recommending the transactions discussed herein. The discussion was not written and is not intended to be used by any Person, and cannot be used by any Person, for purposes of avoiding penalties under the Internal Revenue Code of 1986, as amended. Each -11-

25 prospective investor should consult an independent tax advisor as to the tax consequences of the transactions based on the investor s particular circumstances. The discussion herein does not address the tax treatment of any Person whose has the principal purpose for which engaging in the transactions discussed herein is the avoidance or evasion of taxes. Subject to the considerations discussed under Certain Federal Income Tax and Benefit Plan Considerations, in the opinion of Winston & Strawn LLP, special federal tax counsel to the Issuer ( Federal Tax Counsel ), for federal income tax purposes, the Offered Notes will be characterized as debt, and the Issuer will not be characterized as an association, taxable mortgage pool, or a publicly traded partnership taxable as a corporation. Each investor, by accepting an Offered Note, agrees to treat the Offered Notes as indebtedness. See Certain Federal Income Tax and Benefit Plan Considerations. ERISA Considerations Restrictions on Transfer See Certain Federal Income Tax and Benefit Plan Considerations for a discussion of the eligibility of the Offered Notes for purchase by employee benefit plans. The Notes have not been registered under the Securities Act. The Offered Notes are being offered only: to Qualified Institutional Buyers as defined under Rule 144A of the Securities Act who are Qualified Purchasers; to Institutional Accredited Investors who are Qualified Purchasers; and to Qualified Purchasers in offshore transactions in reliance on Regulation S. The Offered Notes may not be resold except: to a Person whom the seller reasonably believes is a Qualified Institutional Buyer and a Qualified Purchaser that purchases for its own account or the account of another Qualified Institutional Buyer who is a Qualified Purchaser to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A; in certificated form to an Institutional Accredited Investor who is a Qualified Purchaser, subject to the requirements described herein; in an offshore transaction to a Qualified Purchaser in accordance with Rule 903 or Rule 904 of Regulation S; pursuant to another exemption available under the Securities Act and in accordance with any applicable state securities laws; or pursuant to an effective registration statement. Form of the Offered Notes The Offered Notes will be issued to the following investors only in the following forms: Qualified Institutional Buyers who are Qualified Purchasers book-entry Notes; -12-

26 Institutional Accredited Investors who are Qualified Purchasers definitive Notes; and Non-U.S. Holders of Notes under Regulation S who are Qualified Purchasers book-entry Notes. -13-

27 RISK FACTORS An investment in the Offered Notes involves certain risks including risks relating to the Loans securing the Notes and risks relating to the structure of the Notes and related arrangements. There can be no assurance that the Loans will not incur losses or that investors in the Offered Notes will receive a return of all or any of their invested capital. Prospective investors should carefully consider, among other things, the following risk factors in addition to the other information set forth in this Offering Memorandum before investing in the Offered Notes. Asset Risks Subordinated Loans and Second Lien Loans contain terms that may expose Noteholders to risk of losses on such Loans. Most of the Loans will be subject to subordination agreements with senior lenders (or the related senior administrative agent), pursuant to which the Issuer s right to payment will be subordinated to the senior lenders right to payment, the Issuer s interest in any Collateral securing the Loan will be subordinated to Liens held by the senior lenders (certain subordinated Loans will be unsecured) and the ability of the Issuer to exercise remedies after a Loan becomes a Defaulted Loan will be subject to various standstill provisions. In addition, certain of the Loans may be unsecured or contain provisions requiring the Liens securing the Issuer s interests in the Collateral to be released in certain circumstances. Under such subordination agreements, the Issuer generally may not receive payments of principal on a Loan until the applicable senior loan is paid in full and generally may receive payments of interest only if there is no default under the senior loan. Additionally, if a Loan becomes a Defaulted Loan, the Issuer (or the related collateral agent or administrative agent acting on behalf of the Issuer and the other lenders) generally would be prohibited from taking any action to enforce its rights with regard to the Loan, including the foreclosure of any Collateral, for a period of time. In certain cases, the Issuer and the other lenders party to a particular loan (or the related collateral agent or administrative agent acting on behalf of the Issuer and the other lenders) would be prohibited from taking any action to foreclose upon Collateral until the senior loan is paid in full. Moreover, any amounts that would be realized upon foreclosure of any Collateral or other collection efforts or in connection with a bankruptcy or insolvency proceeding involving an Obligor generally will be required to be turned over to the senior lender until the senior lender has realized the full value of its claims. Such restrictions may materially and adversely affect the ability of the Issuer to realize value from a Defaulted Loan. A portion of the Loans will consist of Second Lien Loans. Second Lien Loans contain provisions that subordinate the Payment Obligations of the Obligor and/or the Liens on the Collateral securing such Payment Obligations on the Issuer s portion of such Loans to the portion of such Loans or the Liens, as the case may be, held by the other lenders party to such Loans upon the occurrence of a payment default under the related Loan Documents or in the case of any liquidation or foreclosure on the related Collateral. In any of the foregoing circumstances, the Issuer would receive payments on such Second Lien Loan only after the other lenders to the related Obligor that are ranked senior to such Second Lien Loan are paid in full. Such subordinated payment provisions may materially and adversely affect the ability of the Issuer to realize value from a Second Lien Loan. Liens arising by operation of law may take priority over the Issuer s Liens on Collateral and impair the Issuer s recovery on a Loan in the event of a default or foreclosure on that Loan. Federal or state law may grant Liens on Collateral securing a Loan that have priority over the Issuer s interest. An example of a Lien arising under federal or state law is a tax or other government Lien on property of the Obligor. The tax Lien may have priority over the interest of the Issuer in the Collateral. To the extent a Lien having priority over the Issuer s Lien exists with respect to the related Collateral, the Issuer would not be entitled to any proceeds of the Collateral until the indebtedness secured by the Lien having priority is repaid in full. In the event the creditor holding such Lien exercises its remedies, it is possible that, after such creditor is repaid, sufficient cash proceeds from the related Collateral will not be available to pay the Loan s Outstanding Loan Balance to the Issuer. -14-

28 Balloon Loans and Bullet Loans present refinancing risk. Most of the Loans will consist of Loans that are either Balloon Loans or Bullet Loans. Balloon Loans and Bullet Loans may involve a greater degree of risk than fully amortizing loans because the ability of an Obligor to make the final payment due at maturity typically will depend upon its ability either to timely refinance the Loan either with debt or with equity or to timely sell itself or the related Collateral. The ability of the Obligor to accomplish either of these goals will be affected by many factors including the availability of financing at acceptable rates to the Obligor at the time, the financial condition of the Obligor, the operating history of the related business, the tax law and the general economic conditions at the time. The above-listed factors may make it more difficult for the Obligor to accomplish a refinancing or sale and may result in the inability of the Obligor to make the final payment due at maturity, which would reduce amounts available for distribution to holders of Offered Notes. The Originator will not be obligated to provide the funds to refinance the Balloon Loans and Bullet Loans. The nature of the Obligors, lack of publicly available information about them and the volatility inherent in the Obligors businesses expose Noteholders to risk of losses. The Obligors of the Loans will typically be middle market businesses, the majority of which will be privately-owned. There is generally no publicly available information about these businesses. Therefore the Originator relies on its principals and consultants to investigate these businesses. Some Obligors may not meet net income, cash flow and other coverage tests typically imposed by senior lenders. Numerous factors may affect an Obligor s ability to repay its loan, including the failure to meet its business plan, a downturn in its industry or negative economic conditions. A deterioration in an Obligor s financial condition and prospects may be accompanied by deterioration in the Collateral securing the Loan. In addition, subordinated Loans involve a higher degree of risk than senior Loans, and unsecured Loans generally involve a higher degree of risk than secured Loans. Middle market businesses typically have narrower product lines, and smaller market shares than large businesses. Therefore, they tend to be more vulnerable to competitors actions and market conditions, as well as general economic downturns. These businesses may also experience substantial variations in operating results. Typically, the success of a middle market business also depends on the management talents and efforts of one or two persons or a small group of persons. The death, disability or resignation of one or more of these persons could have a material adverse impact on the Obligor. In addition, middle market businesses often need substantial additional capital to expand or compete and will have borrowed money from other lenders. The First Lien Loans and Second Lien Loans will be secured by the assets of the related Obligors. Certain of the Subordinated Loans may be secured by a second or third Lien on the assets of the related Obligor. In such cases, the Issuer s rights to payment and its security interest will be subordinated to the payment rights and security interests of one or more senior lenders. For the Subordinated Loans that will be unsecured, the Issuer s rights to payment will be subordinated to the payment rights of senior lenders and, subject to such subordination, the Issuer s rights will be pari passu with the rights of other unsecured creditors of the related Obligor. See Asset Risks Subordinated Loans and Second Lien Loans contain terms that may expose Noteholders to risk of losses on such Loans. Often, a deterioration in an Obligor s financial condition and prospects will be accompanied by a deterioration in the value of the Collateral securing its loan, if any. These conditions may make it difficult for the Issuer to obtain repayment of the Loans. As a result, Noteholders may experience a loss of their investment. Certain regulatory and litigation risks affect the Obligors. Various of the Obligors will be subject to regulatory and litigation risks that could affect their ability to repay their Loans. If litigation or regulatory actions were determined adversely to such Obligors, it could materially and adversely affect such Obligors ability to make payments on the Loans included in the Loan Pool and impair payments on the Offered Notes. The Originator does not believe that current law provides a basis for plaintiffs in any action against any Obligors for regulatory and litigation matters to implicate successfully the Issuer or the Originator in any such action. However, there can be no assurance that such claims would not be asserted or successfully litigated. Any claims against the Originator could adversely affect the Originator s ability to service the Loans. Pursuant to the terms of the Transaction Documents, the Originator has agreed to indemnify the Issuer for any damages, losses, claims and related costs and expenses awarded against or incurred by the Issuer arising out of or as a result of any such regulatory action and litigation. In no event, however, will such indemnification cover any -15-

29 losses with respect to such Loans. Further, there can be no assurance that such rights to seek indemnification, if and when pursued by the Issuer, would be enforceable against the Originator or sufficient to cover all damages, losses, claims and related costs and expenses that may be incurred by the Issuer in such circumstances. The concentration of Loans to a limited number of Obligors or to Obligors in particular industries or regions could impair payments on the Notes if any such industry or region were to experience economic difficulties. Payments on the Offered Notes could be impaired by the concentration of the Loans to any one Obligor or industry or geographic location. In addition, defaults may be highly correlated with particular Obligors, industries or geographic locations. If Loans involving a particular Obligor, industry or geographic location represent more than a small proportion of the Issuer s assets, and that Obligor, industry or geographic location was to experience difficulties that would affect payments on the Loans, the overall timing and amount of Collections on the Loans held by the Issuer may differ from what investors may have expected, and investors may experience delays or reductions in payments they expected to receive on the Notes. The Issuer could be exposed to claims for lender liability and/or equitable subordination. A number of judicial decisions have upheld the right of borrowers to sue 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 and fair dealing owed to the borrower or has assumed a 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 Loans and the relationship of the Originator to certain Obligors, including its control over certain Obligors, the Issuer may be subject to allegations of lender liability. Although the Servicer does not intend to engage in conduct that would form the basis for a successful cause of action based on lender liability, there can be no assurance that such a claim would not arise or could not be asserted successfully. Courts have in some cases applied the doctrine of equitable subordination to subordinate the claim of a lending institution against a borrower to claims of other creditors of the borrower, when the lending institution is found to have engaged in unfair, inequitable, or fraudulent conduct. Additionally, courts have applied the doctrine of equitable subordination when a lending institution or its Affiliates are found to have exerted inappropriate control over a borrower, including control resulting from the ownership of an equity interest in a borrower. Because of the nature of the Loans, payments on the Loans may be subject to claims of equitable subordination. The Originator may receive warrants to purchase equity securities of the Obligors in consideration of the origination of the Loans. Such warrants generally may be exercised by the Originator for nominal consideration. In addition, the Originator may purchase additional equity securities from certain Obligors. In many cases, the Originator will have the power to designate members of an Obligor s board of directors. Together, these factors will give the Originator the ability to control or otherwise to exercise influence over the business and affairs of Obligors. Such control or influence could constitute grounds for equitable subordination. While the Originator does not intend to engage in conduct that would form the basis for a successful cause of action based on equitable subordination, there can be no assurance that such a claim would not arise or could not be asserted successfully. The nature of the Loans and the Collateral poses a risk to their collectability in general and increases the risk of loss associated with the collectability of Defaulted Loans. The collectability of the Loans is subject to credit, liquidity and interest rate risks and will generally fluctuate in response to, among other things, market interest rates, general economic conditions, the financial conditions of Obligors and other similar factors. Loans may become nonperforming for a variety of reasons. Such nonperforming Loans may require substantial workout negotiations or restructuring that may entail, among other things, a substantial reduction in the interest rate and/or a substantial write-down of the principal of the Loan. In addition, because of the unique and customized nature of a loan agreement and the fact that the secondary market for middle market loans is illiquid and in the case of some loans, nonexistent, certain Loans may not be purchased or sold as easily as publicly traded securities or at all, and, historically, the trading volume in the loan market has been small relative to other markets. Loans may encounter trading delays due to their unique and customized nature, and transfers may require the consent of an administrative agent or borrower. -16-

30 If a Loan held by the Issuer becomes a Defaulted Loan, the only sources of payment for amounts expected to be paid on that Loan may be the Liquidation Proceeds from the sale of any related Collateral (except in the case of unsecured Loans) and a deficiency judgment, if any, against the Obligor under the Defaulted Loan. See The Transfer and Servicing Agreement Definition of Defaulted Loans. Because the market value of the Collateral may decline faster than the Loan s Outstanding Loan Balance or the Collateral may otherwise be worth less than the Loan s Outstanding Loan Balance, the Servicer may not recover the entire amount due on the Loan, might not receive any Liquidation Proceeds on the Collateral and the Obligor may be unable to pay any deficiency judgment. The Reserve Fund is intended to make up for deficiencies in the proceeds and recoveries on the Loans. However, this protection is limited and could be depleted if those deficiencies are larger than the Issuer currently anticipates. In addition, other Collateral securing the Loans may become impaired for a variety of reasons. For example, poor economic conditions may result in accounts receivable, inventory, property, plant and equipment and other hard assets, intellectual property and other intangible assets or any other Collateral and credit enhancements significantly depreciating in value. Even assuming that the Collateral provides adequate security for the Loans, substantial delays could be encountered in connection with the liquidation of Defaulted Loans and corresponding delays in the receipt of related proceeds by the Holders of the Offered Notes could occur. An action to foreclose on the Collateral securing a Loan is regulated by state statutes and rules and is subject to many of the delays and expenses of other lawsuits if defenses or counterclaims are interposed, sometimes requiring several years to complete. In the event of a default by an Obligor, these restrictions as well as the ability of the Obligor to file for bankruptcy protection, among other things, may impede the ability of the Servicer to foreclose on or sell the Collateral or to obtain Liquidation Proceeds sufficient to repay all amounts due on the related Loan. The Servicer will be entitled to deduct from Liquidation Proceeds its Liquidation Expenses reasonably incurred in attempting to recover amounts due on the related Loan and not yet repaid, including payments to prior lienholders, legal fees and costs of legal action, real estate taxes, and maintenance and preservation expenses. If the Collateral fails to provide adequate security for the related Loans, and insufficient funds are available from the Reserve Fund, the holders of Offered Notes could experience a loss on their investment. Liquidation Expenses with respect to Defaulted Loans generally do not vary directly with the outstanding balance of the loan at the time of default. Therefore, assuming that a servicer took the same steps in collection upon a Defaulted Loan having a small remaining principal balance as it would in the case of a Defaulted Loan having a larger principal balance, the amount realized after expenses of liquidation would be smaller as a percentage of the outstanding balance of a small loan than would be the case with a larger loan. The financial condition or bankruptcy or insolvency of one or more Obligors could reduce or eliminate the return to the Issuer on a Loan, which may impair payments on the Notes. Loss of earnings, litigation, illness or death of principals of the Obligors and other similar factors may lead to an increase in delinquencies and bankruptcy filings by Obligors. In these instances, it is possible that the Issuer could experience a loss with respect to such Obligor s Loan. In conjunction with an Obligor s bankruptcy, a bankruptcy court may suspend, reduce or terminate the payments of principal and interest to be paid with respect to such Loan. In addition, to the extent a Loan is undersecured, a bankruptcy court may permanently reduce the principal balance of such Loan, thus delaying, permanently limiting or terminating the amount received by the Issuer with respect to such Loan. There is a significant risk that one or more of the Obligors may enter bankruptcy proceedings. Such proceedings may result in, among other things, a substantial reduction in the interest rate and a substantial write-down of the principal of the related Loan. There are a number of significant risks inherent in the bankruptcy process. First, rulings in a bankruptcy case are the product of adversary proceedings determined by a court with equitable powers, and are beyond the control of specific creditors. Second, a bankruptcy filing may adversely and permanently affect the Obligor making such filing. The Obligor may lose its market position, key employees, relationships with important suppliers, access to the capital markets or other sources of liquidity and otherwise become incapable of restoring itself as a viable entity. If for this, or any other reason, a Chapter 11 reorganization is converted to or becomes a liquidation, the liquidation value of the Obligor may not equal the liquidation value that was believed to exist at the time of purchase or origination of the Loan. Third, the duration of a bankruptcy case is difficult to predict. A creditor s return on investment can be adversely affected by delays while a plan of -17-

31 reorganization is being negotiated, approved by parties in interest and confirmed by the bankruptcy court until it ultimately becomes effective. For example, in general, unsecured creditors claims for interest accrued between the bankruptcy filing and a reorganization plan s consummation are not allowed. Fourth, the administrative costs of the debtor and official committees in connection with the bankruptcy case are frequently high and will be paid out of the debtor s estate prior to any return to general unsecured creditors. If the bankruptcy case involves protracted or difficult litigation, or turns into a liquidation, substantial assets may be devoted to such administrative costs; a creditor s costs in monitoring and enforcing its investment also may substantially increase. Certain claims that have priority by law (for example, claims for taxes) also may be significant. Finally, under certain circumstances, creditors claims against bankrupt or insolvent entities may be subject to equitable subordination or recharacterization as equity (particularly where the creditor is an insider or otherwise controls the debtor), and transfers made to creditors may be subject to avoidance and disgorgement as preferences or fraudulent conveyances. Laws applicable to foreclosure sales may delay or impair in whole or in part the realization of proceeds from the disposition of Collateral at any foreclosure sale. State laws impose requirements and restrictions relating to foreclosure sales and obtaining deficiency judgments following foreclosure sales. In the event that the Issuer and the Noteholders must rely on foreclosure on Collateral to recover amounts due on Defaulted Loans, the amounts due may not be realized due to these requirements and restrictions. Factors that may affect whether the Issuer receives the full amount due on a Loan include the failure to file financing statements to perfect the Originator s or Issuer s security interest in the Collateral securing the Loan and, in the case of unsecured Loans, the fact that no collateral secures such Loans. Multiple lenders and agency provisions in the Loans may impair enforcement actions against the related Collateral and expose the Noteholders to losses on the Loans. The Loan Pool is expected to consist primarily of Agented Notes and Third Party Agented Loans. Under the Loan Documents for Agented Notes and Third Party Agented Loans, the Originator (or ACFS) or another entity will be designated as the administrative agent, collateral agent or Persons acting in a similar capacity. Under these arrangements, the Obligor grants a Lien to the Originator (or ACFS) or such other entity as the agent on behalf of the holders of the related indebtedness and directs payments to the Originator (or ACFS) or such other entity, which, in turn, will distribute payments to the holders of the related indebtedness, including the Issuer. As is typical in such agency arrangements, the administrative agent, collateral agent or Person acting in a similar capacity is the party responsible for administering and enforcing the Loan and generally may take actions only in accordance with the instructions of a majority or two-thirds in commitments and/or principal amount of the related indebtedness and, in the case of Loans that are part of a capital structure that includes both senior and subordinated indebtedness, may take such action in accordance with the instructions of one or more senior tranches of the related indebtedness without any right to vote (except in certain limited circumstances) of the subordinated tranches of the related indebtedness. In many cases, the Loans held by the Issuer represent less than the amount of related indebtedness sufficient to compel such actions or represent such subordinated indebtedness which is precluded from acting and, consequently, the Issuer would only be able to direct such actions if instructions from the Issuer were made in conjunction with other holders of the related indebtedness that together with the Issuer comprise the requisite percentage of the related indebtedness then entitled to take action. In addition, if holders of the requisite percentage of the related indebtedness other than the Issuer desire to take certain actions, such actions may be taken even if the Issuer did not support such actions. Furthermore, if a Loan is subordinated to one or more senior loans made to the Obligor, the ability of the Issuer to exercise such rights may be subordinated to the exercise of such rights by the senior lenders. However, as is typical for such loans, certain actions, including amendments to the payment terms of the Loans, may not be taken without consent of all holders of the related indebtedness, including the Issuer. There is a risk that the Originator, ACFS or any third party that is acting as an administrative agent, a collateral agent or in a similar capacity may become subject to a bankruptcy or insolvency proceeding. Such an event would delay, and possibly impair, any enforcement actions undertaken by the Issuer and the other holders of the related indebtedness, including attempts to realize upon, and/or direct the applicable administrative agent, collateral agent or other entity acting in a similar capacity to take actions against the related Obligor or the related Collateral securing a Loan and actions to realize on proceeds or payments made by Obligors that are in the possession or control of the applicable administrative agent, collateral agent or other entity acting in a similar capacity. -18-

32 In addition, if the Originator, ACFS or a third party acts as the administrative agent, collateral agent or in a similar capacity with respect to a Loan, the Originator, ACFS or such third party will be entitled to resign in such capacity. The Issuer may not control the decision as to who will replace the Originator, ACFS or such third party in such capacity upon its resignation. Such Loans may not, however, contain provisions for holders of the related indebtedness to remove the Originator, ACFS or such third party as administrative agent, collateral agent or in such other similar capacity. Therefore, under circumstances where removal of the Originator, ACFS or such third party as administrative agent, collateral agent or in such other similar capacity was in the best interests of the holders of the related indebtedness (including the Issuer), the Loan Documents may be required to be amended by the holders of the requisite percentage of the indebtedness to remove the Originator, ACFS or such third party in such capacity and may require the consent of the Originator, ACFS or such party. There can be no assurance that such action would be taken. Any reduction or delay of payments on the Loans or the realization of the net proceeds of the related Collateral to satisfy a Defaulted Loan as a result of the agency provisions described above could result in a reduction or delay of payments on the Offered Notes. Lack of seasoning of Loans make delinquency and default rates difficult to predict. Certain of the Initial Loans by Initial Aggregate Outstanding Loan Balance were closed within the 12- month period preceding the Closing Date. In addition, some of the Initial Loans by Initial Aggregate Outstanding Loan Balance have not yet received any payments of principal from the related Obligors in accordance with the terms of such Loans. Therefore, it is difficult to predict what level of delinquencies and defaults the Issuer may experience once the Obligors are required to begin making such principal payments. Such delinquencies and defaults may reduce or delay payments to the Noteholders with respect to the Offered Notes. The Loan Documents for certain Loans may subject such Loans to losses based on certain third-party subordination rights. The Loans may contain provisions that require any holder of the related indebtedness, including the Issuer, to join in the subordination agreements applicable to those Loans. If an Event of Default were to occur and the Indenture Trustee attempts to sell the Loans, the requirement that a holder of the related indebtedness must sign the related subordination agreement might interfere with such sale. The Originator, however, does not believe that such provision would result in a material adverse effect to the Noteholders. Loans to non-u.s. Obligors may expose the Issuer to different economic risks, legal and regulatory uncertainties and potential impairment of enforcement actions against such Obligors. The Portfolio Criteria permit up to 12% of the Aggregate Outstanding Loan Balance to consist of Loans to Obligors organized under the laws of, or all or substantially all of the assets of which are located in, any country other than the United States. Loans to Obligors located outside the United States may involve greater risks than Loans to Obligors located in the United States. These risks include: (a) less publicly available information about the related Obligor; (b) varying levels of governmental regulation and supervision; and (c) the difficulty of enforcing legal rights in a foreign jurisdiction and related 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 U.S. companies. The economies of individual non-u.s. countries may also differ from the U.S. 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. Accordingly, Loans to non-u.s. Obligors could face risks which would not pertain to Loans to U.S. Obligors, which could expose the Issuer to losses on such Loans. The Servicer s right to modify terms of the Loans may reduce Collections and consequently the amounts available to make payments on the Notes. Pursuant to the Transfer and Servicing Agreement, the Servicer will have the authority to waive, modify or otherwise vary any term of a Loan in accordance with the Credit and Collection Policy, which permits, among other things, the waiver of any late payment charge or any other fee that may be collected in the ordinary course of -19-

33 servicing any Loans included in the Collateral. However, the Transfer and Servicing Agreement will limit the Servicer s ability to make such changes in each of the following ways: (a) the Servicer must act in a manner consistent with its Credit and Collection Policy and terms of the Transfer and Servicing Agreement, (b) no such waiver, modification or variance may be used to circumvent the Required Reserve Amount, (c) the Servicer must determine that such waiver, modification or variance will not have a material adverse effect on the interests of the Noteholders or the Swap Counterparties, (d) if any such Loan becomes a Materially Modified Loan as a result of an Obligor s inability to pay principal or interest, then such Loan shall be treated as a Delinquent Loan as of the payment date that would have been missed had such Loan not been waived, modified or varied and (e) the Servicer may not reduce the interest rate payable by the Obligor with respect to a Loan unless the Global Weighted Average Spread is greater than or equal to the Minimum Global Weighted Average Spread after giving effect to the reduction, it being understood that the waiver of any late payment charge shall not constitute a reduction in interest rate. Notwithstanding such limitations in the Transfer and Servicing Agreement, changes made by the Servicer to the terms of the Loans may nevertheless have an adverse effect on the Loans, may make collection of the Loans more difficult, and may have an adverse effect on the interests of Noteholders. Risks associated with the acquisition of Additional Loans and the substitution of Substitute Loans may reduce the yield on the Loans and, consequently, the amounts available to make payments on the Notes. During the Replenishment Period, it is anticipated that Principal Collections will be used to purchase Additional Loans. In addition, the Trust Depositor will have the option to provide Substitute Loans to the Issuer, subject to certain conditions. The inclusion of each Additional Loan and each Substitute Loan in the Loan Pool is subject to the satisfaction of (a) the Portfolio Acquisition and Disposition Requirements and (b) the Portfolio Criteria and, in the case of Substitute Loans, certain other criteria described under The Transfer and Servicing Agreement Mandatory Repurchase or Optional Repurchase or Substitution. The need to satisfy such conditions and the Portfolio Criteria, as applicable, and other factors, such as prevailing interest rates and market conditions for Loans generally, may require the purchase of Additional Loans and the substitution of Substitute Loans with lower Loan Rates than those of the Initial Loans, thereby reducing the Issuer s yield on the Loan Pool. In addition, from the date such Principal Collections are received until the date that such Principal Collections are used to acquire Additional Loans, such funds will be maintained temporarily in cash or Eligible Investments, which may further reduce the yield on the Loan Pool. Any decrease in the yield on the Loan Pool will have the effect of reducing the amounts available to make payments of principal and interest on the Offered Notes. Further, Obligors may be more likely to exercise any prepayment rights they may have under the related Loan Documents when interest rates or spreads are declining. The Issuer s sole source of Additional Loans is the Originator, and accordingly any delay or failure by the Originator in providing Additional Loans for purchase by the Issuer may reduce amounts available for distribution to the Noteholders. During the Replenishment Period, Principal Collections will be used to purchase Additional Loans, but until (a) an Additional Loan satisfying the Portfolio Criteria is available for purchase by the Issuer or (b) such Principal Collections are distributed to Noteholders in a Special Redemption, Principal Collections will be maintained in cash or Eligible Investments. The fact that the Issuer will only purchase Additional Loans originated by the Originator may result in these amounts being maintained in such relatively low-yielding forms for a significant period of time if the Originator fails to provide Additional Loans for purchase. See Risks Relating to the Originator and its Business. The longer it takes to fully use available Principal Collections to acquire Additional Loans, the greater the adverse impact may be on aggregate Interest Collections collected and distributed by the Issuer, thereby resulting in lower yields on the overall Loan Pool than could have been obtained if Principal Collections were immediately used to acquire Additional Loans. The Transfer and Servicing Agreement places significant restrictions on the ability of the Issuer to purchase or dispose of Loans for the Loan Pool. Accordingly, during certain periods or in certain specified circumstances, the Issuer may be unable to purchase or dispose of Loans or to take other actions that might otherwise be in the best interests of the Issuer and the Noteholders. Under the Transfer Agreement and the Transfer and Servicing Agreement, the Originator and Trust Depositor, respectively, will make certain representations and warranties with respect to each Loan. See The -20-

34 Transfer and Servicing Agreement Representations and Warranties; Definition of Eligible Loans. In the event that these representations and warranties are not true with respect to any Loan, the Trust Depositor and the Originator are required after the expiration of any applicable cure period under the Transfer and Servicing Agreement and the Transfer Agreement, respectively, to repurchase or, at the Originator s option, substitute the Loan. There can be no assurance that the Trust Depositor or Originator will be able to repurchase or substitute a Loan at the time required under the Transfer and Servicing Agreement and the Transfer Agreement, as applicable. Risks associated with acquisition of Additional Loans during Pre-Funding Period and Replenishment Period. The net proceeds from the Offered Notes funded on the Closing Date and the proceeds received from time to time in respect of Loans previously purchased by the Issuer will be invested in Loans that will not have been disclosed to investors. Purchasers of the Offered Notes will not have an opportunity to evaluate for themselves the relevant economic, financial and other information regarding the investments to be made by the Originator and, accordingly, will be dependent upon the judgment and ability of the Originator in investing and managing the proceeds of the Notes and the Collateral, and in identifying Additional Loans. No assurance can be given that the Originator will be successful in obtaining suitable Additional Loans or that, if such Additional Loans are made, the objectives of the Issuer will be achieved. Cross-collateralization arrangements may be subject to challenge, which could result in the subordination of the Issuer s interest in the Collateral or the Loan itself. Certain of the Loans will be cross-collateralized. Cross-collateralization arrangements involving more than one Obligor could be challenged as fraudulent conveyances by creditors of the related Obligor in an action brought outside a bankruptcy case or, if the Obligor were to become a debtor in a bankruptcy case, by the Obligor s representative (or the Obligor as debtor-in-possession). A lien granted by the Obligor could be avoided if a court were to determine that the Obligor was insolvent when it granted the lien securing the Loan, was rendered insolvent by the granting of the lien, was left with inadequate capital when it allowed its properties to be encumbered by a lien securing the Loan, or was not able to pay its debts as they matured; and the Obligor did not receive fair consideration or reasonably equivalent value when it allowed its properties to be encumbered by a lien securing the Loan. Among other things, a legal challenge to the granting of the liens may focus on the benefits realized by that Obligor from the respective Loan proceeds, as well as the overall cross-collateralization. If a court were to conclude that the granting of the liens was an avoidable fraudulent conveyance, that court could: subordinate all or part of the pertinent Loan to existing or future indebtedness of that Obligor; recover payments made under that Loan; or take other actions detrimental to the Noteholders, including, under certain circumstances, invalidating the Loan or the Collateral securing the cross-collateralization. Any of these actions could impair, delay or eliminate payments by the Obligor of a Loan that is crosscollateralized, which could adversely affect the Issuer s ability to make payments on the Offered Notes. Loan prepayments may expose Noteholders to reinvestment risk and reduce Noteholders expected return on an investment in the Notes. The terms of the Loans will generally permit prepayment. When Obligors prepay principal, a full period s interest for the period in which such prepayment occurs will not be paid, potentially resulting in interest shortfalls to the extent such payment is not included in the distribution to the Noteholders. Where prepayments are not accompanied by payment of a full period s interest or a Prepayment Premium, it will reduce the amount of interest available to the Issuer for distribution to the Noteholders. Where prepayments are permitted, Obligors may be required to pay a premium as a condition to prepayment. Any Prepayment Premium will be available to the Issuer to -21-

35 pay any amounts due with respect to the Notes. Prepayments may cause the Issuer to pay principal on the Offered Notes sooner than a Noteholder expected. Similarly, upon the occurrence of an Event of Default, Noteholders may also receive principal on the Offered Notes sooner than they expected. See Description of the Notes and Indenture Events of Default and Maturity and Prepayment Considerations. Noteholders may not be able to reinvest those distributions of principal at yields equivalent to the yield on the Offered Notes; therefore, the ultimate return a Noteholder receives on its investment in the Offered Notes may be less than the return it expected on the Offered Notes. The rate of early terminations of Loans due to prepayments, including defaults, is influenced by various factors including: changes in Obligor performance and requirements for capital; competition in the commercial lending industry; the level of interest rates; and the overall economic environment. The Issuer cannot assure prospective investors that prepayments on the Loans held by the Issuer will conform to any historical experience. The Issuer cannot predict the actual rate of prepayments which will be experienced on the Loans. As a result, the Offered Notes may not be a suitable investment for any investor who requires a regular or predictable schedule of principal payments. The Originator s use of financing provided by other financing transactions results in additional risks to Noteholders due to both the conflicts of interest and competing claims associated with those arrangements. Some of the Loans included in the Loan Pool will represent a portion of a larger loan to the related Obligor wherein other portions of the same loan have been financed by the Originator through one or more structured finance transactions. In the ordinary course of its business, the Originator finances its loan originations by funding substantially all of the aggregate loan amount through one or more warehousing facilities (including the VFCC CP Transaction), and may have also financed portions of these same loans through the Prior Term Transactions (collectively, the Funding Transactions ). In the case of each of the Funding Transactions, the Servicer also acts as servicer under the related transaction documents. In the case of any Loan in the Loan Pool that is part of a larger loan, a portion of which is financed through one or more of the Funding Transactions, or in the case of any Loan in the Loan Pool the Obligor of which is an obligor of another loan which is financed through one or more of the Funding Transactions, the Issuer and the secured parties under each of the Funding Transactions (which include Affiliates of certain of the Initial Purchasers) and/or the Transaction Documents would have claims against the Obligor with respect to such loan or Loan in the event of a default under the related loan documents or the related Loan Documents, as applicable. As such, in either case an intercreditor relationship would exist among the secured parties in the Funding Transactions and the secured parties under the Transaction Documents. The Originator generally retains an equity interest in certain of the Funding Transactions, which may result in additional conflicts between its interests as an equity owner and the interests of the Noteholders. See Structural Risks Certain conflicts of interest exist due to relationships between the Issuer and its Affiliates and between the Originator and the Initial Purchasers. In addition, in the event of a bankruptcy or insolvency of the Originator, the transaction documents under each of the Funding Transactions provide for the removal of the Originator as the servicer thereunder and for related remedies, including the right to take possession of and sell the loans financed under the Funding Transactions. In such an event, the multiple conflicts of interest and the various competing claims of the secured parties under the Funding Transactions and under the Transaction Documents could complicate the exercise of remedies provided for under the Transaction Documents and, accordingly, could delay or eliminate payments to Noteholders. Furthermore, with respect to Loans under which the Originator acts as administrative agent, paying agent or collateral agent, in the event of a bankruptcy or insolvency of the Originator, enforcement actions with respect to such Loans requiring action by the administrative agent or collateral agent thereunder would likely be delayed and possibly impaired, and any actions to realize on proceeds of payments made by Obligors that are in the possession or control of the Originator in its capacity as administrative agent, paying agent or collateral agent under such Loans would likely be -22-

36 delayed and possibly impaired. In addition, any recharacterization of the conveyance of loans under the Funding Transactions as other than sales in the event of a bankruptcy or insolvency of the Originator could result in a similar recharacterization of the transfer of the Loans to the Issuer as other than a sale thereof, which could also delay or eliminate payments to the Noteholders. See Structural Risks The consolidation of the assets and liabilities of the Trust Depositor and the Originator could result in the delay, reduction or elimination of payments to the Noteholders and Structural Risks The Issuer relies on the initial Servicer for proper servicing of the Loans, and any failure by the initial Servicer to service the Loans could increase the Noteholders risk of loss on the Notes. Risks Relating to the Offered Notes The Notes will not be freely transferable and Noteholders may face an illiquid market for resales of the Notes. The Offered Notes have not been registered under the Securities Act or any state securities or blue sky laws, and there is no undertaking to so register the Offered Notes hereafter. No market for the Offered Notes currently exists. Noteholders must be prepared to hold the Offered Notes for an indefinite period of time. Noteholders may not resell or transfer their Offered Notes unless such resale or transfer is exempt from the registration requirements of the Securities Act and satisfies the other conditions to transfer in the Indenture. Compliance with state securities laws is also required. The Securities and Exchange Commission (the SEC ) has adopted Rule 144A ( Rule 144A ) under the Securities Act, which provides an exemption from the registration requirements of the Securities Act for resale of certain restricted securities by Persons other than an issuer to a purchaser that is a Qualified Institutional Buyer. The Offered Notes are restricted securities eligible for resale under Rule 144A. Any resale of the Offered Notes made in reliance on Rule 144A (or any amendment thereto) must satisfy the applicable conditions of Rule 144A and any purchaser of the Offered Notes must also be a Qualified Purchaser. The Offered Notes may also be resold in certificated form to a purchaser that is an Institutional Accredited Investor and who is a Qualified Purchaser pursuant to an exemption from registration under the Securities Act, or to Qualified Purchasers in offshore transactions in reliance on Regulation S under the Securities Act. See Notice to Investors. Certain classes of Notes will be subordinated to others, which increases the risk of loss to Noteholders in the subordinate classes. The Issuer will pay interest and principal on some classes of Notes prior to paying interest and principal on other classes of Notes. See Description of the Notes and Indenture Priority of Payments Interest Allocations and Priority of Payments Principal Allocations. The subordination of some classes of Notes to others means that the subordinated classes of Notes are more likely to suffer the consequences of delinquent payments and defaults on the Loans than the Notes that receive payments prior to those subordinated classes. The more senior classes of Notes could lose the credit enhancement provided by the more subordinate classes and the Reserve Fund if delinquencies and defaults on the Loans increase and if the Collections and amounts in the Reserve Fund are insufficient to pay even the more senior classes of Notes. The market value of the Notes may decline if any Rating Agency reduces any of the ratings of the Offered Notes. S&P, Moody s and Fitch are the rating agencies rating the Offered Notes. At any time, a rating may be lowered or withdrawn entirely by a Rating Agency rating the Offered Notes. In the event that the rating initially assigned to any Offered Note is subsequently lowered or withdrawn for any reason, Noteholders may not be able to resell their Offered Notes without a substantial discount. For more detailed information regarding the ratings assigned to any class of the Offered Notes, see Rating of the Notes. Proceeds from the sale of the Loans in the case of an Event of Default may be insufficient to pay Noteholders in full. If an Event of Default occurred with respect to the Notes, under the Indenture and the Transfer and Servicing Agreement, and assuming the Issuer was not then a debtor in a bankruptcy case, the Indenture Trustee -23-

37 may sell the Loans; provided that the Indenture Trustee shall be required to sell the Loans if so directed by the Required Holders. If the sum of the proceeds of the sale of the Loans and any Collections on the Loans are insufficient to pay Noteholders in full, then Noteholders may suffer losses on their investment in the Offered Notes. A decrease in LIBOR will lower the interest payable on the Notes and an increase in LIBOR may indirectly reduce the credit support to the Notes. The Note Interest Rates applicable to the Offered Notes may fluctuate from one Interest Accrual Period to another in response to changes in LIBOR. The Class E Notes and the Class F Notes are principal only Notes and do not bear any interest. From August 1, 2006 to July 31, 2007, LIBOR ranged between a high of % and a low of %. The Issuer believes that LIBOR will continue to fluctuate and no representation can be made as to what LIBOR will be in the future. Most of the Loans will bear interest at fixed rates. Certain of the Loans will bear interest at one month LIBOR plus a margin or the prime rate plus a margin. Certain of the Loans require interest to be paid on a monthly, and not a quarterly, basis. Principal Collections and Interest Collections in the Collection Account may be invested in Eligible Investments pending application in accordance with and subject to the priority of payments provisions in the Transfer and Servicing Agreement. There is no requirement that such Eligible Investments bear interest at the Note Interest Rates, and the interest rates available for such Eligible Investments are inherently uncertain, may fluctuate during each Interest Accrual Period and are generally lower than the Note Interest Rates. Since the Offered Notes will bear interest at a rate based on Three-Month LIBOR, except with respect to the initial Interest Accrual Period which will use LIBOR determined through the use of a straight-line interpolation as described in Description of the Notes and Indenture Calculation of LIBOR, and payment dates on the Loans do not coincide with the Payment Dates, there will be a basis mismatch between the Note Interest Rates and the underlying Loans that bear interest at the prime rate, at a fixed rate or at a rate based on LIBOR. To the extent that the prime rate decreases or does not increase as fast as Three-Month LIBOR or to the extent Three-Month LIBOR increases to a level greater than a fixed interest rate on a Loan, the interest rate payable on the Offered Notes may be higher than the applicable Loan Rate received on the Loans. Further, if there is a decline in the prime rate, the amount of interest and fees collected by the Issuer may be reduced and, even if there is a similar reduction in the floating rate applicable to the Offered Notes, there will not necessarily be a similar reduction in the other amounts required to be funded out of such interest and fees. Since the Portfolio Criteria requires that Floating Prime Rate Loans represent not more than 5% of the Aggregate Outstanding Loan Balance, no Swap Transactions will be entered into with respect to such Floating Prime Rate Loans. There will also be a timing mismatch between the Offered Notes and the underlying Loans as (a) the interest rate on such Loans may adjust more frequently or less frequently, on different dates and based on different indices than the interest rates on the Offered Notes and (b) interest payment dates on the Loans do not coincide with the Payment Dates. The Swap Transactions have been obtained in part to mitigate the adverse impact of interest rate and timing mismatches on the amounts otherwise available for distribution to Noteholders. However, despite the Issuer having the benefit of such Swap Transactions and although the distribution of Collections to the Class E Notes, the Class F Notes and Certificate will be subordinate to payments of interest and principal on the Offered Notes, there can be no assurance that the Loans and Eligible Investments will in all circumstances generate sufficient amounts to make timely payments of interest on the Offered Notes. Risk to amounts available to make payments on the Notes exists based on the credit risk of Swap Counterparties and a potential conflict of interest between the initial Swap Counterparty and one of the Initial Purchasers. Interest Rate Swaps involve the Issuer entering into contracts with Swap Counterparties. Pursuant to such contracts, the Swap Counterparties agree to make payments to the Issuer under certain circumstances as described therein. The Issuer will be exposed to the credit risk of the Swap Counterparties with respect to such payments. A downgrade in the credit rating of a Swap Counterparty may require the Swap Counterparty to post collateral to secure its payment obligations to the Issuer. Such collateral may not be readily saleable and any delay in liquidating such collateral could result in losses to the Noteholders. In addition, the initial Swap Counterparty, with acceptable credit support arrangements, may be an Affiliate of one of the Initial Purchasers. Accordingly, the interests of the Swap Counterparty may conflict with the interests of such Initial Purchaser and the Noteholders. In the event that any Swap Transaction were to be terminated for any -24-

38 reason, including by reason of a default of a Swap Counterparty, such deficiencies could occur and the Noteholders could suffer a loss. Furthermore, if a Swap Counterparty is in default under an Interest Rate Swap and that Swap Counterparty is not replaced, a downgrade in the ratings on the Offered Notes may occur. See Description of the Notes and Indenture Interest Rate Swap. Book-entry registration restricts Noteholders ability to take certain actions with respect to their Notes and may delay receipt of payments on the Notes. Since transactions in any Offered Note registered in book-entry form can be effected only through DTC, Clearstream or Euroclear by Direct Participants or Indirect Participants, the ability of a Noteholder owning a bookentry Offered Note to pledge such Offered Note to Persons that do not participate in the DTC system, Clearstream, Euroclear, or otherwise to take actions in respect of such Offered Notes, and the liquidity of such Offered Notes in general, may be limited because of the lack of a physical certificate representing such Offered Notes. Noteholders owning a book-entry Offered Note may experience some delay in their receipt of distributions of interest and principal on such Offered Notes since distributions are required to be forwarded by the Indenture Trustee to DTC and DTC will be required to credit such distributions to the accounts of its participants, which thereafter will be required to credit them to the accounts of the applicable Noteholders either directly or indirectly through indirect participants. The Offered Notes may not be a permissible investment for certain investors. To the extent that a Holder of an Offered Note is an entity whose investments are regulated by statute or administrative rule, such as a federal or state chartered bank, savings institution, insurance company or credit union, there is no assurance that the Offered Notes will be among the types of investments permitted under the applicable regulatory scheme. Prospective investors are advised to consult their own counsel as to qualification of the Offered Notes as appropriate investments under any laws, regulations, rules and orders applicable to them. The Offered Notes are not mortgage related securities for purposes of the Secondary Mortgage Market Enhancement Act of State and local taxes may reduce a Noteholder s anticipated return on the Notes. In addition to the federal income tax consequences described in Certain Federal Income Tax and Benefit Plan Considerations herein, potential investors should consider the state and local tax consequences of the acquisition, ownership and disposition of the Offered Notes. State and local tax law may differ substantially from the corresponding federal law, and this Offering Memorandum does not purport to describe any aspect of the tax laws of any state or local jurisdiction, except for the limited opinion of Federal Tax Counsel to the Issuer regarding the explanation of certain Maryland state taxes as discussed in Certain Federal Income Tax and Benefit Plan Considerations State and Local Tax Considerations. Therefore, potential investors should consult their own tax advisors with respect to the various state and local tax consequences of an investment in the Offered Notes. The Initial Purchasers may engage in over-allotment transactions, stabilizing transactions, syndicate covering transactions and penalty bids with respect to the Offered Notes. The Initial Purchasers may engage in over-allotment transactions, stabilizing transactions, syndicate covering transactions and penalty bids with respect to the Offered Notes in accordance with Regulation M under the Exchange Act. Over-allotment transactions involve syndicate sales in excess of the offering size that create syndicate short positions. Stabilizing transactions permit bids to purchase securities so long as the stabilizing bids do not exceed a specified maximum. Syndicate covering transactions involve purchases in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the Initial Purchasers to reclaim a selling concession from a syndicate member when the securities originally sold by such syndicate member are purchased in a syndicate covering transaction. Such over-allotment transactions, stabilizing transactions, syndicate covering transactions and penalty bids may cause the prices of the Offered Notes to be higher than they would otherwise be in the absence of such transactions. Neither the Issuer nor any of the Initial Purchasers represent that the Initial Purchasers will engage in any such transactions or that such transactions, once commenced, will not be discontinued without notice at any time. -25-

39 The Issuer will not gross-up amounts payable on the Notes. Withholding tax is not currently imposed on payments of interest on the Notes provided that appropriate certifications are provided and the beneficial owner of the interest is entitled to certain exemptions from withholding tax. See Certain Federal Income Tax and Benefit Plan Considerations. 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 on any of the Notes, the Noteholders will not be entitled to receive grossed-up amounts to compensate for such withholding tax. This Offering Memorandum contains projections, forecasts and estimates that are forward-looking and are based upon certain assumptions. Any projections, forecasts and estimates contained herein are forward-looking statements and are based upon certain assumptions that the Originator considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. Accordingly, the projections are only estimates and none of the Originator, the Trust Depositor, the Issuer, the Initial Purchasers or any of their respective Affiliates makes any representation as to their accuracy. Actual results may vary from the projections, and the variations may be material. Some important factors that could cause actual results to differ materially from those in any forwardlooking statements include changes in interest rates, market, and financial or legal uncertainties. Consequently, the inclusion of projections herein should not be regarded as a representation by the Issuer, the Trust Depositor, the Originator, the Indenture Trustee, the Initial Purchasers or any of their respective Affiliates or any other Person of the results that will actually be achieved by the Issuer. None of the Originator, the Trust Depositor, the Issuer, the Initial Purchasers or any of their respective Affiliates has any obligation to update or otherwise revise any projections, including any revisions to reflect changes in economic conditions or other circumstances arising after the date hereof or to reflect the occurrence of unanticipated events, even if the underlying assumptions do not come to fruition. The European Union Transparency Directive may impose financial reporting requirements on the Issuer. The European Union has adopted Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amended Directive 2001/34/EC (the Transparency Directive ), which directive may impose financial reporting requirements on the Issuer. The Transparency Directive requires, at a minimum, the delivery of semi-annual and annual financial reports prepared in accordance with International Financial Reporting Standards or other equivalent accounting standards. Member states of the European Union were required to implement the Transparency Directive by January 2007; however, not all member states have done so. As of the Closing Date, the Indenture will not require that financial reports regarding the Issuer be prepared in accordance with such standards. If the Issuer were to become subject to such reporting requirements, the Issuer would incur certain costs and expenses that it would not otherwise incur. If the Issuer is required under the Transparency Directive to prepare financial statements in accordance with the International Financial Reporting Standards because of the continued listing of the Offered Notes on the Irish Stock Exchange, the Issuer may decide to terminate the listing of the Offered Notes. In this case, the Issuer will use its best commercially reasonable efforts to seek a replacement listing on an exchange outside the European Union that is a member of the International Federation of Stock Exchanges and is organized or incorporated in a state that is a member of the Organization for Economic Cooperation and Development, so long as maintaining such a listing does not require the Issuer to restate its accounts and is not otherwise unduly burdensome or costly to the Issuer. However, no assurance can be made that the Offered Notes will be listed on any exchange or, if listed, will continue to be so listed. -26-

40 Structural Risks Noteholders will have no recourse to any entity other than the Issuer for payment of the Notes. The Issuer is a limited purpose trust with limited assets and Noteholders will have no recourse to the general credit of the Servicer, the Originator, the Trust Depositor, the Owner Trustee, the Indenture Trustee or their Affiliates. Therefore, Noteholders must rely solely upon payments on the Loans and amounts held in the Reserve Fund (if any) for payment of principal and interest on the Offered Notes. If payments on the Loans are delinquent or are insufficient to make payments on the Offered Notes, no funds other than amounts held in the Reserve Fund (if any) will be available to make payments on the Offered Notes. Similarly, in the event that Loans become Defaulted Loans, the proceeds from the sale of the Collateral, if any, securing the Loans may be insufficient to make payments on the Offered Notes. There can be no assurance that the delinquency and loss experience of the Loans will be comparable to the information set forth in Delinquency and Loss Information for Originator s Portfolio of Loans. Recharacterization of the transfer of the Loans to the Issuer as other than a true sale in the event of a bankruptcy of the Originator could result in the delay, reduction or elimination of payments to the Noteholders. Distribution of proceeds of the Loans to the Issuer could be delayed for an indefinite period of time if the Originator were to become a debtor in a bankruptcy case and creditors of the Originator, the Originator acting as a debtor-in-possession or a bankruptcy trustee for the Originator were to assert that the transfer of the Loans from the Originator to the Trust Depositor was ineffective to remove such Loans from the Originator s estate. Until the bankruptcy court ruled on such assertion, distributions of proceeds of the Loans may be subject to the automatic stay provisions of the Bankruptcy Code. Furthermore, if such bankruptcy court were to hold that the Loans were property of the Originator s bankruptcy estate, the bankruptcy court could authorize the adjustment of the debt. In addition, if the transfer of the Loans were recharacterized as a pledge instead of a sale, certain tax liens on the property of the Originator would have priority over the Trust Depositor s interest in the Loans. In any such case, distributions to the Noteholders could be delayed or reduced. In addition, a bankruptcy court could: (a) authorize the sale of the Loans if the proceeds of the sale could satisfy the amount of the debt deemed owed by the Originator or if the bankruptcy court found that certain other conditions were satisfied; and/or (b) authorize the substitution of other collateral in lieu of the Loans to secure the debt. In the Transfer Agreement, the Originator will warrant to the Trust Depositor that (other than for tax and accounting purposes) the conveyance of the Loans to the Trust Depositor is a valid sale and transfer of the Loans to the Trust Depositor. In addition, to address the foregoing risks, the Originator and the Trust Depositor have agreed that they will each treat the transactions described in this Offering Memorandum as a sale of the Loans to the Trust Depositor (other than for tax and accounting purposes), and the Originator will take all actions that are required under Requirements of Law to perfect the Trust Depositor s ownership interest in the Loans sold by the Originator. Bankruptcy or insolvency of the Trust Depositor or the Issuer could result in the delay, reduction or elimination of payments to the Noteholders. If the Trust Depositor were to become a debtor in a bankruptcy case and creditors of the Trust Depositor, or the Trust Depositor acting as a debtor-in-possession or a bankruptcy trustee, were to assert that the sale of the Loans to the Issuer was ineffective to remove such Loans from the Trust Depositor s estate, then delays in payments under the Loans to the Issuer could occur as well as a reduction or a termination in the amount of payments under the Loans to the Issuer could result. Distributions to the Noteholders could be delayed or reduced. The Trust Depositor will warrant in the Transfer and Servicing Agreement that the conveyance of the Loans to the Issuer is a valid sale of the Loans to the Issuer. The Trust Depositor will also warrant that the security interest in the Loans granted by the Issuer to the Indenture Trustee is a valid and duly perfected security interest. The Trust Depositor will also agree to take all actions that are required under Requirements of Law to perfect the Issuer s and the Indenture Trustee s respective interests in the Loans. In the event the Trust Depositor becomes subject to insolvency proceedings, the Issuer, the Issuer s assets and the Issuer s obligation to make payments on the Notes might also become subject to the insolvency proceedings. -27-

41 Consolidation of the assets and liabilities of the Trust Depositor and the Originator could result in the delay, reduction or elimination of payments to the Noteholders. If the Originator became a debtor in a bankruptcy case, the Originator, a creditor or party acting as debtorin-possession could request a bankruptcy court to order that the Trust Depositor s assets and liabilities be substantively consolidated with the Originator s assets and liabilities. If the bankruptcy court consolidated the assets and liabilities of the Originator and the Trust Depositor, delays and possible reductions in the amounts of distributions on the securities could occur if: (a) a court were to conclude that the assets and liabilities of the Trust Depositor should be consolidated with those of the Originator in the event of the application of applicable insolvency laws to the Originator, as the case may be; (b) a filing were made under any insolvency law by or against the Trust Depositor; or (c) an attempt were to be made to litigate any of the foregoing issues. The Issuer relies on the initial Servicer for proper servicing of the Loans, and any failure by the initial Servicer to service the Loans could increase the Noteholders risk of loss on the Notes. Pursuant to the Transfer and Servicing Agreement, American Capital will act as the initial Servicer of the Loans. In the event of a Servicer Default, the Required Holders or the Indenture Trustee may terminate American Capital s role as Servicer, and the Indenture Trustee shall appoint a successor Servicer (which shall initially be the Backup Servicer). There is no assurance that a successor Servicer will be able to service the Loans according to the same standards as American Capital. Any such transfer of the Loans to a successor Servicer could result in reduced or delayed Collections, delays in processing payments on the Loans and information in respect thereof, and a failure to meet all required servicing procedures, and could adversely affect the Issuer s ability to make payments on the Offered Notes. If an event relating to bankruptcy, insolvency or receivership occurs with respect to the Servicer and no other event which would result in a Servicer Default has occurred, an unpaid creditor of the Servicer or a representative of creditors of the Servicer, such as a trustee in bankruptcy, or the Servicer acting as a debtor-inpossession, would have the power to prevent the Indenture Trustee or the Required Holders from appointing a successor Servicer, in which case the party acting as Servicer would continue to service the Loans. A bankrupt or insolvent Servicer may not be able to service the Loans in accordance with all the requirements of the Transaction Documents, which could adversely affect the Issuer s ability to make payments on the Offered Notes. The Servicer s role in servicing Third Party Agented Loans will be limited and generally far less significant than in the case of loans for which it acts as primary agent or co-agent. See The Servicer s role as Servicer of Third Party Agented Loans will be limited in ways that could adversely affect Noteholders. The Issuer is relying on the customary business practices of the Servicer with respect to the servicing of the Loans. None of the Noteholders, the Trustee, the Issuer or the Trust Depositor has any right to compel the Servicer to take or refrain from taking any actions other than in accordance with the Credit and Collection Policy and the standards set forth in the Transfer and Servicing Agreement. In addition, where the Loan is a syndicated loan (such as in the case of Third Party Agented Loans), there can be no assurance that any actions sought to be taken by the Servicer with respect to such Loan will be followed by the requisite percentage of lenders required under the related Loan Documents to vote in favor of such action. The Servicer s role as Servicer of Third Party Agented Loans will be limited in ways that could adversely affect Noteholders. The Servicer will not be the entity primarily responsible for the servicing and administration of Third Party Agented Loans and accordingly the Issuer will depend on the applicable administrative agent for such Loans for primary servicing of such Loans. The Servicer s responsibilities with respect to Third Party Agented Loans will generally be limited to exercising the Issuer s rights under the Designated Loan Agreements for such Loans. Accordingly, the Servicer will not, in most instances, have a significant role in administering Third Party Agented Loans and will depend on the administrative agent for such Loans to properly service these Loans, which exposes the Issuer to a number of risks. First, the related administrative agent may have interests that differ from the interests of the Issuer, including that the related administrative agent may be an equity owner in the related Obligor or hold indebtedness of the related Obligor which indebtedness has a different payment or lien priority than the Loan held by the Issuer. These potentially divergent interests could lead an administrative agent under a Third Party Agented -28-

42 Loan to take actions that diminish the value of the portion of such Loan held by the Issuer. Second, the Designated Loan Agreement with respect to a Third Party Agented Loan will impose a servicing standard on the administrative agent responsible for servicing such a Loan that is different from and may be less stringent than the standards imposed on the Servicer, or there may be no such standard binding on the administrative agent primarily responsible for servicing such a Loan. The administrative agent responsible for servicing that Loan could take actions with respect to such Loan that the Servicer would not be permitted to take based on the standards imposed on the Servicer. These actions could be adverse to the interests of the Issuer in the Loan, and the Issuer would, in all likelihood, be without a remedy for such actions. In addition, depending on the size of the portion of a Third Party Agented Loan owned by the Issuer and whether the Issuer owns a senior or subordinated tranche of such Loan, the Issuer may not be able to either initiate or block certain actions requiring a vote of holders of a certain percentage of such Loan, which actions could be adverse to the interests of the Issuer. See Asset Risks Multiple lenders and agency provisions in the Loans may impair enforcement actions against the related Collateral and expose the Noteholders to losses on the Loans. If any of these factors applicable to Third Party Agented Loans result in reductions or delays of payments on such Loans, the Noteholders could experience reductions or delays of payments on the Offered Notes. The failure to record the assignment of perfected security interests could result in the Issuer not having a perfected security interest in the Collateral. In connection with the conveyance of the Loans to the Issuer, security interests in certain Collateral securing the Loans will be assigned by the Originator to the Trust Depositor and will be assigned by the Trust Depositor to the Issuer. Due to the administrative burden and expense associated with amending and paying the filing fee for the assignment of Uniform Commercial Code ( UCC ) financing statements in the jurisdiction or organization of each of the Obligors, the Issuer will not file any assignments of the UCC financing statements evidencing the assignment of the security interests in the Collateral to the Trust Depositor, the Issuer or the Indenture Trustee. Because neither the Trust Depositor s, the Issuer s, the Owner Trustee s or the Indenture Trustee s name appears on the UCC financing statements, the Originator or Servicer could inadvertently release the security interest in the Collateral securing a Loan. In such event, the Issuer would not have a perfected security interest in the Collateral. Without a perfected security interest, the Issuer may be treated as an unsecured creditor and therefore not be able to fully realize the value of any foreclosed Collateral if the related Loan becomes a Defaulted Loan. In addition, if the Issuer is not listed as the secured party on UCC financing statements, it may not receive notice of foreclosures by senior lenders. Except in the case of Third Party Agented Loans, it has been the general policy of the Originator to file or cause to be filed UCC financing statements with respect to the principal Collateral securing the Loans. However, in the event that the Originator failed to do so or failed to file or cause to be timely filed UCC continuation statements in accordance with the Requirements of Law, it would not have a perfected security interest in any Collateral relating to the applicable Loan. Without a perfected security interest, the Issuer may be treated as an unsecured lender and therefore not able to fully realize the value of any foreclosed Collateral if the related Loan becomes a Defaulted Loan. Monthly Reports and Quarterly Reports will be unaudited. On a monthly basis, commencing in September 2007, the Indenture Trustee will make available to each Noteholder and Swap Counterparty a Monthly Report with respect to the previous month via the Indenture Trustee s Internet web site setting forth, among other things, certain information on the Loan Pool, including certain loss and delinquency information on the Loan Pool. On each Payment Date, the Indenture Trustee will make available to each Noteholder and Swap Counterparty a Quarterly Report via the Indenture Trustee s Internet web site setting forth, among other things, certain information as to the distribution being made on such Payment Date, the fees to be paid to the Servicer, the Owner Trustee and the Indenture Trustee and the loss and delinquency status of the Loans. The Indenture Trustee will also report the extent of compliance with the Portfolio Criteria to the Servicer, and the Servicer will include such information in each Quarterly Report. The information contained in such Monthly Report and Quarterly Report will be prepared by the Servicer, and neither such information nor any other financial information furnished to Noteholders or the Swap Counterparties will be examined and reported upon, and an opinion will not be expressed, by an independent public accountant. However, the Servicer will be subject to an -29-

43 annual audit by an independent public accountant as discussed in Description of the Notes and Indenture Reports. Amounts deposited in the Reserve Fund may prove inadequate to protect the Notes from losses on the Loans. As described herein, the Reserve Fund is intended to enhance the likelihood of timely payment of principal and interest on the Notes. If the Loans experience higher than expected levels of delinquencies and losses, the Reserve Fund could be depleted or eliminated, resulting in shortfalls in payments to the Holders of the Offered Notes. See Description of the Notes and Indenture Reserve Fund herein. Certain conflicts of interest exist due to relationships between the Issuer and its Affiliates and between the Originator and the Initial Purchasers. Various potential and actual conflicts of interest may arise from the overall advisory, investment and other activities of the Originator, the Servicer, their respective Affiliates and funds and from the conduct by the Initial Purchasers and their respective Affiliates of other transactions with the Issuer. The following briefly summarizes some of these conflicts; it is not intended to be an exhaustive list of all such conflicts. Each of the Originator, the Servicer and their respective Affiliates and funds may originate and service for their own account, in the ordinary course of its business, existing and new loans, including portfolios of loans similar to the Loans. The obligors under these loans may be Obligors or third parties with business relationships with Obligors or third parties that compete with certain of the Obligors. In addition, the Originator, the Servicer and/or their respective Affiliates may invest in loans that are senior to, or have interests different from or adverse to, the Loans that are pledged to secure the Offered Notes. The Originator, the Servicer and/or their respective Affiliates may at certain times be simultaneously seeking to purchase or dispose of loans or other investments for their respective accounts, the Issuer, any similar entity for which they or any of them serve as servicer, manager or advisor and for their clients or Affiliates. Each of the Originator, the Servicer and their respective Affiliates and clients may originate or acquire loan and other debt obligations that would be appropriate Loans for the Issuer. Each of the Originator, the Servicer and their respective Affiliates may have ongoing relationships with, render services to, finance and engage in transactions with and may own debt or equity securities issued by Obligors or their respective Affiliates and with other issuers of collateralized loan obligations (including the issuer in the VFCC CP Transaction and other issuers under warehousing financing facilities established by the Originator and its Affiliates, as well as the other CLO and CDO issuers which are Affiliates of the Originator and the Servicer) (collectively, Other Funds ) who invest in assets of a similar nature to those of the Issuer. Each of the Originator, the Servicer and their respective Affiliates and clients may make or acquire loans, debt obligations or equity securities issued by Obligors that are pari-passu with, senior to, or subordinate to, or have interests different from or adverse to, the Loans purchased by the Issuer. In their capacities as lead agent or equivalent function with respect to certain Loans, each of the Originator, the Servicer, its Affiliates and their respective clients may be empowered to, or may be required to, approve, consent to or require certain actions be taken in connection therewith. The actions of the Originator, the Servicer, their respective Affiliates or their respective clients in such instances may conflict with the interests of the Issuer. The Loans were originated or acquired by the Originator and may be part of a loan facility in which one or more of the Initial Purchasers, the Originator and/or their respective Affiliates have an interest. Additionally, one or more of the Initial Purchasers, the Originator and their respective Affiliates may hold equity interests in one or more of the Obligors. The purchase, holding and sale of such Loans by the Issuer may enhance the profitability of the investments in such companies of one or more of the Initial Purchasers, the Originator and their respective Affiliates. The Servicer and its Affiliates serve, and expect in the future to serve, as servicer, investment adviser or manager for Other Funds. Consequently, personnel of the Servicer may perform services on behalf of the Issuer with respect to the Loans at the same time the Servicer and/or its Affiliates are performing services on behalf of Other Funds or on behalf of the Originator or other of its Affiliates with respect to other loans, including loans made to obligors that compete with the Obligors on Loans in the Collateral. Although the professional staff of the -30-

44 Servicer will devote as much time to the Issuer and servicing the Collateral as the Servicer deems appropriate to perform its duties in accordance with the Transfer and Servicing Agreement and the Credit and Collection Policy, the staff may have conflicts in allocating its time and services among the Issuer and the Servicer s and its Affiliates other accounts. In addition, the Servicer may take into consideration such relationships in its management of the Issuer s assets and may at certain times be engaged in seeking assets to be purchased by the Issuer while at the same time it is also seeking to purchase similar assets for itself or for Other Funds. None of the Originator, the Servicer or their respective Affiliates is under any obligation to offer investment opportunities of which it becomes aware to the Issuer or share with the Issuer or inform the Issuer of any such transaction or any benefit received from any such transaction or to inform the Issuer before offering any opportunities to purchase Loans to itself, to its Affiliates or to Other Funds or third parties. Furthermore, each of the Originator, the Servicer and their respective Affiliates may make or purchase assets on behalf of itself, its Affiliates or any Other Fund without offering the investment opportunity or making any purchase on behalf of the Issuer. The Servicer may make investments on behalf of the Issuer in loans, debt obligations, or other assets that it has declined to invest in for its own account, the account of any of its Affiliates or the account of Other Funds. The Originator and the Servicer will endeavor to resolve conflicts with respect to investment opportunities in a manner that each deems equitable to the extent possible under the prevailing facts and circumstances and in accordance with applicable law. In providing services to others, each of the Originator, the Servicer and their respective Affiliates may recommend activities that would compete with or otherwise adversely affect the Issuer. In addition, each of the Originator, the Servicer and their respective Affiliates will be free, in its sole discretion, to make recommendations to others, or effect transactions on behalf of itself or for others, that may be the same as or different from those effected on behalf of the Issuer, and each of the Originator, the Servicer and their respective Affiliates may furnish advisory services to others who may have investment policies similar to those followed by the Issuer and who may own loans and other debt instruments which are the same type as the Issuer s assets. If a determination is made that the Issuer and one or more Other Funds should trade in the same loans or other debt instruments on the same day, such trades will be allocated between the Issuer and other accounts in a manner that the Originator or the Servicer, as applicable, determines in its discretion. Circumstances may occur in which an allocation could have adverse effects on the Issuer or other client with respect to the price or size of the loans or other debt instruments obtainable or saleable. Each of the Originator, the Servicer, their respective Affiliates and their respective shareholders, members, managers, partners, directors, officers, employees, attorneys or agents may possess information relating to the Issuer s assets which is not known to the individuals at the Servicer who are responsible for selecting or managing the Issuer s assets and performing the other obligations under the Transfer and Servicing Agreement or may be subject to confidentiality or other legal restrictions. Such persons will not be required (and may not be permitted) to share such information or pass it along to the Issuer or the Holders of the Notes. None of the Originator, the Servicer, their respective Affiliates and their respective shareholders, members, managers, partners, directors, officers, employees, attorneys and agents will have liability to the Issuer or any Holder of a Note for failure to disclose such information or for taking, or failing to take, any action based upon such information. No provision in the Transfer and Servicing Agreement prevents the Originator, the Servicer or any of their respective Affiliates or any of their respective shareholders, members, managers, partners, directors, officers, employees, attorneys or agents from engaging in other businesses or from rendering services of any kind to the Issuer and its Affiliates, the Holders of the Notes, the Obligors or issuers of any assets of the Issuer or their Affiliates or any other person or entity. In addition, Obligors may be Affiliates of, or controlled by, stockholders of the Originator. Each of the Originator, the Servicer and their respective Affiliates and any of their respective shareholders, members, managers, partners, directors, officers, employees, attorneys and agents may, among other things: (a) serve as directors (whether supervisory or managing), partners, officers, employees, agents, nominees or signatories for the Issuer or any Affiliate thereof, or for the Obligors or issuers of any assets of the Issuer or their Affiliates; (b) receive fees for services rendered to or any person or entity; (c) be retained to provide services unrelated to the Transfer and Servicing Agreement to the Issuer or its Affiliates and be paid therefor; (d) be a secured or unsecured creditor of, or hold an equity interest in, any Obligor or issuer of any asset of the Issuer or any other person or entity; (e) serve as a member of any creditors board or creditors committee with respect to any Obligor or Loan; (f) serve as originator or lead agent with respect to any Loan or other debt obligations all or a -31-

45 portion of which is included in the Issuer s assets; and (g) subject to compliance with applicable law and the Transfer and Servicing Agreement, sell any assets to, or purchase any assets from, the Issuer while acting in the capacity of principal or agent. Pursuant to the Transfer and Servicing Agreement and consistent with the Credit and Collection Policy, the Servicer has authority to waive, modify or vary any term of a Loan. In the Transfer and Servicing Agreement, the ability to make such changes has been limited in the ways described under The Transfer and Servicing Agreement Material Modifications of Loans. Once Loans are classified as Delinquent Loans, including as a result of a waiver or amendment thereof, or become subject to a Specified Amendment, such Loans would be eligible for repurchase by the Originator, which could result in a greater rate of prepayments of the Offered Notes if the Originator exercises its option to repurchase such Loans in lieu of making a substitution for such Loans. Loans may also become eligible for substitution or repurchase as described under The Transfer and Servicing Agreement Optional Repurchase or Substitution. Notwithstanding the limitations on modifications to Loans in the Transfer and Servicing Agreement, changes made by the Servicer to Loans, or restrictions in the Transfer and Servicing Agreements on the Servicer s ability to amend Loans, may have an adverse effect on the Loans, may make collection of the Loans more difficult, and may have an adverse effect on the interests of Noteholders. In servicing and administering the Loans, the Servicer may take into account its relationship with Obligors and their respective affiliates, which may create conflicts of interest. The Originator or any of its Affiliates (including the Trust Depositor) will initially hold the Class C Notes, the Class D Notes, the Class E Notes, the Class F Notes and the Certificate as of the Closing Date and may acquire and hold other classes of Notes, and as a result will have certain voting and other rights, including rights with respect to amendments and enforcement actions, to the extent provided in the Transaction Documents. The interests of the Originator or any of its Affiliates (including the Trust Depositor) as a Holder of such Notes and/or the Certificate and any other classes of Notes may be adverse to the interests of other Holders of the Offered Notes. If the Originator or any of its Affiliates holds any class of Notes or the Certificate at any time, there is no requirement that they maintain ownership thereof. Each of the Initial Purchasers may purchase and retain the Offered Notes for their own account or sell the Offered Notes to one of their respective Affiliates. Moreover, it is expected that the Initial Purchasers and/or their respective Affiliates may own equity or other securities of Obligors and will have acted as a broker or provided investment banking services or advisory or commercial banking and other services to Obligors and the Originator, the Servicer and their respective Affiliates. There are no restrictions in the Transaction Documents on the Originator, the Servicer, the Initial Purchasers or any of their respective Affiliates with respect to such Loans, relationships or conflicts of interest. By purchasing the Notes, each Noteholder will be deemed to have agreed that the Originator, the Servicer, the Initial Purchasers and their respective Affiliates will have no liability to the Noteholders or the Issuer as a result of such Loans, relationships or conflicts of interests. American Capital may enter into other transactions with one or more of the Initial Purchasers or their respective affiliates from time to time. Such transactions may present conflicts of interests between the entities involved and the Holders of the Notes. American Capital and Wachovia Bank, National Association ( Wachovia Bank ), an Affiliate of Wachovia Capital Markets are also parties to a total return swap agreement pursuant to which American Capital has financed from time to time loans it has originated. In addition, Citi and Wachovia Bank have in the past purchased loans originated by American Capital and have participated directly as lenders in loans originated by American Capital and expect to continue to do so from time to time. American Capital is an owner of certain debt and equity interests issued in commercial mortgage backed securities and collateralized loan obligation transactions in which special purpose entity Affiliates of Citi and Wachovia Bank are the issuers and with respect to which Citi and Wachovia Capital Markets acted as initial purchasers. American Capital and Wachovia Capital Investments, Inc., an Affiliate of Wachovia Capital Markets, are also co-investors in a private fund established to invest in equity interests issued in collateralized debt obligation transactions. Affiliates of Citi are providing certain warehouse facilities to collateralized loan obligation vehicles managed by an Affiliate of American Capital. In addition, the Initial Purchasers, their respective Affiliates and special purpose entities (including any commercial paper conduits) administered by the Initial Purchasers or their respective Affiliates have, and may continue to have, relationships (including investment banking, asset management, commercial banking and advisory -32-

46 services, engaging in loan acquisitions, securities or derivatives transactions, brokerage or trading activities or private equity investments) with American Capital and certain Obligors whose Loans are included in the Loan Pool and may purchase, own or sell loans (and other assets) issued by American Capital and Obligors. The existence and activities under these relationships may operate to the detriment of the Issuer and the Noteholders, and the Initial Purchasers and their respective Affiliates will not be required to take the interests of the Issuer or the Noteholders into account when engaging in these other activities. The Initial Purchasers or their respective Affiliates may, by virtue of the relationships described above or otherwise, at the date hereof or at any time hereafter, be in possession of information regarding certain of the Obligors of the Loans and their Affiliates, that is or may be material in the context of the Notes and that is or may not be known to the general public. None of the Initial Purchasers or their respective Affiliates has any obligation, and the offering of the Offered Notes will not create any obligation on their part, to disclose to any purchaser of the Offered Notes any such relationship or information, whether or not confidential. Additional Risks Related to the Originator and the Offered Notes World economic and political conditions could adversely affect payments to the Noteholders. National and international political developments, instability and uncertainties could result in continued economic weakness in the United States and international markets. These uncertainties include threatened hostilities with other countries, political unrest and instability around the world, and continuing threats of terrorist attacks. Armed hostilities in the Middle East and elsewhere, and any future terrorist attacks in the United States or abroad, could also have an adverse impact on the U.S. economy, global financial markets and payments and collections on the Loans. The Originator has a limited operating and investment history in certain segments of its business. Since its initial public offering in 1997, the Originator has primarily been an investor in domestic, privately-held middle market companies, which it considers to be companies with sales between $10 million and $750 million. The Originator has begun, or has announced plans to begin, investing in other investment categories, including CMBS, CDOs, earlier stage technology companies, special situation companies and, through its investment in ECAS, in European-based businesses. See American Capital Strategies, Ltd. The Originator has limited or no operating history in making such investments. The Originator has also begun its new business of managing other alternative asset funds in addition to the investments on its balance sheet. The Originator is conducting this business through either consolidated operating subsidiaries or newly created wholly-owned portfolio companies. Such new business initiatives and strategies may divert the Originator's attention from its historical business strategies. There can be no assurances that these new business initiatives will be profitable in future periods, nor can there be any assurances that such strategies will be successfully implemented. Environmental laws could result in lender liability for the Originator for environmental remediation costs. Under state and federal environmental legislation and case law applicable in various states, a secured party that takes a deed in lieu of foreclosure, acquires a mortgaged property at a foreclosure sale or which, prior to foreclosure, has been involved in decisions or actions that either may demonstrate operational control of the Obligor or may lead to contamination of a property, may be liable for the costs of cleaning up a contaminated site. Although such costs could be substantial, it is unclear whether they would be imposed on a holder of a mortgage note (such as the Issuer), which, under the terms of the Transfer and Servicing Agreement, is not required to take an active role in operating the mortgaged properties. In the Transfer Agreement, the Originator will represent and warrant that at the time of origination of each Loan (other than Third Party Agented Loans) where commercial real property that is material to the operations of the related business serves as Collateral for such Loan, the related mortgaged property was free of contamination from toxic substances or hazardous wastes requiring action under Requirements of Laws or is subject to ongoing environmental rehabilitation approved by the Servicer and, as of the applicable Cut-Off Date, the Originator has no knowledge of any such contamination from toxic substances or hazardous waste material on any such commercial -33-

47 real property unless such items are below action levels. As of the Closing Date, a portion of the Initial Loans held by the Issuer will be secured by real property and the Originator may add additional Loans with such Collateral in the future pursuant to its substitution rights. However, pursuant to the Transfer and Servicing Agreement, the Aggregate Outstanding Loan Balance of Loans principally secured by real property is limited to less than 40% of the Loan Pool. Changes in government laws and regulations could adversely the Originator s business, operations and financial condition. Changes in the laws, regulations or interpretations of the laws and regulations that govern business development companies, regulated investment companies or non-depository, commercial lenders could significantly affect the Originator s operations and its costs of doing business. The Originator s operations are subject to regulation by federal, state and local government authorities, as well as to various laws and judicial and administrative decisions, that impose requirements and restrictions affecting, among other things, the Originator s loan originations, maximum interest rates, fees and other charges, disclosures to customers, the terms of secured transactions, and collection and foreclosure procedures. The Originator s failure to comply with such laws, rules and regulations could result in the suspension or revocation of any required license as well as the imposition of civil fines and criminal penalties and could also have a material adverse effect upon the Originator s business, results of operations or financial condition. The Issuer s failure to register under the 1940 Act could adversely affect Noteholders if a court or the SEC determines that the Issuer has violated the 1940 Act. The Issuer has not registered with the SEC as an investment company pursuant to the 1940 Act. Counsel for the Issuer will opine, in connection with the sale of the Notes by the Initial Purchasers, that the Issuer is not on the Closing Date an investment company required to be registered under the 1940 Act (assuming, for the purposes of such opinion, that the Offered Notes are sold by the Initial Purchasers in accordance with the terms of the Purchase Agreement). No opinion or no-action position has been requested of the SEC. If the SEC or a court of competent jurisdiction were to find that the either the Issuer or the Loan Pool is required, but in violation of the 1940 Act had failed, to register as an investment company, possible consequences include, but are not limited to, the following: (a) the SEC could apply to a district court to enjoin the violation; (b) investors in the Issuer could sue the Issuer and recover damages caused by the violation; and (c) any contract to which the Issuer is a party that is made in, or whose performance involves a, violation of the 1940 Act 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 1940 Act. Should the Issuer or the Loan Pool be subjected to any or all of the foregoing, the Issuer or the Loan Pool would be materially and adversely affected. Money Laundering Prevention. The Uniting and Strengthening America By Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the USA PATRIOT Act ), signed into law on and effective as of October 26, 2001, requires that financial institutions, a term that includes banks, broker-dealers and investment companies, establish and maintain compliance programs to guard against money laundering activities. The USA PATRIOT Act requires the Secretary of the United States Department of the Treasury (the Treasury ) to prescribe regulations in connection with anti-money laundering policies of financial institutions. The Financial Crimes Enforcement Network, an agency of the Treasury, has announced that it is likely that such regulations would subject pooled investment vehicles such as the Issuer to enact anti-money laundering policies. It is possible that there could be promulgated legislation or regulations that would require the Issuer, the Initial Purchasers, the Servicer or other service providers to the Issuer, in connection with the establishment of anti-money laundering procedures, to share information with governmental authorities with respect to investors in the Offered Notes. Such legislation and/or regulations could require the Issuer to implement additional restrictions on the transfer of the Offered Notes. The Issuer reserves the right to request such information as is necessary to verify the identity of a Noteholder and the source of the payment of subscription monies, or as is necessary to comply with any customer identification programs required by the Financial Crimes Enforcement Network and/or the SEC. In the event of delay or failure by -34-

48 the applicant to produce any information required for verification purposes, an application for or transfer of Offered Notes and the subscription monies relating thereto may be refused. USE OF PROCEEDS In consideration of the Trust Depositor s transfer of the Initial Loans to the Issuer, the Issuer will transfer the net proceeds from the sale of the Offered Notes to the Trust Depositor, together with the $42,500,000 in original principal amount of the Class E Notes, the $25,000,000 in original principal amount of the Class F Notes and the Certificate. The net proceeds from the sale of the Offered Notes will be used by the Trust Depositor to purchase the Initial Loans from the Originator. The gross proceeds (before deducting fees and expenses of the offering of the Notes and organization expenses of the Issuer other than the fees due to the Initial Purchasers) are expected to be $335,921,300. On the Closing Date, the Issuer will deposit approximately $1,000,000 from the proceeds of the sale of the Offered Notes into the Reserve Fund and this amount will be applied as Interest Collections under the Priority of Payments on the first Payment Date. The Originator will use the proceeds it receives from the Trust Depositor to repay certain amounts outstanding under the VFCC CP Transaction. On the Closing Date, the Unused Proceeds will be deposited in the Principal Collection Account and may be used during the Pre-Funding Period to acquire Additional Loans. Unused Proceeds that are not used to purchase Additional Loans will be invested as soon as practicable in Eligible Investments with maturity dates not later than the date that is four months following the Closing Date. Any Unused Proceeds remaining after the Effective Date will be subject to a Special Redemption. THE PRE-FUNDING PERIOD The Issuer expects that, as of the Closing Date, it will have obtained greater than 85% of the Expected Aggregate Outstanding Loan Balance. The Issuer expects to obtain the remainder of the Expected Aggregate Outstanding Loan Balance during the Pre-Funding Period beginning on the Closing Date and ending on the Effective Date. During the Pre-Funding Period, the Issuer expects to purchase Additional Loans with Unused Proceeds deposited in the Principal Collection Account and Principal Collections received with respect to the Initial Loans. The purchase price paid by the Issuer for any Additional Loan shall be an amount equal to the Outstanding Loan Balance thereof, which price may equal, exceed or be less than the fair market value of such Additional Loan as of the related Cut-Off Date. The Servicer on behalf of the Issuer will present each Additional Loan proposed to be included in the Collateral to each Rating Agency in order that each Rating Agency may provide a rating and a recovery rate with respect to such Loan; provided that (a) such Loan may become a part of the Collateral prior to the Servicer s presentment of the Loan to the Rating Agencies as described herein and (b) the Servicer s failure to present a Loan to the Rating Agencies as described herein shall not constitute an independent breach of, or default under, any Transaction Document. During the Pre-Funding Period, the Issuer may only purchase a Loan if the Servicer on behalf of the Issuer certifies to the Indenture Trustee that, after giving effect to the purchase of such Loan, (a) the Portfolio Acquisition and Disposition Requirements are satisfied, and (b) the Portfolio Criteria are satisfied; provided that if any component of the Portfolio Criteria is not satisfied prior to giving effect to the purchase of such Loan, the Portfolio Criteria shall be deemed satisfied with respect to such component if the component is maintained or improved by the purchase of such Loan. If the full amount of any Unused Proceeds deposited in the Principal Collection Account prior to the Effective Date is not used to purchase Additional Loans, the full amount of such remaining Unused Proceeds will be withdrawn from the Principal Collection Account and distributed in a Special Redemption. See Summary Special Redemption. Within ten Business Days after the Effective Date, the Servicer will (a) engage Independent Accountants to determine the extent of compliance with the Portfolio Criteria of the Loans included in the Collateral as of the Effective Date, (b) deliver to the Indenture Trustee and the Rating Agencies an officer s certificate certifying (x) the extent of compliance with the Portfolio Criteria of the Loans included in the Collateral as of the Effective Date and (y) as to the Aggregate Outstanding Loan Balance and a comparison of the Aggregate Outstanding Loan Balance to the Expected Aggregate Outstanding Loan Balance, and appending thereto the Quarterly Report and (c) request that -35-

49 each Rating Agency deliver an Effective Date Ratings Confirmation within 60 Business Days after the initial Payment Date; provided that the Servicer shall not be required to request such confirmation from Moody s and Fitch if the Issuer is in compliance with the Portfolio Criteria as of the Effective Date. Within 60 Business Days after the initial Payment Date (or such later date as each Rating Agency may determine), the Servicer will deliver to the Indenture Trustee and the Rating Agencies a report of such Independent Accountants certifying the results of the determination referenced in clause (b) above. If an Effective Date Ratings Downgrade occurs, the Servicer on behalf of the Issuer shall present a Proposed Plan to the Rating Agencies to obtain an Effective Date Ratings Confirmation. In the event of a Ratings Confirmation Failure, the first Payment Date following the applicable Effective Date Ratings Downgrade and any succeeding Payment Date will be a Sequential Payment Date, until such date as each such Rating Agency has delivered an Effective Date Ratings Confirmation or until the Outstanding Principal Balance of each class of Notes is reduced to zero. THE REPLENISHMENT PERIOD The Replenishment Period will begin on the Effective Date and will terminate on the earlier to occur of (a) the Business Day preceding the Payment Date in February 2008 or (b) an Event of Default. If the Replenishment Period is terminated as described in clause (a) in the previous sentence, the Replenishment Period cannot be extended without the consent of the Servicer and the Required Holders and satisfaction of the Fitch Rating Condition and the S&P Rating Condition with respect to the extension of the Replenishment Period. If the Replenishment Period terminates as a result of the occurrence of an Event of Default, the Replenishment Period cannot be reinstated unless (i) the event giving rise to such termination has been cured or waived, (ii) no other events that would terminate the Replenishment Period have occurred, (iii) the Servicer and the Required Holders have consented to such reinstatement and (iv) the Fitch Rating Condition and the S&P Rating Condition have been satisfied with respect to the reinstatement of the Replenishment Period. The Servicer is required to give notice of any extension or reinstatement of the Replenishment Period to each Rating Agency. An extension of the Replenishment Period could result in a Ratings Effect, as determined by each Rating Agency in its sole discretion. During the Replenishment Period, Principal Collections received by the Issuer will be deposited in the Principal Collection Account and the Issuer may apply Principal Collections to purchase Additional Loans from the Trust Depositor. The purchase price paid by the Issuer for any Additional Loan shall be an amount equal to the Outstanding Loan Balance thereof, which purchase price may equal, exceed or be less than the fair market value of such Additional Loan as of the related Cut-Off Date. Pending these purchases by the Issuer, such amounts will be invested in Eligible Investments. Upon the purchase of an Additional Loan pursuant to the Transfer and Servicing Agreement, such Additional Loan will become part of the Loan Pool and subject to the Lien of the Indenture. The Servicer will represent and warrant in the Transfer and Servicing Agreement, in connection with the foregoing, that it will not cause the Issuer to purchase any Additional Loans pursuant to the Transfer and Servicing Agreement for the primary purpose of recognizing gains or decreasing losses resulting from market value changes. If the full amount of any Principal Collections deposited to the Principal Collection Account prior to the end of the Replenishment Period is not used to purchase Additional Loans within the 90-day period following the deposit of such Principal Collections into the Principal Collection Account (or, in the case of Principal Collections received during the Pre-Funding Period, within 90 days after the Effective Date), the remaining amount of such funds previously deposited as described above (if such remaining amount equals or exceeds $1,000,000) will be withdrawn from the Principal Collection Account and distributed in a Special Redemption. See Summary Special Redemption. In addition, if on any Payment Date during the Replenishment Period, any Additional Principal Amount remains unpaid after applying Interest Collections on such Payment Date, Liquidation Proceeds (which shall, for such purpose, be allocated as if such Liquidation Proceeds were Interest Collections) shall be applied to the payment of such unpaid Additional Principal Amount prior to any Liquidation Proceeds being available to purchase Additional Loans; provided that following payment in full of any unpaid Additional Principal Amount, the Issuer shall be entitled to apply Liquidation Proceeds as either Interest Collections or Principal Collections, in its discretion. The Portfolio Criteria must be satisfied, subject to certain exceptions described below in The Portfolio Criteria, after giving effect to the purchase of any Additional Loans by the Issuer during the Replenishment Period. -36-

50 THE PORTFOLIO CRITERIA The Issuer may only purchase an Additional Loan or substitute a Substitute Loan if the Servicer on behalf of the Issuer certifies to the Indenture Trustee that, after giving effect to the purchase of such Additional Loan or the substitution of such Substitute Loan, as applicable, (a) the Portfolio Acquisition and Disposition Requirements are satisfied and (b) the Portfolio Criteria are satisfied; provided that if any component of the Portfolio Criteria is not satisfied prior to giving effect to the purchase of such Additional Loan or the substitution of such Substitute Loan, as applicable, the Portfolio Criteria shall be deemed satisfied with respect to such component if the component is maintained or improved by the purchase of such Additional Loan or the substitution of such Substitute Loan, as applicable. Compliance with the Portfolio Criteria will also be determined as of each Determination Date and reported in the corresponding Quarterly Report. In addition, if on any Payment Date during the Replenishment Period any Additional Principal Amount remains unpaid after applying Interest Collections in respect thereof, Liquidation Proceeds shall be applied to the payment of such unpaid Additional Principal Amount prior to any Liquidation Proceeds being available to purchase Additional Loans. Any failure to satisfy the Portfolio Criteria on any Measurement Date will not constitute a default or an Event of Default under the Transaction Documents. The sole independent consequence of a failure of the Portfolio Criteria to be satisfied will be, in the case of a Measurement Date relating to an Additional Loan or a Substitute Loan, that the applicable Additional Loan or Substitute Loan shall not become part of the Loan Pool. The Portfolio Criteria are as follows: (a) (b) the S&P CDO Monitor Test is satisfied; the Moody s Weighted Average Rating Factor is less than or equal to the Maximum Moody s Weighted Average Rating Factor; (c) the Fitch Weighted Average Rating is less than or equal to 30%; (d) (e) (f) the Weighted Average Life Test is satisfied; the Global Weighted Average Spread is greater than or equal to the Minimum Global Weighted Average Spread; the Diversity Score is greater than or equal to the Minimum Diversity Score; (g) the Moody s Weighted Average Recovery Rate equals or exceeds 30%; (h) the S&P Weighted Average Recovery Rate equals or exceeds 40%; (i) (j) (k) (l) (m) (n) not more than 5% of the Aggregate Outstanding Loan Balance may consist of Floating Prime Rate Loans; not more than 20% of the Aggregate Outstanding Loan Balance may consist of Subordinated Loans; not more than 75% of the Aggregate Outstanding Loan Balance may consist of Second Lien Loans and Subordinated Loans; not more than 5% of the Aggregate Outstanding Loan Balance may consist of Loans that pay interest less frequently than quarterly but at least annually; not more than 17% of the Aggregate Outstanding Loan Balance may consist of Loans (other than Defaulted Loans) with a Moody s Rating of Caa1 or lower; not more than 15% of the Aggregate Outstanding Loan Balance may consist of Loans (other than Defaulted Loans) with an S&P Rating of CCC+ or lower; -37-

51 (o) (p) (q) (r) (s) (t) (u) not more than 20% of the Aggregate Outstanding Loan Balance may consist of Loans (other than Defaulted Loans) with a Fitch Rating of CCC+ or lower; not more than 12% of the Aggregate Outstanding Loan Balance may consist of Loans to primary Obligors organized under the laws of, or all or substantially all of the assets of which are located in, any country other than the United States; provided that the full aforementioned 12% may consist of Loans to primary Obligors organized under the laws of, or all or substantially all of the assets of which are located in, Canada; not more than 6% of the Aggregate Outstanding Loan Balance may consist of Loans to primary Obligors organized under the laws of, or all or substantially all of the assets of which are located in, Group I Countries, Group II Countries or Group III Countries; not more than 3% of the Aggregate Outstanding Loan Balance may consist of Loans to a single primary Obligor organized under the laws of, or all or substantially all of the assets of which are located in, a Group II Country; not more than 3% of the Aggregate Outstanding Loan Balance may consist of Loans to a single primary Obligor organized under the laws of, or all or substantially all of the assets of which are located in, a Group III Country; not more than 10% of the Aggregate Outstanding Loan Balance may consist of Broadly Syndicated Loans; and not more than 5% of the Aggregate Outstanding Loan Balance may consist of Loans to a single Obligor. S&P CDO Monitor Test If on any Measurement Date the S&P CDO Monitor Test is not satisfied or, if immediately prior to the purchase of any Additional Loan or the substitution of any Substitute Loan, the S&P CDO Monitor Test was not satisfied, the result is not closer to compliance, the Issuer must promptly deliver to the Indenture Trustee, each Swap Counterparty and S&P an officer s certificate specifying the extent of non-compliance. The S&P CDO Monitor Test will be satisfied on any Measurement Date on and after the date on which the S&P CDO Monitor is provided to the Servicer and the Indenture Trustee if after giving effect to the substitution of a Substitute Loan or the purchase of an Additional Loan (or both), as the case may be, on such Measurement Date the Notes Loss Differential of the Proposed Portfolio is positive, or if the Notes Loss Differential of the Proposed Portfolio is negative prior to giving effect to such sale or purchase, the extent of compliance is improved after giving effect to the repurchase, substitution or purchase of a Substitute Loan or an Additional Loan, as applicable. The S&P CDO Monitor Test will be considered improved if the Notes Loss Differential of the Proposed Portfolio is greater than the corresponding Notes Loss Differential of the Current Portfolio. In the event that such test is updated or otherwise modified by S&P after the Effective Date, the S&P CDO Monitor Test shall mean such test as so updated or otherwise modified. The Notes Loss Differential means, with respect to any class of Offered Notes rated by S&P, at any time, the rate calculated by subtracting the Class Scenario Loss Rate at such time from the Note Break-Even Loss Rate for such class of Offered Notes at such time. The Class Scenario Loss Rate means, with respect to any class of Offered Notes rated by S&P, 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 rating of such class of Offered Notes on the Closing Date, determined by application of the S&P CDO Monitor at such time. The Note Break-Even Loss Rate means, with respect to any class of Offered Notes rated by S&P, at any time, the maximum percentage of defaults (as determined by the Servicer through application of the S&P proprietary cash flow model) that the Current Portfolio or the Proposed Portfolio, as applicable, can sustain such that, after -38-

52 giving effect to S&P assumptions on recoveries and timing and to the priority of payments with respect to the Offered Notes, will result in sufficient funds remaining for the ultimate payment of principal of and interest on such class of Offered Notes in full by its stated maturity date and the timely payment of all non-deferrable interest on such class of Offered Notes. The Proposed Portfolio means the portfolio (measured by the outstanding principal balance) of (a) the Loans, (b) Principal Collections held as cash and (c) Eligible Investments purchased with Principal Collections resulting from the repurchase, maturity or other disposition of Loan or a proposed purchase of an Additional Loan or addition of a Substitute Loan, as the case may be. The Current Portfolio means the portfolio (measured by the outstanding principal balance) of (a) the Loans, (b) Principal Collections held as cash and (c) Eligible Investments purchased with Principal Collections existing immediately prior to the applicable Measurement Date. The S&P CDO Monitor is the dynamic, analytical computer program provided by S&P to the Servicer and the Indenture Trustee within 30 days after the Effective Date for the purpose of estimating the default risk of Loans. The S&P CDO Monitor calculates the cumulative default rate of a pool of Loans consistent with a specified benchmark rating level based upon S&P proprietary corporate debt default studies. In calculating the Class Scenario Loss Rate, the S&P CDO Monitor considers each Obligor s most senior unsecured debt rating, the number of Obligors in the Loan Pool, the Obligor and the industry concentration in the Loan Pool and the remaining weighted average maturity of the Loans and calculates a cumulative default rate based on the statistical probability of distributions of defaults on the Loans in the Loan Pool. There can be no assurance that actual defaults of the Loans or the timing of defaults 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 Test. S&P makes no representation that actual defaults will not exceed those determined by the S&P CDO Monitor. Neither the Servicer nor the Issuer makes any representation as to the expected rate of defaults of the Loans or the timing of defaults or as to the expected recovery rate or the timing of recoveries or as to the use or accuracy of the S&P CDO Monitor. DELINQUENCY AND LOSS INFORMATION FOR ORIGINATOR S PORTFOLIO OF LOANS The Originator treats a loan as delinquent if the Obligor does not make a scheduled payment at the time or in the amount required by the loan terms. Loan terms require payment by the Obligor by each contractual payment due date. As of March 31, 2007 and December 31, 2006, loans on accrual status, past due loans and loans on non-accrual status were as follows (dollars in millions): March 31, 2007 December 31, 2006 Number of Portfolio Companies Amount Number of Portfolio Companies Amount Current 122 $ 4, $ 4,623 One Month Past Due Two Months Past Due Three Months Past Due Greater than Three Months Past Due Loans on Non-accrual Status Subtotal

53 Total 138 $ 4, $ 4,818 Past Due and Non-accruing Loans as a Percent of Total Loans 4.4% 4.0% There can be no assurance that the Originator s delinquency and loss experience will continue to be similar in the future with respect to its portfolio of loans including those Loans sold to the Issuer. THE LOANS On the Closing Date, the Trust Depositor will transfer to the Issuer the Initial Loans. In addition, the Trust Depositor may from time to time substitute for or repurchase Loans and, during the Replenishment Period, purchase Additional Loans as permitted under the Transfer and Servicing Agreement. The Loans are subject to a number of risks, including credit, liquidity, interest rate and other risks. See Risk Factors Asset Risks. The Initial Loans were selected by the Originator from the Originator s portfolio of loans based on a pool of Loans that satisfied the Portfolio Criteria and met the eligibility criteria described in the Transfer and Servicing Agreement. See The Transfer and Servicing Agreement Representations and Warranties; Definition of Eligible Loans. The Originator will sell the Loans to the Trust Depositor on the Closing Date under a Transfer Agreement (as amended, modified, restated, replaced, waived, substituted, supplemented or extended from time to time, the Transfer Agreement ), dated as of the Closing Date. The Originator will represent that all of the Loans sold to the Trust Depositor relate to commercial financings, rather than to consumer loans or financings. No selection procedures believed by the Originator to be adverse to the Noteholders or Swap Counterparties were used in selecting the Initial Loans, or will be used in selecting Additional Loans or Substitute Loans, for transfer to the Trust Depositor under the Transfer Agreement. The Loans to be transferred to the Issuer will consist of First Lien Loans, Second Lien Loans and Subordinated Loans made to middle market businesses, the majority of which are privately-owned. The Issuer will be entitled to all Collections on account of the Loans. However, the Originator will retain and not transfer the Excluded Amounts and the Retained Interest. See Description of the Notes and Indenture Amounts Available for Payments on the Notes. With the exception of Noteless Loans, the Loans are evidenced by promissory notes (collectively, the Underlying Notes ) that are generally purchased by the Originator pursuant to the terms of a Designated Loan Agreement with each Obligor. The indebtedness of an Obligor under a Noteless Loan is evidenced by the Designated Loan Agreement and the related Loan Register. The Designated Loan Agreements typically set forth the principal terms of the Loans including repayment and prepayment terms, conditions to the obligations of the Originator under the Designated Loan Agreement, representations and warranties of the Obligors, affirmative, negative and financial covenants of the Obligors and events of default. Typical terms of these Designated Loan Agreements are summarized under this heading. Payment and Prepayment Terms. Payment of interest is typically required monthly or quarterly, generally on the first Business Day of each month or quarter. Prepayments of principal are generally permitted on 30 days advance notice, subject to specified minimum amounts and, in many cases, subject to a Prepayment Premium computed as a percentage of the amount of principal repaid. The Prepayment Premium generally declines over the life of the Loan. Depending on the Loan, prepayments made beginning three to five years after origination are not subject to a Prepayment Premium. Conditions to Closing. Prior to the closing of Loans, Obligors must satisfy various specified requirements, including delivery of related documentation such as instruments pertaining to Collateral, providing evidence of the Obligor s due organization and authority to enter into the transaction (including legal opinions) and completion of satisfactory documentation with other lenders. Representations and Warranties. Under the Designated Loan Agreements, Obligors make representations in connection with the origination of each Loan regarding their due organization and authorization to enter into the Designated Loan Agreement, enforceability of the Designated Loan Agreement, the accuracy of financial and other information provided to the Originator, the Obligor s compliance with laws and other customary matters. -40-

54 Covenants. The Designated Loan Agreements provide customary covenants that remain in effect as long as any of the related indebtedness is outstanding. These generally include affirmative covenants covering matters such as financial and other reporting, inspection rights for the Originator and continued compliance with law; negative covenants such as limitations on additional indebtedness, additional Liens, mergers, dispositions of assets, transactions with Affiliates and capital expenditures; and financial covenants related to the continuing achievement of specified financial ratios or other financial criteria. The affirmative covenants also generally grant the Originator the right to nominate one or more members of the Obligor s board of directors. Events of Default. The Designated Loan Agreements typically provide that it will be an event of default, entitling the holders of the related indebtedness to accelerate indebtedness and take other enforcement actions (including foreclosing on collateral), in the event that the Obligor defaults in the payment of principal or interest (interest payments are typically subject to a five-day grace period), if the Obligor s representations and warranties in the Designated Loan Agreement were materially false or misleading, following the breach of covenants in the Designated Loan Agreement (subject, in the case of certain covenants, to materiality and to cure periods), should the Obligor become insolvent or otherwise subject to a bankruptcy proceeding or following the occurrence of certain other events. The Loan Pool is expected to consist primarily of Agented Notes and Third Party Agented Loans. With respect to Agented Notes, Third Party Agented Loans and certain other Loans which have more than one holder of the underlying indebtedness, one or more parties will be designated as the administrative agent, the paying agent and/or the collateral agent. In such cases, the Obligor will direct payments to the administrative agent, the paying agent or the collateral agent, as the case may be, which will distribute the payments to the holders of the underlying indebtedness, including the Issuer. As is typical in such agency arrangements, the agent generally may take certain actions only following the instructions of the lenders holding a specified amount of the associated indebtedness. In some cases, the underlying indebtedness held by the Issuer represents less than the specified amount of associated indebtedness and, consequently, an agent would only take actions if instructions from the Issuer were made in conjunction with other holders of the associated indebtedness comprising the requisite percentage of the associated indebtedness. If holders of the requisite percentage of the associated indebtedness other than the Issuer desire to take certain actions, such actions could be taken even if the Issuer did not support such actions. However, as is typical for such loans, certain actions, typically including amendments to the interest rate, maturity and payment terms of the applicable Loan, could not be taken without the consent of all holders of such underlying indebtedness of the related Obligor. Most Designated Loan Agreements also provide that the Originator is to receive, for nominal consideration, warrants to purchase equity interests in the Obligor, which warrants are exercisable for nominal consideration. In certain cases, the Originator also purchases additional equity interests. Such warrants or other equity interests are part of the Retained Interest and will not be conveyed to the Issuer. Many of the Loans are and will be subordinated to the payment rights and/or security interests of senior lenders. Generally, payment of principal on such Loans is prohibited until the applicable senior loan is paid in full and payment of interest is permitted on such Loans only if there is no payment default on the applicable senior loan. In addition, senior lenders can block payments for specified periods of time in the event of non-payment defaults under the senior loans. Additionally, as a consequence of subordination, most amounts that the Issuer would receive as a result of the enforcement actions following default and acceleration or in connection with a bankruptcy or other insolvency proceeding of the Obligor are required to be turned over to the senior lenders unless and until the senior lenders have received all amounts they are due. Finally, under such subordination agreements, acceleration and other collection actions are typically subject to standstill periods prohibiting the Issuer and other holders of the related indebtedness from taking actions until specified periods of time have elapsed. Some such standstill periods last as long as the applicable senior loans are outstanding. Collateral Loans that are secured by Collateral are secured by Liens and security interests encumbering a portion of the assets of an Obligor. Collateral typically includes real and personal property interests, including accounts receivable, inventory, equipment and intellectual property rights. The Collateral does not include the Retained Interest or the Excluded Amounts. The Liens and security interests in the Collateral are typically created and -41-

55 perfected pursuant to mortgages, security agreements, financing statements and other appropriate instruments. With regard to Loans that have a collateral agent, interests in the Collateral are held by the agent for the ratable benefit of all holders of the related indebtedness. In all other instances, interests in the Collateral are assigned in the proportion that the Outstanding Loan Balance bears to the outstanding balance of the aggregate related indebtedness issued by an Obligor in connection with the Loan. In the case of secured Loans that are subordinated to senior loans, the Issuer s interests in such Collateral generally will be second in right, subject to Liens securing the senior loans. In the case of unsecured Loans, the Issuer does not have a right to any assets of the Obligor unless it is able to obtain a judgment lien as a result of exercising its remedies. Under subordination agreements with most senior lenders, the right of the Issuer, either directly or through a collateral agent, to foreclose upon Collateral is typically subject to certain restrictions, including standstill periods, before Collateral may be foreclosed upon. The length of such standstill periods vary and, in certain cases, any foreclosure of the Collateral securing a Loan is prohibited as long as any amounts are outstanding under the applicable senior loan. Also, with regard to subordinated Loans, any proceeds realized upon any foreclosure of Collateral must generally be turned over to the senior lender unless and until the senior loans are paid in full. The Issuer s interests in the related Collateral may be subordinated to the interests of creditors holding a priority Lien on the same property. The Servicer will not be entitled to directly exercise the rights of the Issuer with respect to the related Collateral in respect of any Third Party Agented Loan and, in respect of Agented Notes, the Servicer (or ACFS) will be required to take certain actions at the direction of the requisite percentage of the lenders of the associated indebtedness. With respect to any Agented Note or Third Party Agented Loan, the administrative agent, collateral agent, custodian or other Person acting in a similar capacity will exercise the rights of all of the lenders to the related Obligor in respect of such related Collateral on behalf of all of such lenders. Any reference herein to the Issuer s interest in the related Collateral in respect of an Agented Note or a Third Party Agented Loan will be to the Issuer s interest in such related Collateral held through the related administrative agent, collateral agent, custodian or other Person acting in a similar capacity. Loan Files The Originator and the Trust Depositor will indicate as of the applicable Cut-Off Date in their respective books and records, including the appropriate computer files relating to the Loans, that the Loans have been sold by the Originator to the Trust Depositor and by the Trust Depositor to the Issuer, respectively. The Originator and the Trust Depositor will deliver the Loan Documents to the Indenture Trustee on behalf of the Issuer on or prior to the applicable Cut-Off Date. The Originator will also deliver to the Trust Depositor a computer file or microfiche or written list containing a true and complete list of all Loans that have been transferred, identified by account number, Obligor name, and by the Outstanding Loan Balance of the Loan as of the applicable Cut-Off Date. Wells Fargo Bank, National Association will act as custodian of the Loans and the Loan Files related thereto pursuant to the Transfer and Servicing Agreement and the Indenture. Collections Collections on the Loans are required to be made to a lockbox bank, acting as agent for the Issuer pursuant to a lockbox administration agreement. The Trust Depositor, for the benefit of the Noteholders and the Swap Counterparties, shall cause to be established an account referred to as the Collection Account, and an account referred to as the Note Distribution Account that shall be maintained in the name of the Indenture Trustee. The Interest Collection Account and the Principal Collection Account will each be a sub-account of the Collection Account. See Description of the Notes and Indenture Trust Accounts. The Servicer will cause all Collections on deposit applicable to the Loans to be deposited into the Collection Account within two Business Days after receipt thereof. MATURITY AND PREPAYMENT CONSIDERATIONS The Legal Final Maturity Date of the Offered Notes is November 18, 2019 (unless principal on any such class of Offered Notes is reduced to zero prior to such date as described herein). The actual maturity of each class of -42-

56 Offered Notes is expected to occur prior to the Legal Final Maturity Date. The actual maturity date of the Offered Notes will be determined by the amount and frequency of principal payments, which will depend upon, among other things, whether the Class F Noteholder causes an Optional Repurchase of the Offered Notes, the amount of payments received at or in advance of the scheduled maturity of the Loans (whether through prepayment, sale, maturity, redemption, default or other liquidation or disposition) as well as the rate of future defaults and the amount and timing of any cash realization from Defaulted Loans and Delinquent Loans. The actual maturity date of the Offered Notes will also be affected by the financial condition of the Obligors of the Loans and the characteristics of the Loans, including the existence and frequency of exercise of any optional or mandatory prepayment features of such Loans, the prevailing level of interest rates, the redemption price, the prepayment price, the actual default rate and the actual level of recoveries on any Defaulted Loans and Delinquent Loans, and the level of refinancing activity with respect to such Loans. A substantial portion of the Loans is expected to permit prepayment at any time by the Obligor. The actual portfolio of Loans securing the Offered Notes will change from time to time as a result of the purchase of Additional Loans and the repurchase and substitution of Loans. Any substitution or repurchase of a Loan or purchase of an Additional Loan may change the characteristics of the Loan Pool and the rate of payment thereon and, accordingly, may affect the actual maturity date of the Offered Notes. The ability of the Issuer to use Principal Collections to purchase Additional Loans and the Originator s ability to convey Substitute Loans to the Trust Depositor and the Issuer will also affect the actual maturity date of the Offered Notes. WEIGHTED AVERAGE LIFE The weighted average life of a Note refers to the average amount of time that will elapse from the Closing Date to the date on which each dollar in respect of principal of such Note is repaid. The weighted average life of an Offered Note will be influenced by, among other factors, the rate at which principal payments are made on the Loans and the extent to which the cash flow profile of any Additional Loans conforms to the cash flow profile of the Initial Loans. If the Issuer purchases Additional Loans or substitutes Substitute Loans that provide for the Obligors thereof to make payments of principal either earlier in the life of the Loan or more frequently than is the case under the Initial Loans, the weighted average life of the Notes would decrease. During the Replenishment Period, any Principal Collections, including Scheduled Payments, Prepayments and Liquidation Proceeds, that are not reinvested within 90 days will shorten the weighted average remaining term of the Loans and, if applicable in a Special Redemption, the weighted average life of the Notes. After the Replenishment Period, any payments on the Loans other than Scheduled Payments, including Prepayments or Liquidation Proceeds due to default or other events, may result in distributions to the Noteholders of amounts that would otherwise have been distributed over the remaining term of the Loans. The rate of principal payments with respect to any class of Notes may also be affected by any repurchase by the Trust Depositor of Loans under the Transfer and Servicing Agreement. Under the Transfer Agreement and Transfer and Servicing Agreement and subject to certain exceptions, the Trust Depositor and the Originator must repurchase or substitute a Loan if there is a breach of representation or warranty as to such Loan as of its date of transfer. In the event of a repurchase, the repurchase price will decrease the Aggregate Outstanding Loan Balance of the Loans, leading to a principal repayment and causing the corresponding weighted average life of the Notes to decrease. The actual weighted average lives of the Offered Notes also will be affected by the amount and timing of delinquencies and defaults on the Loans and the recoveries, if any, on Defaulted Loans and foreclosed Collateral. Delinquencies and defaults generally will slow the rate of payment of principal to the Noteholders. However, this effect will be offset by the trapping of Interest Collections in the Reserve Fund to the extent such amounts are used to make principal payments on the Offered Notes and to the extent that lump sum recoveries on Defaulted Loans and foreclosed Collateral result in principal payments on the Offered Notes faster than otherwise scheduled. Prepayments on loans are commonly measured relative to a prepayment standard or model. The model used in this Offering Memorandum, the constant prepayment rate ( CPR ), represents an assumed constant rate of prepayment per annum relative to the then outstanding principal balance of a pool of loans. The CPR does not purport to be either a historical description of the prepayment experience of any pool of loans or a prediction of the anticipated rate of prepayment or extension by amendment of any pool of loans, including the Loans. The CPR -43-

57 assumes that a fraction of the outstanding Loans is prepaid on each Payment Date, which implies that each Loan in the pool of Loans is equally likely to prepay. This fraction, expressed as a percentage, is annualized to arrive at the CPR for the Loans. The CPR measures prepayments based on the Aggregate Outstanding Loan Balance of the Loans, after the payment of all payments scheduled to be made under the terms of the Loans during each Collection Period. The CPR further assumes that all Loans are the same size and amortize at the same rate and that each Loan will be either paid as scheduled or prepaid in full. The Originator makes no representation as to the particular factors that will affect the Prepayment of the Loans, as to the percentage of the principal balance of the Loans that will be paid as of any date or as to the overall rate of Prepayment on the Loans. The weighted average life table below sets forth the weighted average lives of the Offered Notes assuming a CPR of 0%, 10%, 21%, 30% and 40%, respectively, and an annual constant default rate of 0%. This information is hypothetical and is set forth for illustrative purposes only. The weighted average lives of the Offered Notes set forth in the table below have been calculated based on a number of assumptions, including (a) certain collateral characteristics, including that the cash flow profile of any Additional Loans purchased during the Pre-Funding Period or the Replenishment Period will be similar to that of the Initial Loans, (b) that the Replenishment Period will continue until the Business Day preceding the Payment Date in February 2008, (c) that there will be no defaults or delinquencies, (d) a constant prepayment rate as set forth in the table, (e) the Class F Noteholder will cause an Optional Repurchase of the Notes at its earliest opportunity to do so, (f) a Closing Date of August 7, 2007, (g) that during the Replenishment Period all Principal Collections, including Scheduled Payments and Prepayments, will be immediately reinvested and no Special Redemption will occur, and (h) on the Payment Date occurring in February 2008, the Weighted Average Life of the Loans is equal to the Maximum Weighted Average Life. The abovementioned assumptions relating to the collateral characteristics are as follows: (i) timely receipt of scheduled Loan payments as of the Closing Date; (ii) the interest and principal component of Loans which pay quarterly are paid in the same months of the quarter; and (iii) all Loan payments are paid on the first day of each month. The weighted average life table below is based upon the Initial Aggregate Outstanding Loan Balance. In addition, it is assumed for the purposes of these tables only, that the Issuer issues the Offered Notes in the following amounts and at the following interest rates: Class Initial Principal Amount Interest Rate A $300,500,000 LIBOR % B $37,500,000 LIBOR % C $63,000,000 LIBOR % D $31,500,000 LIBOR % Based upon the assumptions set forth above, the weighted average life of each class of Offered Notes would be as follows: Weighted Average Life Assuming 0% Annual Constant Prepayment Rate Weighted Average Life Assuming 10% Annual Constant Prepayment Rate Weighted Average Life Assuming 21% Annual Constant Prepayment Rate Weighted Average Life Assuming 30% Annual Constant Prepayment Rate Weighted Average Life Assuming 40% Annual Constant Prepayment Rate Class A 5.99 years 4.36 years 2.99 years 2.23 years 1.71 years B 6.33 years 4.91 years 3.75 years 2.98 years 2.32 years C 6.48 years 4.95 years 3.96 years 3.27 years 2.54 years D 6.60 years 5.03 years 3.98 years 3.35 years 2.57 years The weighted average life of a Note is calculated by: multiplying the amount of each cash distribution in reduction of the Outstanding Principal Balance of such class of Notes, by the number of years from the Closing Date of the transfer of the Initial Loans to the Issuer to the respective Payment Date on which such class of Notes is repaid in full; adding the results; and dividing the sum by the initial principal amount of such class of Notes. -44-

58 AMERICAN CAPITAL STRATEGIES, LTD. American Capital Strategies, Ltd. is the largest business development company ( BDC ) and is the third largest U.S. publicly traded alternative asset manager. American Capital, both directly and through its global asset management business, is an investor in management and employee buyouts, private equity buyouts and early stage and mature private and public companies. American Capital s primary business objectives are to increase taxable income, net operating income and net asset value by investing in senior debt, subordinated debt and equity of private and public companies with attractive current yields and/or potential for equity appreciation and realized gains and by investing in its alternative asset manager business. American Capital s business consists of two primary segments its investment portfolio and its alternative asset management business. American Capital is a Delaware corporation, which was incorporated in On August 29, 1997, American Capital completed an initial public offering, or IPO, of its common stock and became a non-diversified, closed end management investment company, which has elected to be regulated as a business development company, or BDC, under the 1940 Act. On October 1, 1997, American Capital began operations so as to qualify to be taxed as a regulated investment company, or RIC, as defined in Subtitle A, Chapter 1, under Subchapter M of the Code. As a RIC, American Capital is not subject to federal income tax on the portion of its taxable income and capital gains that it distributes to its stockholders. American Capital provides investment capital to middle market companies, which it generally considers to be companies with sales between $10 million and $750 million. American Capital invests in and sponsors management and employee buyouts, invests in private equity sponsored buyouts and provides capital directly to early stage and mature private and small public companies. In addition, American Capital invests in commercial mortgage backed securities ( CMBS ) and collateralized debt obligation ( CDO ) securities and invests in investment funds managed by American Capital. American Capital invests primarily in senior and mezzanine (subordinated) debt and equity of companies in need of capital for buyouts, growth, acquisitions and recapitalizations. American Capital s ability to fund the entire capital structure is an advantage in completing many middle market transactions. Currently, American Capital will invest up to $800 million in a single middle market transaction in North America. American Capital s largest investment at cost as of March 31, 2007, excluding investment funds, was $354 million. American Capital s largest investment in an investment fund at cost as of March 31, 2007, was $654 million. As of March 31, 2007, its average investment size, at fair value, was $43 million, or 0.5% of total assets. Historically, a majority of American Capital s financings have been to assist in the funding of change of control management buyouts, and American Capital expects that trend to continue. Capital that American Capital has provided directly to private and small public companies is used for growth, acquisitions or recapitalizations. From American Capital s IPO in 1997, through March 31, 2007, American Capital invested over $3 billion in equity securities and over $10 billion in debt securities of middle market companies as well as CMBS and CDO securities, which includes funds committed but undrawn under credit facilities and equity commitments. American Capital s loans typically range from $5 million to $100 million, mature in five to ten years, and require monthly or quarterly interest payments at fixed rates or variable rates generally based on the London Interbank offered rate ( LIBOR ) rate, plus a margin. American Capital prices its debt and equity investments based on an analysis of each transaction. As of March 31, 2007, the weighted average effective interest rate on its debt securities was 12.3%. American Capital will invest in the equity capital of portfolio companies that it purchases through an American Capital sponsored buyout. American Capital also may acquire minority equity interests in the companies from which it has provided debt financing with the goal of enhancing its overall return. As of March 31, 2007, American Capital had a fully-diluted weighted average ownership interest of 42% in its private finance portfolio companies with a total equity investment at fair value of over $3.0 billion. American Capital often sponsors One-Stop Buyouts in which American Capital provides most if not all of the senior debt, subordinated debt and equity financing in the transaction. In certain occasions, American Capital may initially fund all of the senior debt at closing and syndicate it to third party lenders post closing. American Capital has a loan syndications group that arranges to have all or part of such senior loans syndicated to other third party lenders. -45-

59 The opportunity to be repaid or exit American Capital s investments may occur if a portfolio company refinances American Capital s loans, is sold in a change of control transaction or sells its equity in a public offering or if American Capital exercises its put rights. Since American Capital s IPO in 1997, through March 31, 2007, American Capital has realized $651 million in gross realized gains and $427 million in gross realized losses resulting in $224 million in cumulative net gains, excluding net losses attributable to periodic interest settlements of interest rate swap agreements and taxes on net gains. As of March 31, 2007, American Capital had 186 exits and prepayments of $5.3 billion of its originally invested capital, representing 36% of American Capital s total capital invested since its IPO, earning a 16% compounded annual return on these investments from the interest, dividends and fees over the life of the investments. As a BDC, American Capital is required by law to make available significant managerial assistance to certain of its portfolio companies. Such assistance typically involves closely monitoring the operations of the portfolio company, advising the portfolio company s board of directors on matters such as the business plan and the hiring and termination of senior management, providing financial guidance and participating on the company s board of directors. As of March 31, 2007, American Capital had board representation at 96 of its 164 portfolio companies, excluding CMBS and CDO investments, and had board observation rights at 29 of the remaining portfolio companies. American Capital also has an operations team, including ex-ceos with significant turnaround and bankruptcy experience, that provides intensive operational and managerial assistance. Providing assistance to its portfolio companies serves as an opportunity for American Capital to maximize their value. Public Manager of Funds of Alternative Assets American Capital is a leading global alternative asset manager with $11.5 billion in assets under management as of March 31, 2007, including $2.9 billion under management of third party funds. In addition to managing American Capital s assets and providing management services to portfolio companies of American Capital, American Capital has successfully launched its initiative to be a publicly traded alternative asset manager of additional third party funds. During 2005 and 2006, American Capital launched its first three alternative asset funds in addition to American Capital European Capital Limited ( ECAS ), American Capital Equity I, LLC ( ACE I ) and ACAS CLO , Ltd. ( ACAS CLO ). American Capital manages these funds either through consolidated operating subsidiaries or wholly-owned portfolio companies. American Capital s asset management business includes both the asset management conducted by both its consolidated operating subsidiaries and its wholly-owned asset management portfolio companies. Through American Capital s asset management business, it earns base management fees based on the size of its funds and incentive income based on the performance of its funds. In addition, American Capital may invest directly into its alternative asset funds and earn investment income from its principal investments in those funds. American Capital intends to grow its existing funds, while continuing to create innovative products to meet the increasing demand of sophisticated investors for superior risk-adjusted investment returns. American Capital expects to continue to develop its asset management business as a publicly traded manager of funds of alternative assets. Corporate Information American Capital s executive offices are located at 2 Bethesda Metro Center, 14 th Floor, Bethesda, Maryland and its telephone number is (301) In addition to the executive offices, American Capital maintains offices in New York, San Francisco, Los Angeles, Philadelphia, Chicago, Dallas, Palo Alto, London and Paris. American Capital s corporate web site is located at American Capital makes available free of charge on its web site its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information on the American Capital web site is not part of this Offering Memorandum. -46-

60 Lending and Investment Decision Criteria American Capital reviews certain criteria in order to make investment decisions. The list below represents a general overview of the criteria American Capital uses in making its lending and investment decisions. Not all criteria are required to be favorable in order for American Capital to make an investment. Follow-on investments for growth, acquisitions or recapitalizations are based on the same general criteria. Follow-on investments in distress situations are based on the same general criteria but are also evaluated on the potential to preserve prior investments. Operating History. American Capital generally focuses on middle market companies that have been in business over 10 years and have an attractive operating history, including generating positive cash flow. American Capital generally targets companies with significant market share in their products or services relative to their competitors. In addition, American Capital considers factors such as customer concentration, performance during recessionary periods, competitive environment and ability to sustain margins. As of March 31, 2007, American Capital s current portfolio companies had an average age of 33 years with average sales for the last twelve months of $133 million and average adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA for the last twelve months, of $25 million. Growth. American Capital considers a target company s ability to increase its cash flow. Anticipated growth is a key factor in determining the value ascribed to any warrants and equity interests acquired by American Capital. Liquidation Value of Assets. Although American Capital does not operate as an asset-based lender, liquidation value of the assets collateralizing its loans is a factor in many credit decisions. Emphasis is placed both on tangible assets such as accounts receivable, inventory, plant, property and equipment as well as intangible assets such as brand recognition, market reputation, customer lists, networks, databases and recurring revenue streams. Experienced Management Team. American Capital considers the quality of senior management to be extremely important to the long-term performance of most companies. Therefore, American Capital considers it important that senior management be experienced and properly incentivized through meaningful ownership interests in their company. Exit Strategy. Most of American Capital s investments consist of securities acquired directly from their issuers in private transactions. Generally, there are no public markets on which these securities are traded, thus limiting their liquidity. Therefore, American Capital considers it important that a prospective portfolio company have at least one or several methods in which its financing can be repaid and its equity interest purchased. These methods would typically include the sale or refinancing of the business or the ability to generate sufficient cash flow to repurchase its equity securities and repay its debt securities. Operations Marketing, Origination and Approval Process. To source buyout and financing opportunities, American Capital has a dedicated marketing department that targets an extensive referral network composed of investment banks, private equity and mezzanine funds, commercial banks, and business and financial brokers. American Capital s marketing department developed and maintains an extensive proprietary database of reported middle market transactions that enables it to monitor and evaluate the middle market investing environment. American Capital s financial professionals review thousands of financing memorandums and private placement memorandums sourced from this extensive referral network in search of potential buyout or financing opportunities. Those that pass an initial screen are then evaluated by a team led by one of American Capital s financial principals. The financial principal and his or her team, with the assistance from American Capital s Financial Accounting and Compliance Team ( FACT ) and operations team, along with the oversight of American Capital s investment committee, are responsible for structuring, negotiating, pricing and closing the transaction. As of March 31, 2007, American Capital had a group of 287 professionals actively engaged in the origination and approval process of its investing activities, including its 196-member investment team ( Investment Team ), its 26-member operations team ( Operations Team ) and its 65-member FACT group. FACT assists in initial accounting due diligence of prospective portfolio companies, portfolio monitoring and quarterly valuations of American Capital s portfolio assets. American Capital s Operations Team assists in initial operational due diligence -47-

61 and providing managerial assistance to portfolio companies, particularly those that are underperforming. American Capital s Investment Team, along with its Operations Team and FACT conduct extensive due diligence of each target company that passes the initial screening process. This includes one or more on-site visits, a review of the target company s historical and prospective financial information, identifying and confirming pro-forma adjustments, interviews with and assessments of management, employees, customers and vendors, review of the adequacy of the target company s systems, background investigations of senior management and research on the target company s products, services and industry. American Capital often engages professionals such as environmental consulting firms, accounting firms, law firms, risk management companies and management consulting firms with relevant industry expertise to perform elements of the due diligence. Upon completion of American Capital s due diligence, the Investment Team, FACT, the Operations Team and any consulting firms prepare and generally present an extensive investment committee report containing the due diligence information to the executive officers for review. American Capital s investment committee (which includes various of its senior officers depending on the nature of the proposed investment) generally must approve each investment. Investments exceeding a certain size or meeting certain other criteria must also be approved by American Capital s board of directors. American Capital s investment committee is supported by a dedicated staff that focuses on due diligence and other research done with regard to each proposed investment. Portfolio Management. In addition to the extensive due diligence at the time of the original investment decision, American Capital seeks to preserve and enhance the performance of its portfolio companies through active involvement with its portfolio companies. This generally includes attendance at portfolio company board meetings, management consultation and monitoring of the financial performance including covenant compliance. The management of American Capital s portfolio is primarily handled by its executive officers. American Capital s Investment Team and FACT regularly review portfolio company monthly financial statements to assess performance and trends, periodically conduct on-site financial and operational reviews and evaluate industry and economic issues that may affect the portfolio company. As a BDC, American Capital is required by law to offer significant managerial assistance to certain of its portfolio companies. Operations Team. The Operations Team is led by a managing director and includes seasoned ex-senior managers with extensive operational experience and accounting and financial professionals that generally work with American Capital s portfolio companies that are under performing. Portfolio companies that are performing below plan generally require more extensive assistance with enhancing their business plans, marketing strategies, product positioning, evaluating cost structures and recruiting management personnel. The Operations Team works closely with the portfolio company and, in many instances, members of the Operations Team will assist the portfolio company with day-to-day operations. Portfolio Valuation FACT, with the assistance of the Investment Team, subject to the oversight of senior management and the audit and compliance committee of American Capital, prepares a quarterly valuation of each portfolio company investment. American Capital s board of directors approves its portfolio valuations as required by the 1940 Act. American Capital has also engaged the independent financial advisory firm of Houlihan Lokey Howard & Zukin Financial Advisory, Inc. to assist in this process by reviewing each quarter a selection of American Capital s portfolio companies and to report their conclusions to its audit and compliance committee. Annually, Houlihan Lokey reviews all of the portfolio companies that have been portfolio companies for at least one year and that have a fair value in excess of $10 million. Loan Grading American Capital evaluates and classifies all loans based on their current risk profiles. During the valuation process each quarter, a loan grade of 1 to 4 is assigned to each loan. Loans graded 4 involve the least amount of risk of loss, while loans graded 1 have the highest risk of loss. The loan grade is then reviewed and approved by American Capital s executive officers. This loan grading process is intended to reflect the performance of the portfolio company s business, the collateral coverage of the loans and other factors considered relevant. The grades (each, a Risk Rating ) and descriptions are as follows: -48-

62 Grade 4: Obligor is performing above expectations and the trends and risk factors are favorable. Loans graded 4 involve the least amount of risk in American Capital s portfolio. Grade 3: Obligor is performing as expected and the risk factors are neutral to favorable. All new loans are initially graded 3. Grade 2: Obligor is performing below expectations and the loan risk has increased materially since origination. American Capital will increase procedures to monitor the Obligor and the fair value of the enterprise generally will be lower than when the loan was originated. Grade 1: Obligor is performing materially below expectations and the loan risk has substantially increased since origination. Loans graded 1 are not anticipated to be repaid in full and American Capital will reduce the fair value of the loan to the amount it anticipates will be recovered. Employees As of March 31, 2007, American Capital had 538 employees. American Capital believes that its relations with its employees are excellent. Legal Proceedings During a period covering the previous twelve months, neither American Capital, nor any of its consolidated subsidiaries, are currently subject to any material litigation, governmental or arbitration proceedings nor, to American Capital s knowledge, is any material litigation threatened against it or any consolidated subsidiary, other than routine litigation and administrative proceedings arising in the ordinary course of business. Such proceedings are not expected to have a material adverse effect on American Capital s business, financial condition, or results of operations. Management The business and affairs of American Capital are managed under the direction of its Board of Directors. The Board of Directors currently has eight members, seven of whom are not interested persons of American Capital as defined in Section 2(a)(19) of the 1940 Act. There is one vacancy on the Board of Directors. The Board of Directors elects American Capital s officers who serve at the pleasure of the Board of Directors. Formation THE ISSUER ACAS Business Loan Trust , which is the Issuer of the Notes, was formed on July 20, 2007, as a statutory trust with perpetual existence under the laws of the state of Delaware, United States of America. The sole trustee of the Issuer is the Owner Trustee. The address of the registered office of the Owner Trustee of the Issuer in Delaware is Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Services, telephone: (302) The Issuer is governed by an amended and restated trust agreement, which is the Trust Agreement referred to herein, among the Trust Depositor, the Owner Trustee and the Servicer. The Trust Agreement creates a fiduciary relationship between the Owner Trustee and the Issuer. Issuer s Limited Activities Prior to its formation, the Issuer had no assets or obligations and no operating history. The Trust Agreement provides that the Issuer will engage in the following activities only: (a) acquiring, holding and managing the Initial Loans, the Substitute Loans, the Additional Loans and the related interests described in this Offering Memorandum and proceeds therefrom, (b) issuing the Notes and the Certificate, (c) making distributions and payments thereon and (d) engaging in other activities that are necessary, suitable or convenient to accomplish the foregoing or are incidental thereto or connected therewith. The Issuer has been formed, as a special purpose entity, to purchase and own the Loans and to issue the Notes and the Certificate. As a consequence, the Issuer does not expect to have any -49-

63 source of capital resources other than the Loans that will be transferred to the Issuer as described herein. As of the date hereof, the Issuer is not subject to any legal proceedings within the previous twelve months. Capitalization of the Issuer The initial capitalization of the Issuer, as of the Closing Date, after the issuance and sale of the Notes and the Certificate but before deducting fees and expenses of the offering of the Notes and organizational expenses of the Issuer is expected to be as follows: Class A Notes... $300,500,000 Class B Notes... $37,500,000 Class C Notes... $63,000,000 Class D Notes... $31,500,000 Class E Notes... $42,500,000 Class F Notes... $25,000,000 Total Notes... $500,000,000 Certificate... $10 Total Capitalization... $500,000,010 The Certificate will be issued to the Trust Depositor. Issuer Assets and Liabilities The property of the Issuer will consist principally of (a) the Initial Loans, the Substitute Loans, the Additional Loans and related Collateral, (b) all Collections due on, and other proceeds of such Initial Loans, Substitute Loans, Additional Loans and related Collateral collected in respect thereof on and after the applicable Cut-Off Date, (c) all interest collected in respect thereof on and after the Cut-Off Date, (d) all of the Issuer s rights under the Interest Rate Swaps, (e) all of the Issuer s rights under the Transfer and Servicing Agreement, (f) funds on deposit in the Principal Collection Account, the Interest Collection Account, the Note Distribution Account, the Certificate Distribution Account and the Reserve Fund and (g) all of the proceeds of the foregoing, less amounts paid out of the Issuer. The Issuer will have no other assets available to pay amounts owing under the Indenture. Other than the Notes and with respect to the other transactions described in this Offering Memorandum, as of the Closing Date, the Issuer does not have any loan capital (including term loans) outstanding or created but unissued, or any outstanding mortgages, charges or other borrowing or indebtedness in the nature of borrowing, including bank overdrafts and liabilities under acceptance credits, hire purchase agreements, guarantees or other contingent liabilities. Administration of the Issuer The Owner Trustee of the Issuer will administer the Issuer according to the Trust Agreement and the other Transaction Documents to which the Issuer is party, as provided in Section 6.02 of the Trust Agreement. Pursuant to the provisions of the Transaction Documents, the Servicer will perform the duties of the Issuer and the Owner Trustee under the Transaction Documents. The initial Servicer will be American Capital. The address of American Capital is 2 Bethesda Metro Center, 14 th Floor, Bethesda, Maryland As set forth in Section 6.03 of the Trust Agreement, the Trust Depositor of the Issuer, may, by written instruction, direct the Owner Trustee of the Issuer in the administration of the Issuer. The Trust Depositor s instruction, as evidenced by a written opinion of counsel, must not materially adversely affect the Noteholders. However, the Owner Trustee of the Issuer will not be required to follow any instruction if it reasonably determines or is advised by counsel that following such instruction: is likely to result in liability to the Owner Trustee; is contrary to the terms of the Trust Agreement or any other Transaction Document; or is unlawful. -50-

64 The Owner Trustee will not be required to perform any of the obligations of the Issuer under the Trust Agreement or the other Transaction Documents if these obligations are required to be performed by: the Servicer under the Transfer and Servicing Agreement; the Indenture Trustee under the Indenture; or the Trust Depositor under the Transfer and Servicing Agreement. Pursuant to the provisions of the Transaction Documents, the Servicer will consult with the Owner Trustee as the Servicer deems appropriate regarding the duties of the Issuer and the Owner Trustee under the Transaction Documents. The Servicer will monitor the performance of the Issuer and the Owner Trustee and will advise the Owner Trustee when action is necessary to comply with the Issuer s or the Owner Trustee s duties under the Transaction Documents. The Servicer will prepare for execution by the Owner Trustee or the Issuer or will cause the preparation by other appropriate Persons of all such documents, reports, filings, instruments, certificates and opinions as it shall be the duty of the Issuer or the Owner Trustee to prepare, file or deliver pursuant to the Transaction Documents. The Owner Trustee Wilmington Trust Company will be the Owner Trustee under the Trust Agreement. The Originator and its Affiliates may from time to time enter into banking and trustee relationships with the Owner Trustee and its Affiliates. For its duties hereunder, the Owner Trustee will be entitled to receive (a) an acceptance fee of $2,500 and (b) an annual fee (the Owner Trustee Fee ) of $3,000. For purposes of meeting the legal requirements of any jurisdictions in which any part of the Issuer s assets may at the time be located, the Owner Trustee will have the power to appoint a co-trustee or separate trustee of all or any part of the Issuer s assets. To the extent permitted by law, all rights, powers, duties and obligations conferred or imposed upon the Owner Trustee will be conferred or imposed upon and exercised or performed by the Owner Trustee and the separate trustee or co-trustee jointly. In any jurisdiction in which the Owner Trustee will be incompetent or unqualified to perform specific acts, all rights, powers, duties and obligations conferred or imposed upon the Owner Trustee will be conferred or imposed upon the separate trustee or co-trustee who shall exercise and perform those rights, powers, duties and obligations solely at the direction of the Owner Trustee. The Owner Trustee may resign at any time, in which event a successor owner trustee will be appointed as provided in the Trust Agreement. The Servicer may also remove the Owner Trustee if the Owner Trustee ceases to be eligible to continue as the Owner Trustee under the Trust Agreement. In such circumstances, a successor owner trustee will be appointed as provided in the Trust Agreement. Any resignation or removal of the Owner Trustee and appointment of a successor owner trustee do not become effective until acceptance of the appointment by the successor owner trustee. Termination of Issuer The Issuer will terminate only on the earlier of: (a) (b) the day following the final distribution by the Owner Trustee of all moneys or other property or proceeds of the trust estate in accordance with the terms of the Indenture, the Transfer and Servicing Agreement and the Trust Agreement; provided that the Trust Depositor shall have delivered a written notice to the Owner Trustee electing to terminate the Issuer; or if the Loans are sold, disposed of or liquidated following the occurrence of events relating to the bankruptcy or insolvency of the Issuer or the Trust Depositor, promptly following such transfer, disposition or liquidation. Upon termination of the Issuer, all right, title and interest in the Issuer s assets (other than amounts in accounts maintained by the Issuer for the final payment of principal and interest to the Noteholders and the Certificateholder) will be conveyed and transferred to the Certificateholder and any permitted assignee. -51-

65 THE TRUST DEPOSITOR The Trust Depositor is a wholly-owned bankruptcy-remote subsidiary of the Originator. The Trust Depositor was formed solely for the purpose of acquiring from the Originator loans as well as other financial assets and conveying the same into trusts or other securitization vehicles. As a bankruptcy-remote entity, the Trust Depositor s operations will be restricted so that it does not engage in business with, or incur liabilities to, any other entity other than American Capital, the Issuer, the Indenture Trustee and other trusts, trustees and agents on behalf of other investors in nonrecourse, asset-backed financings. The restrictions are intended to prevent the Trust Depositor from engaging in business with other entities that may bring bankruptcy proceedings against the Trust Depositor. The restrictions are also intended to reduce the risk that the Trust Depositor will be consolidated into the bankruptcy proceedings of any other entity. As of the date hereof, the Trust Depositor is not subject to any legal proceedings within the previous twelve months. The Trust Depositor s address is 2 Bethesda Metro Center, 14 th Floor, Bethesda, Maryland and its phone number is (301) DESCRIPTION OF THE NOTES AND INDENTURE The statements under this caption describe certain material terms of the Notes and the Indenture. However, these statements are summaries. For a more detailed description of the terms of the Notes and the Indenture, prospective investors should read the Transfer and Servicing Agreement and the Indenture, the forms of which are available upon request from the Originator. General The Offered Notes will consist of the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes. The Issuer will also issue the Class E Notes and the Class F Notes, which will initially be acquired by the Trust Depositor. The Notes will be issued under the Indenture. The Noteholders are those entities registered as the owners of a Note or Notes on the registration books maintained by the Indenture Trustee. Investors may purchase the Offered Notes in minimum denominations of $250,000, and in integral multiples of $1,000 in excess of the minimum denominations. The Offered Notes will initially be represented by one or more certificates registered in the name of the nominee of DTC, except as set forth below. Payments on the Notes will be made as described below to the Noteholders in whose names the Notes were registered on the Record Date. However, the final payment on the Offered Notes will be made only upon presentation and surrender of the Notes. All payments with respect to the principal of and interest on the Notes will be made in immediately available funds. See Risk Factors Risks Relating to the Offered Notes Book-entry registration restricts Noteholders ability to take certain actions with respect to their Notes and may delay receipt of payments on the Notes. The Indenture Trustee will be granted a first priority Lien on the Issuer s assets to secure the Notes, subject to Permitted Liens; provided that distributions on the Notes will be allocated as provided in Priority of Payments Interest Allocations and Priority of Payments Principal Allocations. The Notes are nonrecourse obligations of the Issuer only and do not represent interests in or obligations of the Originator, the Servicer or the Trust Depositor, or any Affiliate of such Persons. Subject to applicable laws with respect to escheat of funds, any money held by the Indenture Trustee or any Paying Agent in trust for the payment of any amount due with respect to any Note and remaining unclaimed for two (2) years after such amount has become due and payable shall be discharged from such trust and upon receipt of an Issuer Request shall be deposited by the Indenture Trustee in the Collection Account; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Issuer for payment thereof, and all liability of the Indenture Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided that if such money or any portion thereof had been previously deposited by the Issuer with the Indenture Trustee for the payment of principal or interest on the Notes; and provided further that the Indenture Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Issuer cause to be published once, in an Authorized Newspaper, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than thirty (30) days from the date of such publication, any unclaimed balance of such money then -52-

66 remaining will be repaid to or for the account of the Issuer. The Indenture Trustee may also adopt and employ, at the expense of the Issuer, any other reasonable means of notification of such repayment (including, but not limited to, mailing notice of such repayment to Holders whose Notes have been called but have not been surrendered for redemption or repurchase pursuant to Section or Section of the Indenture, respectively, or whose right to or interest in moneys due and payable but not claimed is determinable from the records of the Indenture Trustee or of any Paying Agent, at the last address of record for each such Holder). Interest and Principal Interest on the Offered Notes will be payable on each Payment Date until each class of Offered Notes has been paid in full or has matured. Interest on the Offered Notes will be payable at the respective rates specified on the cover of this Offering Memorandum. Interest on the Offered Notes will accrue at the Note Interest Rate specified for the class for each Interest Accrual Period on the outstanding principal amount of each class of Offered Notes as of the first day of such Interest Accrual Period. With respect to each Interest Accrual Period, the Class A Notes will accrue interest at a rate equal to LIBOR plus 0.40%, the Class B Notes will accrue interest at a rate equal to LIBOR plus 1.00%, the Class C Notes will accrue interest at a rate equal to LIBOR plus 1.25% and the Class D Notes will accrue interest at a rate equal to LIBOR plus 3.00%. If on any Payment Date the amount paid to the Class A Notes, the Class B Notes, the Class C Notes or the Class D Notes is less than the amount due thereto with respect to interest, the amount of such shortfall will be carried forward and paid on the immediately following Payment Date, together with accrued interest on such amount. Such amount with respect to the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes shall be referred to herein as the Class A Interest Shortfall, the Class B Interest Shortfall, the Class C Interest Shortfall and the Class D Interest Shortfall, respectively. The stated maturity dates of the Notes are specified in the Summary of this Offering Memorandum. However, if all payments on the Loans are made as scheduled, final payment with respect to the Notes would occur prior to stated maturity. Prior to the respective stated maturity dates, amounts to be applied in reduction of the outstanding principal amount of any Note will not be due and payable, although the failure of the Trust Depositor or Servicer to remit any amounts available for payment on the Notes will, after the applicable grace period, constitute an Event of Default under the Indenture. See Events of Default. The Issuer will pay interest and principal on the Offered Notes using amounts representing primarily Collections under the Loans and amounts received upon Prepayment or purchase of the Loans or liquidation of the Loans and disposition of the related Collateral upon defaults thereunder, but only after the Issuer uses those amounts to pay amounts due to Swap Counterparties (other than Swap Breakage Costs), the Indenture Trustee, the Backup Servicer and the Owner Trustee and to repay Servicer Advances and to pay Servicing Fees. See Amounts Available for Payments on the Notes and The Transfer and Servicing Agreement Servicing Standard and Servicer Advances. If the Issuer is required to deduct or withhold tax on amounts paid to Noteholders in respect of interest on the Notes, then the Issuer will not be obligated to pay any additional amounts with respect to such deduction or withholding. Principal Payments on the Notes During the Pre-Funding Period and the Replenishment Period, the Issuer may use Principal Collections to purchase Additional Loans and the Noteholders will not be entitled to repayment of principal of the Notes at any time prior to the end of the Replenishment Period, other than in limited circumstances. See Replenishment Period. After the Replenishment Period, principal on the Notes will be distributed, to the extent funds are available therefor, on each Payment Date, commencing on the Payment Date occurring in February 2008 unless the Replenishment Period is terminated sooner as a result of the occurrence of an Event of Default. Each class of Notes will receive principal payments from Principal Collections and, under the circumstances and to the extent described in clause -53-

67 Ninth under Priority of Payments Interest Allocations, from Interest Collections based on the respective original Outstanding Principal Balance of each such class. On any Pro Rata Payment Date and with respect to pro rata payments of principal of the Notes, such payments shall be made pro rata to the classes of Notes then outstanding based on the respective original Outstanding Principal Balances of each class of Notes with respect to which such payments are made. If, on any Pro Rata Payment Date, the Outstanding Principal Balance of any class of Notes shall be reduced to zero after application of any payments in respect of principal on such Payment Date, the amount remaining for distribution in respect of principal on such date shall be distributed pro rata to the classes of Notes which then remain outstanding based on their respective original Outstanding Principal Balances. On any Pro Rata Payment Date, principal payments on the Notes will be made to the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Class F Notes, pro rata until the Outstanding Principal Balance of each such class of Notes is reduced to zero. On any Sequential Payment Date, principal payments on the Notes will be made to the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Class F Notes sequentially until the Outstanding Principal Balance of each such class of Notes is reduced to zero. No principal payments will be made to any subordinated class of Notes until the Outstanding Principal Balance of the immediately senior class of Notes is reduced to zero. Any unpaid Additional Principal Amount shall be paid sequentially to the Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes, the Class E Notes and the Class F Notes regardless of whether the Payment Date is a Sequential Payment Date or a Pro Rata Payment Date. Certain Principal Collections which remain on deposit in the Principal Collection Account for a period of at least 90 days during the Replenishment Period may be applied to pay principal of the Notes in a Special Redemption. See Summary Special Redemption. If the Issuer is required to deduct or withhold tax on amounts paid to Noteholders in respect of principal on the Notes, then the Issuer will not be obligated to pay any additional amounts with respect to such deduction or withholding. Amounts Available for Payments on the Notes As of any Payment Date, the amounts available for payment of interest and principal on the Offered Notes consist of: Collections on the Loans held by the Issuer; earnings on amounts held in the Trust Accounts other than the Swap Counterparty Collateral Account; amounts in the Reserve Fund more specifically described in Reserve Fund ; Unused Proceeds to the extent they are not applied within 90 days of the Effective Date; and Net Trust Swap Receipts and Swap Breakage Receipts, if any. Amounts available for distribution to the Noteholders, the Swap Counterparties and others will not include any amounts realized from the Collateral that exceed the sum of the Scheduled Payments, Late Charges and expenses described above payable under the related Loan. For so long as any class of Offered Notes is listed on the Irish Stock Exchange and the rules of such exchange shall so require, the Issuer will have a paying agent and transfer agent for such securities in Ireland, and payments on and transfers or exchanges of interests in such Offered Notes (including partial interests therein); provided that all transfers and exchanges must be effected in accordance with the Indenture. In addition, for so long as any class of the Offered Notes is listed on the Irish Stock Exchange and the rules of such exchange shall so require, in the case of a transfer or exchange of a physical instrument representing such security, a holder thereof may obtain a new physical instrument from the paying agent and transfer agent in Ireland in accordance with the -54-

68 Indenture. The initial paying agent and transfer agent in Ireland in respect of the Offered Notes will be BNY Fund Services (Ireland) Ltd. (in such capacity, the Ireland Paying Agent ). Priority of Payments Interest Allocations On each Determination Date, the Servicer shall instruct the Indenture Trustee in writing to withdraw, and on the related Payment Date the Indenture Trustee shall withdraw, from the Note Distribution Account the sum of (a) all Interest Collections and (b) all amounts from the Reserve Fund, to the extent there are sufficient funds, to distribute to the following parties in the order of priority listed below. First, pro rata, based on the amounts owed to such Persons under this clause First, to the Swap Counterparties, any Net Trust Swap Payments for the current and any prior Payment Dates owing to the Swap Counterparties under the Interest Rate Swaps (other than Swap Breakage Costs) together with interest accrued thereon; provided that following the occurrence of an Event of Default, Swap Breakage Costs shall be payable pursuant to this clause First in an amount not to exceed $500,000 in the aggregate, together with interest accrued thereon; Second, pro rata to each Person entitled to such payment, based on the amounts payable under this clause Second, Administrative Expenses, subject to the limitations set forth in the definition thereof; Third, to the Servicer, from Interest Collections received from the specific Loans for which such Servicer Advances were made, reimbursement for the amount of such Servicer Advances relating to interest on such Loans; Fourth, to the Servicer an amount equal to the quarterly Servicing Fee, together with any amounts in respect of the Servicing Fee that were due in respect of prior Collection Periods that remain unpaid; Fifth, to the Class A Noteholders, the Class A Interest Amount for the related Interest Accrual Period and any Class A Interest Shortfall; Sixth, to the Class B Noteholders, the Class B Interest Amount for the related Interest Accrual Period and any Class B Interest Shortfall; Seventh, to the Class C Noteholders, the Class C Interest Amount for the related Interest Accrual Period and any Class C Interest Shortfall; Eighth, to the Class D Noteholders, the Class D Interest Amount for the related Interest Accrual Period and any Class D Interest Shortfall; Ninth, (a) prior to the occurrence of an Event of Default, an amount equal to the Additional Principal Amount, to be paid as follows: (i) (ii) (iii) (iv) (v) (vi) (vii) to the Class A Noteholders until the Outstanding Principal Balance of the Class A Notes is reduced to zero; to the Class B Noteholders, the Class B Accrued Payable, if any; to the Class B Noteholders until the Outstanding Principal Balance of the Class B Notes is reduced to zero; to the Class C Noteholders, the Class C Accrued Payable, if any; to the Class C Noteholders until the Outstanding Principal Balance of the Class C Notes is reduced to zero; to the Class D Noteholders, the Class D Accrued Payable, if any; to the Class D Noteholders until the Outstanding Principal Balance of the Class D Notes is reduced to zero; and -55-

69 (viii) to the Class E Noteholders until the Outstanding Principal Balance of the Class E Notes is reduced to zero; and (b) following the occurrence of an Event of Default, the Interest Distributable Amount will be treated as funds available for principal distributions and will be distributed as described under Priority of Payments Principal Allocations Principal Allocations on any Sequential Payment Date ; Tenth, to the Reserve Fund an amount, if any, which, when so deposited, causes the balance of the Reserve Fund to equal the Required Reserve Amount; Eleventh, to the extent not paid by the Originator, any amounts due in respect of listing, the Offered Notes on the Irish Stock Exchange; Twelfth, to the Servicer, reimbursement for the amount of any Servicer Advances relating to interest on Loans, to the extent not reimbursed pursuant to clause Third above; Thirteenth, pro rata, based on the amounts owed to such Persons under this clause Thirteenth, to the Swap Counterparties, any unpaid Swap Breakage Costs together with interest accrued thereon; Fourteenth, pro rata, based on the amounts owed to such Persons under this clause Fourteenth, to the Indenture Trustee, the Backup Servicer and the Owner Trustee, to the extent not paid pursuant to clause Second due to the limitations set forth therein, amounts owed to such parties for fees and expenses and other amounts, including such amounts related to indemnification and, to a successor servicer, any Additional Servicing Fee; and Fifteenth, to the Owner Trustee for payment to the Certificateholder, any remaining amounts. Priority of Payments Principal Allocations Principal Allocations on any Pro Rata Payment Date On each Determination Date, the Servicer shall instruct the Indenture Trustee in writing to withdraw, and on the related Pro Rata Payment Date the Indenture Trustee shall withdraw, from the Note Distribution Account all Principal Collections and remaining funds on deposit in the Note Distribution Account, to the extent there are sufficient funds, to distribute to the following parties in the order of priority listed below. With respect to pro rata payments of principal of the Notes as described herein, payments shall be made pro rata to the classes of Notes then outstanding based on the respective original Outstanding Principal Balances of such classes of Notes with respect to which such payments are made. If on any Pro Rata Payment Date the Outstanding Principal Balance of any class of Notes shall be reduced to zero after application of any payments in respect of principal on such Payment Date, the amount remaining for distribution in respect of principal on such date shall be distributed pro rata to the classes of Notes which then have Outstanding Principal Balances based on the respective original principal amounts of such classes of Notes. First, to the Servicer, from Principal Collections received from the specific Loans for which Servicer Advances were made, reimbursement for the amount of such Servicer Advances relating to the principal on such Loans; Second, during the Pre-Funding Period and the Replenishment Period, all remaining Principal Collections shall be deposited to the Principal Collection Account to be used to purchase Additional Loans; provided that no Principal Collections constituting the Special Redemption Amount shall be deposited to the Principal Collection Account pursuant to this clause Second; Third, after the Replenishment Period (or in the case of the Special Redemption Amount, on any Payment Date), to the Class A Noteholders, the Class B Noteholders, the Class C Noteholders, the Class D Noteholders, the Class E Noteholders and the Class F Noteholder, pro rata until the Outstanding Principal Balance of each such class of Notes is reduced to zero; -56-

70 Fourth, to the Servicer, reimbursement for the amount of any Servicer Advances relating to principal (and, after the occurrence of an Event of Default, interest) on the Loans, to the extent not previously reimbursed; Fifth, to the Servicer, an amount equal to its accrued and unpaid quarterly Servicing Fee, to the extent not previously paid; Sixth, pro rata, based on the amounts owed to such Persons under this clause Sixth, to the Swap Counterparties, any unpaid Swap Breakage Costs together with interest accrued thereon; Seventh, pro rata, based on the amounts owed to such Persons under this clause Seventh, to the Indenture Trustee, the Backup Servicer and the Owner Trustee, to the extent not previously paid, amounts owed to such parties for fees and expenses and other amounts, including such amounts related to indemnification and, to a successor servicer, any Additional Servicing Fee; Eighth, to the extent not paid by the Originator, any amounts due in respect of the listing of the Offered Notes on the Irish Stock Exchange; and Ninth, to the Owner Trustee for payment to the Certificateholder, any remaining amounts. Principal Allocations on any Sequential Payment Date On each Determination Date, the Servicer shall instruct the Indenture Trustee in writing to withdraw, and on the related Sequential Payment Date the Indenture Trustee shall withdraw, from the Note Distribution Account all Principal Collections and remaining funds on deposit in the Note Distribution Account, to the extent there are sufficient funds, to distribute to the following parties in the order of priority listed below: First, to the Servicer, from Principal Collections received from the specific Loans for which Servicer Advances were made, reimbursement for the amount of such Servicer Advances relating to the principal on such Loans; Second, to the Class A Noteholders, an amount equal to any unpaid Class A Interest Amount for the related Interest Accrual Period and any unpaid Class A Interest Shortfall; zero; Third, to the Class A Noteholders, until the Outstanding Principal Balance of the Class A Notes equals Fourth, to the Class B Noteholders, first, an amount equal to any Class B Interest Amount for the related Interest Accrual Period and any unpaid Class B Interest Shortfall, and second, the Class B Accrued Payable, in each case to the extent not previously paid; Fifth, to the Class B Noteholders, until the Outstanding Principal Balance of the Class B Notes equals zero; Sixth, to the Class C Noteholders, first, an amount equal to any Class C Interest Amount for the related Interest Accrual Period and any unpaid Class C Interest Shortfall, and second, the Class C Accrued Payable, in each case to the extent not previously paid; zero; Seventh, to the Class C Noteholders, until the Outstanding Principal Balance of the Class C Notes equals Eighth, to the Class D Noteholders, first, an amount equal to any Class D Interest Amount for the related Interest Accrual Period and any unpaid Class D Interest Shortfall, and second, the Class D Accrued Payable, in each case to the extent not previously paid; zero; Ninth, to the Class D Noteholders, until the Outstanding Principal Balance of the Class D Notes equals Tenth, to the Class E Noteholders until the Outstanding Principal Balance of the Class E Notes is reduced to zero; -57-

71 Eleventh, to the Servicer, reimbursement for the amount of any Servicer Advances relating to principal (and, after the occurrence of an Event of Default, interest) on the Loans, to the extent not previously reimbursed; Twelfth, to the Servicer, an amount equal to its accrued and unpaid quarterly Servicing Fee, to the extent not previously paid; Thirteenth, pro rata, based on the amounts owed to such Persons under this clause Thirteenth, to the Swap Counterparties, any unpaid Swap Breakage Costs together with interest accrued thereon; Fourteenth, pro rata, based on the amounts owed to such Persons under this clause Fourteenth, to the Indenture Trustee, the Backup Servicer and the Owner Trustee, to the extent not previously paid, amounts owed to such parties for fees and expenses and other amounts, including such amounts related to indemnification and, to a successor servicer, any Additional Servicing Fee; Fifteenth, to the extent not paid by the Originator, any amounts due in respect of the listing of the Offered Notes on the Irish Stock Exchange; Sixteenth, to the Class F Noteholder until the Outstanding Principal Balance of the Class F Notes is reduced to zero; and Reserve Fund Seventeenth, to the Owner Trustee for payment to the Certificateholder, any remaining amounts. On the Closing Date, the Trust Depositor will establish the Reserve Fund. This fund is intended to provide investors with limited protection in the event Collections are insufficient to make payments on the Offered Notes. The Issuer cannot assure investors, however, that this protection will be adequate to prevent shortfalls in amounts available to make payments on the Offered Notes. On the Closing Date, the Issuer will deposit approximately $1,000,000 from the proceeds of the sale of the Offered Notes into the Reserve Fund and this amount will be applied as Interest Collections under the Priority of Payments on the first Payment Date. On any Payment Date, after distributing the available amounts described in clauses First through Ninth under Priority of Payments Interest Allocations, the Issuer (or the Trustee, on its behalf) will deposit the remaining available amounts into the Reserve Fund until the amounts in the Reserve Fund equal the Required Reserve Amount. On each Payment Date, amounts in the Reserve Fund will be deposited into the Note Distribution Account and will be treated as Interest Collections. Amounts in the Reserve Fund will be invested in Eligible Investments. See Trust Accounts, and Eligible Investments. Earnings on Eligible Investments will be treated as Interest Collections available for distribution as described in Priority of Payments Interest Allocations. The Issuer will allocate amounts withdrawn from the Reserve Fund as described in Priority of Payments Interest Allocations. Trust Accounts The Trust Depositor, for the benefit of the Noteholders and the Swap Counterparties, shall cause to be established an account referred to as the Collection Account, an account referred to as the Note Distribution Account and the Reserve Fund, all of which shall be maintained in the name of the Indenture Trustee, with an office or branch of a depository institution or trust company, which may be the Indenture Trustee, organized under any state laws or laws of the United States of America and located in the state designated by the Servicer. The Indenture Trustee, for the benefit of the Noteholders and the Swap Counterparties, shall establish a single, segregated trust account in accordance with the provisions of each Interest Rate Swap, referred to as the Swap Counterparty Collateral Account. Trust Accounts will be segregated corporate trust accounts bearing a designation clearly indicating that the funds deposited in such accounts are held in trust for the benefit of the Noteholders and -58-

72 the Swap Counterparties. The Interest Collection Account and the Principal Collection Account will each be a sub-account of the Collection Account. On each Determination Date, the Servicer shall instruct the Indenture Trustee to, and on each Payment Date the Indenture Trustee shall, transfer to the Note Distribution Account, for distribution as described in Priority of Payments Interest Allocations and Priority of Payments Principal Allocations, all Interest Collections and Principal Collections (except for Principal Collections previously identified by the Servicer as amounts to be used for the purchase of Additional Loans) on deposit in the Collection Account, all funds on deposit in the Reserve Fund and all investment earnings on the Trust Accounts other than the Swap Counterparty Collateral Account. At all times a depository institution or trust company for a Trust Account shall have the characteristics described below and the amounts in the Trust Accounts will be invested in Eligible Investments as further described below. Eligible Depository Institution or Trust Company The term Eligible Depository Institution or Trust Company shall mean any of the following: the corporate trust department of the Indenture Trustee, or a depository institution organized under any state laws or the laws of the United States of America or the District of Columbia or any domestic branch of a foreign bank, (a) (i) that has either (1) a long-term unsecured debt rating acceptable to the Rating Agencies rating the Notes which, in the case of S&P shall be AA-, in the case of Moody s shall be Aa3 and in the case of Fitch shall be AA-, or (2) a short-term unsecured debt rating or certificate of deposit rating acceptable to the Rating Agencies, which in the case of S&P shall be A-1+, in the case of Moody s shall be P-1 and in the case of Fitch shall be F1+, (ii) the parent corporation, if such parent corporation guarantees the obligations of the depository institution, of which has either (1) a long-term unsecured debt rating acceptable to the Rating Agencies rating the Notes which, in the case of S&P shall be AA-, in the case of Moody s shall be Aa3 and in the case of Fitch shall be AA-, or (2) a short-term unsecured debt rating or certificate of deposit rating acceptable to the Rating Agencies, which in the case of S&P shall be A-1+, in the case of Moody s shall be P-1 and in the case of Fitch shall be F1+, or (iii) is otherwise acceptable to the Rating Agencies rating the Notes, and (b) whose deposits are insured by the Federal Deposit Insurance Corporation and which have a rating acceptable to the Rating Agencies. Eligible Investments Eligible Investments include the following: direct obligations of, and obligations fully guaranteed as to full and timely payment by, the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States); -59-

73 demand deposits, time deposits or certificates of deposit of depository institutions or trust companies incorporated under the laws of the United States or any state thereof and subject to supervision and examination by federal or state banking or depository institution authorities; provided that at the time of the Issuer s investment or contractual commitment to invest therein, the commercial paper, if any, and short-term unsecured debt obligations (other than such obligation whose rating is based on the credit of a Person other than such institution or trust company) of such depository institution or trust company shall have a credit rating from each Rating Agency in the Highest Required Investment Category granted by such Rating Agency, which, in the case of Fitch, shall be F1+ ; commercial paper, or other short-term obligations, having, at the time of the Issuer s investment or contractual commitment to invest therein, the highest rating granted by each Rating Agency, which, in the case of Fitch, shall be F1+ ; demand deposits, time deposits or certificates of deposit that are fully insured by the FDIC and either have a rating on their certificates of deposit or short-term deposits from Moody s and S&P of P-1 and A-1+, respectively, and, if rated by Fitch, from Fitch of F1+ ; notes that are payable on demand or bankers acceptances issued by any depository institution or trust company referred to in the second paragraph above; investments in taxable money market funds or other regulated investment companies having, at the time of the Issuer s investment or contractual commitment to invest therein, the highest rating from Moody s, S&P and Fitch (if rated by Fitch) or otherwise subject to satisfaction of the Rating Agency Condition; provided that such investments shall have at least an AAAm or AAAmg rating from S&P; time deposits (having maturities of not more than 90 days) by an entity the commercial paper of which has, at the time of the Issuer s investment or contractual commitment to invest therein, the highest rating granted by each Rating Agency; eligible repurchase obligations with a rating acceptable to the Rating Agencies, which, in the case of Fitch, shall be F1+ and in the case of S&P shall be A-l+ ; or any other investments approved in writing by the Rating Agencies. Eligible Investments shall not include any instrument, security or investment (a) that is an interest-only security or a mortgaged-backed security, (b) that is purchased at a price (excluding accrued interest) in excess of 100% of par, (c) the S&P rating of which includes a p, pi, q, r or t subscript, (d) that is subject to an offer to repurchase such instrument, security or investment, (e) that is subject to substantial non-credit related risk or (f) that is subject to withholding tax if owned by the Issuer (unless the issuer thereof is required to make gross-up payments to the Issuer covering the full amount of such withholding tax). The Indenture Trustee may purchase or sell to itself or an Affiliate, as principal or agent, the Eligible Investments described above. Any earnings, net of losses and investment expenses, on funds in the Trust Accounts (other than the Swap Counterparty Collateral Account) will be held in that account and be treated as amounts available for distribution to the Noteholders and the Swap Counterparties; provided that during the Replenishment Period, such amounts will also be available for the purchase of Additional Loans, subject to the various criteria applicable when Principal Collections are to be used for replenishment purposes during the Replenishment Period. See The Portfolio Criteria. The Servicer will have the revocable power to instruct the Indenture Trustee to make withdrawals and payments from the Trust Accounts for the purpose of carrying out its duties under the Transfer and Servicing Agreement. If any institution at which a Trust Account is established ceases to be an eligible institution as described above, the Servicer shall, within ten Business Days after receiving notice of that fact, establish a replacement account at another institution meeting the above eligibility requirements. -60-

74 Calculation of LIBOR The Indenture Trustee will determine the interest rate for each Interest Accrual Period by determining the London interbank offered rate ( LIBOR ) for deposits in U.S. Dollars for a period of three months (the Three- Month Index Maturity ) which appears on Reuters Screen LIBOR01 of 11:00 a.m., London time, on the day that is two London Banking Days preceding the first day of such Interest Accrual Period (the LIBOR Determination Date ); provided that with respect to the first Interest Accrual Period, the calculations to determine LIBOR will be determined through the use of a straight-line interpolation as described in the next paragraph. If the Three-Month Index Maturity does not appear on Reuters Screen LIBOR01 on the related LIBOR Determination Date, the rate for that Interest Accrual Period will be determined as if the parties had specified USD-LIBOR-Reference Banks as the applicable rate. USD-LIBOR-Reference Banks means that the interest rate for an Interest Accrual Period will be determined on the basis of the rates at which deposits in U.S. Dollars are offered by the Reference Banks at approximately 11:00 a.m., London time, on the related LIBOR Determination Date to prime banks in the London interbank market for the Three-Month Index Maturity commencing on the beginning of that Interest Accrual Period and in a Representative Amount. The Indenture Trustee will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, the rate for that Interest Accrual Period will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that Interest Accrual Period will be the arithmetic mean of the rates quoted by major banks in New York City, selected by the Indenture Trustee, at approximately 11:00 a.m., New York City time, on the beginning of that Interest Accrual Period for loans in U.S. Dollars to leading European banks for the Three-Month Index Maturity commencing at the beginning of that Interest Accrual Period and in a Representative Amount. With respect to an Interest Accrual Period having a designated maturity other than three months, LIBOR shall be determined through the use of a straight-line interpolation by reference to two rates calculated in accordance with the immediately preceding paragraph, one of which shall be determined as if the maturity of the U.S. Dollar deposits referred to therein were the period of time for which rates are available next shorter than such Interest Accrual Period, and the other of which shall be determined as if the maturity were the period of time for which rates are available next longer than such Interest Accrual Period. The establishment of LIBOR on the applicable London Banking Day by the Indenture Trustee and the Indenture Trustee s calculation of the rate of interest applicable to the Notes for the related Payment Date shall (in the absence of manifest error) be final and binding. Each such rate of interest may be obtained by telephoning the Indenture Trustee at (612) Interest Rate Swap To manage interest rate risks associated with the Loans and the Offered Notes, the Issuer will enter into one or more interest rate swap transactions each of which will be governed by a 1992 International Swaps and Derivatives Association Inc. Master Agreement (Multi-Currency-Cross Border) or successor form, including the schedules thereto, the confirmations thereunder and any credit support annex or guaranty related thereto (each such Master Agreement, including the schedule and credit support documentation thereto and confirmations thereunder, collectively, an Interest Rate Swap ). On or prior to the Closing Date, the Issuer will enter into Swap Transactions with one or more Qualified Swap Counterparties pursuant to the Indenture (each being referred to herein as a Swap Counterparty or collectively as the Swap Counterparties ). The initial Swap Counterparty is Citibank N.A. The address for Citibank N.A. is 390 Greenwich Street, 4 th Floor, New York, New York, The Swap Transactions to be entered into on or prior to the Closing Date will provide that the Swap Counterparty will be required to make periodic scheduled floating payments based on LIBOR and the Issuer will be required to make periodic scheduled fixed payments at a predetermined fixed rate, and in each case based on a specified, notional amount equal to $208,340, as of the Closing Date. Each Interest Rate Swap will provide that any scheduled periodic payments required to be made by the Issuer and the Swap Counterparty on the same date with respect to a Swap Transaction will be netted so that only the net difference between such payments will be paid. Net trust swap receipts ( Net Trust Swap Receipts ) payable by the Swap Counterparty will be distributed pursuant to the Transfer and Servicing Agreement as Interest Collections. Net trust swap payments ( Net Trust Swap Payments ) payable by the Issuer will be paid to the Swap -61-

75 Counterparty out of Collections in accordance with the priority provisions of the Transfer and Servicing Agreement and will be made prior to payments to Holders of the Offered Notes. So long as any of the Offered Notes are outstanding, with the exception of the initial Interest Accrual Period, the Issuer will maintain Swap Transactions so that the aggregate notional amount of all Swap Transactions for any current or future calculation period thereunder will not be (i) less than the Outstanding Loan Balance of the Fixed Rate Loans for the corresponding Collection Period, plus, in the case of the current period, Principal Collections on Fixed Rate Loans, or (ii) greater than the amount specified in clause (i) above by more than the Fixed Rate Permitted Excess Amount. So long as any of the Offered Notes are outstanding, with the exception of the initial Interest Accrual Period, if on any calculation date either: (a) (b) the then current aggregate notional amount of all Swap Transactions (i) is less than the then Outstanding Loan Balance of the Fixed Rate Loans plus Principal Collections on Fixed Rate Loans or (ii) is greater than the amount specified in clause (i) above by more than the Fixed Rate Permitted Excess Amount; or the aggregate notional amount for any future calculation period of all Swap Transactions (i) is less than the projected Outstanding Loan Balance of the Fixed Rate Loans for the corresponding Collection Period or (ii) is greater than the amount specified in clause (i) above by more than the Fixed Rate Permitted Excess Amount; then, not later than 1:00 p.m. (New York City time) on the Determination Date preceding the next Payment Date, the Servicer will notify the Indenture Trustee, the Swap Counterparties and the Rating Agencies of such event and one or more of the Swap Transactions will be reduced or amended, or the Issuer will enter into one or more additional Swap Transactions, as the case may be, so that, as applicable, the aggregate notional amount of the Swap Transactions will be equal to the Outstanding Loan Balance of the Fixed Rate Loans at the end of the corresponding Collection Period or as projected to be outstanding at the end of the corresponding Collection Period, plus, in the case of the current period, Principal Collections on Fixed Rate Loans. So long as any of the Offered Notes are outstanding, if on any calculation date either: (a) (b) the then current aggregate notional amount of all Swap Transactions (excluding any interest rate cap transactions) exceeds the then Aggregate Outstanding Principal Balance; or the aggregate notional amount of all Swap Transactions (excluding any interest rate cap transactions) for any future calculation period exceeds the projected Aggregate Outstanding Principal Balance for the corresponding Interest Accrual Period; then, not later than 1:00 p.m. (New York City time) on the Determination Date preceding the next Payment Date, the Servicer will notify the Indenture Trustee, the Swap Counterparties and the Rating Agencies of such event, and one or more Swap Transactions will be reduced or amended so that the aggregate notional amount of the Swap Transactions will not exceed the Aggregate Outstanding Principal Balance of the Notes for the corresponding Interest Accrual Period. Any breakage costs and other payments required to be made by the Issuer in connection with any such reduction or amendment of any Swap Transaction will constitute Swap Breakage Costs and will be payable as described under Priority of Payments Interest Allocations and Priority of Payments Principal Allocations. Any payments payable by the Swap Counterparty to the Issuer in such event will constitute Swap Breakage Receipts and included as Interest Collections distributable as described under Priority of Payments Interest Allocations. The Interest Rate Swaps may also contain similar notional reduction or partial termination provisions that will continue to apply so long as any Notes are outstanding under the Indenture. If a Swap Counterparty or any party providing credit support on its behalf (a Credit Support Provider ) fails to maintain certain credit ratings approved by the Rating Agencies, then the Swap Counterparty will be required to post collateral, obtain an unconditional guarantee from a Person that satisfies the ratings requirements in -62-

76 the definition of Qualified Swap Counterparty, or transfer all of its rights and obligations under its Interest Rate Swap and each of its Swap Transactions to a Qualified Swap Counterparty. If the Swap Counterparty or any Credit Support Provider on its behalf fails to maintain certain other credit ratings approved by the Rating Agencies, then the Swap Counterparty shall be required to transfer all of its rights and obligations under its Interest Rate Swap and Swap Transactions to a Qualified Swap Counterparty. Each Interest Rate Swap will allow the Issuer to terminate each related Swap Transaction in the event the Swap Counterparty fails to timely post collateral or transfer its rights and obligations to a Qualified Swap Counterparty as provided in such Interest Rate Swap. There can be no assurance that a Swap Counterparty will be replaced in such circumstances with a Qualified Swap Counterparty. If a Swap Transaction is terminated without the Swap Counterparty being replaced, the ratings on the Offered Notes could be downgraded. Each Interest Rate Swap will permit the Swap Counterparty to terminate each related Swap Transaction in the event the Issuer fails to pay when due any Net Trust Swap Payments and such failure continues unremedied for three Local Business Days (as defined in the relevant Interest Rate Swap) after notice thereof. A default by the Issuer in the payment of any amounts required by the Indenture to be paid to the Swap Counterparties in connection with a redemption of the Notes under the Indenture will also constitute a default under each Interest Rate Swap. In addition, each Interest Rate Swap will permit the Swap Counterparty to terminate each related Swap Transaction upon the occurrence of certain other defaults and termination events specified therein, including (a) repurchase, redemption or prepayment in full of the Offered Notes, (b) acceleration of the Offered Notes and sale of the Loans and Collateral, (c) the repurchase of the Loans by the Originator in the event of a Servicer Default, (d) any insolvency or bankruptcy of the Issuer or (e) any insolvency or bankruptcy of the Trust Depositor where the Issuer is subsequently dissolved or the bankruptcy or insolvency of the Trust Depositor causes an Event of Default and the liquidation of the Loans and Collateral. Pursuant to a separate guaranty agreement, American Capital, as swap guarantor, has agreed to guarantee the payment of (a) prior to the occurrence of an Event of Default, any Swap Breakage Costs owed to the Swap Counterparties and (b) after the occurrence of an Event of Default, any Swap Breakage Costs owed to the Swap Counterparties in excess of $500,000. Pursuant to the Indenture, the Issuer has granted a security interest to the Indenture Trustee in the Loans and Collateral to secure the payments due to the Swap Counterparties, which security interest ranks pari passu with the security interest securing the Notes. The Indenture Trustee shall, upon written notice from the Issuer, establish a Swap Counterparty Collateral Account and the Indenture Trustee shall deposit therein all collateral received from a Swap Counterparty from time to time under the related Interest Rate Swap. Any and all funds at any time on deposit in, or otherwise to the credit of, such Swap Counterparty Collateral Account shall be held in trust by the Indenture Trustee for the benefit of the Noteholders and the related Swap Counterparty in accordance with the provisions of the related Interest Rate Swap. The only permitted withdrawals from or application of funds on deposit in, or otherwise to the credit of, such Swap Counterparty Collateral Account shall be upon the request of the Issuer in accordance with the Indenture (a) for application to the obligations of the related Swap Counterparty to the Issuer under the related Interest Rate Swap if such Interest Rate Swap becomes subject to early termination in accordance with the provisions of such Interest Rate Swap or (b) to return collateral to the related Swap Counterparty when and as required by the related Interest Rate Swap. Events of Default Allocations of amounts of interest payments to the Noteholders, the Swap Counterparties and others will be made as described above under Priority of Payments Interest Allocations. The manner of application of Interest Collections following an Event of Default differs in certain respects from the application of Interest Collections prior to an Event of Default, as described above under Priority of Payments Interest Allocations. Allocations of amounts of principal payments to the Noteholders, the Swap Counterparties and others will be made as described above under Priority of Payments Principal Allocations Principal Allocations on any Sequential Payment Date. An Event of Default refers to any of the following events: -63-

77 (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) failure to pay the full amount of accrued interest (excluding any Class B Accrued Payable, Class C Accrued Payable and Class D Accrued Payable) on a Payment Date and such failure continues unremedied for two Business Days; failure to reduce to zero the Aggregate Outstanding Principal Balance of the Class A Notes, the Class B Notes, the Class C Notes or the Class D Notes by the Legal Final Maturity Date; failure to pay the Repurchase Price to the Noteholders and Swap Counterparties on the Repurchase Date in the event of an Optional Repurchase (unless such Optional Repurchase has been validly withdrawn in accordance with the Indenture and the Transfer and Servicing Agreement); failure on the part of the Originator or the Servicer to make any payment or deposit required under the Transfer and Servicing Agreement within two Business Days after the date the payment or deposit is required to be made; failure on the part of the Originator, the Servicer, the Trust Depositor or the Issuer, to observe or perform any other covenants or agreements in the Transfer and Servicing Agreement or the Indenture, which failure has a material adverse effect on the Noteholders or the Swap Counterparties and continues unremedied for a period of 30 days after the Originator, the Servicer, the Trust Depositor or the Issuer has actual knowledge thereof or after such Person has received written notice thereof in accordance with the terms of the Indenture; provided that there is no 30-day cure period if the Originator does not accept reassignment of Ineligible Loans as required by the Transfer and Servicing Agreement; provided further that only a five-day cure period shall apply in the case of a failure by the Originator, the Indenture Trustee or the Owner Trustee to observe their respective covenants not to grant a security interest in or otherwise intentionally create a Lien on the Loans; any representation, warranty, certification or written statement made by the Originator, the Servicer or the Trust Depositor in the Transfer and Servicing Agreement or the Indenture or any information given by the Originator or the Trust Depositor to the Issuer or the Indenture Trustee to identify the Loans was incorrect when made, which has a material adverse effect on the Noteholders or the Swap Counterparties and continues to be incorrect for a period of 30 days after the Originator, the Servicer, the Trust Depositor or the Issuer has actual knowledge thereof or after such Person has received written notice thereof in accordance with the terms of the Indenture; provided however that an Event of Default shall not be deemed to occur under the Transfer and Servicing Agreement if the Originator has repurchased or substituted for the related Loans through the Trust Depositor during such period under the terms of the Transfer and Servicing Agreement; failure to comply with the transfer restrictions imposed by the Indenture on the Class E Notes or the Class F Notes; the Indenture Trustee, on behalf of the Noteholders and the Swap Counterparties, shall fail for any reason to have a valid and perfected first priority security interest in the Loans and the Issuer s right, title and interest in the Collateral and such failure has a material adverse effect on the Noteholders or the Swap Counterparties; the Originator or the Servicer agrees or consents to, or otherwise permits to occur, any amendment, modification, change, supplement or rescission of or to the Originator s Credit and Collection Policy in whole or in part that could reasonably be expected to have a material adverse effect upon the Noteholders and the Swap Counterparties; the occurrence of any of the following events with respect to the Trust Depositor, the Originator or the Issuer: -64-

78 (i) (ii) (iii) (iv) (v) a court files a decree or order for relief against the party in an involuntary case under the Bankruptcy Code of the United States or any other liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar debtor relief laws affecting the rights of creditors; provided that in the case of any such proceeding instituted against any of these parties, either such proceedings shall remain undismissed or unstayed for a period of 60 days, or any actions sought in such proceeding (including an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, such party or any substantial part of such party s property) shall occur, the party commences a voluntary case under any insolvency law, the party consents to a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official taking possession of any substantial part of its property, the party makes a general assignment for the benefit of creditors, or the party fails to pay its debts as those debts become due; or (k) either the Issuer or the Loan Pool becomes an investment company required to be registered under the 1940 Act. In the case of any event described above, an Event of Default with respect to the Notes will be deemed to have occurred; provided that an Event of Default (unless it occurs under any of the five bankruptcy or insolvency events with respect to the Trust Depositor or the Issuer described above) may be waived if the Required Holders provide written notice to the Indenture Trustee, the Trust Depositor and the Servicer of the waiver. No such waiver shall affect any Swap Transaction that has been terminated in accordance with the terms thereof. In the event the Servicer or a responsible officer of the Owner Trustee or of the Indenture Trustee has actual knowledge of an Event of Default, it will be required to notify, among others, the Trust Depositor, the Servicer and the Indenture Trustee. If events relating to the bankruptcy or insolvency of the Trust Depositor occur, on the day of such event, the Trust Depositor will promptly give notice to the Indenture Trustee of the event, and the Indenture Trustee will give notice thereof promptly to the Noteholders and the Swap Counterparties and, upon being notified in writing by the Required Holders, promptly act to sell, dispose of or otherwise liquidate the Loans in a commercially reasonable manner and on commercially reasonable terms. The proceeds from any transfer, disposition or liquidation of Loans will be deposited in the Collection Account and allocated as described in the Transfer and Servicing Agreement and in Priority of Payments Interest Allocations and Priority of Payments Principal Allocations Principal Allocations on any Sequential Payment Date. If the Collections on Loans in the Collection Account allocated to the Noteholders of any class are not sufficient to pay the principal amount of the Notes of the class in full, those Noteholders will incur a loss. Remedies After Events of Default If an Event of Default relating to bankruptcy or insolvency of the Trust Depositor or the Issuer as described under the heading Events of Default has occurred, then the unpaid principal of the Notes, together with interest accrued but unpaid thereon and all other amounts due to the Noteholders under the Indenture, shall immediately become due and payable. An Event of Default relating to the bankruptcy or insolvency of the Issuer or Trust Depositor will also constitute an event of default under the Interest Rate Swaps entitling the Swap Counterparties to terminate all outstanding Swap Transactions under the Interest Rate Swaps, at which time Swap Breakage Costs and all other amounts outstanding under the Interest Rate Swaps will be due and payable. If an Event of Default other than the Event of Default relating to bankruptcy or insolvency of the Issuer or the Trust Depositor as described under the heading Events of Default occurs, the Required Holders may waive the Event of Default by sending a written notice of the waiver to the Indenture Trustee, the Servicer and the Trust Depositor. No such waiver shall affect any Swap Transaction that has been terminated in accordance with the terms thereof. If the Required Holders do not waive the Event of Default, then the unpaid principal of the Notes, together -65-

79 with interest accrued but unpaid and all other amounts due to the Noteholders under the Indenture, shall immediately and without further act become due and payable. The Indenture Trustee The Indenture Trustee with respect to the Notes is Wells Fargo Bank, National Association. Wells Fargo Bank, National Association is a wholly-owned subsidiary of Wells Fargo & Company. Wells Fargo & Company is the fifth largest bank holding company in the United States, with over $481 billion in assets as of December 31, A diversified financial services company, Wells Fargo & Company provides banking, insurance, investments, trust, mortgage and consumer finance services in the United States, Canada, the Caribbean, Latin America and elsewhere internationally. The Originator and its Affiliates may from time to time enter into banking and trustee relationships with the Indenture Trustee and its Affiliates. The Originator and its Affiliates may hold Notes in their own names; however, any Notes so held shall not be entitled to participate in any decisions made or instructions given to the Indenture Trustee by the Noteholders as a group. The Indenture Trustee s responsibilities will consist principally of: the distribution of monies as required by the Indenture or the Transfer and Servicing Agreement; the authentication and registration of transfer of Notes under the Indenture; the delivery of information received from the Trust Depositor or Servicer; and calculation and determining the extent of compliance with the Portfolio Criteria and reporting such information to the Servicer. For its duties under the Transaction Documents, the Indenture Trustee will be entitled to receive a quarterly fee (the Indenture Trustee Fee ) of the greater of (a) $4,500 and (b) the product of (i) 0.01% and (ii) the Loan Pool Balance as of the beginning of the related Collection Period. For purposes of meeting the legal requirements of any jurisdictions in which any part of the Issuer s assets may at the time be located, the Indenture Trustee will have the power to appoint a co-trustee or separate trustee of all or any part of the Issuer s assets. To the extent permitted by law, all rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee will be conferred or imposed upon and exercised or performed by the Indenture Trustee and the separate trustee or co-trustee jointly. In any jurisdiction in which the Indenture Trustee will be incompetent or unqualified to perform as required by the Indenture, all rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee will be conferred or imposed upon such separate trustee or cotrustee who shall exercise and perform such rights, powers, duties and obligations solely at the direction of the Indenture Trustee. The Indenture Trustee may resign at any time, in which event a successor indenture trustee will be appointed by the Issuer. The Issuer may also remove the Indenture Trustee if the Indenture Trustee ceases to be eligible to continue as the Indenture Trustee under the Indenture. In such circumstances, a successor indenture trustee will be appointed by the Issuer. Any resignation or removal of the Indenture Trustee and appointment of a successor indenture trustee does not become effective until acceptance of the appointment by the successor indenture trustee. The Backup Servicer Wells Fargo Bank, National Association will act as backup servicer under the Transaction Documents (not in its individual capacity but solely in its capacity as backup servicer, together with its successors and assigns, the Backup Servicer ). If a Servicer Default occurs and remains unremedied and American Capital is terminated as Servicer or resigns as Servicer, in each case in accordance with the Transfer and Servicing Agreement, the Backup Servicer will serve as the successor servicer. The Backup Servicer will receive a fee, as part of the Indenture Trustee Fee, on each Payment Date as compensation for, among other things, (a) standing by to act as successor servicer and (b) confirming certain calculations made by the Servicer on the Quarterly Report to the Noteholders and the Swap -66-

80 Counterparties, including but not limited to (i) interest and principal payments due to the Noteholders and (ii) certain Loan performance data. Administration American Capital will act as administrator for the Issuer and the Owner Trustee pursuant to the Transfer and Servicing Agreement. American Capital will, to the extent provided in the Transfer and Servicing Agreement, provide the notices and perform other administrative obligations required to be provided or performed by the Issuer or the Owner Trustee under the Transaction Documents. American Capital, as administrator, will also perform the accounting functions of the Issuer which the Owner Trustee is required to perform under the Trust Agreement, including but not limited to: maintaining the books of the Issuer; filing tax returns for the Issuer; and delivering tax-related reports to the Noteholders, except for Form 1099s. However, the Indenture Trustee will retain responsibility for distributing to the Noteholders Form 1099s and the Owner Trustee will retain responsibility for distributing the Schedule K-1s. Governing Law The Transaction Documents, with the exception of the Trust Agreement and the Certificate, will be governed by the laws of the State of New York. The Trust Agreement and the Certificate will be governed by the laws of the State of Delaware. Amendments The Issuer and the Indenture Trustee, without the written consent of the Noteholders and upon satisfaction of the S&P Rating Condition and the Fitch Rating Condition, may execute an amendment of or a supplement to the Indenture to, among other things, cure any ambiguity, to correct or supplement any provision in the Indenture that may be inconsistent with any other provision in the Indenture, to make any other provisions with respect to matters or questions arising under the Indenture, to make such changes as shall be necessary or advisable in order for the Offered Notes to be listed on the Irish Stock Exchange or any other exchange, to evidence or implement any change to the Indenture required by regulations or guidelines enacted to support the USA PATRIOT Act, to comply with any changes in the Code or to conform the Indenture to this Offering Memorandum; provided that (a) the consent of the Noteholders will be required unless the Issuer obtains an opinion of counsel stating that such action shall not adversely affect in any material respect the interests of the Holders of the Offered Notes, which Opinion of Counsel may rely on an officer s certificate of the Servicer with respect to the effect of any such amendment on the interests of any Noteholder or Certificateholder, and (b) the consent of each Swap Counterparty will be required unless the Issuer obtains an opinion of counsel stating that the amendment does not adversely affect in any material respect the interests of any Swap Counterparty. Additionally, the Indenture Trustee, with the written consent of the Required Holders and each Swap Counterparty and upon satisfaction of the Rating Agency Condition, may consent to or execute an amendment of or supplement to, or waiver or consent under, the Indenture; provided that in each case the consent of each Noteholder and each Swap Counterparty is required to: (i) (ii) (iii) reduce the amount or extend the time of payment of any amount owing or payable under any Note; increase or reduce the interest payable on any Note; alter or modify the provisions of the Transfer and Servicing Agreement with respect to the order of priorities in which Collections on the Loans shall be paid to the Noteholders or with respect to the amount or timing of payments on the Notes; -67-

81 (iv) (v) (vi) (vii) (viii) reduce, modify or amend any indemnities in favor of any Noteholder or in favor of or to be paid by the Trust Depositor, or alter the definition of indemnitees to exclude any Noteholder; make any interest or principal payable in a currency other than U.S. dollars; permit the creation of any Lien on the Loans senior to or on a parity with the Lien of the Indenture or permit the termination or derogation of the Lien of the Indenture; modify, amend or supplement the provisions of the Transfer and Servicing Agreement relating to amendments, waivers and supplements to the Indenture, the Transfer and Servicing Agreement or any other document; or modify the percentage of Noteholders required to make any modification of the Indenture or to direct the Indenture Trustee to sell or liquidate the Loans. However, only the consent of the affected Noteholder shall be required for any decrease in an amount of or the rate of interest payable on any Note, any extension for the time of payment of any amount payable under any Note or any reduction, modification or amendment of any indemnities in favor of such Noteholder or in favor of or to be paid by the Trust Depositor, or the alteration of the definition of indemnitees to exclude such Noteholder. In addition, covenants of the Issuer relating to Interest Rate Swaps shall not be amended without the consent of each Swap Counterparty. Optional Repurchase of Notes At any time during the Call Period, the Class F Noteholder may direct the Issuer to repurchase the Notes in whole, but not in part, on any Payment Date after the date on which the Class F Noteholder provides notice of its election to cause the repurchase of the Notes to the Issuer and the Indenture Trustee. In connection with any repurchase of the Notes, the Issuer shall deposit, or cause to be deposited, in full in the Note Distribution Account an amount equal to the Repurchase Price on the Repurchase Date. The Class F Noteholder or the Issuer shall furnish notice of such election to the Indenture Trustee and the Rating Agencies no later than ten days prior to the proposed Repurchase Date. All Swap Transactions then outstanding under any Interest Rate Swaps then in effect shall be terminated (provided that the Issuer shall not permit any Swap Transaction to terminate until such time as the Optional Repurchase is irrevocable) and all amounts payable to the Swap Counterparties, including Swap Breakage Costs, shall be paid in full on the Repurchase Date. All such Notes shall be due and payable on the Repurchase Date, after the furnishing of a notice to each Holder of Notes as described below. Notice of an Optional Repurchase shall be given by the Indenture Trustee and each Swap Counterparty by facsimile or by first-class mail, postage prepaid, transmitted or mailed to each Holder s address appearing in the Note Register. All notices of Optional Repurchase shall state: (a) (b) (c) (d) the Repurchase Date; the Repurchase Price; that the Record Date otherwise applicable to such Repurchase Date is not applicable and that payments shall be made only upon presentation and surrender of such Notes and the place where such Notes are to be surrendered for payment of the Repurchase Price (which shall be the office or agency of the Issuer required to be maintained under the Indenture); and that interest on the Notes shall cease to accrue on the Repurchase Date. The Notes to be repurchased shall, following notice of repurchase as required by the Indenture, become due and payable at the Repurchase Price on the Repurchase Date (unless notice of such Optional Repurchase has been withdrawn in accordance with the Indenture) and (unless the Issuer shall default in the payment of the Repurchase Price) no interest shall accrue on the Repurchase Price for any period after the date to which accrued interest is calculated for purposes of calculating the Repurchase Price. Following the repurchase in whole of the Offered -68-

82 Notes, the Class F Notes will be repurchased in whole whether or not any amounts are available to the Issuer for distribution to the Class F Noteholder in connection with such repurchase. The Issuer or the Servicer will have the option to withdraw any notice of Optional Repurchase at any time prior to the scheduled Repurchase Date by written notice to the Indenture Trustee, the Servicer, the Owner Trustee and the Rating Agencies delivered at least two Business Days prior to the proposed Repurchase Date. A withdrawal of such notice of Optional Repurchase or the inability of the Issuer to complete Optional Repurchase of the Offered Notes will not constitute an Event of Default. Mandatory Redemption of Notes If on any Payment Date, the aggregate amounts on deposit in the Collection Account and the Reserve Fund are greater than or equal to the sum of (a) the Aggregate Outstanding Principal Balance, (b) the interest accrued thereon, (c) any accrued and unpaid Servicing Fee, (d) unreimbursed Servicer Advances, (e) amounts owed to the Indenture Trustee, the Backup Servicer and Owner Trustee, and (f) amounts owed to the Swap Counterparties, including Swap Breakage Costs, the amounts on deposit in the Reserve Fund will be deposited in the Collection Account and used to redeem the Notes in full. The redemption price will be equal to the unpaid principal amount of the Notes plus accrued and unpaid interest through the date of redemption. It will be a condition to any such redemption that all outstanding Interest Rate Swaps be terminated and all amounts due each Swap Counterparty, including Swap Breakage Costs, be paid in connection with such redemption. Reports Not later than the 10 th Business Day of each month (excluding any month in which a Payment Date occurs), commencing in September 2007, the Servicer shall deliver or make available to each of the Trustee, the Backup Servicer, each Rating Agency and the Initial Purchasers, a monthly report (the Monthly Report ) with respect to the previous month (other than with respect to the Monthly Report delivered in September 2007) setting forth, among other things, certain information on the Loan Pool, including certain loss and delinquency information on the Loan Pool. The Indenture Trustee (or an agent on its behalf), will also forward or make available to each Noteholder of record, each Rating Agency and each Swap Counterparty a copy of the Monthly Report. No later than the Determination Date prior to each Payment Date, the Servicer will deliver to the Indenture Trustee, the Owner Trustee, the Backup Servicer, the Ireland Paying Agent, each Rating Agency and the Initial Purchasers a quarterly report prepared by the Servicer setting forth certain information with respect to the Issuer, the Notes and the Certificate, which shall include information regarding the Portfolio Criteria (the Quarterly Report ). On each Payment Date, the Indenture Trustee (or an agent on its behalf), will also forward or make available to each Noteholder of record, each Rating Agency and each Swap Counterparty a copy of the Quarterly Report. The Indenture Trustee is also entitled to receive upon reasonable notice after the end of any Collection Period a copy of the Servicer s computer records related to the Loans. The Servicer will, upon the request of either the Indenture Trustee or the Owner Trustee, deliver to the Indenture Trustee, the Owner Trustee, the Backup Servicer, each Rating Agency, each Swap Counterparty and the Initial Purchasers (a) within 60 days after each calendar quarter (except for the fourth quarter), commencing with the quarter ending September 30, 2007, the unaudited quarterly financial statements of the Servicer and (b) within 90 days after each fiscal year of the Servicer, commencing with the fiscal year ending December 31, 2007, the audited annual financial statements of the Servicer, together with the related report of the Independent Accountants to the Servicer; provided that so long as the Servicer is required under the Securities Act to file its financial statements with the SEC, the foregoing requirement to provide such financial statements to the Indenture Trustee, the Owner Trustee, the Backup Servicer, each Rating Agency, each Swap Counterparty and the Initial Purchasers shall not apply. On the Payment Date following the receipt of the financial statements, the Indenture Trustee will forward to each Noteholder of record and each Swap Counterparty a copy of such financial statements. The Servicer shall cause the Independent Accountants, who may also render other services to the Servicer or its Affiliates, to deliver to the Indenture Trustee, the Owner Trustee, the Backup Servicer, each Swap Counterparty and each Rating Agency, on or before March 31 (90 days after the end of the Servicer s fiscal year) of each year, beginning on March 31, 2008, a report addressed to the Board of Directors of the Servicer, the Indenture -69-

83 Trustee and the Owner Trustee indicating that the Independent Accountant has performed certain procedures as agreed by the Servicer, the Indenture Trustee and the Owner Trustee, whereby the Independent Accountant will obtain the Quarterly Report for two Collection Periods with respect to the 12 months ended the immediately preceding December 31 and, for each Quarterly Report, the Independent Accountant will agree certain amounts in the Quarterly Report to the Servicer s computer, accounting and other reports, which will include in such report any amounts which were not in agreement. In the event such firm of Independent Accountants requires the Indenture Trustee to agree to the procedures performed by such firm of Independent Accountants, the Servicer shall direct the Indenture Trustee in writing to so agree; it being understood and agreed that the Indenture Trustee will deliver such letter of agreement in conclusive reliance upon the direction of the Servicer, and the Indenture Trustee will not make any independent inquiry or investigation as to, and shall have no obligation or liability in respect of, the sufficiency, validity or correctness of such procedures. The Servicer will deliver to the Owner Trustee, the Indenture Trustee, each Swap Counterparty and each of the Rating Agencies, within 90 days of the end of each fiscal year, commencing with the year ending December 31, 2008, an officer s certificate stating that (a) a review of the activities of the Servicer during the prior calendar year and of its performance under the Transfer and Servicing Agreement was made under the supervision of the officer signing such certificate and (b) to such officer s knowledge, based on such review, the Servicer has fully performed or caused to be performed in all material respects all its obligations under the Transfer and Servicing Agreement and no Servicer Default has occurred or is continuing, or, if there has been a Servicer Default, specifying each such default known to such officer and the nature and status thereof and the steps being taken or necessary to be taken to remedy such event. A copy of such certificate may be obtained by any Noteholder or Certificateholder by a request in writing to the Indenture Trustee, with respect to any Noteholder, or the Owner Trustee, with respect to any Certificateholder. Within 90 days of the end of each fiscal year, commencing December 31, 2008, the Servicer shall prepare and provide to Owner Trustee, the Indenture Trustee, each Swap Counterparty and each Rating Agency a cumulative summary of the information required to be included in the Quarterly Reports for the Collection Periods ending during the immediately preceding calendar year. Each year the Servicer shall make the reports of foreclosures and abandonment of any mortgaged property included in the Collateral as and to the extent required by Section 6050J of the Code (other than in respect of Third Party Agented Loans). Promptly after filing any such report with the Code, the Servicer shall provide the Indenture Trustee with an officer s certificate certifying that such report has been filed. Promptly upon the Servicer becoming aware thereof, the Servicer shall furnish to the Indenture Trustee and each Swap Counterparty notice of the occurrence of any Event of Default or Servicer Default or of any situation which the Servicer reasonably expects to develop into an Event of Default or Servicer Default. On or before March 31 of each calendar year, commencing March 31, 2008, the Indenture Trustee will furnish or cause to be furnished to each Person who at any time during the preceding calendar year was a Noteholder of record a statement provided by the Servicer containing the information required to be provided by an issuer of indebtedness under the Code for such preceding calendar year or the applicable portion of the year during which such Noteholder was a Noteholder, together with such other customary information as is necessary to enable the Noteholders to prepare their tax returns. See Certain Federal Income Tax and Benefit Plan Considerations. The Indenture Trustee will make available quarterly to the Noteholders and Swap Counterparty each Monthly Report and Quarterly Report via the Indenture Trustee s Internet web site with the use of a password provided by the Indenture Trustee. The Indenture Trustee s Internet web site will initially be located at or at such other address as the Indenture Trustee shall notify the Noteholders and any Swap Counterparty from time to time. The information on that web site is not part of this Offering Memorandum. In addition, the Indenture Trustee will also make certain other documents, reports and Loan information provided by the Servicer to the Noteholders and the Swap Counterparties via the Indenture Trustee s Internet web site with the use of a password provided by the Indenture Trustee. For assistance with regard to this service, investors may call the corporate trust office at (866) The Indenture Trustee may require registration and the acceptance of a disclaimer in connection with providing access to the Indenture Trustee s Internet web site. The Indenture Trustee shall not be liable for the -70-

84 dissemination of information made in accordance with the Transfer and Servicing Agreement. The Indenture Trustee makes no representations or warranties as to the accuracy or completeness of, and may disclaim responsibility for, any information made available by the Indenture Trustee for which it is not the original source. As long as the Notes remain in book-entry form, periodic reports, containing information concerning the Issuer, the Loans, the Notes and the Certificate, will be prepared by the Servicer and sent on behalf of the Issuer to Cede & Co., as nominee of DTC, and Euroclear or Clearstream, as registered holders of such Notes. These reports will be made available by DTC, Euroclear or Clearstream and its participants to holders of interests in the Notes as required by the rules, regulations and procedures creating and affecting DTC, Euroclear and Clearstream, respectively. These reports will not constitute financial statements prepared in accordance with generally accepted accounting principles or that have been examined and reported upon by, with an opinion expressed by, an independent or certified public accountant. Upon the issuance of fully registered, certificated Notes, these reports will be sent to each registered Noteholder. List of Noteholders If the Notes are subsequently issued in fully registered, certificated form, the Indenture Trustee will afford such Noteholders access during normal business hours and upon prior written notice to the current list of Noteholders for purpose of communicating with other Noteholders with respect to their rights under the Indenture, the Transfer and Servicing Agreement or the Notes. The Indenture Trustee will provide this list upon written request of any Noteholder or group of Noteholders of record holding Notes evidencing not less than 10% of the Aggregate Outstanding Principal Balance of the Notes. While the Notes are held in book-entry form, Noteholders will not have access to a list of other Noteholders, which may impede the ability of such holders to communicate with each other. Form, Denomination, Exchange, Registration and Title of the Offered Notes The Notes will not represent obligations of the Originator, the Servicer, the Trust Depositor, the Owner Trustee, the Indenture Trustee or any of their respective Affiliates. The Offered Notes will be issued in fully registered form. Certain of the Offered Notes will be represented by registered Offered Notes in global form and certain other Offered Notes will be represented by Offered Notes in definitive form registered in the name of individual purchasers or their nominees. Offered Notes offered and sold in reliance on Rule 144A (the Rule 144A Notes ) will be issued as a Rule 144A Global Note and will be deposited with the Indenture Trustee, as a custodian for DTC, and registered in the name of Cede & Co., a nominee of DTC, for credit to the respective accounts of the purchasers of such Notes at DTC. The Rule 144A Global Note (and any Notes issued in exchange therefor) will be subject to certain restrictions on transfer set forth therein and in the Indenture and will bear the legend regarding such restrictions set forth under Notice To Investors herein. Offered Notes sold to Institutional Accredited Investors who are Qualified Purchasers will be delivered to the purchasers thereof in definitive, fully registered and certificated form ( Individual Notes ) and Offered Notes sold to American Capital or an Affiliate thereof may be delivered in the form of Individual Notes. Offered Notes sold in reliance on Regulation S (the Regulation S Notes ) in offshore transactions to non-u.s. persons (within the meaning of Regulation S) who are Qualified Purchasers (a purchaser in such a transaction, a Regulation S Purchaser ) will be represented by one or more Regulation S Global Notes (together with the Rule 144A Global Notes, the Global Notes ) deposited with the Indenture Trustee as custodian for DTC. Denomination; Registration The Offered Notes will be offered in minimum denominations of $250,000, and in integral multiples of $1,000 in excess of the minimum denominations. Purchasers of beneficial interests in the Global Notes (and their transferees) may only hold their interests in these denominations. No service charge will be made for any registration of transfer or exchange of Offered Notes or beneficial interests therein. -71-

85 Global Notes The Offered Notes sold in offshore transactions in reliance on Regulation S will be represented initially by Regulation S Global Notes and will be deposited with the Indenture Trustee as custodian for DTC, or any successor thereto, and registered in the name of a nominee of DTC. Prior to and including the 40 th day after the later of the commencement of the offering and the date of original issuance of the Offered Notes (the Distribution Compliance Period ), beneficial interests in the Regulation S Global Notes may be held only through Clearstream or Euroclear. The Regulation S Global Notes and any Individual Notes issued in exchange therefor after the Distribution Compliance Period will be subject to certain restrictions on transfer set forth herein and in the Indenture. No Person other than a Regulation S Purchaser may own a beneficial interest in the Regulation S Notes. The Offered Notes offered hereby and sold in reliance on Rule 144A will be represented initially by Rule 144A Global Notes and will be deposited with the Indenture Trustee as custodian for DTC or any successor and registered in the name of a nominee of DTC. No Person other than a Qualified Institutional Buyer who is a Qualified Purchaser may own a beneficial interest in the Rule 144A Global Notes. During the Distribution Compliance Period, a beneficial interest in a Regulation S Global Note may be transferred to a Person who takes delivery in the form of a beneficial interest in a Rule 144A Global Note only upon receipt by the Indenture Trustee of a written certificate in the form required under the Indenture from the transferor to the effect that such transfer is being made to a Person who the transferor reasonably believes is purchasing for its own account or accounts as to which it exercises sole investment discretion and that such Person and each such account is a Qualified Institutional Buyer who is a Qualified Purchaser, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. After the Distribution Compliance Period, such transfer shall only be made upon receipt by the Indenture Trustee of a written certification by the proposed transferee to the effect that such transferee is a Qualified Institutional Buyer who is a Qualified Purchaser. Beneficial interests in a Rule 144A Global Note may be transferred to a Person who takes delivery in the form of a beneficial interest in a Regulation S Global Note during the Distribution Compliance Period only upon receipt by the Indenture Trustee of a written certification from the transferor in the form required under the Indenture to the effect that such transfer is being made in accordance with Rule 903 or Rule 904 of Regulation S and that the interest transferred will be held immediately thereafter through Euroclear or Clearstream. After the Distribution Compliance Period, such transfer shall only be made upon receipt by the Indenture Trustee of a written certification from the transferor in the form required under the Indenture to the effect that such transfer is being made in accordance with Rule 903 or Rule 904 of Regulation S or Rule 144A 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 a beneficial interest in the other Global Note will, upon transfer, cease to be a beneficial interest in such Global Note and become a beneficial interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to a beneficial interest in such other Global Note for as long as it remains an interest therein. Any beneficial interest in a Rule 144A Global Note or, after the Distribution Compliance Period, a Regulation S Global Note that is transferred to an Institutional Accredited Investor who is a Qualified Purchaser but is not a Qualified Institutional Buyer will be delivered in the form of an Individual Note and shall cease to be an interest in such Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to Individual Notes. A beneficial interest in a Global Note may be transferred to an Institutional Accredited Investor who is a Qualified Purchaser who takes delivery in the form of an Individual Note only upon receipt by the Indenture Trustee of a written certificate in the form required under the Indenture to the effect that the transferor is an Institutional Accredited Investor who is a Qualified Purchaser and such other evidence acceptable to the Indenture Trustee that such transfer complies with the Securities Act and applicable state securities laws. No holder of a beneficial interest in a Global Note will be entitled to receive an Individual Note representing its interest in such class of Offered Notes, except under the limited circumstances described below under Individual Notes. Unless and until Individual Notes are issued in respect of the Global Notes, all references to actions by Holders of the Global Notes will refer to actions taken by DTC upon instructions received -72-

86 from holders of beneficial interests in Global Notes through its participating organizations (together with Clearstream and Euroclear participating organizations, the Participants ), and all references herein to payments, notices, reports and statements to holders of Offered Notes in global form will refer to payments, notices, reports and statements to DTC or its custodian, as the registered holder of the Global Notes, for distribution to holders of beneficial interests in Global Notes through its Participants in accordance with DTC procedures. Unless and until Individual Notes are issued in respect of the Global Notes, beneficial interests in the Global Notes will be transferred on the book-entry records of DTC and its Participants. The Indenture Trustee will not record or otherwise provide or be responsible for the registration of such transfers. Qualified Institutional Buyers who are Qualified Purchasers and Regulation S Purchasers who are owners of Offered Notes may hold their Notes through DTC (in the United States) or Clearstream or Euroclear (in Europe) if they are Participants of such system, or indirectly through organizations that are Participants in such systems. Clearstream and Euroclear will hold omnibus positions on behalf of the Participants and the Euroclear Participants, respectively, through customers securities accounts in Clearstream s and Euroclear s names on the books of their respective depositories which in turn will hold such positions in customers securities accounts in the respective depositories names on the books of DTC. DTC is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York UCC and a clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants ( Direct Participants ) deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Direct Participants accounts, thereby eliminating the need for physical movement of securities. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). The rules applicable to DTC and its Direct Participants and Indirect Participants are on file with the SEC. Transfers between DTC Participants will occur in accordance with DTC rules. Transfers between Clearstream Participants and Euroclear Participants will occur in accordance with their applicable rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the Notes, cross-market transfers between Persons holding directly or indirectly through DTC, on the one hand, and directly through Clearstream Participants or Euroclear Participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of the relevant European international clearing system by its Depository; provided that such cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in such system in accordance with its rules and procedures. If the transaction complies with all relevant requirements, Euroclear or Clearstream, as the case may be, will then deliver instructions to the Depository to take action to effect final settlement on its behalf. Because of time-zone differences, credits of securities in Clearstream or Euroclear as a result of a transaction with a DTC Participant will be made during the subsequent securities settlement processing, dated the Business Day following the DTC settlement date, and such credits or any transactions in such securities settled during such processing will be reported to the relevant Clearstream Participant or Euroclear Participant on such Business Day. Cash received in Clearstream or Euroclear as a result of sales of securities by or through a Clearstream Participant or a Euroclear Participant to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream or Euroclear cash account only as of the Business Day following settlement in DTC. The holders of beneficial interests in Global Notes that are not Direct Participants or Indirect Participants but desire to purchase, sell or otherwise transfer ownership of, or other interests in, Global Notes may do so only through Direct Participants and Indirect Participants. In addition, holders of beneficial interests in Global Notes will receive all distributions of principal and interest from the Indenture Trustee through DTC and its Direct Participants -73-

87 and Indirect Participants. Accordingly, holders of Offered Notes may experience some delay in their receipt of payments, since such payments will be forwarded by the Indenture Trustee to Cede & Co., as nominee for DTC. DTC will forward such payments to its Participants, which thereafter will forward them to Indirect Participants or beneficial owners of Offered Notes. In general, Holders of Offered Notes will not be recognized by the Indenture Trustee or the Servicer as holders of record of Notes and Holders of Offered Notes will be permitted to receive information furnished to Noteholders and to exercise the rights of Noteholders only indirectly through DTC and its Direct Participants and Indirect Participants. Under the rules, regulations and procedures creating and affecting DTC and its operations (the Rules ), DTC is required to make book-entry transfers of Offered Notes among Participants on whose behalf it acts with respect to the Offered Notes and to receive and transmit distributions of principal of, and interest on, the Offered Notes. Direct Participants and Indirect Participants with which the Holders of Offered Notes have accounts with respect to the Offered Notes similarly are required to make book-entry transfers and receive and transmit such payments on behalf of their respective holders of Offered Notes. Accordingly, although the Holders of Offered Notes will not possess physical certificates evidencing their interest in the Offered Notes, the Rules provide a mechanism by which Holders of Offered Notes, through their Direct Participants or Indirect Participants, will receive distributions and will be able to transfer their interests in the Offered Notes. DTC has advised the Originator that DTC will take any action permitted to be taken by a Holder of an Offered Note under the Indenture and the Transfer and Servicing Agreement only at the direction of one or more Participants to whose accounts with DTC the Offered Notes are credited. DTC may take conflicting actions with respect to other undivided interests to the extent that such actions are taken on behalf of Participants whose holdings include such undivided interests. Clearstream is incorporated under the laws of Luxembourg as a professional depository. Clearstream holds securities for its participating organizations ( Clearstream Participants ) and facilitates the clearance and settlement of securities transactions between Clearstream Participants through electronic book-entry changes in accounts of Clearstream Participants, thereby eliminating the need for physical movement of certificates. Clearstream provides to Clearstream Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream interfaces with domestic markets in several countries. As a professional depositary, Clearstream is subject to regulation by the Luxembourg Commission for the Supervision of the Financial Sector. Clearstream Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Indirect access to Clearstream is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Clearstream Participant, either directly or indirectly. Euroclear was created in 1968 to hold securities for participants ( Euroclear Participants ) of the Euroclear System and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, eliminating the need for physical movement of certificates and eliminating any risk from lack of simultaneous transfers of securities and cash. Euroclear provides various other services, including securities lending and borrowing and interfaces with domestic markets in several countries. The Euroclear System is operated by Euroclear, under contract with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the Cooperative ). All operations are conducted by Euroclear, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with Euroclear not the Cooperative. The Cooperative establishes policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries and may include the underwriters. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with a Euroclear Participant, either directly or indirectly. Euroclear has advised us that it is licensed by the Belgian Banking and Finance Commission to carry out banking activities on a global basis. As a Belgian bank, it is regulated and examined by the Belgian Banking Commission. Securities clearance accounts and cash accounts with Euroclear are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System and applicable Belgian law (collectively, the Terms and Conditions ). The Terms and Conditions govern transfers of securities and cash -74-

88 within the Euroclear System, withdrawal of securities and cash from the Euroclear System, and receipts of payments with respect to securities in the Euroclear System. All securities in the Euroclear System are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. Euroclear acts under the Terms and Conditions only on behalf of Euroclear Participants and has no record of or relationship with Persons holding through Euroclear Participants. Although DTC, Euroclear and Clearstream have implemented the foregoing procedures in order to facilitate transfers of interests in Global Notes among Participants of DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to comply with such procedures, and such procedures may be discontinued at any time. None of the Originator, the Trust Depositor, the Owner Trustee, the Indenture Trustee, the Servicer or the Initial Purchasers will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective Direct Participants or Indirect Participants or their nominees, including, without limitation, actions for any aspect of the records relating to transfers of, or payments made on account of, beneficial ownership interests in the Offered Notes held by Cede & Co. as nominee for DTC or for maintaining, supervising or reviewing any records relating to, or transfers of, such beneficial ownership interest. The information herein concerning DTC, Clearstream and Euroclear and their book-entry systems has been obtained from sources believed to be reliable, but none of the Originator nor the Initial Purchasers take any responsibility for the accuracy or completeness thereof. Individual Notes If DTC is at any time unwilling or unable to continue as a depository, or if the Servicer elects to terminate the depository arrangement with DTC, Offered Notes in definitive registered form will be issued to the beneficial owners in exchange for the Global Notes. In such event, Offered Notes delivered in exchange for the Global Notes or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by DTC. In addition, Offered Notes initially sold to Institutional Accredited Investors who are Qualified Purchasers, as well as beneficial interests in the Global Notes transferred by the holders thereof to Institutional Accredited Investors who are Qualified Purchasers will be issued in the form of Individual Notes. In the case of Offered Notes issued in exchange for a Global Note, such Offered Note will bear the legend referred to under Notice To Investors. A Holder of an Offered Note that is a registered Individual Note may transfer such Note, subject to compliance with the provisions of such legend, by surrendering it at the office or agency maintained for such purpose, which initially will be the office of the Indenture Trustee. Transfer and Exchange The Offered Notes may be presented for exchange or registration of transfer at the office of the Indenture Trustee. The Offered Notes are exchangeable at any time into an equal aggregate principal amount of Offered Notes of different authorized denominations. The Offered Notes may not be sold or otherwise transferred except in accordance with the restrictions described herein under Notice To Investors. Individual Notes to be transferred pursuant to Rule 144A may be presented at the office of the Indenture Trustee for redeposit with DTC, in accordance with DTC procedures, and shall thereafter be held as beneficial interests in the related Global Notes (and the size of such Global Note will be adjusted accordingly). THE CERTIFICATE On the Closing Date for the sale of the Notes, the Issuer will also issue the Certificate. The Certificate will not bear interest and shall have the right to monies in the Reserve Fund and to funds remaining after the payment of all principal and interest on the Notes. The Certificate will represent a fractional undivided beneficial equity interest in the Issuer and will be issued under the Trust Agreement. The Certificate is not being offered and sold by this Offering Memorandum. The Trust Depositor will initially retain the Certificate. Distributions with respect to the Certificate will be subordinated to the rights of the Noteholders and Swap Counterparties. -75-

89 THE TRANSFER AND SERVICING AGREEMENT The following is a summary of certain material terms of the Transfer and Servicing Agreement (as amended, modified, restated, replaced, waived, substituted, supplemented or extended from time to time, the Transfer and Servicing Agreement ), to be dated as of the Closing Date, among the Trust Depositor, the Originator, the Issuer, the Indenture Trustee and the Backup Servicer. Prospective investors should read the Transfer and Servicing Agreement, which is available upon request from the Originator. Conveyance of the Loans Pursuant to the Transfer Agreement, the Originator will sell, transfer, assign, set over and otherwise convey to the Trust Depositor, without recourse, all of the Originator s right, title and interest in and to (but in each case excluding any Excluded Amounts or Retained Interest) (collectively, the Loan Assets ): the Loans, including any Additional Loans or Substitute Loans, and all Collections due or to become due in payment of the Loans on or after the Closing Date or the related Cut-Off Date, as applicable, including all Scheduled Payments thereunder due on or after the Closing Date or the related Cut-Off Date, as applicable, but excluding any Scheduled Payments due prior to the Closing Date or the related Cut-Off Date, as applicable, and any Scheduled Payments due after the Closing Date or the related Cut-Off Date, as applicable, but received on or prior to the Cut-Off Date; any Prepayments, Prepayment Premiums, Late Charges, Insurance Proceeds and any Liquidation Proceeds on the Loans; the Collateral and the security interest in the related Collateral (to the extent the Originator, other than solely in its capacity as collateral agent under any loan agreement with an Obligor, has been granted a Lien thereon), including all proceeds from any sale or other disposition of the Collateral; the Loan Files and any documents delivered to the Trust Depositor or held by the Servicer on its behalf with respect to each Loan; all payments made or to be made in the future with respect to each Loan and the Obligor thereunder and under any other guarantee or similar credit enhancement with respect to the Loans; and all income and proceeds of the foregoing. Pursuant to the Transfer and Servicing Agreement, the Trust Depositor will transfer and assign the assets described above as well as all of the Trust Depositor s right, title and interest (but none of its obligations) under the Transfer Agreement to the Issuer for the benefit of the Noteholders and the Swap Counterparties. Pursuant to the Indenture, the Issuer will grant a Lien on the same in favor of the Indenture Trustee, on behalf of the Noteholders and the Swap Counterparties. Upon the conveyance of any Loans to the Trust Depositor, the Originator will indicate in its books and records, including the computer files relating to the Loans, that the Loans have been transferred to the Trust Depositor and will file UCC financing statements reflecting such transfer. Upon each transfer of any assets to the Issuer, the Trust Depositor will file UCC financing statements reflecting the conveyance of the assets described above to the Issuer. The Trust Depositor will mark its books and records, including the appropriate computer files relating to the Loans, to indicate that the Loans have been conveyed to the Trust. The Issuer will file UCC financing statements reflecting the grant of a Lien on those assets to the Indenture Trustee. The Issuer will give the Indenture Trustee a list of the Loans transferred to the Issuer, identified by account number and by the Outstanding Loan Balance of the Loan as of the related Cut-Off Date. For administrative convenience, any assignment agreement required to be executed and delivered in connection with the transfer of a Loan in accordance with the terms of related Designated Loan Agreement may -76-

90 reflect that the Originator is assigning such Loan directly to the Issuer. Nothing in such assignment agreements will be deemed to impair the transfers of the related Loans by the Originator to the Trust Depositor and by the Trust Depositor to the Issuer in accordance with the terms of the Transfer Agreement and the Transfer and Servicing Agreement, respectively. Representations and Warranties; Definition of Eligible Loans The Originator and Trust Depositor will make certain representations and warranties in the Transfer Agreement and the Transfer and Servicing Agreement, respectively, with respect to each Loan as of the Closing Date, as of the relevant Cut-Off Date or as of another date specifically provided in the representation or warranty. Similarly, the Originator and Trust Depositor will make or be deemed to have made those representations and warranties with respect to each Additional Loan and each Substitute Loan that may be transferred as of its related Cut-Off Date. Among such representations is that each Loan is an Eligible Loan. An Eligible Loan is defined as a Loan meeting each of the following criteria: 1. the Loan and the pledge of Collateral thereunder is valid, binding and enforceable against the related Obligor, except the enforcement may be limited by insolvency, bankruptcy, moratorium, reorganization or other similar laws affecting enforceability of creditors rights and the availability of equitable remedies and the Loan contains a clause substantially to the effect that the related Obligor agrees to make its payments under the Loan without any deduction, offset, netting, recoupment, defenses, reservation of rights or counterclaim; 2. the Loan is evidenced by an Underlying Note or, in the case of a Noteless Loan, the related Loan Register, Designated Loan Agreement and related loan documents that have been duly authorized and that are in full force and effect and constitute the legal, valid and binding obligations of the Obligor of such Loan, except the enforcement may be limited by insolvency, bankruptcy, moratorium, reorganization or other similar laws affecting enforceability of creditors rights and the availability of equitable remedies; 3. the Loan was originated or purchased in accordance with the terms of the Credit and Collection Policy and arose in the ordinary course of the Originator s business from the loaning of money to the Obligor thereof; 4. the Loan is not, and during the six months preceding the Closing Date or the related Cut- Off Date, as applicable, has not been, a Defaulted Loan or a Delinquent Loan and is current with respect to all Scheduled Payments thereunder as of the Closing Date, in the case of an Initial Loan, or as of the related Cut-Off Date, in the case of an Additional Loan or a Substitute Loan; 5. the Obligor of such Loan has executed all appropriate documentation required by the Originator; 6. the Loan, together with the Loan File related thereto, is a general intangible, an instrument, a payment intangible, an account, or chattel paper within the meaning of the UCC of all jurisdictions that govern the perfection of a security interest granted therein; 7. all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given in connection with the making of such Loan have been duly obtained, effected or given and are in full force and effect; 8. any applicable taxes in connection with the transfer of the Loan have been paid and the Obligor has been given any assurances (including with respect to payment of transfer taxes and compliance with securities laws) required by the Designated Loan Agreement in connection with the transfer of such Loan; 9. the Loan is denominated and payable only in United States dollars in the United States, does not permit the country or currency in which such Loan is payable to be changed except in accordance with the applicable Designated Loan Agreement and all or substantially all of the assets that constitute the -77-

91 primary Collateral for the Loan are located in the United States, Canada, or any Group I Country, Group II Country or Group III Country; 10. all payments in respect of the Loan are required to be made free and clear of, and without deduction or withholding for or on account of, any taxes, unless such withholding or deduction is required by Requirements of Law in which case the Obligor thereof is required to make gross-up payments to ensure that the net amount actually received by the Originator thereunder will equal the full amount that the Originator would have received had no such deduction or withholding been required; 11. the Loan bears some current interest; 12. the Loan, together with the Loan File related thereto, does not contravene in any material respect any Requirements of Law (including, without limitation, laws, rules and regulations relating to usury, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Loan File related thereto is in material violation of any such Requirements of Law; 13. the Loan is eligible to be sold, assigned or transferred to the Trust Depositor and the Issuer, respectively (giving effect to the provisions of Sections and of the UCC), and neither the sale, transfer or assignment of the Loan under the Transfer and Servicing Agreement to the Trust Depositor and the Issuer, respectively, nor the granting of a security interest under the Indenture to the Indenture Trustee, violates, conflicts with or contravenes in any material respect any Requirements of Law or any contractual or other restriction, limitation or encumbrance; 14. the Loan is not the subject of an offer of exchange or tender by its issuer, for cash, securities or any other type of consideration, and has not been called for redemption or tender into any other security or property; 15. no consent or waiver is required in connection with the transfer of the Loan or the Loan File, or, if such consent or waiver is required, such consent or waiver has been obtained, and, if such Loan is not a loan made as part of a syndicated transaction with a collateral agent and is secured by an interest in real property, an Assignment of Mortgage has been delivered to the Indenture Trustee, provided that no Assignment of Mortgage shall be recorded prior to an Event of Default or a Servicer Default; 16. the Loan was documented and closed in accordance with the Credit and Collection Policy and, other than in the case of Noteless Loans, there is only one current original Underlying Note with respect to such Loan and such Underlying Note has been delivered to the Indenture Trustee and is duly endorsed; 17. the Loan and the Originator s, the Trust Depositor s and the Issuer s interest in all related Collateral are free of any Liens except for Permitted Liens, and all filings and other actions required to perfect the security interest of (a) the Indenture Trustee in the Originator s, the Trust Depositor s and the Issuer s interest in the Collateral have been made or taken and (b) in the case of Agented Notes, the collateral agent, as agent for all holders of indebtedness issued by the related Obligor under the Designated Loan Agreement in the Collateral; 18. the Loan has a maturity no greater than 12 months prior to the Legal Final Maturity Date, and is either fully amortizing in installments (which installments need not be in identical amounts) over such term or the principal amount thereof is due in a single installment at the end of such term; 19. no right of rescission, set off, counterclaim, defense or other material dispute has been asserted with respect to such Loan; 20. any related Collateral with respect to such Loan is insured under an Insurance Policy in accordance with the Credit and Collection Policy; 21. the Obligor with respect to such Loan is an Eligible Obligor; -78-

92 22. the Loan does not by its terms permit the payment obligation of the Obligor thereunder to be converted into or exchanged for equity capital of such Obligor; 23. the Loan is not a loan or extension of credit made by the Originator or one of its subsidiaries to an Obligor for the purpose of making any principal, interest, deferred interest or other payment on a loan to the same Obligor necessary in order to keep such loan from becoming delinquent and such Loan is not being kept current by the Originator or one of its Affiliates making other loans to this Obligor; 24. the repayment of the Loan is not subject to material non-credit related risk (for example, a Loan the payment of which is expressly contingent upon the nonoccurrence of a catastrophe), as reasonably determined by the Servicer in accordance with the Credit and Collection Policy; 25. no provision of the Loan has been waived, altered or modified in any way, except by instruments or documents contained in the Loan File relating to the Loan; 26. the Loan is an eligible asset as defined in Rule 3a-7 under the 1940 Act; 27. the Loan has an Eligible Risk Rating; 28. the Designated Loan Agreement with respect to such Loan contains a provision substantially to the effect that the related Obligor s payment obligations thereunder are not subject to rights of set-off, counterclaim, rescission and/or defense against the Originator and all assignees thereof; 29. with respect to Agented Notes, the related Loan Documents (a) shall include a Designated Loan Agreement containing provisions relating to the appointment and duties of an administrative agent and a collateral agent and, if applicable, customary intercreditor terms, and (b) are duly authorized, fully and properly executed and are the valid, binding and unconditional payment obligation of the Obligor thereof; 30. with respect to Agented Notes, the Originator (or ACFS) has been appointed the collateral agent of the collateral, if any, securing such Loan for all indebtedness of the Obligor under the Designated Loan Agreement prior to such Agented Note becoming a part of the Loan Pool; 31. with respect to Agented Notes, if the entity serving as the collateral agent of the security for all syndicated indebtedness of the Obligor has or will change from the time of the origination of the indebtedness, all appropriate assignments of the collateral agent s rights in and to the collateral on behalf of the holders of such indebtedness have been executed and filed or recorded as appropriate prior to such Agented Note becoming a part of the Loan Pool; 32. with respect to Agented Notes, all required notifications, if any, have been given to the collateral agent, the administrative agent and any other parties required by the Loan Documents of, and all required consents, if any, have been obtained with respect to, the Originator s assignment of the Agented Notes and the Originator s right, title and interest in the collateral to the Issuer as assignee of the Trust Depositor and the Indenture Trustee s security interest therein on behalf of the Noteholders and the Swap Counterparties; 33. with respect to Agented Notes, the right to control certain actions of and to replace the collateral agent and/or the administrative agent of the Loan is by the holders of the indebtedness evidencing not less than a majority of the outstanding amount of all such indebtedness issued by the Obligor under the Designated Loan Agreement that is ranked pari passu in terms of priority of payment and/or security interest; 34. with respect to Agented Notes, the Loan is cross-defaulted to all other loans of the same priority made under the Designated Loan Agreement, the collateral securing the Loan is held by the collateral agent for the benefit of all holders of such loans, and all holders of such loans (a) have an undivided interest in the collateral securing such loans, (b) share in the proceeds of the sale or other -79-

93 disposition of such collateral on a pro rata basis with all other loans of the same priority made under the Designated Loan Agreement and (c) may transfer or assign their right, title and interest in the collateral securing such loans; 35. all information in the list of Loans delivered to the Indenture Trustee and the Owner Trustee is true and correct with respect to such Loan; 36. all original or certified documentation, including but not limited to the original Underlying Note (other than in the case of a Noteless Loan), required to be delivered to the Indenture Trustee with respect to such Loan has been or will be delivered on the related assignment date; 37. immediately prior to the transfer of the Loan, the Originator held good and indefeasible title to and was the sole owner of the Loan being transferred to the Trust Depositor and the Issuer, subject to no Liens or rights of others except for Permitted Liens, and, upon such transfer, the Issuer will hold good and indefeasible title to and be the sole owner of such Loans; 38. no payment related default, breach or violation has occurred under the Designated Loan Agreement or, as applicable, the Underlying Note, and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a payment related default, breach or violation has occurred; 39. (a) such Loan is not a Delayed Draw Term Loan or a Loan which provides the Obligor with a line of credit against which one or more borrowings may be made to the stated principal amount of such facility and which provide that such borrowed amount may be repaid and reborrowed from time to time and (b) as of its applicable Cut-Off Date, no Loan contained a provision obligating the Originator to make additional fundings with respect to the portion of the related indebtedness held by the Issuer; 40. neither the Loan nor any portion of the related Collateral constitutes margin stock as defined under Regulation U issued by the Board of Governors of the Federal Reserve System; Loan; 41. the Loan is a First Lien Loan, a Second Lien Loan, a Subordinated Loan or an unsecured 42. the first priority Lien related to any First Lien Loan is not contractually subordinated to the Lien of any other loan or financing to the related Obligor; 43. except with respect to Subordinated Loans or Second Lien Loans, all indebtedness of the Obligor of the same priority within each facility is cross-collateralized and cross-defaulted; 44. other than Subordinated Loans and unsecured Loans, the Loan is secured by a valid, perfected Lien on all assets that constitute the Collateral for the Loan (other than assets comprising Collateral that are in addition to the primary Collateral with respect to which the Loan is principally underwritten), subject to liens that are permitted under the related Loan Documents; 45. such Loan is not a DIP Loan; 46. such Loan is not an interest in a Loan acquired indirectly by way of participation from an institution from which the Issuer acquires a participation interest in a Loan; 47. the fair market value of such Loan, as determined by the Servicer in accordance with the Credit and Collection Policy, is not less than the Outstanding Loan Balance of such Loan; 48. the Loan (a) is not an equity security and (b) does not provide for the conversion or exchange into an equity security at any time on or after the date it is included as part of the Loan Pool; 49. the Loan is not a Synthetic Obligation; and 50. the Loan is not a Covenant-lite Loan; -80-

94 provided that each of the Originator s and the Trust Depositor s representations and warranties is made to such party s actual knowledge with respect to clause (38) of the foregoing, and provided further that each of the Originator s and the Trust Depositor s representations and warranties are made to such party s actual knowledge as it relates to the origination and servicing practices of the servicers primarily responsible for servicing Third Party Agented Loans with respect to clauses (7), (12), (19) and (25) of the foregoing. These representations and warranties will be made by the Originator with respect to Additional Loans and Substitute Loans transferred to the Trust Depositor. In addition, the Originator will represent and warrant to the Trust Depositor that it has validly sold and assigned to the Trust Depositor all right, title and interest of the Originator in the Loans, the proceeds of the Loans and the related security interest in the Collateral, if any. Any Loan which has an S&P Rating shall not include a p, pi, q, r or t subscript. Each of the Trust Depositor and the Originator will represent and warrant in the Transfer and Servicing Agreement that: 1. the transfer of the Loans is a valid transfer and assignment to the Issuer of all right, title and interest of the Trust Depositor in the Loans, the proceeds of the Loans and other Collateral, if any; 2. all filings necessary to evidence the conveyance or transfer of the Loans to the Issuer have been made in all appropriate jurisdictions; and 3. as of the applicable Cut-Off Date for each Loan, such Loan is an Eligible Loan. None of the Indenture Trustee, the Owner Trustee or any of them in their individual capacities, shall make or be deemed to have made any representations or warranties, express or implied, regarding the Issuer s assets or the transfers of those assets by the Originator, the Trust Depositor or the Issuer. Remedies for Breaches of Representations and Warranties; Definition of Ineligible Loans Under the terms of the Transfer and Servicing Agreement, each Loan must be an Eligible Loan as of the related Cut-Off Date. Any Loan that is not an Eligible Loan as a result of a breach of a representation or warranty that materially adversely affects the interests of the Noteholders or any Swap Counterparty (in either case without regard to the benefits of the Reserve Fund) is an Ineligible Loan. Unless the breach is cured, the Indenture Trustee shall release its Lien on any Ineligible Loan upon the written request of the Issuer, the Trust Depositor or the Originator. Upon such release, the Issuer shall reconvey to the Trust Depositor, and the Originator will be concurrently obligated to purchase from the Trust Depositor, such Ineligible Loan no later than the next succeeding Determination Date after the Originator becomes aware, or receives written notice from the Servicer or the Trust Depositor, that such Loan is an Ineligible Loan. The transfer and repurchase of the Loan is required only if the breach of the representation or warranty by the Originator materially adversely affects the interests of the Noteholders or any Swap Counterparty in such Loan (in either case without regard to the benefits of the Reserve Fund), which breach has not been cured or waived in all material respects. The Trust Depositor shall make a deposit in the Collection Account in immediately available funds in an amount equal to the Transfer Deposit Amount with respect to an Ineligible Loan. Any amount deposited into the Collection Account in connection with the reassignment of an Ineligible Loan shall be considered payment in full of the Ineligible Loan, and that amount shall be treated as an amount available for distribution to the Noteholders and the Swap Counterparties. In the alternative, the Trust Depositor may instead obtain a Substitute Loan and convey the Substitute Loan to the Issuer in replacement for the affected Ineligible Loan. See Mandatory Repurchase or Optional Repurchase or Substitution. In either case, the Indenture Trustee will release and the Issuer will reassign the Ineligible Loan to the Trust Depositor and the Trust Depositor will reconvey it to the Originator. The repurchase obligation and the Originator s right to provide a Substitute Loan will constitute the only remedies against the Originator and the Trust Depositor available to the Issuer, the Noteholders or the Swap Counterparties for a breach of a representation or warranty under the Transfer Agreement and Transfer and Servicing Agreement, respectively, made by the Originator and Trust Depositor with respect to a Loan. -81-

95 Material Modifications to Loans Under the terms of the Transfer and Servicing Agreement, the Servicer may vary the provisions of a Loan, some of which modifications may constitute material modifications. Under the Transfer and Servicing Agreement, only amendments, waivers or modifications to the terms of a Loan in accordance with the Credit and Collection Policy are permitted; provided that no amendment, waiver or modification shall be used to circumvent the Required Reserve Amount or shall be permitted that has a material adverse effect on the interests of the Noteholders or the Swap Counterparties; and provided further that if a Loan becomes a Materially Modified Loan as a result of an Obligor s inability to pay principal or interest, then such Loan shall be treated as a Delinquent Loan as of the payment date that would have been missed had the provisions of such Loan not been waived, modified or varied. In addition, the Servicer may not reduce the interest rate payable by the Obligor with respect to a Loan unless the Global Weighted Average Spread is greater than or equal to the Minimum Global Weighted Average Spread after giving effect to the reduction, it being understood that a waiver of late payment charges is not such a reduction. The Servicer will not be in breach of its obligations under the Transfer and Servicing Agreement by reason of any waiver, modification or variance taken by the administrative agent, syndicate agent or other Person acting in a similar capacity in respect of an Agented Note or a Third Party Agented Loan taken by such agent or other Person pursuant to its own authority or at the direction of the requisite percentage of the lenders in violation of the Transfer and Servicing Agreement if the Servicer, acting on behalf of the Issuer, did not consent to such waiver, modification or variance on behalf of the Issuer. Certain amendments, waivers or modifications with respect to the Loans will constitute Specified Amendments. With respect to each of the modifications described in clauses (a) through (d) of the definition of Specified Amendment, the Servicer may elect to submit the modified Loan to S&P to be re-rated. The Servicer will provide each Rating Agency with a written summary of any Specified Amendment promptly after its execution and, promptly upon request by S&P or Fitch, a copy of any such Specified Amendment to S&P and/or Fitch, as applicable; provided that with respect to any Specified Amendment to a Third Party Agented Loan, such copy shall be delivered as promptly as reasonably practicable following written notice to the Servicer of such Specified Amendment from the administrative agent, syndicate agent or other Person acting in a similar capacity in respect of such Loan. Such summary shall set forth a brief description of the reasons for, and the effect of, such Specified Amendment. If the Servicer does not elect to have such Loan re-rated by S&P, then such Loan shall be deemed to be a Delinquent Loan as of the date that is 60 days after the effective date of the relevant Specified Amendment. Any Loan which is subject to a modification described in clause (e) of the definition of Specified Amendment will be deemed to be a Delinquent Loan upon the effectiveness of such Specified Amendment. If the Servicer elects to have such Loan re-rated by S&P, then at any time during such process, including up to 90 days after the Servicer receives the revised rating of the Loan, the Servicer may repurchase such Loan or replace such Loan with a Substitute Loan. Non-material adjustments or modifications in Loan terms may be effected by the Servicer on behalf of the Issuer without consent of the Noteholders or the Swap Counterparties and without affecting the status of the Loan as an asset of the Issuer. Loan Prepayments The Servicer may, at its option and in accordance with its Credit and Collection Policy, agree to permit a Loan in the Loan Pool to prepay in part or become a Loan that has terminated or prepaid in full prior to its scheduled expiration date (other than a Defaulted Loan). If the Servicer permits such a prepayment of a Loan in an amount less than the sum of the Outstanding Loan Balance, plus any accrued and unpaid interest payments thereon plus any unreimbursed Servicer Advances thereon (unless effectively waived and released by the Servicer), the Originator will remit the difference to the Issuer. Optional Repurchase or Substitution In the event the Issuer determines that: (i) (ii) a Loan is a Delinquent Loan; a Loan is a Defaulted Loan; -82-

96 (iii) (iv) (v) a Loan has a covenant default; a Loan has become a Materially Modified Loan; or the terms of a Loan are subsequently amended in a manner not permitted by the Transfer and Servicing Agreement, including a Loan that has become subject to a Specified Amendment, then the Trust Depositor and Originator, after the expiration of any applicable cure periods, will have the option to substitute for that Loan another Loan or Loans having similar characteristics (such loan, a Substitute Loan ) or to repurchase such Loan. See Material Modifications to Loans. In addition to the Loans described in clauses (i) through (v) above, the Trust Depositor and the Originator will have the option to substitute for any other Loan one or more Substitute Loans or to repurchase such Loan (a Discretionary Repurchased Loan ). The purchase price of any Discretionary Repurchased Loan shall be the Transfer Deposit Amount for such Loan, calculated as of the date of its repurchase or substitution. No repurchase or substitution shall be permitted under clauses (i) through (v) above, including with respect to any Discretionary Repurchased Loan, to the extent the amount of the Loans repurchased or substituted would exceed an amount equal to, as of any date of determination, 20% of the Net Purchased Loan Balance. After giving effect to each substitution of a Substitute Loan or repurchase of an affected Loan, (i) the Portfolio Acquisition and Disposition Requirements are satisfied and (ii) the Portfolio Criteria must be satisfied for the applicable Substitute Loan to become part of the Loan Pool; provided that if any component of the Portfolio Criteria is not satisfied prior to giving effect to the inclusion of a Substitute Loan, the Portfolio Criteria will be deemed satisfied with respect to such component if the component is maintained or improved by the inclusion of the Substitute Loan. In addition, the inclusion of any Substitute Loan in the Loan Pool after the Replenishment Period will be subject to the following requirements: (a) (b) (c) (d) each Substitute Loan must have an Outstanding Loan Balance (or, if more than one Substitute Loan will be added in replacement of an affected Loan, aggregate Outstanding Loan Balances of such Substitute Loans) equal to or greater than that of the Loan being substituted; no selection procedures believed by the Originator or the Trust Depositor to be adverse shall have been employed in the selection of such Loan being substituted from the Originator s portfolio; all actions or additional actions (if any) necessary to perfect the security interest and assignment of such Loan being substituted and the related Collateral to the Trust Depositor, Issuer, and Indenture Trustee shall have been taken as of or prior to the date of substitution of such Loan; and the price paid (or, in the case of a contemporaneous conveyance of one or more Substitute Loans pursuant to the Transfer and Servicing Agreement, deemed paid) by the Issuer for any Substitute Loan shall be an amount equal to the Outstanding Loan Balance thereof. A substitution of a Loan may be accomplished by delivery of notice thereof by the Issuer to the Indenture Trustee and either (a) a contemporaneous substitution of one or more Loans meeting the criteria specified above for the Loan being replaced or (b) a deposit by the Servicer into the Principal Collection Account of the Transfer Deposit Amount with respect to the Loan being replaced and then, within 90 days of the aforementioned notice, the sale by the Trust Depositor to the Issuer of one or more Substitute Loans in exchange for the funds so deposited. In the event that the full Transfer Deposit Amount is not used to purchase Substitute Loans within the 90 day period, then the remaining amount of such funds previously deposited as described above will be distributed from the Principal Collection Account and distributed in accordance with the priority of payments as described under Priority of Payments Principal Allocations and as set forth in the Transfer and Servicing Agreement (the Priority of Payments ) on the next Payment Date, but no such distribution shall be made during the Replenishment Period if the Special Redemption criteria described under Summary Special Redemption are not satisfied with respect to such amount. -83-

97 Mandatory Repurchase In the event that the Issuer determines that a Loan was an Ineligible Loan as of its related Cut-off Date, then the Trust Depositor and Originator must either repurchase such Loan or substitute for such Ineligible Loan a Substitute Loan as required by the Transfer and Servicing Agreement. See Remedies for Breaches of Representations and Warranties; Definition of Ineligible Loans and Material Modifications to Loans. In the event that the Trust Depositor and the Originator substitute a Substitute Loan for such Ineligible Loan, the Portfolio Criteria and other requirements must be satisfied as set forth in Optional Repurchase or Substitution above. The repurchase price for such Ineligible Loan shall be the Transfer Deposit Amount. Definition of Defaulted Loans A Loan will automatically be deemed to be a Defaulted Loan on the earliest to occur of any of: (a) (b) (c) (d) (e) (f) (g) both (i) any portion of a payment of interest on or principal of such Loan is not paid when due (without giving effect to any grace period or Servicer Advance) and (ii) within 120 days of when such delinquency payment was first due, all delinquencies have not been cured; an insolvency event with respect to the related Obligor; the related Obligor has suffered any material adverse change (as determined by the Servicer in accordance with the Designated Loan Agreement and/or the Credit and Collection Policy) that materially affects such Obligor s viability as a going concern; at any time the Servicer determines, in accordance with the Credit and Collection Policy, that the Loan is not collectible; on a quarterly mark-to-market, the value is written down due to such Loan being placed on nonaccrual status or assigned a Risk Rating of Grade 1, in each case in accordance with the Credit and Collection Policy, in which case the portion of the Loan written down is defaulted; the Obligor of the related Loan (excluding DIP Loans) is rated D or SD by S&P or such Obligor s rating has been withdrawn by S&P; or the Loan is rated CC or lower by Fitch; provided that if any loan to an Obligor which is senior to, or pari passu with, a Loan owned by the Issuer would constitute a Defaulted Loan if such loan was owned by the Issuer, then all Loans to such Obligor which are owned by the Issuer shall be deemed to be Defaulted Loans; provided further that such Loan or Loans shall cease to be deemed Defaulted Loans as of the date that each loan which caused any other Loan to be deemed to be a Defaulted Loan in accordance with the preceding proviso has become a performing Loan and maintained such status for a period of 6 consecutive months. Only the Servicer s board of directors has the power to write-off Loans, generally upon the recommendation of the Servicer s investment committee. In the Transfer and Servicing Agreement, upon classification as a Defaulted Loan, the Servicer may accelerate all payments due thereunder to the extent permitted under applicable documents or otherwise take any other action as the Servicer reasonably believes will maximize the amount of recoveries on such Loan and shall otherwise follow its customary and usual collection procedures, which may include the foreclosure and transfer of any related Collateral or other security on behalf of the Issuer; provided that in the case of an Agented Note or Third Party Agented Loan, the Servicer s obligations will be limited to exercising the Issuer s rights thereunder. Indemnification In the Transfer and Servicing Agreement, the Servicer will agree to indemnify, defend and hold the Indenture Trustee (as such and in its individual capacity), the Owner Trustee (as such and in its individual capacity), -84-

98 the Backup Servicer (as such and in its individual capacity), each Swap Counterparty (as such and in its individual capacity) and each Noteholder and the Certificateholder harmless from and against any and all claims, losses penalties, fines, forfeitures, reasonable legal fees and related costs, judgments, and any other reasonable costs, fees and expenses that such Person may sustain as a result of the failure of the Servicer to perform its duties and service the Loans in compliance with the terms of the Transfer and Servicing Agreement, except to the extent arising from (a) the gross negligence, willful misconduct or fraud by the Person claiming indemnification or (b) an Obligor s financial difficulty. The Servicer shall immediately notify the Indenture Trustee and the Owner Trustee if a claim is made by any party with respect to the Transfer and Servicing Agreement, and the Servicer shall assume (with the consent of the indemnified party) the defense and any settlement of any such claim and pay all expenses in connection therewith, including reasonable counsel fees, and promptly pay, discharge and satisfy any judgment or decree which may be entered against the indemnified party in respect of such claim. In the Transfer and Servicing Agreement, the Trust Depositor will agree to indemnify, defend, and hold the Indenture Trustee (as such and in its individual capacity), the Owner Trustee (as such and in its individual capacity), the Backup Servicer (as such and in its individual capacity), each Swap Counterparty (as such and in its individual capacity) and each Noteholder and the Certificateholder harmless from and against, among other things, any and all claims, losses, penalties, fines, forfeitures, reasonable legal fees and related costs, judgments, and any other reasonable costs, fees and expenses that such Person may sustain as a result of the failure of the Trust Depositor to perform its duties in compliance with the terms of the Transfer and Servicing Agreement and in the best interests of the Noteholders, the Certificateholder and the Swap Counterparties, except to the extent arising from (a) the gross negligence, willful misconduct or fraud by the Person claiming indemnification or (b) an Obligor s financial difficulty. The Trust Depositor shall immediately notify the Indenture Trustee and the Owner Trustee if a claim is made by a third party with respect to the Transfer and Servicing Agreement, and the Trust Depositor shall assume (with the consent of the indemnified party) the defense and any settlement of any such claim and pay all expenses in connection therewith, including reasonable counsel fees, and promptly pay, discharge and satisfy any judgment or decree which may be entered against the indemnified party in respect of such claim. The Originator will also provide certain indemnities under the Transfer Agreement and the Transfer and Servicing Agreement. In addition, the Transfer and Servicing Agreement provides that the Servicer is not under any obligation to appear in, prosecute or defend any legal action that is not incidental to its servicing responsibilities under the Transfer and Servicing Agreement. The Servicer may, in its sole discretion, undertake any legal action which it may deem necessary or desirable for the benefit of the Noteholders and the Swap Counterparties with respect to the Transfer and Servicing Agreement and the rights and duties of the parties thereunder. Servicing Compensation and Payment of Expenses The Servicer s compensation with respect to its servicing activities and reimbursement for its expenses will be a servicing fee (the Servicing Fee ), calculated in conjunction with the Collection Periods for the Notes. The Servicing Fee will be an amount equal to the product of: (a) (b) the product of (i) 1.0% multiplied by (ii) a fraction, the numerator of which is the number of days in the related Collection Period and the denominator of which is 360; and the Loan Pool Balance as of the beginning of the related Collection Period. The Servicing Fee will be funded from Interest Collections and amounts from the Reserve Fund. See Description of the Notes and Indenture Amounts Available for Payments on the Notes. The Servicing Fee will be paid on each Payment Date from the Collection Account. See Description of the Notes and Indenture Priority of Payments Interest Allocations above. The Servicer will pay from its servicing compensation some of the expenses incurred in connection with servicing the Loans including, without limitation: expenses related to the enforcement of the Loans, except that if an Obligor under a Defaulted Loan is required to pay the costs of enforcement and the Servicer recovers excess funds sufficient, after -85-

99 payment of all principal and interest due with respect to such Loan, to pay any of such costs, the Servicer will be reimbursed for such costs out of such excess; and any fees that are not expressly stated in the Transfer and Servicing Agreement to be payable by the Issuer or the Trust Depositor. However, the Servicer will not pay federal, state, local and foreign income, franchise or other taxes based on income, if any, or any interest or penalties on such income, imposed upon the Issuer. In the event that for any reason there is a need to have a Person become the successor servicer, it may be necessary to induce such Person to serve in such capacity to pay them more than the Servicing Fee. Such additional amount shall be referred to as the Additional Servicing Fee. Servicing Standard and Servicer Advances The Servicer will service the Loans (other than Third Party Agented Loans) pursuant to the Transfer and Servicing Agreement, and will be compensated for acting as the Servicer. See Servicing Compensation and Payment of Expenses above. The Servicer is responsible for servicing, collecting, enforcing and administering the Loans (other than Third Party Agented Loans) in a manner consistent with its Credit and Collection Policy. Although the Servicer has the right to delegate its servicing duties to a sub-servicer, it remains liable for the performance or non-performance of those duties. If the Servicer determines that any Scheduled Payment with respect to any Loan that was due during the Collection Period was not received in full prior to the end of that Collection Period, the Servicer has the right to elect, but is not obligated, to advance the unpaid Scheduled Payment if it reasonably believes that the advance will be reimbursed by the related Obligor (such an advance, Servicer Advance ). The Servicer shall be entitled to reimbursement of the Servicer Advances from subsequent payments on or with respect to the Loans pursuant to clauses Third and Twelfth under Description of the Notes and Indenture Priority of Payments Interest Allocations, clauses First and Fourth under Description of the Notes and Indenture Priority of Payments Principal Allocations Principal Allocations on any Pro Rata Payment Date and clauses First and Eleventh under Description of the Notes and Indenture Priority of Payments Principal Allocations Principal Allocations on any Sequential Payment Date. Servicer Resignation The Servicer may not resign from its obligations and duties under the Transfer and Servicing Agreement, except upon determination that its duties are no longer permissible under Requirements of Law. No such resignation will become effective until a successor to the Servicer has assumed the Servicer s responsibilities and obligations under the Transfer and Servicing Agreement. Assuming that the action complies with the Transfer and Servicing Agreement, (a) any Person into which the Servicer may be merged or consolidated, (b) any Person resulting from any merger or consolidation to which the Servicer is a party, or (c) any Person succeeding by acquisition or transfer to the business of American Capital or the Servicer, will be permitted to be the successor to American Capital, as the Servicer, under the Transfer and Servicing Agreement. American Capital is required to notify the Rating Agencies and the Indenture Trustee within 30 days of the completion of any such merger, consolidation or succession but is not required to get the consent of the Rating Agencies, the Indenture Trustee or the Noteholders. Servicer Default A Servicer Default refers to any of the following events: (a) any failure by the Servicer to make any payment, transfer or deposit, or to give any instructions, notice or report to the Owner Trustee or the Indenture Trustee, as required by the Transfer and Servicing Agreement on or before the date occurring two Business Days after the date the -86-

100 payment, transfer, deposit, or the instruction or notice or report is required to be made or given, as the case may be, under the terms of the Transfer and Servicing Agreement; or (b) failure on the part of the Servicer duly to observe or perform any other covenants or agreements of the Servicer set forth in the Transfer and Servicing Agreement, which has a material adverse effect on the Noteholders or the Swap Counterparties and which continues unremedied for a period of 30 days after the first to occur of: (i) (ii) the date on which written notice of such failure requiring the same to be remedied shall have been given to the Servicer by the Indenture Trustee or to the Servicer and the Indenture Trustee by the Noteholders or the Indenture Trustee on behalf of the Noteholders aggregating not less than 25% of the Outstanding Principal Balance of any class of Notes adversely affected thereby; and the date on which the Servicer has actual knowledge of the failure; or (c) any representation, warranty or certification made by the Servicer in the Transfer and Servicing Agreement or in any certificate delivered under the Transfer and Servicing Agreement shall prove to have been incorrect when made, which has a material adverse effect on the Noteholders or the Swap Counterparties and which continues to be incorrect for a period of 30 days after the first to occur of: (i) (ii) the date on which written notice of such incorrectness requiring the same to be remedied shall have been given to the Servicer and the Owner Trustee by the Indenture Trustee, or to the Servicer, the Owner Trustee and the Indenture Trustee by Noteholders or by the Indenture Trustee on behalf of Noteholders aggregating not less than 25% of the Outstanding Principal Balance of any class adversely affected thereby; and the date on which the Servicer has actual knowledge of the incorrectness; or (d) (e) (f) any event relating to bankruptcy, insolvency or receivership shall occur with respect to the Servicer; provided that in the case of any such proceeding instituted against the Servicer (but not instituted by the Servicer), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any actions sought in such proceeding (including an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, the Servicer or any substantial part of the Servicer s property) shall occur, or the Servicer shall take any corporate action to authorize any of the actions set forth above; or the Servicer shall fail in any material respect to service the Loans in accordance with the Credit and Collection Policy; or the Servicer alters or amends the Credit and Collection Policy in a manner that has a material adverse effect on the Noteholders or the Swap Counterparties. Notwithstanding the foregoing, a delay in or failure of performance referred to under clause (a) above for a period of five Business Days or referred to under clause (b) or (c) for a period of 60 days (in addition to any period provided in clause (a), (b) or (c)) shall not constitute a Servicer Default until the expiration of such additional five Business Days or 60 days, respectively, if such delay or failure could not be prevented by the exercise of reasonable diligence by the Servicer and such delay or failure was caused by an act of God or other events beyond the Servicer s control. Regardless of whether any of the events described in clauses (a) through (f) has occurred, the Servicer is required to use its best efforts to perform its obligations in a timely manner as required by the Transfer and Servicing Agreement. The Servicer shall provide to the Owner Trustee, the Indenture Trustee, the Trust Depositor and each Swap Counterparty prompt notice of such failure or delay by it, together with a description of its efforts to perform its obligations. The Servicer shall immediately notify the Indenture Trustee, each Rating Agency (for so -87-

101 long as any class of Offered Notes is rated by any Rating Agency) and each Swap Counterparty in writing of any Servicer Default. In the event of any Servicer Default, either the Indenture Trustee or the Required Holders, by written notice to the Servicer and the Owner Trustee, and to the Indenture Trustee, if given by the Required Holders, and in each case, with a copy to the Rating Agencies, may terminate all of the rights and obligations of the Servicer, as Servicer, under the Transfer and Servicing Agreement. The Indenture Trustee is entitled to receive upon reasonable notice after the end of any Collection Period a copy of the Servicer s computer records relating to the Loans. If the Backup Servicer will not be assuming the role of the Servicer, in accordance with the Transfer and Servicing Agreement, and the Indenture Trustee within 60 days of receipt of the termination notice is unable to obtain bids from eligible servicers and the Servicer delivers an officer s certificate to the effect that the Servicer cannot in good faith cure the Servicer Default that gave rise to the termination notice, then the Indenture Trustee shall offer the Trust Depositor the right at its option to accept retransfer of the Issuer s assets on the following Payment Date. The purchase price for the retransfer of the Issuer s assets shall be equal to the sum of the Aggregate Outstanding Principal Balance of all Notes on such Payment Date plus accrued and unpaid interest at the applicable interest rate through the date of the retransfer. The purchase price may also include interest on interest payments that were due but not paid when due. It shall be a condition precedent to such retransfer that all outstanding Swap Transactions be terminated and all amounts owed thereunder, including Swap Breakage Costs payable to the Swap Counterparties, be paid in full. The Indenture Trustee shall, as promptly as possible after giving or receiving a copy of a termination notice, appoint a successor servicer (which, in accordance with the terms of the Transfer and Servicing Agreement, shall be the Backup Servicer) and if no successor servicer has been appointed by the Indenture Trustee and has accepted the appointment in writing (and a copy of such acceptance shall be delivered to Moody s) by the time the Servicer ceases to act as servicer, all rights, authority, power and obligations of the Servicer under the Transfer and Servicing Agreement shall pass to and be vested in the Indenture Trustee, unless at the time it would be contrary to law for the Indenture Trustee to act in such capacity. Prior to any appointment of the successor, the Indenture Trustee will seek to obtain bids from potential servicers meeting the eligibility requirements set forth in the Transfer and Servicing Agreement to serve as a successor servicer. See Servicing Compensation and Payment of Expenses. The rights and interest of the Trust Depositor under the Transfer and Servicing Agreement as Certificateholder will not be affected by the termination or appointment of a successor to the Servicer. Evidence as to Compliance; Obligor Financial Statements The Transfer and Servicing Agreement provides that within 90 days of the end of each fiscal year, commencing with the fiscal year ending December 31, 2007, the Servicer will cause a firm of nationally recognized independent public accountants to furnish a report to the effect that such firm has applied the procedures agreed upon with the Servicer and examined documents and records relating to the servicing of the related Loans and shall report thereon as provided in the Transfer and Servicing Agreement. Those accountants may also render other services to the Servicer or the Trust Depositor. The Transfer and Servicing Agreement provides for delivery to the Indenture Trustee, each Swap Counterparty and each Rating Agency rating the Notes within 90 days of the end of each fiscal year commencing with the fiscal year ending December 31, 2007, of a statement signed by an officer of the Servicer to the effect that, to the best of the officer s knowledge, the Servicer has performed its obligations in all material respects under the Transfer and Servicing Agreement throughout the preceding year or, if there has been a default in the performance of any obligation, specifying the nature and status of the default. Copies of all statements, certificates and reports furnished to the Indenture Trustee may be obtained by a request in writing delivered to the Indenture Trustee. The Servicer shall also provide to S&P and Moody s annual financial statements for each Obligor of a Loan included in the Loan Pool as promptly as reasonably practicable after such financial statements are delivered to the Servicer after the end of the fiscal year of such Obligor, until such time as the related Loan has been paid in full or is no longer part of the Loan Pool. The Servicer shall notify S&P and Moody s if any Obligor of a Loan included in the Loan Pool fails to provide annual financial statements within 135 days after the end of the fiscal year of each such Obligor. -88-

102 Amendments The Transfer and Servicing Agreement may be amended from time to time by agreement of the Originator, the Indenture Trustee, the Servicer, the Trust Depositor and the Owner Trustee on behalf of the Issuer, without the consent of Noteholders, to cure any ambiguity, to comply with any changes to the Code, to conform to the Offering Memorandum, to add any consistent provisions, to make such changes as may be necessary or desirable in order for the Offered Notes to be listed on the Irish Stock Exchange or any other securities exchange or, subject to the satisfaction of the Rating Agency Condition, to modify the Portfolio Acquisition and Disposition Requirements, the Portfolio Criteria or any other provision to conform to the guidelines, methodology or standards established by the Rating Agencies; provided that (a) the consent of the Noteholders shall be required unless the Issuer obtains an opinion of counsel stating that the amendment does not adversely affect in any material respect the interests of any Holder of the Offered Notes which opinion may rely on an officer s certificate of the Servicer with respect to the effect of any such amendment on the economic interests of any Noteholder or Certificateholder, (b) the consent of each Swap Counterparty shall be required for any amendments to the swap covenants contained therein, and (c) for all other such amendments, the consent of the Swap Counterparties shall be required unless the Issuer obtains an opinion of counsel stating that the amendment does not adversely affect in any material respect the interests of the Swap Counterparties; and provided further that notwithstanding the foregoing, any amendment to the Transfer and Servicing Agreement that would have the effect of amending or modifying the Portfolio Criteria (or any capitalized term used in the definition of Portfolio Criteria) shall be subject to the following requirements and restrictions: (a) only clauses (b) through (h) of the definition of Portfolio Criteria may be amended unless such amendment is in order to reflect changes in the guidelines, methodologies of standards established by the Rating Agencies, (b) such amendment shall satisfy the Rating Agency Condition, (c) such amendment shall not, as evidenced by an officer s certificate of the Servicer delivered to the Indenture Trustee, materially adversely affect the interests of any Noteholder or the Certificateholder and (d) the Issuer shall deliver (or cause the Indenture Trustee to deliver) to the Noteholders the proposed amendment and the Required Holders shall not have objected to such amendment within ten Business Days from the receipt thereof; provided further that any amendment that would have the effect of modifying the Portfolio Criteria (or any capitalized term used in the definition of Portfolio Criteria) in order to correspond to written changes in the guidelines, methodology or standards established by the Rating Agencies shall only be subject to satisfaction of the Rating Agency Condition pursuant to clause (b) above and will not be required to satisfy clauses (c) and (d) above. The Transfer and Servicing Agreement may also be amended from time to time by the Originator, the Trust Depositor, the Servicer, the Indenture Trustee and the Owner Trustee on behalf of the Issuer, with the consent of the Required Holders and the Swap Counterparties, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Transfer and Servicing Agreement or of modifying in any manner the rights of the Noteholders, the Certificateholder or the Swap Counterparties. No amendment, however, may: (a) (b) (c) (d) (e) increase or reduce in any manner the amount of, or accelerate or delay the timing of, or change the method of calculating distributions which are required to be made on any Note or the Certificate or the principal amount of the Notes or the Certificate without the consent of each Noteholder and Certificateholder affected thereby; change the manner in which the Reserve Fund is applied, without the consent of each Noteholder affected thereby; reduce the aforesaid percentage required to consent to any amendment (including through amendment of related definitions) without the consent of each Noteholder affected thereby; modify, amend or supplement the provisions of the Transfer and Servicing Agreement relating to the allocation of Collections on the Loans without the consent of each Noteholder affected thereby; or make any security issued by the Issuer payable in money other than U.S. dollars without the consent of each Noteholder affected thereby. -89-

103 Promptly following the execution of an amendment that requires the consent of any Noteholder or Certificateholder, the Indenture Trustee or the Owner Trustee, as applicable, will furnish written notice of the substance of such amendment to each affected Noteholder or the Certificateholder as applicable. CERTAIN FEDERAL INCOME TAX AND BENEFIT PLAN CONSIDERATIONS CIRCULAR 230 NOTICE. THE FOLLOWING NOTICE IS BASED ON U.S. TREASURY REGULATIONS GOVERNING PRACTICE BEFORE THE INTERNAL REVENUE SERVICE: (1) ANY U.S. FEDERAL TAX ADVICE CONTAINED HEREIN, INCLUDING ANY OPINION OF COUNSEL REFERRED TO HEREIN, IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING U.S. FEDERAL TAX PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER; (2) ANY SUCH ADVICE IS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS DESCRIBED HEREIN (OR IN ANY SUCH OPINION OF COUNSEL); AND (3) EACH TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYER S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. Holders Reliance on this Section The discussion under the heading Certain Federal Income Tax and Benefit Plan Considerations is for general information only and may not address all tax considerations that may be significant to you. The discussion was written on the understanding that it may be used in promoting, marketing, and recommending the transactions discussed herein. The discussion was not written and is not intended to be used by any person, and cannot be used by any person, for purposes of avoiding penalties under the Internal Revenue Code of 1986, as amended. Each prospective investor should consult an independent tax advisor as to the tax consequences of the transactions based on the investor s particular circumstances. The discussion herein does not address the tax treatment of any person whose principal purpose for engaging in the transactions discussed herein is the avoidance or evasion of taxes. Federal Income Tax Considerations Set forth below is a general summary of certain income tax consequences of the purchase, ownership and disposition of the Offered Notes. Federal Tax Counsel has reviewed this summary with respect to federal income tax matters and is of the opinion that the descriptions of the law and legal conclusions contained herein are correct in all material respects and the discussions hereunder fairly summarize the federal income tax considerations that are likely to be material to Holders of the Offered Notes from a legal as opposed to a factual standard. The summary is intended as an explanatory discussion of the possible effects of certain federal income tax consequences to holders generally, but does not purport to furnish information in the level of detail or with the attention to a holder s specific tax circumstances that would be provided by a holder s own tax advisor. For example, it does not discuss the tax treatment of holders of Offered Notes that are insurance companies, regulated investment companies, banks, dealers in securities, tax-exempt organizations, Persons holding an Offered Note that is a hedge or that is hedged against interest rate risks, Persons that own an Offered Note as part of a straddle or conversion transaction for tax purposes or Persons whose functional currency for tax purposes is not the U.S. dollar. In addition, any discussion regarding such Offered Notes is limited to the federal income tax consequences of the initial holders and not a purchaser in the secondary market. Moreover, there are no cases or Internal Revenue Service rulings on similar transactions involving both debt and equity interests issued by a trust with terms similar to those of the Offered Notes. As a result, the Internal Revenue Service may disagree with all or a part of the discussion below. With respect to federal income tax matters, the summary is based upon current provisions of the Code, the Treasury Regulations promulgated thereunder (the Regulations ) and judicial or ruling authority, all of which are subject to change, which change may be retroactive. The Issuer will be provided with an opinion of Federal Tax Counsel regarding certain federal income tax matters. An opinion of Federal Tax Counsel, however, is not binding on the Internal Revenue Service or the courts. No ruling on any of the issues discussed below will be sought from the Internal Revenue Service. -90-

104 Federal Tax Considerations with Respect to the Issuer Tax Characterization of the Issuer. Federal Tax Counsel is of the opinion that the Issuer will not be an association, taxable mortgage pool, or publicly traded partnership taxable as a corporation for federal income tax purposes. Therefore, the Issuer s income will not be subject to federal income taxes imposed under Subtitle A of the Code. This opinion is based upon the assumption that the terms of the Trust Agreement and related documents will be complied with. It is also assumed that the owners of the Class E Notes, the Class F Notes and the Certificate will take all action necessary, if any, or refrain from taking any inconsistent action so as to ensure that the Issuer is, for federal income tax purposes, either disregarded as an entity separate from the Trust Depositor (or other sole Certificateholder, Class E Noteholder and Class F Noteholder) or treated as a partnership. The opinion of Federal Tax Counsel is also based on its conclusions that (a) the Issuer will constitute a business entity for purposes of Treasury Regulation Section , (b) the nature of the income of the Issuer will exempt it from the rule that publicly traded partnerships are taxable as corporations and (c) the Issuer, if a corporation, would not constitute a regulated investment company for federal income tax purposes. If the Class E Notes, the Class F Notes and the Certificate are at all times owned by a single Person, such as the Trust Depositor, then, for federal income tax purposes, the Issuer may be disregarded as an entity separate from the owner of the Class E Notes, the Class F Notes and the Certificate. In this situation, although it is the opinion of Federal Tax Counsel that the Offered Notes will be characterized as indebtedness for federal income tax purposes, no assurance can be given that this characterization of the Offered Notes will prevail. If the Internal Revenue Service successfully asserted that one or more of the Class A Notes, the Class B Notes, the Class C Notes or the Class D Notes did not represent debt for federal income tax purposes, such Class A Notes, Class B Notes, Class C Notes and Class D Notes might be treated as equity interests in the Issuer. As a result, the Issuer would be considered to have multiple equity owners (rather than just the single owner of the Class E Notes, the Class F Notes and the Certificate). In that case, the Issuer would be characterized as a partnership for federal income tax purposes. Rather than having a single owner of the Class E Notes, the Class F Notes and the Certificate, it is possible that there may be multiple owners of the Class E Notes, the Class F Notes and the Certificate. If the Class E Notes are characterized as equity interests in the Issuer and the Class E Notes are not owned by the sole owner of the Class F Notes and the Certificate, the Issuer would be classified as a partnership for federal income tax purposes. In addition, if the Class E Notes, the Class F Notes and the Certificate are held by multiple owners, the Issuer would be characterized as a partnership for federal income tax purposes. In any case where the Issuer is treated as a partnership for federal income tax purposes, it is the opinion of Federal Tax Counsel that it will not be taxed as a corporation under the publicly traded partnership provisions of the Code. That opinion is based on restrictions which have been placed on the transferability of the Class E Notes, the Class F Notes and the Certificate to limit the maximum number of holders, and upon Federal Tax Counsel s conclusion that, even if the Issuer were to be characterized as a publicly traded partnership, the nature of the income of the Issuer will exempt it from being treated as a corporation. If the Issuer were classified as a partnership, other than an association, taxable mortgage pool or publicly traded partnership taxable as a corporation, the Issuer itself would not be subject to federal income tax. Instead, holders of equity interests in the partnership would be required to take into account their allocable share of the Issuer s income and deductions. Under current law, the income reportable by holders of any class of Offered Notes as partners in such a partnership could differ from the income reportable as holders of debt. Generally, such differences are not expected to be material; however, certain holders may have adverse tax consequences. For example, cash basis holders might be required to report income when it accrues to the partnership rather than when it is received by the holder. Any income allocated to a holder that is a tax-exempt entity may constitute unrelated business taxable income. All affected holders would be taxed on the partnership income regardless of when distributions are made to the holders. An individual holder s ability to deduct the holder s share of partnership expenses would be subject to the 2% miscellaneous itemized deduction floor. As discussed below under the caption Federal Tax Considerations with Respect to Foreign Investors, a Foreign Person might be required to file a United States individual or corporate income tax return, as the case may be, and would be subject to tax (and withholding at the top marginal rate, currently 35%) on its share of partnership income at regular United States rates including, in the case of a corporation, the branch profits tax. If, contrary to the opinion of Federal Tax Counsel, the Issuer were treated as either an association taxable as a corporation or a publicly traded partnership taxable as a corporation, the Issuer would be subject to federal -91-

105 income taxes at corporate tax rates on its taxable income generated by ownership of the Loans. Moreover, distributions by the Issuer to all or some of the Holders of the Offered Notes would probably not be deductible in computing the Issuer s taxable income and all or part of the distributions to holders would probably be treated as dividends. Such an entity-level tax could result in reduced distributions to holders and the holders could be liable for a share of such tax. As discussed below, to the extent distributions on such Offered Notes were treated as dividends, a Foreign Person would generally be subject to tax (and withholding) on the gross amount of such dividends at a rate of 30% unless reduced or eliminated pursuant to an applicable income tax treaty. Federal Tax Considerations with Respect to the Offered Notes Tax Characterization of the Offered Notes. Federal Tax Counsel is of the opinion that the Offered Notes will be classified as debt for federal income tax purposes. This opinion is based upon the assumption that the terms of the Trust Agreement and the related documents will be complied with. The Trust Depositor and the Holders of the Offered Notes, by their purchase of the Offered Notes, will agree to treat the Offered Notes as debt for federal, state and local income and franchise tax purposes. The discussion below assumes that the characterization of the Offered Notes as debt is correct. There is, however, no specific authority with respect to the characterization for federal income tax purposes of securities having the same terms as the Offered Notes. No opinion of Federal Tax Counsel will be sought in respect of the Class E Notes or the Class F Notes. The discussion below also assumes (a) all payments on the Offered Notes are denominated in U.S. dollars, (b) the interest formula for the Offered Notes meets the requirements for qualified stated interest under the Regulations relating to original issue discount ( OID ) and (c) any OID on the Offered Notes (i.e., any excess of the principal amount of the Offered Notes over their issue price) does not exceed a de minimis amount as described below. Interest Income on the Offered Notes. Based on the above assumptions, the stated interest on the Offered Notes will be taxable to a holder of an Offered Note as ordinary income when received or accrued in accordance with such holder s method of tax accounting because the Offered Notes will not be considered issued with OID. If the Offered Notes were issued at a discount from their principal amounts or if the stated interest was not treated as qualified stated interest, the Offered Notes would be treated as having OID. Under the OID regulations currently in effect, in order to have qualified stated interest, the stated interest must be unconditionally payable in cash or property at least once annually. Interest is unconditionally payable only if reasonable legal remedies exist to compel timely payment or the debt instrument otherwise provides terms and conditions that make the likelihood of late payment (other than a late payment that occurs within a reasonable grace period) or nonpayment a remote contingency. The Issuer believes that the likelihood of late payment or nonpayment of the stated interest on the Offered Notes should constitute a remote contingency; the Internal Revenue Service, however, may disagree. In addition, the Internal Revenue Service may take the position that Holders of the Offered Notes do not have available default remedies ordinarily available to holders of debt instruments. In such case, the stated interest on the Offered Notes would not be qualified stated interest and the Offered Notes would be considered to have been issued with OID. If the Offered Notes are in fact issued with a greater than de minimis amount of OID (as described below) or are otherwise treated as having been issued with OID, the following rules should apply. The excess of the stated redemption price at maturity of an Offered Note (generally equal to its principal amount as of the date of issuance plus all interest other than qualified stated interest payable prior to or at maturity) over the original issue price (in this case, the initial offering price at which a substantial amount of the Offered Notes are sold other than to a bond house, broker or similar person acting as an underwriter, placement agent or wholesaler) will constitute OID. A holder must include OID in income as interest over the term of the Offered Note under a constant yield method. OID generally must be included in income in advance of the receipt of cash representing that income regardless of whether the holder reports taxable income on the cash or accrual method. In general, the amount of OID included in income is the sum of the daily portions of the OID with respect to the Offered Note for each day during the taxable year the holder held the Offered Note. The daily portion generally is determined by allocating to each day in an accrual period a ratable portion of the OID allocable to such accrual period. The amount of OID allocable to an accrual period is generally equal to the difference between (a) the product of the Offered Note s adjusted issue price and its yield to maturity and (b) the amount of qualified stated interest payments allocable to such accrual period. The adjusted issue price of an Offered Note at the beginning of any accrual period is the sum of its issue price plus the amount of OID allocable to prior accrual periods minus the amount of prior payments that were not qualified stated interest. -92-

106 Alternatively, because the payments on the Offered Notes may be accelerated by reason of prepayments on the Loans, OID, other than de minimis OID, on the Offered Notes, if any, may have to be accrued under Code Section 1272(a)(6), which allocates OID to each day in an accrual period by taking the ratable portion of the excess of (a) the sum of the present value of the remaining payments on an Offered Note as of the close of the accrual period and the payments made during the accrual period that were included in stated redemption price at maturity, over (b) the adjusted issue price of the Offered Note at the beginning of the accrual period. No regulations have been issued under Code Section 1272(a)(6) so it is not clear if such section would apply to the Offered Notes if they are treated as having OID. Accordingly, each holder should consult its own tax advisor regarding the impact of the OID rules if the Offered Notes are issued with OID. OID is de minimis if the amount of OID does not exceed one-fourth of one percent (i.e., 0.25%) of the principal amount of the Offered Note, or other stated redemption price at maturity, multiplied by the number of full years included in determining the weighted average maturity of the Offered Note. A holder of an Offered Note issued with de minimis OID must include such OID in income proportionately as principal payments are made on such Offered Note. Market Discount. The Offered Notes, whether or not issued with OID, will be subject to the market discount rules of Section 1276 of the Code. In general, these rules provide that if the holder of an Offered Note purchases such Offered Note at a market discount (i.e., a discount from its original issue price plus any accrued OID that exceeds a de minimis amount specified in the Code) and thereafter recognizes gain upon a disposition or receipt of a principal distribution, the lesser of (a) such gain or (b) the accrued market discount will be taxed as ordinary income. Generally, the accrued market discount will be the total market discount on the applicable Offered Note multiplied by a fraction, the numerator of which is the number of days the holder held such Offered Note and the denominator of which is the number of days from the date the holder acquired the Offered Note until its maturity date. The holder may elect, however, to determine accrued market discount under the constant yield method. If this election is made, it applies to all of the holder s debt investments acquired in or after the taxable years in which the Offered Notes are acquired and not just to the Offered Notes. Holders of Offered Notes should consult with their own tax advisors as to the effect of making this election. Limitations imposed by the Code which are intended to match deductions with the taxation of income defer deductions for interest on indebtedness incurred or continued, or short-sale expenses incurred, to purchase or carry an Offered Note with accrued market discount. A holder of Offered Notes who elects to include market discount in gross income as it accrues is exempt from this rule. The adjusted basis of an Offered Note subject to such election will be increased to reflect market discount included in gross income, thereby reducing any gain or increasing any loss on a sale or taxable disposition. Amortizable Bond Premium. In general, if a holder of an Offered Note purchases such Offered Note at a premium (i.e., an amount in excess of the amount payable upon the maturity thereof), such holder will be considered to have purchased such Offered Note with amortizable bond premium equal to the amount of such excess. Such holder may elect to deduct the amortizable bond premium as it accrues under a constant yield method over the remaining term of the applicable Offered Note. Under the Regulations, accrued amortized bond premium may only be used as an offset against qualified stated interest when such interest is included in the holder s gross income under the holder s normal accounting system. If a holder of an Offered Note elects to amortize and deduct premium, the election will apply to all of the holder s debt instruments and not just to the Offered Notes. Holders of Offered Notes should consult with their own tax advisors as to the effect of making this election. Acquisition Premium. A holder that purchases an Offered Note for an amount less than or equal to the sum of all amounts payable on the Offered Note after the purchase date other than payments of qualified stated interest but in excess of its adjusted issue price (any such excess being acquisition premium ) and that does not make the election described below under Election to Treat All Interest as Original Issue Discount is permitted to reduce the daily portions of OID, if any, by a fraction, the numerator of which is the excess of the holder s adjusted basis in the Offered Note immediately after its purchase over the adjusted issue price of the Offered Note, and the denominator of which is the excess of the sum of all amounts payable on the Offered Note after the purchase date other than payments of qualified stated interest, over the Offered Note s adjusted issue price. Election to Treat All Interest as Original Issue Discount. A holder may elect to include in gross income all interest that accrues on an Offered Note using the constant yield method (described above) with modifications -93-

107 described below. For purposes of this election, interest includes stated interest, OID, de minimis OID, market discount, de minimis market discount and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. In applying the constant yield method to an Offered Note with respect to which this election has been made, the issue price of the Offered Note will equal the electing holder s adjusted basis in the Offered Note immediately after its acquisition, the issue date of the Offered Note will be the date of its acquisition by the electing holder, and no payments on the Offered Note will be treated as payments of qualified stated interest. This election, if made, may not be revoked without the consent of the Internal Revenue Service. Each holder of an interest in an Offered Note should consult with its own tax advisors as to the effect of making this election in light of their individual circumstances. Sale or Other Disposition. If a holder sells an Offered Note, the holder will recognize gain or loss in an amount equal to the difference between the amount realized on the sale and the holder s adjusted tax basis in such Offered Note. The adjusted tax basis of an Offered Note to a particular holder will equal the holder s cost for the Offered Note increased by any OID, market discount and gain previously included by such holder in income with respect to the Offered Note and decreased by the amount of bond premium (if any) previously amortized and by the amount of principal payments previously received by such holder with respect to such Offered Note. Any such gain or loss will generally be capital gain or loss if the Offered Note was held as a capital asset, except for gain representing accrued interest and accrued market discount not previously included in income. For noncorporate holders, capital gain on the disposition of an Offered Note held for one year or less is taxed at the rates applicable to ordinary income, i.e., currently up to 35%; in general, capital gain on the disposition of an Offered Note held for more than one year is taxed at a rate of 15% (20% for taxable years beginning after December 31, 2010). Capital losses generally may be used by a corporate taxpayer only to offset capital gains, and by an individual taxpayer only to the extent of capital gains plus $3,000 of other income. Treasury Regulations Section provides, in general, that a significant modification to an outstanding debt instrument may cause a deemed exchange of a newly issued modified debt instrument in replacement of the original unmodified debt instrument. As a result of such a deemed exchange, the holder of the debt instrument may realize gain or loss and a new holding period may commence (for purposes of determining whether capital gain or loss on a subsequent disposition is long-term or short-term). The Issuer does not believe that a deemed exchange of the Offered Notes will occur in the event the Replenishment Period is extended with the consent of the Servicer and the Required Holders and satisfaction of the Fitch Rating Condition and the S&P Rating Condition with respect thereto. However, if the Internal Revenue Service were to successfully contend that such action did cause a deemed exchange, a holder (a) could recognize gain on the exchange (in the unlikely event that the fair market value of the Offered Notes increased as a result of the extension of the Replenishment Period), and (b) a new holding period for the Offered Notes may commence on the date of consent of the extension to the Replenishment Period. Information Reporting and Backup Withholding. The Issuer will be required to report annually to the Internal Revenue Service, and to each record holder of an Offered Note, the amount of interest paid on such Notes (and the amount of interest withheld for federal income taxes, if any) for each calendar year, except as to exempt holders (generally, holders that are corporations, tax-exempt organizations or qualified pension and profit-sharing trusts, each of which, if necessary, provides sufficient documentation to establish such exemption). Accordingly, each holder (other than exempt holders who are not subject to the reporting requirements) will be required to provide, under penalties of perjury, a certificate containing, among other things, the holder s name, address, correct federal taxpayer identification number and a statement that the holder is not subject to backup withholding. Should a nonexempt holder of an Offered Note fail to provide the required certification, the Issuer will be required to withhold 28% of the amount otherwise payable to the holder, and remit the withheld amount to the Internal Revenue Service as a credit against the holder s federal income tax liability. Prospective investors should consult with their tax advisors as to their eligibility for exemption from backup withholding, the procedure for obtaining the exemption and the potential impact of applicable withholding requirements. Federal Tax Considerations with Respect to Foreign Investors Income and Withholding Tax. Except as discussed below, a holder of an Offered Note that is not a United States Person (as defined below) generally will not be subject to United States income or withholding tax in respect of a distribution on an Offered Note provided that (a) the holder complies to the extent necessary with certain -94-

108 certification requirements (described below), which generally relate to the identity of the beneficial owner and the status of the beneficial owner as a Person that is not a United States Person (as defined below), (b) the holder is not a 10% shareholder within the meaning of Section 871(h)(3)(B) of the Code, which could be interpreted to include a Person that directly or indirectly owns 10 percent or more of American Capital, the Class E Notes, the Class F Notes or the Certificate in the Issuer, (c) the holder is not a bank receiving interest on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business, (d) the holder is not a controlled foreign corporation (as defined in the Code) related to American Capital or the Issuer or related to a 10% holder of the Class E Notes, the Class F Notes or the Certificate in the Issuer and (e) the holder is not engaged in a United States trade or business, or otherwise subject to federal income tax as a result of any direct or indirect connection to the United States other than through its ownership of an Offered Note. Generally, the certification requirements alluded to under clause (a) above, are satisfied if (i) a holder of an Offered Note certifies to the Issuer, on Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Withholding, signed under penalties of perjury, that such holder is not a United States Person (as defined below) and provides its name and address or (ii) a non-u.s. securities clearing organization, bank or other financial institution that holds the Offered Note certifies to the Issuer under penalties of perjury that a Form W-8BEN or a substantially similar statement has been received from such holder by it, or by a similar financial institution between it and such holder, and furnishes the payor with a copy thereof. If the information provided in the Form W-8BEN changes, the foreign holder must provide a new form within 30 days. The form is effective for three years. If a holder of an Offered Note is a foreign partnership, after December 31, 2000, such partnership must provide certain information. In addition, the partners in such foreign partnership must provide the certification described above. The Internal Revenue Service will apply a look-through rule in the case of tiered partnerships. For purposes of this Offering Memorandum, the term United States Person means (a) a citizen or resident of the United States, (b) a corporation or partnership (or other entity properly treated as a corporation or partnership for federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (c) an estate whose income is includable in gross income for purposes of United States federal income taxation regardless of its source and (d) a trust for which one or more United States Persons have the authority to control all substantial decisions and for which a court of the United States can exercise primary supervision over the trust s administration. A Foreign Person is any Person that is not a United States Person. Each holder of an Offered Note should consult its tax advisors regarding the tax documentation and certifications that must be provided to secure the exemption from United States withholding taxes. Any capital gain realized on the sale, redemption, retirement or other taxable disposition of an Offered Note by a Foreign Person generally will be exempt from United States federal income and withholding tax; provided that (a) such gain is not effectively connected with the conduct of a trade or business in the United States by the Foreign Person and (b) in the case of an individual Foreign Person, the Foreign Person is not present in the United States for 183 days or more in the taxable year. If the interest, gain or other income on an Offered Note held by a Foreign Person is effectively connected with the conduct of a trade or business in the United States by the Foreign Person, the holder generally will be subject to United States federal income tax on the interest, gain or other income at regular federal income tax rates. However, the holder may be exempt from the withholding tax previously discussed if the holder provides a Form W-8ECI to the Issuer establishing that such income is effectively connected. In addition, if the Foreign Person is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits, within the meaning of the Code, for the taxable year, as adjusted for certain items, unless it qualifies for a lower rate under an applicable tax treaty (as modified by the branch profits tax rules). If an individual Foreign Person is present in the United States for 183 days or more during the taxable year, gain on the sale or other disposition by such Foreign Person of an Offered Note could be subject to a 30% withholding tax unless it qualifies for a lower rate under an applicable treaty. Backup Withholding and Information Reporting. Foreign Persons holding Offered Notes are generally exempt from backup withholding and information reporting requirements with respect to any payments of principal or interest made by the Issuer; provided that such holders provide the certifications described above; and provided further that the Issuer does not have actual knowledge that such holders are United States Persons. However, the Issuer may report payments of interest on the Notes held by a Foreign Person on Internal Revenue Service Form 1042-S. -95-

109 In general, payment of the proceeds from the sale of the Offered Notes to or through a United States office of a broker is subject to both United States backup withholding and information reporting. If, however, a holder of Offered Notes is a Foreign Person, such payment will not be subject to information reporting and backup withholding if it certifies as to its non-united States status, under penalties of perjury, or otherwise establishes an exemption. Payments of the proceeds from the sale by a Foreign Person of an Offered Note made to or through a foreign office of a broker will not be subject to information reporting or backup withholding. However, information reporting, but not backup withholding, may apply to a payment made outside the United States of the proceeds of a sale of an Offered Note through an office outside the United States if the broker is: (a) a United States Person; (b) a controlled foreign corporation (as defined in the Code); (c) a Foreign Person 50% or more of whose gross income is effectively connected with a United States trade or business for a specified three year period; or (d) with respect to payments made after December 31, 2000, a foreign partnership, if at any time during its tax year: (i) one or more of its partners are U.S. Persons, as defined in the Regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership, or (ii) such foreign partnership is engaged in a United States trade or business, unless the broker has documentary evidence in its records that the payee is a Foreign Person and does not have actual knowledge that such payee is a U.S. Person, or such payee otherwise establishes an exemption or is a United States branch of a foreign bank or a foreign insurance company subject to regulation within the United States or any state. State and Local Tax Considerations Maryland Tax Considerations. The principal place of business of the Servicer is in the State of Maryland, and some of the activities to be performed by the Servicer will also take place there. In the opinion of Winston & Strawn LLP, Chicago, Illinois, special state tax counsel to the Issuer, the Issuer will not be subject to income tax imposed by the State of Maryland and Class A Noteholders, Class B Noteholders, Class C Noteholders and Class D Noteholders that are not otherwise subject to State of Maryland income tax jurisdiction will not become subject to income taxation by the State of Maryland solely as a result of their ownership of the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes. Other States. Because of the differences in state and local tax laws and their applicability to different investors, it is not possible to summarize the potential state and local tax consequences of purchasing, holding or disposing of the Offered Notes, and no opinions of counsel have been obtained regarding state tax matters, other than with respect to the State of Maryland. Accordingly, it is recommended that each prospective investor consult a tax advisor regarding the state and local tax consequences of the purchase, ownership and disposition of the Offered Notes. Benefit Plan Considerations Sections 404 and 406 of ERISA and Section 4975 of the Code impose certain duties on and restrict certain transactions by employee benefit plans that are subject to Title I of ERISA, plans subject to Section 4975 of the Code, and entities the underlying assets of which are deemed to include assets of any such plan (collectively, Plans ) and on persons who are fiduciaries of such Plans with respect to the investment of Plan assets. Governmental plans, certain church plans, and other plans that are not subject to Title I of ERISA or Section 4975 of the Code nonetheless may be subject to federal, state or local laws or regulations that are substantively similar, or of similar effect to Title I of ERISA or Section 4975 of the Code ( Similar Law ). Any fiduciary or other person making a decision to invest assets of a Plan or a plan subject to Similar Law in the Offered Notes should review carefully with their legal advisers whether the acquisition or holding of the Offered Notes could constitute or give rise to a nonexempt prohibited transaction under ERISA or the Code, a violation of ERISA fiduciary duties, or a violation of Similar Law, as discussed below. A violation of the prohibited transaction rules may result in imposition of an excise tax or other penalties or liabilities under ERISA and the Code. Plans and plans subject to Similar Law may be permitted to acquire Offered Notes. Section 406 of ERISA prohibits Plans to which it applies from engaging in transactions described therein, and Section 4975 of the Code imposes excise taxes with respect to transactions described in Section 4975(c) of the Code ( Prohibited Transactions ). The Prohibited Transactions described in these provisions are transactions that involve the assets of a Plan, and to which a person related to the Plan (a party in interest as defined in ERISA or a disqualified persons as defined in the Code) is a party. For example, the acquisition or holding of the Offered -96-

110 Notes by or on behalf of a Plan could be considered to constitute or give rise to a Prohibited Transaction if persons such as the Owner Trustee, the Indenture Trustee, the Issuer or any of their respective Affiliates is or becomes a party in interest or disqualified person with respect to the Plan, unless an exemption from the prohibited transaction rules applies. Additional ERISA considerations may apply if the Offered Notes are treated as an equity investment for purposes of ERISA. In that event, a Plan s investment in the Offered Notes may cause the assets of the Issuer to be deemed to be assets of an investing Plan for purposes of Sections 404 and 406 of ERISA and Section 4975 of the Code. In such event, ERISA s fiduciary standards might apply to actions involving the Issuer s assets, and any transactions involving the Issuer or its assets could be deemed to be transactions to which the restrictions of Section 406 of ERISA and the taxes and other penalties imposed under Section 4975 of the Code might apply. Under 29 C.F.R. Section of the regulations issued by the United States Department of Labor, as modified by Section 3(42) of ERISA (collectively, the Plan Asset Regulation ), when a Plan to which the Plan Asset Regulation applies acquires an equity interest in an entity, the Plan s assets include the investment in the entity and, unless one of certain exceptions in the Plan Asset Regulation applies, an undivided interest in each asset of the entity in which the investment is made. The Plan Asset Regulation defines 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. Generally, a profits interest in a partnership, an undivided ownership interest in property and a beneficial ownership interest in a trust are deemed to be equity interests under the Plan Asset Regulation. While there is no clear guidance as to how the Offered Notes would be treated under the Plan Asset Regulation, the Originator believes that the Offered Notes would be treated as indebtedness without substantial equity features for purposes of the Plan Asset Regulation. This determination is based in part upon the traditional debt features of the Offered Notes, including the reasonable expectation of purchasers of the Offered Notes that the Offered Notes will be repaid when due, as well as the absence of conversion rights, warrants or other typical equity features. The debt treatment of the Offered Notes for ERISA purposes could change if the Issuer incurs losses. This risk of recharacterization increases for classes of Offered Notes that are subordinated to other classes of Offered Notes. Fiduciaries of Plans considering acquisition of the Offered Notes should make their own determination that, as of the date of acquisition, the Offered Notes would be considered indebtedness without substantial equity features. Regardless whether the Offered Notes are treated as debt or equity for purposes of ERISA, the acquisition or holding of Offered Notes by or on behalf of a Plan could still be considered to give rise to a prohibited transaction if the Originator, the Issuer, the Owner Trustee, the Indenture Trustee, the Initial Purchasers, or any of their respective Affiliates is or becomes a party in interest or a disqualified person with respect to such Plan or in the event that a subsequent transfer of an Offered Note is between a Plan and a party in interest or disqualified person with respect to such Plan. However, one or more exemptions may be available with respect to certain of the prohibited transaction rules under ERISA and the Code depending in part upon the type of Plan fiduciary making the decision to acquire the Offered Notes and the circumstances under which such decision is made. These exemptions include, but are not limited to: (a) Prohibited Transaction Class Exemption ( PTCE ) 96 23, regarding investments determined by in house asset managers; (b) PTCE 95 60, regarding investments by insurance company general accounts; (c) PTCE 91 38, regarding investments by bank collective investment funds; (d) PTCE 90 1, regarding investments by insurance company pooled separate accounts; (e) PTCE 84 14, regarding transactions negotiated by qualified professional asset managers; and (f) Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code, regarding transactions with certain non-fiduciary service providers. Before purchasing Offered Notes, a Plan fiduciary should consult with its counsel to determine whether the conditions of any exemption would be met. A purchaser of an Offered Note should be aware, however, that even if the conditions specified in one or more exemptions are met, the scope of the relief provided by an exemption might not cover all acts that might be construed as prohibited transactions. By acquiring an Offered Note, each purchaser or transferee will be deemed to represent based upon its own independent determination that either (i) it is not, and is not acquiring or holding the Offered Notes on behalf of or with any assets of, a Plan or other plan or arrangement subject to Similar Law; or (ii) either (1) its acquisition and holding of the Offered Note will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code by reason of any of Section 408(b)(17) of ERISA or Section 4975(d)(20) of the Code, PTCE 96-23, PTCE 95-60, PTCE 91-38, PTCE 90-1, PTCE 84-14, each as amended, or an exemption similar to the foregoing exemptions, or (2) in the case of a plan or arrangement subject to Similar Law, will not constitute or result in a non-exempt violation of Similar Law. -97-

111 Any plan fiduciary considering the purchase of Offered Notes should consult with its counsel with respect to the potential applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA, the Code and any Similar Law to such investment. THE SALE OF OFFERED NOTES TO A PLAN IS IN NO RESPECT A REPRESENTATION THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS GENERALLY OR FOR ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR PLANS GENERALLY OR ANY PARTICULAR PLAN. PLAN OF DISTRIBUTION Pursuant to the terms of the Purchase Agreement, the Issuer will sell to the Initial Purchasers the Offered Notes. A portion of the Offered Notes may be sold to the Co-Managers for further resale by the Co-Managers. The Issuer will issue the Class E Notes and the Class F Notes to the Trust Depositor on the Closing Date. The Offered Notes will be offered by Citi, JPMorgan and/or the Co-Managers, in each case in one or more negotiated transactions, or otherwise, at prices to be determined at the time of sale and will be offered when, as, and if issued, subject to prior sale or withdrawal, cancellation or modification of the offer without notice and subject to the approval of certain legal matters by counsel and certain other conditions. The Offered Notes 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) except in certain transactions exempt from, or not subject to, the registration requirements of the Securities Act. In connection with the offering, the Initial Purchasers may purchase and sell the Offered Notes purchased by them in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover short positions created by the Initial Purchasers 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 Notes; and short positions created by the Initial Purchasers involve the sale by the Initial Purchasers of a greater number of Offered Notes than they are required to purchase from the Issuer in the offering. The Initial Purchasers 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 Purchasers if any such Offered Notes are repurchased by the Initial Purchasers in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the Offered Notes purchased by the Initial Purchasers, which may be higher 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 the Initial Purchasers. The Issuer has been advised by the Initial Purchasers that (a) the Initial Purchasers propose to resell certain of the Offered Notes outside the United States in offshore transactions to non-u.s. persons (within the meaning of Regulation S) who are Qualified Purchasers in reliance on Regulation S and in accordance with applicable law, and (b) the Initial Purchasers propose to resell certain of the Offered Notes in the United States in reliance on Rule 144A under the Securities Act only to (i) Qualified Institutional Buyers who are Qualified Purchasers purchasing for their own accounts or for the accounts of Qualified Institutional Buyers who are Qualified Purchasers to whom notice has been given that the resale, pledge or other transfer is being made in reliance on Rule 144A and (ii) in certificated form to Institutional Accredited Investors who are Qualified Purchasers, in each case subject to the requirements described herein concerning the delivery to the Indenture Trustee of a certification or opinion of counsel. See Description of the Notes and Indenture Form, Denomination, Exchange, Registration and Title of the Offered Notes. The Notes will be issued in minimum denominations of $250,000 and integral multiples of $1,000 in excess thereof. Any offer or sale of Rule 144A Notes in reliance on Rule 144A, will be made by broker-dealers who are registered as such under the Exchange Act. After the Offered Notes are released for sale, the offering price and other selling terms may from time to time be varied by the Initial Purchasers. With respect to the Offered Notes initially sold pursuant to Regulation S by the Initial Purchasers, until the expiration of the Distribution Compliance Period, an offer or sale of the Offered Notes within the United States by a -98-

112 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 Purchasers have each represented and agreed that: (a) it has not offered or sold and will not offer or sell any Offered Notes to persons in the United Kingdom except to investment professionals falling within Article 19(5) of the Order and high net worth entities, and other persons to whom they may lawfully be offered, falling within Article 49(2)(a) to (d) of the Order, or otherwise in circumstances which have not resulted and will not result in an offer of transferable securities to the public within the meaning of Section 102B of the FSMA, (b) it is an investment professional falling under Article 19(5) of the Order, (c) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with any issue of or sale of the Offered Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer, or to the persons to whom such communication may otherwise be lawfully made and (d) it has complied and will comply with all applicable provisions of the FSMA and regulations made thereunder with respect to anything done by it in relation to the Offered Notes in, from or otherwise involving the United Kingdom. Buyers of Regulation S Notes 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. No action has been or will be taken in any jurisdiction that would permit a public offering of the Offered Notes, or the possession, circulation or distribution of this Offering Memorandum or any other material relating to the Issuer or the Offered Notes, in any jurisdiction where action for such purpose is required. Accordingly, the Offered Notes 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 Notes 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 Notes are a new issue of securities with no established trading market. The Issuer has been advised by the Initial Purchasers that the Initial Purchasers may make a market in the Offered Notes but are 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 Notes. American Capital has agreed to indemnify the Initial Purchasers 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, American Capital has agreed to reimburse the Initial Purchasers for certain of their expenses. In the ordinary course of their respective business, the Initial Purchasers and their respective Affiliates have engaged and may in the future engage in commercial banking, structured finance and/or investment banking transactions with American Capital and its Affiliates. European Economic Area In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (as defined below) (each, a Relevant Member State ), each Initial Purchaser has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date ) it has not made and will not make an offer of the Offered Notes to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Offered Notes offered hereby which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of the Offered Notes to the public in that Relevant Member State at any time: (a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities: -99-

113 (b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated financial statements; or (c) in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an offer of Offered Notes to the public in relation to any Offered Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Offered Notes to be offered so as to enable an investor to decide to purchase or subscribe the Offered Notes offered hereby, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. Purchaser Inquiries Each prospective purchaser is hereby offered the opportunity to ask questions of, and receive answers from, the Issuer concerning the terms and conditions of this offering and the Originator, the Servicer, the Trust Depositor and the Loans and to obtain additional information that the Originator, the Trust Depositor or the Issuer possess or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of the information furnished in this Offering Memorandum. Inquiries concerning such additional information should be directed to: American Capital Strategies, Ltd. 2 Bethesda Metro Center 14th Floor Bethesda, Maryland Telephone: (301) Attention: John Hooker, Vice President, Debt Capital Markets Citigroup Global Markets Inc. 388 Greenwich Street, 19 th Floor New York, New York Telephone: (212) Attention: Christian Anderson If the prospective purchaser does not purchase the Offered Notes or the offering is terminated, each prospective purchaser, by accepting delivery of this Offering Memorandum, agrees to return it and all related documents to: Citigroup Global Markets Inc. 388 Greenwich Street, 19 th Floor New York, New York Telephone: (212) Attention: Christian Anderson NOTICE TO INVESTORS THIS OFFERING MEMORANDUM IS NOT TO BE COPIED OR OTHERWISE REPRODUCED IN ANY MANNER WHATSOEVER. FAILURE TO COMPLY WITH THIS DIRECTIVE CAN RESULT IN A VIOLATION OF THE SECURITIES ACT. This Offering Memorandum is furnished to each prospective investor on a confidential basis solely for the purpose of evaluation of the investment offered hereby. The information contained herein may not be reproduced or used in whole or in part for any other purpose

114 No representations are made as to any regulatory or legal investment requirements or considerations (including without limitation regulatory capital requirements and those requirements or considerations applicable to the purchase of the Offered Notes by banks, savings and loan associations, insurance companies or other financial institutions, which institutions should consult their own counsel as to such matters). No representation can be made as to the availability of the exemption provided by Rule 144A under the Securities Act or any other exemption for resale of the Offered Notes. Investors interested in purchasing the Offered Notes may conduct an independent investigation of the Issuer, the Notes, the Originator, the Servicer, the Trust Depositor, the Loans, the Collateral and other assets constituting the pledged assets. Officers of the Originator and the Servicer will be available to answer questions concerning the Notes, the Loans, the Collateral and the other assets constituting the pledged assets and will, upon request, make available such other information as investors may reasonably request. Because of the following restrictions, investors are advised to consult legal counsel prior to making any offer, resale or pledge or other transfer of Offered Notes. The Offered Notes are being offered and sold to Qualified Institutional Buyers within the meaning of and in reliance on Rule 144A under the Securities Act who are Qualified Purchasers, to a limited number of institutional Accredited Investors within the meaning of Rule 501(a)(1) (3) or (7) under the Securities Act who are Qualified Purchasers, and to Qualified Purchasers in offshore transactions pursuant to Regulation S. Each purchaser of the Offered Notes offered hereby will be deemed to have represented and/or acknowledged and agreed as follows (terms used in this paragraph that are defined in Rule 144A, Regulation S or Regulation D under the Securities Act are used herein as defined therein): (1) The purchaser (A) is a Qualified Institutional Buyer within the meaning of Rule 144A under the Securities Act who is a Qualified Purchaser or an institutional Accredited Investor (within the meaning of Rule 501(a)(1) (3) or (7) under the Securities Act) who is a Qualified Purchaser for purposes of Section 3(c)(7) under the 1940 Act, (B) is acquiring the Offered Notes for its own account or for the account of such a Qualified Institutional Buyer who is a Qualified Purchaser or an institutional Accredited Investor who is a Qualified Purchaser purchasing for investment and not for distribution in violation of the Securities Act, (C) if such Person is such a Qualified Institutional Buyer who is a Qualified Purchaser, is aware that the sale of the Offered Notes to it is being made in reliance on Rule 144A, (D) if such Person is an institutional Accredited Investor who is a Qualified Purchaser, will deliver a certificate in the form attached to the Indenture prior to receipt of Offered Notes or (E) is not a U.S. Person, is a Qualified Purchaser and is purchasing for its own account or one or more accounts each of which is not a U.S. Person and is a Qualified Purchaser and is acquiring the Offered Notes in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S. (2) The Offered Notes have not been and will not be registered under the Securities Act, or any state securities or Blue Sky law, and may not be reoffered, resold, pledged or otherwise transferred except (A)(i) to a Person whom the seller reasonably believes is a Qualified Institutional Buyer as defined in Rule 144A of the Securities Act who is a Qualified Purchaser that purchases for its own account or the account of another Qualified Institutional Buyer who is a Qualified Purchaser to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, (ii) in certificated form to an institutional Accredited Investor who is a Qualified Purchaser pursuant to any other exemption from the registration requirements of the Securities Act, subject to (a) the receipt by the Indenture Trustee of a letter in the form attached to the Indenture and (b) the receipt by the Indenture Trustee of such other evidence acceptable to the Indenture Trustee that such reoffer, resale, pledge or transfer is in compliance with the Securities Act and other Requirements of Laws, (iii) to a Qualified Purchaser in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, (iv) pursuant to another exemption available under the Securities Act or (v) pursuant to a valid registration statement and (B) in accordance with all applicable securities and Blue Sky laws of any State of the United States or any other applicable jurisdictions

115 (3) The Offered Notes will bear a legend to the following effect, unless the Originator and the Indenture Trustee determine otherwise in accordance with Requirements of Law: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT ), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. PROSPECTIVE INVESTORS ARE HEREBY NOTIFIED THAT THE SELLERS OF INTERESTS IN THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ( RULE 144A ) TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (A QIB ) WHO IS A QUALIFIED PURCHASER FOR PURPOSES OF SECTION 3(c)(7) UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (A QUALIFIED PURCHASER ), PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB WHO IS A QUALIFIED PURCHASER, WHOM THE HOLDER HAS INFORMED THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (2) IN CERTIFICATED FORM TO AN INSTITUTIONAL ACCREDITED INVESTOR (WITHIN THE MEANING OF RULE 501 (a)(1) (3) OR (7) UNDER THE SECURITIES ACT) WHO IS A QUALIFIED PURCHASER PURCHASING FOR INVESTMENT AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, IN EACH CASE, SUBJECT TO (A) THE RECEIPT BY THE INDENTURE TRUSTEE OF A LETTER SUBSTANTIALLY IN THE FORM PROVIDED IN THE INDENTURE AND (B) THE RECEIPT BY THE INDENTURE TRUSTEE OF SUCH OTHER EVIDENCE ACCEPTABLE TO THE INDENTURE TRUSTEE THAT SUCH REOFFER, RESALE, PLEDGE OR TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE UNITED STATES AND SECURITIES AND BLUE SKY LAWS OF ANY STATE OF THE UNITED STATES AND ANY OTHER APPLICABLE JURISDICTION, (3) TO A QUALIFIED PURCHASER IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (4) PURSUANT TO ANOTHER EXEMPTION AVAILABLE UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (5) PURSUANT TO A VALID REGISTRATION STATEMENT. THE PURCHASE OF AN OFFERED NOTE OR AN INTEREST THEREIN WILL BE DEEMED A REPRESENTATION BY THE ACQUIROR THAT EITHER: (I) IT IS NOT, AND IS NOT DIRECTLY OR INDIRECTLY ACQUIRING SUCH NOTE OR ANY INTEREST THEREIN FOR, ON BEHALF OF OR WITH ANY ASSETS OF, AN EMPLOYEE BENEFIT PLAN OR OTHER ARRANGEMENT THAT IS SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ( ERISA ), A PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE ), OR A PLAN OR OTHER ARRANGEMENT SUBJECT TO ANY PROVISIONS UNDER ANY FEDERAL, STATE OR LOCAL LAWS OR REGULATIONS THAT ARE SUBSTANTIVELY SIMILAR, OR OF SIMILAR EFFECT TO THE FOREGOING PROVISIONS OF ERISA OR THE CODE ( SIMILAR LAW ) OR (II) EITHER (1) ITS ACQUISITION AND HOLDING OF THE OFFERED NOTE WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE BY REASON OF ANY OF SECTION 408(b)(17) OF ERISA OR SECTION 4975(d)(20) OF THE CODE, PTCE 96-23, PTCE 95-60, PTCE 91-38, PTCE 90-1, PTCE 84-14, EACH AS AMENDED, OR AN EXEMPTION SIMILAR TO THE FOREGOING EXEMPTIONS, OR (2) IN THE CASE OF A PLAN OR ARRANGEMENT SUBJECT TO SIMILAR LAW, WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT VIOLATION OF SIMILAR LAW. SUCH REPRESENTATION SHALL BE DEEMED MADE ON EACH DAY FROM THE DATE ON WHICH SUCH INVESTOR OR TRANSFEREE ACQUIRES ITS INTEREST IN THE OFFERED NOTES THROUGH AND INCLUDING THE DATE ON WHICH SUCH INVESTOR OR TRANSFEREE DISPOSES OF ITS INTEREST IN THE OFFERED NOTES. (4) The Offered Notes will initially be represented by beneficial interests in a single Global Note or certificated Individual Notes, as the case may be. Before any interest in a Global Note may be offered, sold, pledged or otherwise transferred to a Person who takes delivery other than through a beneficial interest in that Global Note, the transferor will be required to provide the -102-

116 Indenture Trustee with a written certification, in the form provided in the Indenture, as to compliance with the applicable transfer restrictions. See Description of the Notes and the Indenture Form, Denomination, Exchange, Registration and Title of the Offered Notes. (5) If it is acquiring any Offered Notes as a fiduciary or agent for one or more investor accounts, it has sole investment discretion with respect to each such account and that it has full power to make the acknowledgments, representations and agreements contained herein on behalf of such account. (6) It has been afforded the opportunity to ask questions of, and receive answers from, American Capital Strategies, Ltd., the Trust Depositor, the Issuer, Citi, JPMorgan, Banc of America Securities, Credit Suisse Securities, HSBC Securities, HVB Capital Markets, Inc. and Wachovia Capital Markets concerning the terms and conditions of this offering and to obtain any additional information that it considered necessary to verify the accuracy of the information furnished in this Offering Memorandum. THE OFFERED NOTES ARE RESTRICTED SECURITIES SUBJECT TO RESTRICTIONS ON THE PURCHASE, OWNERSHIP AND DISPOSITION OF SUCH SECURITIES. PRIOR TO PURCHASING ANY OFFERED NOTES, PURCHASERS SHOULD CONSULT WITH COUNSEL AS TO THE AVAILABILITY, IF ANY, AND CONDITIONS OF EXEMPTION FROM THE RESTRICTIONS ON PURCHASE, OWNERSHIP AND DISPOSITION. NONE OF THE ISSUER, THE TRUST DEPOSITOR OR THE ORIGINATOR IS OBLIGATED OR INTENDS TO REGISTER THE OFFERED NOTES UNDER THE SECURITIES ACT, TO QUALIFY THE OFFERED NOTES UNDER THE SECURITIES LAWS OF ANY STATE OR TO PROVIDE REGISTRATION RIGHTS TO ANY PURCHASER. ANTI-MONEY LAUNDERING AND ANTI-TERRORISM REQUIREMENTS AND DISCLOSURES In order to comply with U.S. laws and regulations, including the USA PATRIOT Act, aimed at the prevention of money laundering and the prohibition of transactions with certain countries, organizations and individuals, the Issuer (or the Initial Purchasers, the Originator or the Indenture Trustee on its behalf) may request from an investor or a prospective investor such information as it reasonably believes is necessary to verify the identity of such investor or prospective investor, and to determine whether such investor or prospective investor is permitted to be an investor in the Issuer or the Offered Notes pursuant to such laws and regulations. In the event of the delay or failure by any investor or prospective investor in the Offered Notes to deliver to the Issuer any such requested information, the Issuer (or the Initial Purchasers, the Originator or the Indenture Trustee on its behalf) may (a) require such investor to immediately transfer any Note, or beneficial interest therein, held by such investor to an investor meeting the requirements of this Offering Memorandum and the Indenture, (b) refuse to accept the subscription of a prospective investor, or (c) take any other action required to comply with such laws and regulations. In addition, following the delivery of any such information, the Issuer (or the Initial Purchasers, the Originator or the Indenture Trustee on its behalf) may take any of the actions identified in clauses (a) through (c) above. In certain circumstances, the Issuer, the Indenture Trustee, the Originator or the Initial Purchasers may be required to provide information about investors to regulatory authorities and to take any further action as may be required by law. None of the Issuer, the Indenture Trustee, the Originator, the Initial Purchasers or any member or manager of the Issuer will be liable for any loss or injury to an investor or prospective investor that may occur as a result of disclosing such information, refusing to accept the subscription of any potential investor, redeeming any investment in a Note or taking any other action required by law. LISTING AND GENERAL INFORMATION Application will be made to the IFSRA, as competent authority under Directive 2003/71/EC for the Offering Memorandum to be approved. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on its regulated market. There can be no assurance that any such approval or admission will be obtained or, if it is obtained, will be maintained for the entire period that the Offered Notes are -103-

117 outstanding. In connection with such listing, this Offering Memorandum, the Indenture, the Transfer and Servicing Agreement, the Sale Agreement, the Trust Agreement, any Interest Rate Swaps, the Quarterly Report and the paying agency agreement between the Issuer and the Ireland Paying Agent (such agreements, collectively, the Material Contracts ) will be filed with the Registrar of Companies of Ireland pursuant to Directive 2003/71/EC. Copies of the Certification of Trust and the Trust Agreement of the Issuer and the Material Contracts will be available electronically for inspection for so long as any class of Offered Notes are listed on the Irish Stock Exchange and will be obtainable at the registered office of the Issuer and the offices of the Ireland Paying Agent in Dublin, Ireland. The issuance of Offered Notes will be authorized in principle by the Issuer in its organizational documents, which will be in full force and effect as of the Closing Date. The Issuer is not involved in litigation, governmental proceedings or arbitration proceedings relating to claims or amounts that may have or have had a significant effect on the Issuer, nor, so far as the Issuer is aware, is any such litigation or arbitration involving it pending or threatened within the previous twelve months. Since its date of formation, the Issuer has not engaged in operations other than those preparatory to the transactions contemplated herein and no financial reports or accounts have been prepared as of the date of this Offering Memorandum. Since the date of establishment of the Issuer, there has been no significant change in the financial or trading position of such person and no annual report or accounts have been prepared as at the date submitted to the Irish Stock Exchange. The Issuer anticipates that the total expenses related to the application for the admission of the Offered Notes to the Irish Stock Exchange s Official List and trading on its regulated market will be approximately 12,000. The Issuer does not intend to publish annual reports and accounts. The Indenture requires the Issuer to provide written confirmation to the Indenture Trustee, on an annual basis, that the Issuer has complied with all conditions and covenants under the Indenture throughout such year, or, if there has been such a default in its compliance with any such condition or covenant, specifying each such known default and the nature and status thereof. For so long as any class of Offered Notes are listed on the Irish Stock Exchange, the Issuer will notify that exchange of any material changes to the prospectus, modifications of the Indenture and consolidation or merger of the Issuer or its assets substantially in their entirety. The CUSIP Numbers and International Securities Identification Numbers ( ISIN ) for the Global Notes and the Certificated Notes are as set forth below: CUSIP ISIN Class A Notes (Accredited Investors) 00083K AB1 US00083KAB17 Class A Notes (Regulation S) U0044T AA9 USU0044TAA98 Class A Notes (Rule 144A) 00083K AA3 US00083KAA34 Class B Notes (Accredited Investors) 00083K AD7 US00083KAD72 Class B Notes (Regulation S) U0044T AB7 USU0044TAB71 Class B Notes (Rule 144A) 00083K AC9 US00083KAC99 Class C Notes (Accredited Investors) 00083K AF2 US00083KAF21 Class C Notes (Regulation S) U0044T AC5 USU0044TAC54 Class C Notes (Rule 144A) 00083K AE5 US00083KAE55 Class D Notes (Accredited Investors) 00083K AH8 US00083KAH86 Class D Notes (Regulation S) U0044T AD3 USU0044TAD38 Class D Notes (Rule 144A) 00083K AG0 US00083KAG04 Other than the application to the IFSRA as competent authority under Directive 2003/71/EC for this Offering Memorandum to be approved and to the Irish Stock Exchange for the Offered Notes to be admitted to the Official List and trading on its regulated market no action has been or will be taken to permit a public offering of the Notes or the distribution of this Offering Memorandum (within the meaning of Directive 2003/71/EC as implemented into Irish law) in any jurisdiction. Accordingly, the Initial Purchasers have agreed with the Issuer in the -104-

118 Purchase Agreement, that it will not, directly or indirectly, offer or sell any Notes in any country or jurisdiction where action for that purpose is required and neither this Offering Memorandum nor any other circular, prospectus, form of application, advertisement or other material will be distributed by it in or from or published in any country or jurisdiction, except under circumstances which will result in compliance with applicable laws and regulations. RATING OF THE NOTES It is a condition to the issuance of the Offered Notes that they receive the following ratings from the following rating agencies: Class S&P Moody s Fitch A AAA Aaa AAA B AA Aa2 AA C A A2 A D BBB Baa2 BBB The rating will reflect only the views of the Rating Agencies and will be based primarily on the subordination of some classes of Notes to other classes of Notes as described in this Offering Memorandum, as well as the value and creditworthiness of the Loans and Collateral. The ratings are not a recommendation to purchase, hold or sell the Offered Notes, since the ratings do not comment as to market price or suitability for a particular investor. Each rating may be subject to revision or withdrawal at any time by the assigning Rating Agency. There is no assurance that any rating will continue for any period of time or that it will not be lowered or withdrawn entirely by the Rating Agency if, in its judgment, circumstances so warrant. A revision or withdrawal of the rating may have an adverse affect on the market price of the Offered Notes. The rating of the Offered Notes addresses the likelihood of the timely payment of interest and the ultimate payment of principal on the Offered Notes as required by their terms. The rating does not address the rate of prepayments that may be experienced on the Loans and, therefore, does not address the effect of the rate of prepayments on the return of principal to the Noteholders. A Moody s rating addresses the ultimate cash receipt of all required interest and principal payments as provided by the Transaction Documents, and is based on the expected loss posed to the Noteholders relative to the promise of receiving the present value of such payments. LEGAL MATTERS Winston & Strawn LLP, Chicago, Illinois will provide certain legal opinions relating to the Notes in its capacity as special counsel to the Issuer, the Trust Depositor, the Originator and the Servicer. Winston & Strawn LLP, Chicago, Illinois, will also provide a legal opinion relating to Maryland tax matters in its capacity as special Maryland tax counsel to the Issuer. Winston & Strawn LLP, Chicago, Illinois, will provide a legal opinion relating to true sale, non-consolidation and perfection matters in its capacity as special counsel to the Originator. Arnold & Porter LLP, Washington, D.C., will also provide certain legal opinions in its capacity as special counsel to the Originator. Richards, Layton & Finger will provide certain legal opinions regarding the Owner Trustee and the Issuer in its capacity as special Delaware counsel. Other legal matters for the Initial Purchasers will be passed upon by Dechert LLP, Charlotte, North Carolina. Samuel A. Flax, the Executive Vice President, General Counsel, Secretary and Chief Compliance Officer of American Capital, served as counsel to Arnold & Porter LLP from January 1, 2005 through December 31, 2005, and was previously a partner at that firm

119 GLOSSARY Additional Loan means any Eligible Loan purchased by the Issuer from the Trust Depositor for inclusion in the Loan Pool and having a Cut-Off Date during the Pre-Funding Period or the Replenishment Period. Additional Principal Amount means, as of any Determination Date, with respect to any Payment Date, an amount equal to, but in no event less than zero, the excess of the Aggregate Outstanding Principal Balance prior to any distribution on such day over the sum of (a) the Aggregate Outstanding Loan Balance as of the last Business Day of the related Collection Period plus (b) all Principal Collections on deposit in the Principal Collection Account as of the last Business Day of the related Collection Period. Administrative Expenses means fees and expenses due or accrued with respect to any Payment Date and payable by the Issuer: (a) prior to the occurrence of a Fee Event, to the Indenture Trustee, the Backup Servicer and the Owner Trustee, any amounts owed to such parties under the Transaction Documents for fees and expenses, including fees, expenses and other amounts related to indemnification; provided that in no event shall the amounts payable pursuant to clause Second of Description of the Notes and Indenture Priority of Payments Interest Allocations : (i) (ii) (iii) to the Indenture Trustee and the Backup Servicer, in the aggregate, exceed $20,000 for any 12-month period (excluding amounts paid as part of the Indenture Trustee Fee, the quarterly fees to be paid to the Backup Servicer and recording expenses incurred by the Indenture Trustee in recording Assignments of Mortgages after an Event of Default or Servicer Default to the extent not paid by the Servicer); to the Owner Trustee, exceed $5,000 for any 12-month period (excluding amounts paid as part of the Owner Trustee Fee); if a successor servicer is being appointed, to the Indenture Trustee for costs and expenses associated with that appointment, exceed $100,000 in the aggregate for any given servicing transfer; (b) (c) following the occurrence of a Fee Event, to the Indenture Trustee, the Backup Servicer and the Owner Trustee, any amounts owed to such parties under the Transaction Documents for fees and expenses, other than for fees, expenses and other amounts related to indemnification; and to S&P, Moody s and Fitch, for their respective surveillance fees (including fees in respect of credit estimates). Affiliate of any specified Person means any other Person controlling or controlled by, or under common control with, such specified Person. For the purposes of this definition, control (including the terms controlling, controlled by and under common control with ), when used with respect to any specified Person means the possession, direct or indirect, of the power to vote 5% or more of the voting securities of such Person or to direct or cause the direction of the management and policies of such Person whether through the ownership of voting securities, by contract or otherwise. Agented Notes means one or more promissory notes issued by an Eligible Obligor wherein (a) the Loan is originated by the Originator in accordance with the Credit and Collection Policy as a part of a syndicated loan transaction, (b) the Issuer, as assignee of the Loan, will have all of the rights (but none of the obligations) of the Originator with respect to such Loan and the collateral, (c) the indebtedness in respect of such notes is secured by an undivided interest in the collateral which also secures and is shared by, on a pro rata basis, all other holders of such Obligor s notes of equal priority issued under the related Designated Loan Agreement and (d) the Originator (or ACFS) is the collateral agent for all loans made to such Obligor under the Designated Loan Agreement; provided that Agented Notes shall not include (i) the obligations, if any, of any agents under the Loan Documents evidencing -106-

120 such Agented Notes, and (ii) the interests, rights and obligations under the Loan Documents evidencing such Agented Notes that are retained by the Originator or are owned or owed by other noteholders. Aggregate Notional Amount means, on any date, the aggregate notional amount in respect of the payment obligations of the relevant Swap Counterparty that is outstanding on that date under all Swap Transactions or any group thereof, as the context requires. Aggregate Outstanding Loan Balance means, as of any date of determination, the Loan Pool Balance minus the sum of (a) the Outstanding Loan Balances of all Ineligible Loans then in the Loan Pool and (b) the Outstanding Loan Balances of all Defaulted Loans then in the Loan Pool. Aggregate Outstanding Principal Balance means, as of any date of determination, the sum of the Outstanding Principal Balances of each class of Notes outstanding on such date. Assigned Moody s Rating means, with respect to any Loan as of any date of determination, the monitored publicly available rating or the estimated rating expressly assigned to such Loan by Moody s that addresses the full amount of the principal and interest payable on such Loan. Assignment of Mortgage means, as to each Loan secured by an interest in real property, one or more assignments, notices of transfer or equivalent instruments, each in recordable form and sufficient under the laws of the relevant jurisdiction to reflect the transfer of an undivided interest in the related mortgage, deed of trust, security deed or similar security instrument and all other documents related to such Loan to the Issuer as assignee of the Trust Depositor and to grant a perfected Lien thereon in favor of the Indenture Trustee on behalf of the Noteholders and the Swap Counterparties; provided with respect to Agented Notes and all other Loans where a collateral agent has been appointed under the related Loan Documents to hold the security interest in the collateral securing the Loan, Assignment of Mortgage shall mean such documents, including assignments, notices of transfer or equivalent instruments, each in recordable form as necessary, as are sufficient under the laws of the relevant jurisdiction to reflect the transfer to the collateral agent for all holders of notes issued by the Obligor under the related Designated Loan Agreement that rank pari passu in terms of security interest, of the related mortgage, deed of trust, security deed or other similar instrument securing such notes and all other documents relating to such notes and to grant a perfected Lien thereon by the Obligor in favor of the collateral agent for all such noteholders. Average Life means, on any Measurement Date with respect to any Loan, the number obtained by dividing (a) the sum of the products of (i) the number of years (rounded to the nearest one tenth) from such Measurement Date to the respective dates of each successive Scheduled Payment of principal of such Loan and (ii) the respective amounts of principal of such Scheduled Payments by (b) the sum of all future Scheduled Payments of principal on such Loan. Balloon Loans means Loans that provide for (commencing either immediately after closing or after a period of time) a series of Scheduled Payments calculated to amortize the principal balance of the Loan over its term so that at its maturity more than 25.0% (but less than 100%) of the maximum Outstanding Principal Balance for such Loan remains unpaid, with such remaining balance due at maturity. Bankruptcy Code means the United States Bankruptcy Code, Title 11 of the United States Code, as amended. Broadly Syndicated Loan means any Loan to an Obligor issued as part of a loan facility with an original loan size (including any first and second lien loans included in the facility) greater than $250,000,000. Bullet Loans means Loans that provide for a series of scheduled interest payments over the term of the Loan and scheduled payment of 100% of the principal amount at the maturity of the Loan. CCC Excess Amount means, as of any date of determination, an amount equal to 50% of the excess of (a) the sum of the Outstanding Loan Balances of all Loans included in the Loan Pool that have an S&P Rating of CCC+ or lower over (b) the product of (i) the Aggregate Outstanding Loan Balance times (ii) 30%

121 CCC Excess Condition means, as of any date of determination, the CCC Excess Amount shall be equal to or less than 13.5% of the Aggregate Outstanding Loan Balance. Certificateholder means the Person in whose name a Certificate is registered in the register maintained by the registrar appointed pursuant to the Trust Agreement. Certificateholder s Account means the account established under the Trust Agreement. Class A Interest Amount means, with respect to each Interest Accrual Period, an amount equal to the product of (a) the Outstanding Principal Balance of the Class A Notes as of the first day of such Interest Accrual Period after giving effect to all distributions on such day and (b) the Note Interest Rate applicable to the Class A Notes for such Interest Accrual Period. Class B Accrued Payable means, with respect to any Payment Date, the sum of, for each preceding Payment Date, the excess, if any, of (a) the amount that would have been calculated as the Class B Interest Amount on each such preceding Payment Date, if the calculation had been made using clause (b)(i) of the definition of Class B Interest Amount only and clause (b)(ii) of such definition was not used over (b) the amount calculated as the Class B Interest Amount on each such preceding Payment Date, together with interest accrued thereon at the Note Interest Rate applicable to the Class B Notes on such preceding Payment Date. Class B Interest Amount means, with respect to each Interest Accrual Period, an amount equal to the product of (a) the Note Interest Rate applicable to the Class B Notes for such Interest Accrual Period and (b) the lesser of (i) the Outstanding Principal Balance of the Class B Notes as of the first day of such Interest Accrual Period after giving effect to all distributions on such day and (ii) the excess, if any, of (x) the Aggregate Outstanding Loan Balance as of the last day of the related Collection Period over (y) the Outstanding Principal Balance of the Class A Notes as of the first day of such Interest Accrual Period after giving effect to all distributions on such day; provided that for purposes of this definition in no event will the amount determined pursuant to clause (b)(ii) hereof be less than zero. Class C Accrued Payable means, with respect to any Payment Date, the sum of, for each preceding Payment Date, the excess, if any, of (a) the amount that would have been calculated as the Class C Interest Amount on each such preceding Payment Date, if the calculation had been made using clause (b)(i) of the definition of Class C Interest Amount only and clause (b)(ii) of such definition was not used over (b) the amount calculated as the Class C Interest Amount on each such preceding Payment Date, together with interest accrued thereon at the at the Note Interest Rate applicable to the Class C Notes on such preceding Payment Date. Class C Interest Amount means, with respect to each Interest Accrual Period, an amount equal to the product of (a) the Note Interest Rate applicable to the Class C Notes for such Interest Accrual Period and (b) the lesser of (i) the Outstanding Principal Balance of the Class C Notes as of the first day of such Interest Accrual Period after giving effect to all distributions on such day and (ii) the excess, if any, of (x) the Aggregate Outstanding Loan Balance as of the last day of the related Collection Period over (y) the sum of the Outstanding Principal Balances of the Class A Notes and Class B Notes as of the first day of such Interest Accrual Period after giving effect to all distributions on such day; provided that for purposes of this definition in no event will the amount determined pursuant to clause (b)(ii) hereof be less than zero. Class D Accrued Payable means, with respect to any Payment Date, the sum of, for each preceding Payment Date, the excess, if any, of (a) the amount that would have been calculated as the Class D Interest Amount on each such preceding Payment Date, if the calculation had been made using clause (b)(i) of the definition of Class D Interest Amount only and clause (b)(ii) of such definition was not used over (b) the amount calculated as the Class D Interest Amount on each such preceding Payment Date, together with interest accrued thereon at the at the Note Interest Rate applicable to the Class D Notes on such preceding Payment Date. Class D Interest Amount means, with respect to each Interest Accrual Period, an amount equal to the product of (a) the Note Interest Rate applicable to the Class D Notes for such Interest Accrual Period and (b) the lesser of (i) the Outstanding Principal Balance of the Class D Notes as of the first day of such Interest Accrual Period after giving effect to all distributions on such day and (ii) the excess, if any, of (x) the Aggregate Outstanding Loan Balance as of the last day of the related Collection Period over (y) the sum of the Outstanding Principal -108-

122 Balances of the Class A Notes, Class B Notes and Class C Notes as of the first day of such Interest Accrual Period after giving effect to all distributions on such day; provided that for purposes of this definition in no event will the amount determined pursuant to clause (b)(ii) hereof be less than zero. Collateral means the assets of each Obligor that have been pledged as security for each Loan, including but not limited to real and personal property, accounts receivable, inventory, equipment and intellectual property rights. Collections means all payments received on or after the related Cut-Off Date for a Loan on account of (a) interest on the Loans including payments of capitalized interest with respect to Deferred Interest Loans and all Late Charges and default and waiver charges, (b) principal on the Loans, (c) Scheduled Payments and Prepayments, (d) Liquidation Proceeds on Defaulted Loans, (e) Insurance Proceeds, (f) Servicer Advances, (g) the purchase or repurchase of any Loan, (h) the amount of any gains or losses incurred in connection with the investment of funds in the Trust Accounts other than the Swap Counterparty Collateral Account, (i) Net Trust Swap Receipts and Swap Breakage Receipts, and (j) during the Pre-Funding Period and the Replenishment Period, the Required Liquidation Proceeds, all as related to amounts attributable to the Loans in the Loan Pool or the related Collateral, but excluding any Excluded Amounts and Retained Interest. Co-Managers means Banc of America Securities, Credit Suisse Securities, HSBC Securities, HVB Capital Markets, Inc. and Wachovia Capital Markets, as the co-managers. Covenant-lite Loan means a Loan that (i) does not contain any financial covenants or (ii) requires the borrower to comply with an Incurrence Covenant, but no Maintenance Covenant. Credit and Collection Policy means those credit, collection, customer relation and service policies relating to the Loans and related Loan Files, as the same may be amended or modified from time to time in accordance with the Transfer and Servicing Agreement, and, with respect to any successor Servicer, the collection procedures and policies of such Person at the time such Person becomes successor Servicer. Deferred Interest Loan means a Loan that requires the Obligor to pay only a portion of the accrued and unpaid interest in cash on a current basis, the remainder of which is deferred and paid later together with interest thereon as a lump sum and is treated as Interest Collections at the time it is received. Deferred Interest Rate means, with respect to any Fixed Rate Loan, the rate of interest, if any, that the related Obligor may defer and pay at or prior to maturity of the Loan, with interest thereon. Delayed Draw Term Loan means any Loan that is fully committed on the initial funding date of such Loan and is required to be fully funded in one or more installments on draw dates to occur within one year of the initial funding of such Loan but which, once such installments have been made, has the characteristics of a term loan; provided that any Loan as to which no further installment may be funded shall not be a Delayed Draw Term Loan. Delinquent Loan means a Loan in the Loan Pool as to which there has occurred one or more of the following: (a) both (i) any portion of a payment of interest or principal on such Loan is not paid when due (without giving effect to any grace period or Servicer Advance) and (ii) within 60 days of when such delinquent payment was first due all delinquencies have not been cured, (b) in the case of a Loan which is publicly rated by Moody s or S&P, any portion of a payment of interest on or principal of such Loan is not paid when due (after giving effect to any applicable grace period (subject in all cases to a maximum grace period of five Business Days) but without giving effect to any Servicer Advance made in respect of such payment of interest or principal), (c) the Loan becomes a Materially Modified Loan as a result of an Obligor s inability to pay principal or interest, (d) the related Obligor is not paying any of the accrued and unpaid interest on a current basis or (e) any portion of a payment of principal or interest on such Loan comes from the proceeds of another loan made by the Originator or its Affiliates to such Obligor. Code. DIP Loan means any Loan of an Obligor that is a debtor-in-possession as defined under the Bankruptcy -109-

123 Diversity Score means the single number that indicates collateral concentration for Loans in terms of both Obligor and industry concentration, which is calculated as described in Annex A attached hereto. Downgrade Event means the reduction or withdrawal of the then-current rating issued by any of Moody s, S&P or Fitch with respect to any outstanding class of Offered Notes. Eligible Obligor means, as of any date of determination, any Obligor that satisfies each of the following requirements: (1) such Obligor is not a natural Person and is a legal operating entity, duly organized and validly existing under the laws of its jurisdiction of organization; (2) such Obligor is not the subject of any insolvency event; (3) such Obligor is not an Affiliate of any other Obligor hereto (other than as a result of being an Affiliate of the Originator); (4) is not an Obligor of a Defaulted Loan or Delinquent Loan; provided that an Obligor with respect to a Defaulted Loan or a Delinquent Loan shall cease to be disqualified under this clause (4) as of the date that each Loan which caused such Obligor to be so disqualified has become a performing Loan and maintained such status for a period of 6 consecutive months; (5) such Obligor is not a Governmental Authority; (6) other than in the case of Loans to Obligors representing not more than 10% of the Aggregate Outstanding Loan Balance, such Obligor s principal office and all or substantially all of the related primary Collateral are located in the United States; (7) such Obligor s principal office and all or substantially all of the related primary Collateral are located in the United States, Canada, or any Group I Country, Group II Country or Group III Country; and (8) such Obligor has an Eligible Risk Rating. Eligible Risk Rating means on any date of determination, with respect to a designated Obligor, a Risk Rating of Grade 3 or Grade 4. Enterprise Value means, with respect to any Obligor, as of any date of determination, (a) if such Obligor has been the subject of a merger, acquisition or recapitalization transaction within the most recent three months, the valuation of such Obligor as an entirety as determined in connection with such transaction, as such valuation may be reduced as determined by the Servicer in its reasonable discretion and in a manner consistent with the Credit and Collection Policy, giving due consideration to transactions involving enterprises comparable to such Obligor occurring during such three-month period, and (b) in all other cases, the valuation of such Obligor as an entirety as determined by the Servicer in its reasonable discretion and in a manner consistent with the Credit and Collection Policy, giving due consideration to transactions involving enterprises comparable to such Obligor which have been consummated within the three months prior to such date. Excluded Amounts means collections with respect to repurchased Loans or Loans that have been replaced with Substitute Loans. Expected Aggregate Outstanding Loan Balance means $500,000,000. Fee Event is an Event of Default other than pursuant to clauses (g) or (i) of the definition thereof. First Lien Loan means a Loan (including a portion of a Loan) which (a) is not, except as provided in the last sentence of this definition, by its terms (and is not expressly permitted by its terms to become) subordinate in right of payment to any other obligation for borrowed money of the Obligor of such Loan, (b) is secured by a valid first priority perfected security interest or Lien in, to or on specified Collateral subject to customary permitted Liens -110-

124 (whether or not the Issuer and any other lenders are also granted a security interest of a lower priority in additional Collateral), and (c) is secured by Collateral having a value (determined as set forth below) not less than the Outstanding Loan Balance of such Loan plus the aggregate Outstanding Loan Balance of all other loans of equal seniority secured by a first Lien or security interest in the same Collateral. The determination as to whether condition (c) of this definition is satisfied shall be based on the Servicer s judgment at the time the Loan is included in the Loan Pool. The right to receive the proceeds of designated Collateral subject to a set of contractual payment priorities affecting debt issued under or governed by the same Loan Documents will not prevent a Loan (or portion thereof) that satisfies the express requirements hereof from being a First Lien Loan. Fitch means Fitch, Inc., Fitch Ratings, Ltd. and their subsidiaries including Derivative Fitch, Inc. and Derivative Fitch, Ltd. and any successor or successors thereto. Fitch Rating means, for any Loan, the rating assigned to such Loan by Fitch, as updated from time to time by Fitch. Fitch Rating Condition means, with respect to any action or series of related actions or proposed transaction or series of proposed transactions, that Fitch shall have notified the Trust Depositor, the Owner Trustee and the Indenture Trustee in writing that such action or series of related actions or the consummation of such proposed transaction or series of related transactions will not result in a reduction or withdrawal of the then-current rating by Fitch with respect to any outstanding class of Notes as a result of such action or series of related actions or the consummation of such proposed transaction or series of related transactions. Fitch Rating Factor means, for any Loan with a Fitch Rating, the percentage set forth below under the heading Fitch Rating Factor across from the Fitch Rating of such Loan or, in the case of a rating assigned by Fitch at the request of the Issuer (or the Servicer on behalf of the Issuer), the Fitch Rating Factor as assigned by Fitch. Fitch Rating of Loan Fitch Rating Factor AAA 0.19% AA+ 0.57% AA 0.89% AA- 1.15% A+ 1.65% A 1.85% A- 2.44% BBB+ 3.13% BBB 3.74% BBB- 7.26% BB % BB 13.53% BB % B % B 27.67% B % CCC % CCC 48.52% CC 77.00% C 95.00% DDD-D % Fitch Weighted Average Rating means, as of any Measurement Date, the percentage obtained by dividing (a) the sum of the products obtained by multiplying the Outstanding Loan Balance of each Loan (excluding any Defaulted Loans) by its Fitch Rating Factor as of such date by (b) the Loan Pool Balance (excluding any Defaulted Loans) as of such date. Fixed Rate Loan means a Loan, other than a Floating Rate Loan, where the Loan Rate payable by the Obligor thereunder is expressed as a fixed rate of interest

125 Fixed Rate Permitted Excess Amount means $500,000 in the aggregate. Floating LIBOR Rate Loan means, as of any date of determination, a Loan where the Loan Rate payable by the Obligor thereof in respect of the majority of the Outstanding Loan Balance of such Loan is based on LIBOR plus some specified percentage in addition thereto, and the Loan provides that such Loan Rate will reset periodically upon any change in the related LIBOR. Floating Prime Rate Loan means, as of any date of determination, a Loan where the Loan Rate payable by the Obligor thereof in respect of the majority of the Outstanding Loan Balance of such Loan is based on the Prime Rate plus some specified percentage in addition thereto, and the Loan provides that such Loan Rate will reset immediately upon any change in the related Prime Rate. Floating Rate Loan means a Floating LIBOR Rate Loan or a Floating Prime Rate Loan, as applicable. Global Weighted Average Spread means, as of any Measurement Date, the lesser of (a) the Weighted Average Spread and (b) the Gross Weighted Average Spread minus the Minimum Weighted Average Deferred Interest Rate. Governmental Authority means with respect to any Person, any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over such Person. Gross Interest Rate means, with respect to any Loan, the sum of the Loan Rate with respect to such Loan plus the rate of interest, if any, that the related Obligor may defer and pay later together with interest thereon. Gross Weighted Average Spread means, as of any Measurement Date, the sum of (a) the Weighted Average Spread and (b) the Weighted Average Deferred Interest Rate. Group I Country means, for so long as the outstanding indebtedness of such country is rated at least AA- by S&P and at least Aa2 by Moody s, any of The Netherlands, the United Kingdom, Australia and New Zealand. Group II Country means, for so long as the outstanding indebtedness of such country is rated at least AA- by S&P and at least Aa2 by Moody s, any of Germany, Ireland, Sweden and Switzerland. Group III Country means, for so long as the outstanding indebtedness of such country is rated at least AA- by S&P and at least Aa2 by Moody s, any of Austria, Belgium, Denmark, Finland, France, Iceland, Liechtenstein, Luxembourg, Norway and Spain. Incurrence Covenant means with respect to any loan, a covenant by the borrower thereon to comply with one or more financial covenants only upon the occurrence of certain actions of the borrower including, but not limited to, a debt issuance, dividend payment, share purchase, merger, acquisition or divestiture. Index Rate means, with respect to any Fixed Rate Loan, as of any Measurement Date, the Swap Rate as of such date. Initial Aggregate Outstanding Loan Balance means the Aggregate Outstanding Loan Balance as of the Closing Date. Initial Loans means the Loans included in the Loan Pool as of the Closing Date. Initial Purchasers means Citi, JPMorgan, Banc of America Securities, Credit Suisse Securities, HSBC Securities, HVB Capital Markets, Inc. and Wachovia Capital Markets, as initial purchasers of the Offered Notes. Insurance Policy means, with respect to any Loan, an insurance policy covering physical damage to or loss of the related Collateral, and any other insurance policies relating to such Loan, including but not limited to title, property, hazard, liability, life and/or accident insurance policies

126 Insurance Proceeds means, depending on the context, any amounts payable or any payments made under any Insurance Policy covering a Loan or the Collateral. Interest Collections means (a) amounts deposited into the Collection Account pursuant to clauses (a), (e), (h), (i) and (j) of the definition of Collections, as well as the interest portion of any amounts received pursuant to clauses (c), (f) and (g) of the definition of Collections, (b) investment earnings on funds held in the Trust Accounts other than the Swap Counterparty Collateral Account, and (c) in the discretion of the Servicer, Liquidation Proceeds. Interest Distributable Amount means, as of any Payment Date, the amount of Interest Collections (excluding for purposes of calculating such amount any Required Liquidation Proceeds) remaining after distribution of amounts under clauses First through Eighth under Description of the Notes and Indenture Priority of Payments Interest Allocations. Interest Distributable Test means a test satisfied on any Payment Date (a) during the Pre-Funding Period and the Replenishment Period, if the sum of the Interest Distributable Amount plus the Required Liquidation Proceeds equals or exceeds the Required Distributable Amount and (b) after the Replenishment Period, if the Interest Distributable Amount equals or exceeds the Required Distributable Amount. Late Charges means any late payment fees paid by Obligors in accordance with the Servicer s Credit and Collection Policy. LIBOR Spread means, as of any Measurement Date, and with respect to any Loan, (a) in the case of a Floating Rate Loan, the stated spread above LIBOR at which interest accrues on such Loan, and (b) in the case of a Fixed Rate Loan, the applicable Loan Rate for such Loan minus the Index Rate; provided that in the case of a Floating Rate Loan not expressed as a spread above LIBOR, the stated spread to LIBOR for such Loan shall be calculated for any Measurement Date by the Servicer in its discretion by subtracting LIBOR from the Loan Rate for such Loan. Lien means any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), equity interest, participation interest, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing. Liquidation Expenses means, with respect to any Loan, the aggregate amount of all out-of-pocket expenses reasonably incurred by the Servicer (including amounts paid to any subservicer) and any reasonably allocated costs of internal counsel, in each case in accordance with the Servicer s Credit and Collection Policy in connection with the foreclosure and disposition of any related Collateral or the bankruptcy of an Obligor upon or after the expiration or earlier termination or acceleration of such Loan, and other out-of-pocket costs related to the liquidation of any such Collateral, including the attempted collection of any amount owing pursuant to such Loan if it is a Defaulted Loan, and, if requested by the Indenture Trustee, the Servicer and the Originator must provide to the Indenture Trustee a breakdown of the Liquidation Expenses for any Loan along with any supporting documentation therefor; provided that to the extent any such Liquidation Expenses relate to any Loan with a Retained Interest, such expenses shall be allocated pro rata to such Loan based on the Outstanding Loan Balance of such Loan included in the Loan Pool and the outstanding loan balance of the Retained Interest. Liquidation Proceeds means, with respect to a Defaulted Loan, proceeds from the sale of the Collateral, Insurance Proceeds and any other recoveries with respect to such Defaulted Loan and the related Collateral, net of Liquidation Expenses and amounts, if any, so received that are required either to be refunded to the Obligor on such Loan or paid to a third party. Loan Documents means, with respect to any Loan, (a) with the exception of Noteless Loans, the original, executed related Underlying Note, (b) in the case of Noteless Loans, a copy of the Loan Register, (c) an executed copy of the Designated Loan Agreement, (d) in each case, as applicable, a copy of: any security agreement, intercreditor and/or subordination agreement, mortgage, any assignment of such Loan, all guarantees and UCC financing statements and continuation statements (including amendments or modifications thereof) executed by the Obligor thereof or by another Person on the Obligor s behalf in respect of such Loan and the related Underlying -113-

127 Note (if any), and (e) for each Loan secured by real property and evidenced by a mortgage, deed of trust, security deed or similar security instrument, a copy of the executed Assignment of Mortgage, and for all Loans with an Underlying Note, an original assignment (which may be by allonge) in blank signed by an authorized officer of the Originator. Loan File means, with respect to each Loan, the Loan Documents and such other documents, if any, that the Servicer keeps on file in accordance with the Credit and Collection Policy and all other documents originally delivered to the Originator or held by the Servicer with respect to any Loan; provided that all documents other than the Underlying Note, if any, along with any assignment (which may be by allonge) constituting the Loan File may be copies of such documents. Loan Pool means, as of any date of determination, the Initial Loans, the Additional Loans and the Substitute Loans (if any), other than any such Loans that (a) have been reconveyed by the Issuer to the Trust Depositor, and concurrently by the Trust Depositor to the Originator, or (b) have been paid (or prepaid) in full. Loan Pool Balance means, as of any date of determination, the sum of the Outstanding Loan Balances of all Loans in the Loan Pool as of such date. Loan Rate means, for each Loan in a Collection Period, the current cash pay interest rate for such Loan in such period, as specified in the related Loan Documents. Loan Register means, with respect to each Noteless Loan, the register in which the agent or collateral agent for such Loan will record, among other things, (a) the amount of such Loan, (b) the amount of any principal or interest due and payable or to become due and payable from the Obligor thereunder, (c) the amount of any sum in respect of such Loan received from the Obligor and each lender s share thereof, (d) the date of origination of such Loan and (e) the maturity date of such Loan. Loan-to-Value means, with respect to any Loan, as of any date of determination, the percentage equivalent of a fraction (a) the numerator of which is equal to the sum of (i) the maximum availability (as provided in the applicable Loan Documents) of such Loan as of the date of its origination plus (ii) the maximum availability under all other indebtedness of the related Obligor which ranks either senior to, or pari passu with, such Loan and (b) the denominator of which is equal to the Enterprise Value of the Obligor with respect to such Loan. London Banking Day means any day on which dealings in deposits in United States dollars are transacted in the London interbank market. Maintenance Covenant means with respect to any loan, a covenant by the borrower thereon to comply with one or more financial covenants during each reporting period, whether or not it has taken any specified action. Materially Modified Loan means a Loan that has been terminated, released (including pursuant to prepayment), amended, modified, waived or subject to a similar undertaking or agreement by the Servicer, and the same is not otherwise permitted by the Transfer and Servicing Agreement. Maximum Moody s Weighted Average Rating Factor means, as of any date of determination, an amount equal to the sum of (x) 3350, plus (y) the Recovery Rate Modifier as of such date of determination. Maximum Weighted Average Life means, as of the Closing Date, 6.25 years declining by 0.25 years for each Collection Period elapsed during the Replenishment Period. Minimum Diversity Score means 22. Minimum Global Weighted Average Spread means 6.20%. Minimum Weighted Average Deferred Interest Rate means, as of any date of determination, 0.80%. Moody s means Moody s Investors Service, Inc., or any successor thereto

128 Moody s Equivalent Senior Unsecured Rating means, with respect to any Loan and the Obligor thereof as of any date of determination, the rating determined in accordance with the following, in the following order of priority: (a) (b) the Moody s issuer rating for the Obligor; if the preceding clause (a) does not apply, but the Obligor has a senior secured obligation with an Assigned Moody s Rating, then: (i) (ii) if such Assigned Moody s Rating is at least B2 (and, if rated B2, not on watch for downgrade), the Moody s Equivalent Senior Unsecured Rating shall be the rating which is one subcategory below such Assigned Moody s Rating, or if such Assigned Moody s Rating is less than B2 (or rated B2 and on watch for downgrade), then the Moody s Equivalent Senior Unsecured Rating shall be the rating which is two subcategories below such Assigned Moody s Rating; (c) if the preceding clauses (a) and (b) do not apply, but the Obligor has a subordinated obligation with an Assigned Moody s Rating, then (i) (ii) if such Assigned Moody s Rating is at least B3 (and, if rated B3, not on watch for downgrade), the Moody s Equivalent Senior Unsecured Rating will be the rating that is one rating subcategory higher than such Assigned Moody s Rating, or if such Assigned Moody s Rating is less than B3 (or rated B3 and on watch for downgrade), the Moody s Equivalent Senior Unsecured Rating shall be such Assigned Moody s Rating; (d) (e) if the preceding clauses (a) through (c) do not apply, but such Obligor has a corporate family rating from Moody s, the Moody s Equivalent Senior Unsecured Rating will be one rating subcategory below such corporate family rating; if the preceding clauses (a) through (d) do not apply, but the Obligor has a senior unsecured obligation (other than a bank loan) with a monitored public rating from S&P (without any postscripts, asterisks or other qualifying notations, that addresses the full amount of principal and interest promised), then the Moody s Equivalent Senior Unsecured Rating will be: (i) (ii) one rating subcategory below the Moody s equivalent of such S&P rating if it is BBB- or higher, or two rating subcategories below the Moody s equivalent of such S&P rating if it is BB+ or lower; (f) if the preceding clauses (a) through (e) do not apply, but the Obligor has a subordinated obligation (other than a bank loan) with a monitored public rating from S&P (without any postscripts, asterisks or other qualifying notations, that addresses the full amount of principal and interest promised), then the Assigned Moody s Rating will be deemed to be: (i) (ii) one rating subcategory below the Moody s equivalent of such S&P rating if it is BBB- or higher; or two rating subcategories below the Moody s equivalent of such S&P rating if it is BB+ or lower, and the Moody s Equivalent Senior Unsecured Rating will be determined pursuant to clause (c) above; (g) if the preceding clauses (a) through (f) do not apply, but the Obligor has a senior secured obligation with a monitored public rating from S&P (without any postscripts, asterisks or other -115-

129 qualifying notations, that addresses the full amount of principal and interest promised), the Assigned Moody s Rating shall be deemed to be: (i) (ii) one rating subcategory below the Moody s equivalent of such S&P rating if it is BBB- or higher; or two rating subcategories below the Moody s equivalent of such S&P rating if it is BB+ or lower, and the Moody s Equivalent Senior Unsecured Rating shall be determined pursuant to clause (d) above; (h) if the preceding clauses (a) through (g) do not apply and each of the following clauses (i) through (viii) do apply, the Moody s Equivalent Senior Unsecured Rating will be B3 : (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) neither the Obligor nor any of its Affiliates is subject to reorganization or bankruptcy proceedings; no debt securities or obligations of the Obligor are in default; neither the Obligor nor any of its Affiliates has defaulted on any debt during the preceding two years; the Obligor has been in existence for the preceding five years; the Obligor is current on any cumulative dividends; the fixed-charge ratio for the Obligor exceeds 125% for each of the preceding two fiscal years and for the most recent quarter; the Obligor had a net profit before tax in the past fiscal year and the most recent quarter; and the annual financial statements of such Obligor are unqualified and certified by a firm of Independent accountants of national reputation, and quarterly statements are unaudited but signed by a corporate officer; (i) if the preceding clauses (a) through (h) do not apply but each of the following clauses (i) and (ii) do apply, the Moody s Equivalent Senior Unsecured Rating will be Caa2 : (i) (ii) neither the Obligor nor any of its Affiliates is subject to reorganization or bankruptcy proceedings; and no debt security or obligation of such Obligor has been in default during the past two years; and (j) if the preceding clauses (a) through (i) do not apply and a debt security or obligation of the Obligor has been in default during the past two years, the Moody s Equivalent Senior Unsecured Rating will be Ca. Notwithstanding the foregoing, Loans comprising no more than 7.5% of the Aggregate Outstanding Loan Balance may be given a Moody s Equivalent Senior Unsecured Rating based on a rating given by S&P as provided in clauses (e), (f) and (g) above. Moody s Non-Senior Secured Loan means any Loan that is neither a Moody s Senior Secured Loan nor a loan described in clause (c) of the definition of Moody s Senior Secured Loan

130 Moody s Obligation Rating means, with respect to any Loan as of any date of determination, the rating determined in accordance with the following criteria, in the following order of priority: (a) with respect to a Moody s Senior Secured Loan: (i) (ii) if it has an Assigned Moody s Rating, such Assigned Moody s Rating; or if the preceding clause (a)(i) does not apply, the Moody s corporate family rating; and (b) with respect to a Loan other than a Moody s Senior Secured Loan: (i) (ii) if it has an Assigned Moody s Rating, such Assigned Moody s Rating; or if the preceding clause (b)(i) does not apply, the rating that is one rating subcategory below the Moody s corporate family rating. Notwithstanding the foregoing, if the Moody s rating or ratings used to determine the Moody s Obligation Rating are on watch for downgrade or upgrade by Moody s, such rating or ratings will be adjusted down by one subcategory (if on watch for downgrade) or up by one subcategory (if on watch for upgrade). Moody s Rating means, with respect to any Loan, if the Loan has been specifically assigned a rating in connection with a credit estimate as to such Loan, such rating, and otherwise, the rating determined in accordance with the following in the following order of priority: (a) with respect to a Moody s Senior Secured Loan: (i) (ii) (iii) if the Loan s Obligor has a corporate family rating from Moody s, such corporate family rating; if the preceding clause (a)(i) does not apply, the Moody s rating that is one rating subcategory above the current outstanding Assigned Moody s Rating for a senior unsecured obligation of the Obligor of such Loan; and if the preceding clauses (a)(i) and (ii) do not apply, the Moody s rating that is one rating subcategory above the Moody s Equivalent Senior Unsecured Rating of such Loan; (b) with respect to a Moody s Non-Senior Secured Loan: (i) (ii) if the Obligor has a senior unsecured obligation with an Assigned Moody s Rating, such rating; provided that, for the avoidance of doubt, a Subordinated Loan shall not constitute a senior unsecured obligation, and if the preceding clause (b)(i) does not apply, the Moody s Equivalent Senior Unsecured Rating of the Loan; (c) (d) if such Loan is not rated by Moody s or S&P, and no other security or obligation of the Obligor is rated by Moody s or S&P, or if the rating of such Loan is not addressed in any of clauses (a) or (b) above, then the Issuer or the Servicer on behalf of the Issuer, may present such Loan to Moody s for an estimate of such Loan s Moody s Rating Factor, from which its corresponding Moody s Rating shall be determined; provided that until such Moody s Rating has been obtained, the Moody s Rating of such Loan shall be the rating as may be estimated in good faith by the Servicer; provided further that such estimated rating shall not be higher than Caa1 ; and with respect to a Loan, the rating may, in the Servicer s discretion, be determined in accordance with Annex B hereto as of the Cut-Off Date of such Loan, subject to the satisfaction of the qualifications set forth therein; provided that (i) such Loans, at all time prior to the end of the Replenishment Period, represent not more than 20% of the Aggregate Outstanding Loan Balance (as such percentage may be adjusted from time to time in Moody s discretion) and (ii) such -117-

131 Loans represent, after the end of the Replenishment Period, not more than the greater of (x) 20% of the Aggregate Outstanding Loan Balance (as such percentage may be adjusted in Moody s discretion) and (y) the aggregate Outstanding Loan Balance of Loans included in the Loan Pool which have a Moody s Rating previously determined under this clause (d); provided further that the Servicer shall redetermine and report to Moody s the Moody s Rating for each Loan determined under this clause (d) within 30 days after receipt of the annual audited financial statements from the related Obligor; provided that with respect to the Loans in the Loan Pool generally, if at any time Moody s or any successor to it ceases to provide rating services, reference to rating categories of Moody s herein shall be deemed instead to be references to the equivalent categories of any other nationally recognized investment rating agency selected by the Issuer (with written notice to the Trustee), as of the most recent date on which such other rating agency and Moody s published ratings for the type of security in respect of which such alternative rating agency is used. Notwithstanding the foregoing, if the Moody s rating or ratings used to determine the Moody s Rating are on watch for downgrade or upgrade by Moody s, such rating or ratings will be adjusted down by one subcategory (if on watch for downgrade) or up by one subcategory (if on watch for upgrade). Moody s Rating Factor means, for any Loan with a Moody s Rating, the number set forth below under the heading Moody s Rating Factor across from the Moody s Rating of such Loan or, in the case of a rating assigned by Moody s at the request of the Issuer (or the Servicer on behalf of the Issuer), the Moody s Rating Factor as assigned by Moody s. Moody s Rating of Loan Moody s Rating Factor Aaa (1) 1 Aa1 10 Aa2 20 Aa3 40 A1 70 A2 120 A3 180 Baa1 260 Baa2 360 Baa3 610 Ba1 940 Ba2 1,350 Ba3 1,766 B1 2,220 B2 2,720 B3 3,490 Caa1 4,770 Caa2 6,500 Caa3 8,070 Ca 10,000 C 10,000 (1) Includes any security issued or guaranteed as to the payment of principal and interest by the United States government or any agency or instrumentality thereof

132 Moody s Recovery Rate means, with respect to any Loan, the recovery rate specified by Moody s for such Loan (or, to the extent not specified by Moody s, in the case of a Loan with a public rating by Moody s, the recovery rate for such Loan as determined in accordance with a schedule to be agreed to by the Servicer and Moody s and subject to the Rating Agency Condition with respect to Moody s); provided that prior to the time that such Loan has been assigned a recovery rate by Moody s, the Moody s Recovery Rate with respect to such loan shall be deemed to be the percentage specified in the table below: Moody s Category Recovery Rate Type 1: U.S. or Canadian Obligor senior secured Loan with first priority perfected Lien 50% Type 2: U.S. or Canadian Obligor senior secured second lien or last-out Loan 40% Type 3: U.S. or Canadian Obligor senior unsecured Loan 30% Type 4: U.S. or Canadian Obligor senior subordinated Loan or junior subordinated Loan 15% Type 5: Non-U.S., Non-Canadian Obligor any Loan 0% Moody s Senior Secured Loan means: (a) a Loan that: (i) (ii) (iii) is not (and cannot by its terms become) subordinate in right of payment to any other obligation of the Obligor of the Loan; is secured by a valid first priority perfected security interest or lien in, to or on specified collateral securing the Obligor s obligations under the Loan (subject to customary permitted liens); and the value of the collateral securing the Loan together with other attributes of the Obligor (including, without limitation, its general financial condition, ability to generate cash flow available for debt service and other demands for that cash flow) is adequate (in the commercially reasonable judgment of the Servicer) to repay the Loan in accordance with its terms and to repay all other loans of equal seniority secured by a first lien or security interest in the same collateral; or (b) a Loan that: (i) (ii) (iii) is not (and cannot by its terms become) subordinate in right of payment to any other obligation of the obligor of the Loan, other than, with respect to a Loan described in clause (a) above, with respect to the liquidation of such Obligor or the collateral for such Loan; is secured by a valid second priority perfected security interest or lien in, to or on specified collateral securing the Obligor s obligations under the Loan (subject to customary permitted liens); and the value of the collateral securing the Loan together with other attributes of the Obligor (including, without limitation, its general financial condition, ability to generate cash flow available for debt service and other demands for that cash flow) is adequate (in the commercially reasonable judgment of the Servicer) to repay the Loan in accordance with its terms and to repay all other loans of equal or higher seniority secured by a first or second lien or security interest in the same collateral; and -119-

133 (iv) is as described in clause (b)(i), (b)(ii) or (b)(iii) above and the Loan has a Moody s Rating, such Moody s Rating is not lower than the Moody s corporate family rating of the Obligor of such Loan; and (c) the Loan is not: (i) (ii) (iii) a DIP Loan; a Loan for which the security interest or lien (or the validity or effectiveness thereof) in substantially all of its collateral attaches, becomes effective, or otherwise springs into existence after the origination thereof; or a type of loan that Moody s has identified as having unusual terms and with respect to which its Moody s Recovery Rate has been or is to be determined on a case-by-case basis. Moody s Weighted Average Rating Factor means, as of any Measurement Date, the number obtained by dividing (a) the sum of the products obtained by multiplying the Outstanding Loan Balance of each Loan (excluding any Defaulted Loans) by its Moody s Rating Factor as of such date by (b) the Loan Pool Balance (excluding any Defaulted Loans) as of such date. Moody s Weighted Average Recovery Rate means, as of any Measurement Date, the percentage (rounded up to the first decimal place) obtained by dividing (a) the sum of the products obtained by multiplying the Outstanding Loan Balance of each Loan (excluding any Defaulted Loans) by its Moody s Recovery Rate, by (b) the Loan Pool Balance (excluding any Defaulted Loans). Net Purchased Loan Balance means, as of any date of determination, an amount equal to (a) the aggregate Outstanding Loan Balance of all Loans conveyed by the Originator to the Trust Depositor under the Transfer Agreement prior to such date minus (b) the aggregate Outstanding Loan Balance of all Loans (other than Ineligible Loans) repurchased by the Originator (or the Servicer, so long as it is an Affiliate of the Originator) or substituted pursuant to the Transfer and Servicing Agreement prior to such date. Note Interest Rate means, for each class of Notes, the rate per annum at which interest accrues on such class during an Interest Accrual Period (in each case calculated on the basis of a year of 360 days and actual days elapsed in the Interest Accrual Period). With respect to each Interest Accrual Period, the Note Interest Rate for each class of Notes will be as follows: Class Note Interest Rate A LIBOR % B LIBOR % C LIBOR % D LIBOR % E N/A F N/A Noteholder means, with respect to a Note, the Person in whose name such Note is registered in the register established pursuant to the terms of the Indenture. Noteless Loan means a Loan with respect to which (a) the related Designated Loan Agreement does not require the Obligor to execute and deliver an Underlying Note to evidence the indebtedness created under such Loan and (b) no Underlying Notes are outstanding with respect to such Loan. Obligor means, with respect to any Loan, the Person or Persons obligated to make payments with respect to the Loan, including any guarantor thereof

134 Outstanding Loan Balance means, as of any date of determination, the sum of the total scheduled remaining amounts of principal payable by an Obligor under a Loan, exclusive of interest payments and capitalized interest amounts. Outstanding Principal Balance means, as of date of determination and with respect to any class of Notes, the original principal amount of such class of Notes as reduced by all amounts paid by the Issuer with respect to such principal amount up to such date. Permitted Liens means: (a) with respect to Loans in the Loan Pool: (i) (ii) (iii) Liens in favor of the Trust Depositor created pursuant to the Transfer Agreement and transferred to the Issuer pursuant to the Transfer and Servicing Agreement; Liens in favor of the Issuer created pursuant to the Transfer and Servicing Agreement and the Transfer Agreement; and Liens in favor of the Indenture Trustee created pursuant to the Indenture and/or the Transfer and Servicing Agreement; and (b) with respect to the interest of the Originator, the Trust Depositor and the Issuer in the related Collateral: (i) (ii) (iii) (iv) (v) (vi) (vii) materialmen s, warehousemen s, mechanics and other Liens arising by operation of law in the ordinary course of business for sums not due or sums that are being contested in good faith; Liens for state, municipal and other local taxes if such taxes shall not at the time be due and payable or if the Originator, Trust Depositor or the Issuer shall currently be contesting the validity thereof in good faith by appropriate proceedings; Liens in favor of the Trust Depositor created, and transferred by the Trust Depositor to the Issuer, pursuant to the Transfer Agreement and the Transfer and Servicing Agreement; Liens in favor of the Issuer created pursuant to the Transfer and Servicing Agreement; Liens in favor of the Indenture Trustee created pursuant to the Indenture and/or the Transfer and Servicing Agreement; purchase money security interests in equipment, Liens held by senior lenders with respect to any subordinated Loans and Liens in favor of junior lenders to the same Obligor and other customary Liens permitted with respect thereto consistent with the Credit and Collection Policy; and Liens in favor of the collateral agent on behalf of all lenders that have made loans to the related Obligor under the Designated Loan Agreement. Person means any individual, corporation, estate, partnership, business trust, statutory trust, limited liability company, sole proprietorship, joint venture, association, joint stock company, trust (including any beneficiary thereof), unincorporated organization or government or any agency or political subdivision thereof or other entity. Portfolio Acquisition and Disposition Requirements means, with respect to any acquisition or disposition of a Loan, each of the following conditions: (a) such Loan, if being acquired by the Issuer, is an Eligible Loan; (b) such Loan is being acquired or disposed of in accordance with the terms and conditions set forth in the Transfer and Servicing Agreement; (c) the acquisition or disposition of such Loan does not result in a reduction or withdrawal of -121-

135 the then-current rating issued by any Rating Agency on any class of Notes then outstanding; and (d) such Loan is not being acquired or disposed of for the primary purpose of recognizing gains or decreasing losses resulting from market value changes. Prepayment means any and all (a) partial and full prepayments, including any Prepayment Premiums, on a Loan, (b) any Scheduled Payment (or portion thereof) that is due in a subsequent Collection Period that the Servicer has received (and to the extent permission therefor was necessary, expressly permitted the related Obligor to make) in advance of its scheduled due date and (c) Liquidation Proceeds. Prepayment Premiums means any prepayment premiums paid by an Obligor in connection with any Prepayment. Prime Rate means a rate equal to USD-PRIME-H.15 (as defined in the Annex to the 2000 ISDA Definitions (June 2000 version) as published by the International Swaps and Derivatives Association, Inc.), such rate to change as and when such designated rate changes. Principal Collections means amounts deposited into the Collection Account pursuant to clause (b) and, during the Replenishment Period, clause (d) of the definition of Collections, as well as the principal portion of any amounts received pursuant to clauses (c), (f) and (g) of the definition of Collections, together with, on and after an Event of Default, all amounts payable pursuant to subclause (ii) of clause Ninth under Description of the Notes and Indenture Priority of Payments Interest Allocations. Prior Term Transactions means the Rule 144A/Regulation S private placements of notes issued by (a) ACAS Business Loan Trust on or about December 2, 2004, (b) ACAS Business Loan Trust on or about October 4, 2005, (c) ACAS Business Loan Trust on or about July 28, 2006 and (d) ACAS Business Loan Trust on or about April 24, Proposed Plan means a plan proposed by the Servicer, on behalf of the Issuer, to the Rating Agencies to obtain an Effective Date Ratings Confirmation, which plan may propose any action not otherwise prohibited under the Transaction Documents. Purchase Agreement means the Purchase Agreement, dated as of August 3, 2007, among the Initial Purchasers, the Trust Depositor, the Issuer and the Originator, as amended, modified, restated, replaced, waived, substituted, supplemented or extended from time to time. Qualified Second Lien Loan means any Second Lien Loan: (a) which has a Loan-to-Value of not greater than 70%; (b) as to which the ratio, for the related Obligor, of (i) the sum of (A) the maximum amount to be drawn (as provided in the applicable Loan Documents) under such Loan as of the date of its origination plus (B) the maximum amount to be drawn under all other indebtedness of the related Obligor which ranks either senior to, or pari passu with, such Loan to (ii) such Obligor s EBITDA (or similar term as defined in the related Loan Documents) for the most recent twelve month period for which financial statements are available preceding such date shall not exceed (A) in the case of Obligors in the media and telecommunications industries, 6.5:1.0 and (B) in the case of all other Obligors, 4.5:1.0; and (c) with respect to which the Loan Documents (i) contain a limit on the amount of total debt which may be incurred by the related Obligor, (ii) preserve enforcement rights, subject to a standstill period as permitted by clause (iii) below, for the second lien lender after a default under the related Loan Documents, and (iii) contain either or both (A) if there is a standstill period applicable to the exercise of remedies by the holders of such Second Lien Loan, such standstill period shall not extend longer than 180 days following a delivery of notice of a default under the related Loan Documents to the first lien and second lien agents (it being understood that the second lien lender or agent may also be prohibited from exercising remedies after the expiration of such standstill period if a first lien lender or agent is exercising remedies) and/or (B) provisions requiring the consent of the holders of such Second Lien Loan to release its lien on all or substantially all of the Collateral securing such Loan unless the majority of the proceeds of the disposition of such Collateral are used to repay the indebtedness which is senior to or pari passu with such Second Lien Loan, and to repay such Second Lien Loan. Qualified Swap Counterparty means a party that is a recognized dealer in interest rate swaps and interest rate caps, organized under the laws of the United States of America or a jurisdiction located therein (or another jurisdiction reasonably acceptable to the Issuer and each Rating Agency), that with respect to itself or its Credit -122-

136 Support Provider: (a) at the time it becomes a Swap Counterparty has a short-term rating of at least A-1 by S&P or a long-term senior unsecured debt rating of at least A+ by S&P if such Person does not have a short-term rating by S&P (for so long as any of the Offered Notes are deemed outstanding and are rated by S&P), and a short-term rating of at least F1 and a long-term senior unsecured debt rating of at least A by Fitch or, if such Person does not have a short-term rating by Fitch, a long-term senior unsecured debt rating of at least A by Fitch (for so long as any of the Offered Notes are deemed outstanding and are rated by Fitch) and at least the following ratings by Moody s: (x) where the entity is the subject of a short-term rating scale by Moody s, such entity s Moody s short-term rating is Prime-1 and its long-term, unsecured and unsubordinated debt or counterparty obligations are rated A2 or above by Moody s, and (y) where such entity is not the subject of a short-term rating scale by Moody s, if the entity s long-term, unsecured and unsubordinated debt or counterparty obligations are rated A1 or above by Moody s (for so long as any of the Offered Notes are deemed outstanding and are rated by Moody s) and thereafter maintains a short-term rating of A-3 from S&P or, if such Person does not have a short-term rating, a long-term senior unsecured debt rating of at least BBB- from S&P, and is otherwise in compliance with the terms of the Swap (for so long as any of the Offered Notes are deemed outstanding and are rated by S&P), and a short-term debt rating of at least F2 by Fitch and a long-term senior unsecured debt rating of at least BBB+ by Fitch, or, if such Person does not have a short-term rating by Fitch, a long-term senior unsecured debt rating of at least BBB+ by Fitch (for so long as any of the Offered Notes are deemed outstanding and are rated by Fitch) and at least the following ratings by Moody s: (x) where the entity is the subject of a short-term rating scale by Moody s, such entity s Moody s short term rating is Prime 2 or above and its long-term, unsecured and unsubordinated debt or counterparty obligations are rated A3 or above by Moody s, and (y) where such entity is not the subject of a short-term rating scale by Moody s, if the entity s long-term, unsecured and unsubordinated debt or counterparty obligations are rated A3 or above by Moody s (for so long as any of the Offered Notes are deemed outstanding and are rated by Moody s); provided that should a Rating Agency effect an overall downward adjustment of its short-term or long-term debt ratings, then the rating required of that Rating Agency under this clause (a) for a party to constitute a Qualified Swap Counterparty shall be downwardly adjusted accordingly; provided further that any adjustment to a rating shall be subject to the prior written consent of the applicable Rating Agency; (b) legally and effectively accepts the rights and obligations under the applicable Interest Rate Swap, or, as the case may be, alternate credit support arrangements pursuant to a written agreement reasonably acceptable to the Issuer; and (c) in connection with a substitute Swap Counterparty, otherwise satisfies the Rating Agency Condition. Rating Agency Condition means, for so long as any Offered Notes are outstanding and rated by a Rating Agency, with respect to any action or series of related actions or proposed transaction or series of related proposed transactions, that each Rating Agency shall have notified the Trust Depositor, the Owner Trustee and the Indenture Trustee in writing that such action or series of related actions or the consummation of such proposed transaction or series of related transactions will not result in a Ratings Effect. Ratings Effect means (for so long as any of the Offered Notes are deemed outstanding and are rated by a Rating Agency), with respect to any action or series of related actions or proposed transaction or series of related proposed transactions, a reduction or withdrawal of the then current rating issued by a Rating Agency with respect to any outstanding class of Notes as a result of such action or series of related actions or the consummation of such proposed transaction or series of related transactions. Recovery Rate Modifier shall be an amount equal to, as of any date of determination, the product of (a) the excess, if any, of the Moody s Weighted Average Recovery Rate as of such date of determination over 25% times (b) 5,000; provided that if the Moody s Weighted Average Recovery Rate shall be (i) greater than or equal to 40%, then solely for the purposes of the calculation of the Recovery Rate Modifier, the Moody s Weighted Average Recovery Rate shall be deemed to be equal to 40% (or, such other value, with respect to which the Rating Agency Condition shall be satisfied), or (ii) less than or equal to 25%, then solely for the purposes of the calculation of the Recovery Rate Modifier, the Moody s Weighted Average Recovery Rate shall be deemed to be equal to 25%. Reference Banks means leading banks selected by the Indenture Trustee and engaged in transactions in Eurodollar deposits in the international Eurocurrency market. Representative Amount means an amount that is representative for a single transaction in the relevant market at the relevant time

137 Required Distributable Amount means, for any Payment Date, the sum of the Additional Principal Amount for such Payment Date and the Required Reserve Amount for such Payment Date. Required Holders means (a) prior to the payment in full of the Offered Notes, the Holders evidencing more than 66 2/3% of the aggregate Outstanding Principal Balance of each class of Offered Notes, with each class voting separately, (b) from and after the payment in full of the Offered Notes but prior to payment in full of the Class E Notes, the Class E Noteholders evidencing more than 66 2/3% of the aggregate Outstanding Principal Balance of the Class E Notes, and (c) from and after payment in full of the Class E Notes, the Class F Noteholders evidencing more than 66 2/3% of the aggregate Outstanding Principal Balance of the Class F Notes. Required Liquidation Proceeds means, for any Payment Date during the Pre-Funding Period and the Replenishment Period, the lesser of (a) an amount equal to the Required Distributable Amount for such Payment Date minus the Interest Distributable Amount for such Payment Date and (b) the amount of Liquidation Proceeds, if any, on deposit in the Principal Collection Account on the last day of the Collection Period immediately preceding such Payment Date, which Required Liquidation Proceeds shall be deemed to constitute Interest Collections for all purposes hereunder as of the end of the Collection Period immediately preceding such Payment Date. Requirements of Law for any Person or property of such Person means the certificate of incorporation or articles of association and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule, regulation, or order or determination of an arbitrator or Governmental Authority, in each case applicable to or binding upon such Person or to which such Person is subject, whether Federal, state or local (including, without limitation, usury laws, the Federal Truth in Lending Act, the 1940 Act, as amended, and Regulation Z and Regulation B of the Board of Governors of the Federal Reserve System). Retained Interest means, for each Loan, the following interests, rights and obligations in such Loan and under the associated Loan Documents, which are being retained by the Originator: (a) all of the obligations, if any, to provide additional funding with respect to such Loan, (b) all of the rights and obligations, if any, of the agent(s) under the documentation evidencing such Loan, (c) the applicable portion of the interests, rights and obligations under the documentation evidencing such Loan that relate to such portion(s) of the indebtedness that is owned by another lender or is being retained by the Originator, (d) any unused, commitment or similar fees associated with the additional funding obligations that are not being transferred in accordance with clause (a) of this definition, (e) any agency or similar fees associated with the rights and obligations of the agent that are not being transferred in accordance with clause (b) of this definition, (f) any advisory, consulting or similar fees due from the Obligor associated with services provided by the agent that are not being transferred in accordance with clause (b) of this definition, and (g) any and all warrants, options, and other equity instruments issued in the name of the Originator or its Affiliates in connection with or relating to any Loan. Reuters Screen LIBOR01 means the display page currently so designated on the Reuters Telerate Service (or such other page as may replace that page on that service for the purpose of displaying comparable rates or prices). S&P means Standard & Poor s Rating Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto. S&P Priority Category Recovery Rate means, with respect to any Loan, unless otherwise specified by S&P, the percentage specified in the table below: S&P Priority Category Recovery Rate First Lien Loan 55% Qualified Second Lien Loan 47% Second Lien Loan (other than a Qualified 38% Second Lien Loan), up to an aggregate of Outstanding Loan Balances of such Second Lien Loans of less than or equal to 15% of the Aggregate Outstanding Loan Balance -124-

138 S&P Priority Category Recovery Rate Second Lien Loans (other than a Qualified 22% Second Lien Loan), representing the aggregate of Outstanding Loan Balances of such Second Lien Loans in excess of 15% of the Aggregate Outstanding Loan Balance Subordinated Loan 22% Date: S&P Rating means, with respect to any Loan, for determining the S&P Rating as of any Measurement (a) (b) (c) (d) if there is an issuer credit rating of the Obligor of such Loan, or the guarantor who unconditionally and irrevocably guarantees such Loan, then the S&P Rating shall be such rating (regardless of whether there is a published rating by S&P on such Loan in the Loan Pool); provided that if such rating is a private rating, then consent must be provided by the Obligor prior to S&P s disclosure of such rating; if there is no issuer credit rating of the Obligor and no other security or obligation of the Obligor is rated by S&P, then the Issuer shall apply to S&P for a corporate credit estimate after the acquisition of such Loan, which shall be its S&P Rating; provided that so long as the Servicer has provided S&P with all information that is required by S&P to provide such credit estimate within 30 Business Days after the applicable Subsequent Transfer Date, then the S&P Rating of such Loan shall be the rating as may be estimated in good faith by the Servicer until such time as S&P provides such credit estimate; provided further that if the Servicer has not provided S&P with all information that is required by S&P to provide such credit estimate within 30 Business Days after the applicable Subsequent Transfer Date, then the S&P Rating of such Loan shall be the rating as may be estimated in good faith by the Servicer for 90 Business Days following the applicable Subsequent Transfer Date (although the Servicer may request that its good faith estimate apply for an additional 90 Business Day period, which S&P may grant in its sole discretion) and if S&P has not provided its credit estimate during such 90 Business Day period (unless such period is extended by S&P) such estimated rating shall be CCC- until S&P provides a credit estimate; provided further that the Servicer shall submit a request to S&P to perform a credit estimate on each Loan with respect to which S&P provided a credit estimate pursuant to this clause (b) on or prior to each one-year anniversary of the acquisition of such Loan; provided further that in connection with each request for a credit estimate hereunder, the Servicer shall submit to S&P the information required pursuant to Transfer and Servicing Agreement; if there is no issuer credit rating of the Obligor and such Loan is not rated by S&P, but another security or obligation of the Obligor is rated by S&P and the Issuer does not obtain a S&P Rating for such Loan pursuant to clause (b) above, then the S&P Rating of such Loan shall be the issuer credit rating or shall be determined as follows: (i) if there is a rating on a senior secured obligation of the Obligor, then the S&P Rating of such Loan shall be one rating subcategory below such rating; (ii) if there is a rating on a senior unsecured obligation of the Obligor, then the S&P Rating of such Loan shall equal such rating; and (iii) if there is a rating on a subordinated obligation of the Obligor, then the S&P Rating of such Loan shall be one rating subcategory above such rating; if there is no issuer credit rating of the Obligor published by S&P and such Loan is not rated by S&P and no other security or obligation of the Obligor is rated by S&P and the Issuer does not obtain a S&P Rating for such Loan pursuant to clause (b) above, then the S&P Rating of such Loan shall be determined as follows: If such Loan has a public rating by Moody s, then the S&P Rating of such Loan shall be (i) one rating subcategory below the S&P equivalent of the rating assigned by Moody s if such Loan is rated Baa3 or higher by Moody s, and (ii) two rating subcategories below the S&P equivalent of the rating assigned by Moody s if such Loan is rated Bal or lower by Moody s; provided that not more than 10% (or such higher percentage as S&P -125-

139 may specify in writing to the Issuer and the Indenture Trustee from time to time) of the Loan Pool Balance may be deemed to have a S&P Rating based on a rating assigned by Moody s as provided in this clause (d); and (e) if (i) the S&P Rating previously provided for a Loan expires 13 months after issuance without such S&P Rating being renewed, or (ii) no other rating for such Loan applies by operation of clauses (a) through (d) above, the applicable Loan will be deemed to have an S&P Rating of CCC- (unless otherwise determined by S&P in its sole discretion). S&P Rating Condition means, with respect to any action or series of related actions or proposed transaction or series of proposed transactions, that S&P shall have notified the Trust Depositor, the Owner Trustee and the Indenture Trustee in writing that such action or series of related actions or the consummation of such proposed transaction or series of related transactions will not result in a reduction or withdrawal of the then-current rating issued by S&P with respect to any outstanding class of Notes as a result of such action or series of related actions or the consummation of such proposed transaction or series of related transactions. S&P Weighted Average Recovery Rate means, as of any Measurement Date, the percentage (rounded up to the first decimal place) obtained by dividing (a) the sum of the products obtained by multiplying the Outstanding Loan Balance of each Loan (excluding any Defaulted Loans) by its S&P Priority Category Recovery Rate, by (b) the Loan Pool Balance (excluding any Defaulted Loans). Scheduled Payment means, with respect to any Loan, the monthly, quarterly, semi-annual or annual financing (whether interest, principal or principal and interest) payment scheduled to be made by the related Obligor under the terms of such Loan on and after the related Cut-Off Date and any such payment received after the related Cut-Off Date, it being understood that Scheduled Payments do not include any Excluded Amounts. Second Lien Loan means a Loan (or portion thereof) that (a) is not (and by its terms is not permitted to become) subordinate in right of payment to any other debt for borrowed money incurred by the Obligor under the Loan, other than a First Lien Loan, (b) is secured by a valid and perfected security interest or lien on specified collateral securing the Obligor s obligations under such Loan, which security interest or lien is not by its terms subordinate to the security interest or lien securing any other debt for borrowed money other than a First Lien Loan on such specified collateral, and (c) is secured by Loan Assets having an aggregate value (as determined as set forth below) not less than the Outstanding Loan Balance of such Loan plus the aggregate outstanding loan balances of all other loans of equal or higher seniority secured by a first or second Lien or security interest in the same Loan Assets; provided that with respect to clauses (a), (b) and (c) above, such right of payment, security interest or lien may be subordinate to customary permitted liens, such as, but not limited to, tax liens. The determination as to whether clause (c) of this definition is satisfied shall be based on the Originator s judgment at the time the Loan is included in the Loan Pool. Specified Amendment means, with respect to any Loan, any waiver, modification, amendment or variance of any term of such Loan entered into for reasons unrelated to the Obligor s ability to make payments of principal or interest under such Loan, as determined in accordance with the Credit and Collection Policy, in a manner that would: (a) modify the amortization schedule with respect to such Loan to reduce the dollar amount of any Scheduled Payment by more than 20%, or to postpone by more than two payment periods or eliminate a Scheduled Payment with respect thereto; provided that any such modification, postponement or elimination shall not cause the weighted average life of the applicable Loan to increase by more than 10%; (b) reduce or increase the cash interest rate payable by the Obligor thereunder by more than 100 basis points (excluding any increase in an interest rate arising by operation of a default or penalty interest clause under a Loan); (c) extend the stated maturity date of such Loan by more than 24 months; provided that such extension shall be deemed not to have been made until the business day following the original stated maturity date of such Loan; -126-

140 (d) (e) (f) release any party from its obligations under such Loan, if such release would have a material adverse effect on the Loan; reduce the principal amount thereof; or in the reasonable business judgment of the Servicer, have a material adverse effect on the value of such Loan. Subordinated Loan means any Loan (a) other than a First Lien Loan or a Second Lien Loan (including any Qualified Second Lien Loan) or (b) that is subordinate in right of payment to other indebtedness of the related Obligor. Subsequent Transfer Date means any date on which Additional Loans or Substitute Loans are transferred to the Issuer. Swap Breakage Costs means, for any Swap Transaction, any amount (other than Net Trust Swap Payments applicable thereto) payable by the Issuer for the early termination of that Swap Transaction, or any portion thereof, in accordance with the provisions of Section 6 of the relevant Interest Rate Swap. Swap Breakage Receipts means, for any Swap Transaction, any amount (other than Net Trust Swap Receipts applicable thereto) payable to the Issuer for the early termination of that Swap Transaction, or any portion thereof, in accordance with the provisions of the relevant Interest Rate Swap. Swap Guaranty means the Swap Guaranty, dated as of August 7, 2007, between American Capital and Citibank N.A., as amended, modified, restated, replaced, waived, substituted, supplemented or extended from time to time. Swap Rate means, in the case of any Fixed Rate Loan, as of any Measurement Date, the weighted average of the rates of interest used to compute the amounts payable by the Issuer to the Swap Counterparty under all Interest Rate Swaps hedging Fixed Rate Loans as of such date. Swap Transaction means each interest rate swap transaction between the Issuer and a Swap Counterparty that is governed by an Interest Rate Swap. Synthetic Obligation means any swap transaction, senior unsecured debt security, structured bond investment or other similar investment purchased from or entered into with a synthetic security counterparty that is required to make payments thereon based on the payments made with respect to the reference obligation related to such swap transaction, senior unsecured debt security, structured bond investment or other similar investment. Third Party Agented Loan means, with respect to any Loan, (a) the Loan is agented by a Person other than the Originator (or ACFS) as part of a syndicated loan transaction that has been fully consummated prior to such Loan becoming part of the Loan Pool, (b) the Issuer, as assignee of the Loan, has all of the rights and obligations of the Originator which have been transferred by the Originator with respect to such Loan and the right, title and interest of the Originator in and to the related Collateral, (c) the Loan is secured by an undivided interest in the related Collateral that also secures and is shared by, on a pro rata basis, all other holders of such Obligor s indebtedness of equal priority issued in such syndicated loan transaction, and (d) the third party Loan originator or an Affiliate thereof (or another Person appointed by such third party Loan originator to act in such capacity) is the lead agent, syndicate agent, administrative agent, collateral agent, paying agent or the equivalent for all lenders in such syndicated loan transaction and receives payment directly from the Obligor thereof on behalf of such lenders. Three-Month LIBOR means LIBOR for the Three-Month Index Maturity. Transaction Documents means the Transfer Agreement, the Transfer and Servicing Agreement, the Notes, the Certificate, the Indenture, the Trust Agreement, the Purchase Agreement, any Interest Rate Swap, the Swap Guaranty and all other documents defined in the foregoing agreements as Transaction Documents, as the same are amended, modified, restated, replaced, substituted, waived or extended from time to time

141 Transfer Deposit Amount means, with respect to each Ineligible Loan and any other Loan to be repurchased at a time when it is eligible to be repurchased or replaced by a Substitute Loan, on any date of determination, the sum of the Outstanding Loan Balance of such Loan, together with accrued interest thereon through such date of determination at the Loan Rate provided for thereunder, and any outstanding Servicer Advances thereon that have not been waived by the Servicer entitled thereto. Trust Accounts means, collectively, the Collection Account (including the Interest Collection Account and Principal Collection Account), the Reserve Fund, the Note Distribution Account, the Certificateholder s Account, and the Swap Counterparty Collateral Account. Unused Proceeds means the proceeds of the issuance and sale of the Notes remaining after the Issuer has purchased the Initial Loans on the Closing Date and has paid organizational expenses of the Issuer and the expenses of the issuance and offering of the Notes and thereafter minus any amount of such funds applied to purchase Additional Loans. VFCC CP Transaction means the Third Amended and Restated Loan Funding and Servicing Agreement, dated as of September 23, 2005, among ACS Funding Trust I, the Servicer, each of the conduit lenders and institutional lenders from time to time party thereto, each of the lender agents from time to time party thereto, Wachovia Capital Markets, as the Deal Agent, Wachovia Bank, National Association, as the Swingline Lender and Wells Fargo Bank, National Association, as the Backup Servicer and as the Collateral Custodian, as amended, modified, restated, replaced, waived, substituted, supplemented or extended from time to time, and all documents executed in connection therewith and all transactions contemplated thereby. Weighted Average Deferred Interest Rate means, as of any Measurement Date, a fraction (expressed as a percentage and rounded up to the next 0.001%), (a) the numerator of which is the sum of the products determined by multiplying the Outstanding Loan Balance of each Loan (excluding Defaulted Loans and Delinquent Loans) as of such Measurement Date by the Deferred Interest Rate for such Loan, and (b) the denominator of which is the Aggregate Outstanding Loan Balance (excluding Defaulted Loans and Delinquent Loans) as of such Measurement Date; provided that for purposes of this definition, any Deferred Interest Rate shall exclude any portion of the interest that is currently being deferred in violation of the terms of the related Loan Documents. Weighted Average Life means, as of any Measurement Date, the number obtained by dividing (a) the sum of the products obtained by multiplying (i) the Average Life at such time of each Loan (excluding Defaulted Loans) by (ii) the Outstanding Loan Balance of such Loan by (b) the Loan Pool Balance (excluding Defaulted Loans) as of such date. Weighted Average Life Test means a test that (a) will be satisfied during the Replenishment Period if the Weighted Average Life is less than the Maximum Weighted Average Life and (b) will be deemed to be satisfied at all times after the Replenishment Period. Weighted Average Spread means, as of any Measurement Date, a fraction (expressed as a percentage and rounded up to the next 0.001%), (a) the numerator of which is the sum of the products determined by multiplying the Outstanding Loan Balance of each Loan (excluding Defaulted Loans and Delinquent Loans) in the Loan Pool as of such Measurement Date by the LIBOR Spread for such Loan, and (b) the denominator of which is the Aggregate Outstanding Loan Balance (excluding Defaulted Loans and Delinquent Loans) as of such Measurement Date; provided that for purposes of this definition, (i) any Loan Rate shall exclude any portion of the interest that is currently being deferred in violation of the terms of the related Loan Documents; and (ii) Loans that are Defaulted Loans and Delinquent Loans will be included in the calculations described herein if, as of such Measurement Date, such Loans are paying in full current interest pursuant to the terms of their respective Underlying Note or, in the case of a Noteless Loan, the Designated Loan Agreement

142 ANNEX A Diversity Score Calculation The Diversity Score for the Loans is calculated by summing each of the Industry Diversity Scores, which are calculated as follows: (i) (ii) (iii) (iv) (v) (vi) An Obligor Par Amount is calculated for each Obligor represented in the Loan Pool by summing the Outstanding Loan Balance of each Loan in the Loan Pool of that Obligor or any Affiliate of that Obligor. An Average Par Amount is calculated by summing the Obligor Par Amounts and dividing by the number of Obligors represented. For purposes of calculating the number of Obligors, any Obligors which are Affiliates will be considered one Obligor. An Equivalent Unit Score is calculated for each Obligor represented in the Loan Pool by taking the lesser of (a) one and (b) the Obligor Par Amount for such Obligor divided by the Average Par Amount. For purposes of calculating the Equivalent Unit Score, any Obligors which are Affiliates will be considered one Obligor. An Aggregate Industry Equivalent Unit Score is then calculated for each of the Moody s industrial classification groups by summing the Equivalent Unit Scores for each Obligor in the industry. An Industry Diversity Score is then established by reference to the Diversity Score Table shown below for the related Aggregate Industry Equivalent Unit Score. If any Aggregate Industry Equivalent Unit Score falls between any two scores then the applicable Industry Diversity Score will be the lower of the two Industry Diversity Scores. Defaulted Loans shall be excluded from the calculation of the Diversity Score

143 Diversity Score Table Aggregate Industry Equivalent Unit Score Diversity Score Aggregate Industry Equivalent Unit Score Diversity Score Aggregate Industry Equivalent Unit Score Diversity Score Aggregate Industry Equivalent Unit Score Diversity Score

144 ANNEX B Moody s RiskCalc Calculation 1. Defined Terms. The following terms shall be used in this Annex B, the meanings provided below..edf means, with respect to any Loan, the lowest 5-year expected default frequency for such Loan as determined by running the current version Moody s RiskCalc in both the Financial Statement Only ( FSO ) and the Credit Cycle Adjusted ( CAA ) modes. Moody s Industries means any one of the Moody s industrial classification groups as published by Moody s from time to time. Pre-Qualifying Conditions means, with respect to any Loan, conditions that will be satisfied if the Obligor with respect to the applicable Loan satisfies the following criteria: (a) the independent accountants of such Obligor shall have issued an unqualified audit opinion of the most recent fiscal year financial statements, including no explanatory paragraph addressing going concern or other issues; (b) the Obligor s EBITDA is equal to or greater than $5,000,000; (c) the Obligor s annual sales are equal to or greater than $10,000,000; (d) the Obligor s book assets are equal to or greater than $10,000,000; (e) (f) (g) the Obligor represents not more than 4.0% of the Expected Aggregate Outstanding Loan Balance; the Obligor is a private company with no public rating from Moody s; for the current and prior fiscal year, such Obligors: (i) EBIT/interest expense ratio is greater than 1:00 and 1:25 with respect to retail (adjusted for rent expense); and (ii) debt/ebitda rate is less than 6.0, provided that the debt/ebitda rate is less than 8.0 for any Loans with respect to the following Moody s Industries: (a) Telecommunications (Moody s industrial classification group #29), (b) Printing and Publishing (Moody s industrial classification group #26) or (c) Broadcasting and Entertainment (Moody s industrial classification group #33); and (h) no greater than 25% of the company s revenue is generated from any one customer of the Obligor. 1. The Obligor is a for-profit operating company in any one of the Moody s Industries with the exception of (i) Buildings and Real Estate (Moody s industrial classification group #5), (ii) Finance (Moody s industrial classification group #14), and (iii) Insurance (Moody s industrial classification group #20). 2. The Servicer shall calculate the.edf for each of the Loans to be rated pursuant to this Annex B. The Servicer shall also provide Moody s with the.edf and the information necessary to calculate such.edf upon request from Moody s. Moody s shall have the right (in its sole discretion) to (i) amend or modify any of the information utilized to calculate the.edf and recalculate the.edf based upon such revised information, in which case such.edf shall be determined using the table in # 3 below in order to determine the applicable Moody s Rating, or ii) have a Moody s credit analyst provide a rating estimate for any Loan rated pursuant to this Annex B, in which case such rating estimate provided by such credit analyst shall be the applicable Moody s Rating

145 3. The Moody s Rating for each Loan that satisfies the Pre-Qualifying Conditions shall be the lower of (i) the Servicer s internal rating or (ii) the rating based on the.edf for such Loan, in accordance with the table below: Lowest.EDF Moody s Rating Less than or equal to.baa Ba3.ba1 B1.ba2,.ba3 or.b1 B2.b2 or.b3 B3.caa Caa1 provided that the Moody s Rating determined pursuant the chart above will be reduced by an additional one-half rating subcategory for leveraged buyout transactions. 4. For each Loan that meets the Pre-Qualifying Conditions, the Moody s Recovery Rate shall be the lower of (i) the Servicer s internal recovery rate or (ii) the recovery rate as determined in accordance with the following: Type of Loan Moody s Recovery Rate senior secured, first priority, first lien and first out 50% second lien, first lien and last out, all other senior 40% secured Senior unsecured 30% All other Loans 10% provided that Moody s shall have the right (in its sole discretion) to issue a recovery rate assigned by one of its credit analysts, in which case such recovery rate provided by such credit analyst shall be the applicable Moody s Recovery Rate

146 INDEX OF TERMS $ $... viii Act...Cover A ACAS CLO...46 ACE I...46 Additional Loan Additional Principal Amount Additional Servicing Fee...86 Administrative Expenses Affiliate Agented Notes Aggregate Notional Amount Aggregate Outstanding Loan Balance Aggregate Outstanding Principal Balance American Capital...Cover Assigned Moody s Rating Assignment of Mortgage Average Life B Backup Servicer...66 Balloon Loans Banc of America Securities...Cover Bankruptcy Code BDC...45 Broadly Syndicated Loan Bullet Loans Business Day...8 C Call Period...10 CCC Excess Amount CCC Excess Condition CDO...45 Certificate...i Certificateholder Certificateholder s Account Citi...Cover Class A Interest Amount Class A Interest Shortfall...53 Class A Notes...Cover Class B Accrued Payable Class B Interest Amount Class B Interest Shortfall...53 Class B Notes...Cover Class C Accrued Payable Class C Interest Amount Class C Interest Shortfall...53 Class C Notes...Cover Class D Accrued Payable Class D Interest Amount Class D Interest Shortfall...53 Class D Notes...Cover Class E Notes...Cover Class F Notes...Cover Class Scenario Loss Rate...38 Clearstream... ii Clearstream Participants...74 Closing Date...7 CMBS...45 Code... vii Collateral Collection Account...58 Collection Period...7 Collections Co-Managers Cooperative...74 Covenant-lite Loan CPR...43 Credit and Collection Policy Credit Suisse Securities...Cover Credit Support Provider...62 Current Portfolio...39 Cut-Off Date...7 D Defaulted Loan...84 Deferred Interest Loan Deferred Interest Rate Delayed Draw Term Loan Delinquent Loan Designated Loan Agreements...i Determination Date...7 DIP Loan Direct Participants...72 Discretionary Repurchased Loan...82 Distribution Compliance Period...71 Diversity Score dollars... viii Downgrade Event DTC... ii E ECAS

147 Effective Date...2 Effective Date Ratings Confirmation...3 Effective Date Ratings Downgrade...3 Eligible Loan...76 Eligible Obligor Eligible Risk Rating Enterprise Value ERISA... vii Euroclear... ii Euroclear Participants...74 Euroclear System... ii Event of Default...63 Exchange Act... viii Excluded Amounts Expected Aggregate Outstanding Loan Balance F FACT...47 Federal Tax Counsel...12 Fee Event First Lien Loan Fitch Fitch Rating Fitch Rating Condition Fitch Rating Factor Fitch Weighted Average Rating Fixed Rate Loan Fixed Rate Permitted Excess Amount Floating LIBOR Rate Loan Floating Prime Rate Loan Floating Rate Loan Florida Act...iv Foreign Person...95 FSMA...iv Funding Transactions...22 G Global Notes...71 Global Weighted Average Spread Governmental Authority Grade Grade Grade Gross Interest Rate Gross Weighted Average Spread Group I Country Group II Country Group III Country H Holder... viii HSBC Securities...Cover I IFSRA...Cover Incurrence Covenant Indenture...i Indenture Trustee...i Indenture Trustee Fee...66 Independent Accountants...2 Index Rate Indirect Participants...73 Individual Notes...71 Ineligible Loan...81 Initial Aggregate Outstanding Loan Balance Initial Loans Initial Purchasers Institutional Accredited Investors...Cover Insurance Policy Insurance Proceeds Interest Accrual Period...8 Interest Collection Account...58 Interest Collections Interest Distributable Amount Interest Distributable Test Interest Rate Swap...61 Investment Team...47 Ireland Listing Agent... viii Ireland Paying Agent...54 Issuer...Cover J JPMorgan...Cover L Late Charges Legal Final Maturity Date...i lender liability...16 LIBOR...45 LIBOR Determination Date...60 LIBOR Spread Lien Liquidation Expenses Liquidation Proceeds Loan Assets...75 Loan Documents Loan File Loan Pool Loan Pool Balance Loan Rate Loan Register Loans...i Loan-to-Value London Banking Day

148 M Maintenance Covenant Material Contracts Materially Modified Loan Maximum Moody s Weighted Average Rating Factor Maximum Weighted Average Life Measurement Date...7 Minimum Diversity Score Minimum Global Weighted Average Spread Minimum Weighted Average Deferred Interest Rate Monthly Report...69 Moody s Moody s Equivalent Senior Unsecured Rating Moody s Non-Senior Secured Loan Moody s Obligation Rating Moody s Rating Moody s Rating Factor Moody s Recovery Rate Moody s Senior Secured Loan Moody s Weighted Average Rating Factor Moody s Weighted Average Recovery Rate N Net Purchased Loan Balance Net Trust Swap Payments...61 Net Trust Swap Receipts...61 Note Break-Even Loss Rate...38 Note Distribution Account...58 Note Interest Rate Noteholder Noteless Loan Notes...Cover Notes Loss Differential...38 O Obligor Offered Notes...Cover Offering Memorandum...i OID...92 Operations Team...47 Optional Repurchase...10 Order...iv Originator...i Other Funds...30 Outstanding Loan Balance Outstanding Principal Balance Owner Trustee...Cover Owner Trustee Fee...51 P Participants...72 Payment Date...7 Payment Obligations...i Permitted Liens Person Plan Asset Regulation...97 Plans...96 Portfolio Acquisition and Disposition Requirements Portfolio Criteria...37 Pre-Funding Period...2 Prepayment Prepayment Premiums Prime Rate Principal Collection Account...58 Principal Collections Prior Term Transactions Priority of Payments...83 Pro Rata Payment Date...7 Prohibited Transactions...96 Proposed Plan Proposed Portfolio...39 Prospectus...vi PTCE...97 Purchase Agreement Q Qualified Purchasers...Cover Qualified Second Lien Loan Qualified Swap Counterparty Quarterly Report...69 R Rating Agencies... viii Rating Agency... viii Rating Agency Condition Ratings Confirmation Failure...3 Ratings Effect Record Date...7 Recovery Rate Modifier Reference Banks Regulation D...Cover Regulation S...Cover Regulation S Global Note... ii Regulation S Notes...71 Regulation S Purchaser...71 Regulations...90 Relevant Implementation Date...99 Relevant Member State...99 Relevant Persons...iv Replenishment Period...3 Representative Amount Repurchase Date

149 Repurchase Price...11 Required Distributable Amount Required Holders Required Liquidation Proceeds Required Reserve Amount...9 Requirements of Law Reserve Fund...9 Retained Interest Reuters Page Risk Rating...48 Rule 144A...23 Rule 144A Global Note... ii Rule 144A Notes...71 Rules...73 S S&P S&P CDO Monitor...39 S&P CDO Monitor Test...38 S&P Priority Category Recovery Rate S&P Rating S&P Rating Condition S&P Weighted Average Recovery Rate Scheduled Payment SEC...23 Second Lien Loan Securities Act...Cover Sequential Payment Date...7 Sequential Pool Condition...6 Servicer...i Servicer Advance...86 Servicer Default...86 Servicing Fee...85 Similar Law... vii Special Redemption...6 Special Redemption Amounts...7 Specified Amendment Subordinated Loan Subsequent Transfer Date Substitute Loan...82 Swap Breakage Costs Swap Breakage Receipts Swap Counterparties...61 Swap Counterparty...61 Swap Counterparty Collateral Account...58 Swap Guaranty Swap Rate Swap Transaction Synthetic Obligation T Terms and Conditions...74 Third Party Agented Loan Three-Month Index Maturity...60 Three-Month LIBOR Transaction Documents Transfer Agreement...40 Transfer and Servicing Agreement...75 Transfer Deposit Amount Transparency Directive...26 Treasury...34 Trust Accounts Trust Agreement...Cover Trust Depositor...Cover U U.S... viii U.S. dollars... viii UCC...29 Underlying Notes...40 United States... viii United States Person...95 Unused Proceeds USA PATRIOT Act...34 USD-LIBOR-Reference Banks...60 V VFCC CP Transaction W Wachovia Bank...32 Wachovia Capital Markets...Cover Weighted Average Deferred Interest Rate Weighted Average Life Weighted Average Life Test Weighted Average Spread

150 THE ISSUER ACAS Business Loan Trust c/o Wilmington Trust Company 1100 North Market Street Wilmington, DE THE TRUST DEPOSITOR ACAS Master Business Loan LLC 2 Bethesda Metro Center, 14 th Floor Bethesda, MD THE ORIGINATOR AND SERVICER American Capital Strategies, Ltd. 2 Bethesda Metro Center, 14 th Floor Bethesda, MD INDENTURE TRUSTEE AND PRINCIPAL PAYING AGENT Wells Fargo Bank, National Association Sixth Street and Marquette Avenue Minneapolis, MN IRELAND LISTING AGENT The Bank of New York 1 Canada Square London E14 5AL United Kingdom IRELAND PAYING AGENT BNY Fund Services (Ireland) Ltd. Guild House Guild Street Dublin 2, Ireland LEGAL ADVISORS To the Initial Purchasers Dechert LLP 100 North Tryon Street, Suite 4000 Charlotte, NC To the Issuer, Trust Depositor, Originator and Servicer Winston & Strawn LLP 35 West Wacker Drive Chicago, IL To the Originator Arnold & Porter LLP Thurman Arnold Building th Street, NW Washington, DC To the Owner Trustee Richards Layton & Finger One Rodney Square 920 North King Street Wilmington, DE THE OWNER TRUSTEE Wilmington Trust Company 1100 North Market Street Wilmington, DE AUDITORS Ernst & Young LLP Independent Accountants 5 Times Square Tower New York, NY 10036